SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
(MARK ONE)
    [X]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                       SECURITIES AND EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
                                       OR
    [ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                       SECURITIES AND EXCHANGE ACT OF 1934
             FOR THE TRANSITION PERIOD FROM _________ TO _________.

                           COMMISSION FILE NO. 0-22533

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

                  MINNESOTA                                41-1827776
         (State or other jurisdiction of                (I.R.S. Employer
          incorporation or organization)               Identification No.)

               302 NORTH RIVERFRONT DRIVE, SUITE 100A, MANKATO, MN
           56001 (Address and zip code of principal executive offices)
                                 (507) 345-0522
                           (Issuer's telephone number)

Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: COMMON STOCK,
                                                             $.01 PAR VALUE
                                                            (Title of Class)

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best to the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ ]

State issuer's revenues for its most recent fiscal year: $7,979,163

The aggregate market value of voting stock held by nonaffiliates of the
Registrant's Common Stock, as of March 4, 2002 was approximately $688,000.
(based on the closing sale price of such stock as reported by the OTC Bulletin
Board).

The number of shares outstanding of the Registrant's Common Stock as of March 4,
2002 was 3,500,097.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the 2002 Annual Meeting of
Shareholders are incorporated by reference into Part III as set forth therein.

<PAGE>


                                     PART I

ITEM 1. BUSINESS

GENERAL

         Mercury Waste Solutions, Inc. ("the Company") provides mercury waste
remediation and recycling solutions to mercury waste generators of all sizes
including, but not limited to, public utilities, manufacturers that utilize
mercury in their business (e.g., measurement, control and electrical equipment
industries), building management companies and hazardous waste management
facilities. In addition to current federal and state regulations which provide
strict guidelines regarding the disposal of all mercury-containing products,
many county and local governments have begun to strictly regulate mercury wastes
due to the growing recognition of the serious health risks of mercury. The
Company believes that most businesses that generate mercury waste have now
recognized the large potential legal liability from the improper handling and
disposal of mercury-containing wastes and are motivated to reduce potential
hazardous waste liability. By offering disposal solutions for all types of
mercury-containing products, from mercury lamp recycling to mercury waste
retorting, the Company serves a broad scope of the mercury waste disposal
market.

         The Company currently operates a mercury waste retorting facility in
Union Grove, Wisconsin, (the "Union Grove Facility"), two facilities for
recycling and storing fluorescent and other mercury-containing lamps located in
Roseville, Minnesota and Union Grove, Wisconsin and mercury waste storage and
collection facilities in Kenosha, Wisconsin; Indianapolis, Indiana; Atlanta,
Georgia and Albany, New York.

         On January 4, 1996, the Company acquired substantially all of the
assets of U.S. Environmental, Incorporated, a Minnesota-based mercury recycling
company ("USE") founded in 1993 by Mark G. Edlund, the Company's President and
Union Grove Facility general manager. USE co-developed the Model 2000 lamp
recycler (the "Model 2000"), opened a mercury lamp recycling facility in
Roseville, Minnesota (the "Roseville Facility") to showcase the Model 2000 and
co-developed the mercury retorting equipment installed at the Union Grove
Facility. Since the acquisition of USE, the Company improved the Model 2000,
developed a new continuous flow oven and stationary ovens utilized at the Union
Grove Facility, acquired the interests of the co-developer of the equipment
located at the Union Grove Facility and significantly expanded the processing
and storage capacity at the Union Grove Facility.

         In September 1997, the Company acquired certain assets and liabilities
of Ballast & Lamp Recycling, Inc. ("BLR"). The primary business of BLR was the
collection and storage of mercury-containing lamps and lighting ballasts for
recycling. BLR had collection facilities in Indianapolis, Indiana and Atlanta,
Georgia. The acquisition of BLR increased the Company's customer base, placed
the Company in what the Company believes are two additional strategic markets
and leveraged the Company's processing capacity.

         In May 1998, the Company completed the acquisition of certain assets
and liabilities relating to the mercury remediation, recycling and refining
business of Mercury Refining Company, Inc., ("MERECO"). MERECO, located in
Albany, New York, had been one of the nation's leading mercury recovery
companies for over 40 years. The acquired assets included an 888 drum permitted
storage facility, MERECO's existing customer list and certain processing
technology and equipment. This acquisition significantly increased the Company's
storage capacity and expanded the Company's customer base.

         During the period from 1998 to 2000, the Company significantly
increased its retorting and storage capacity with the expansion of the Union
Grove Facility. In 2001, the Company significantly increased its lamp recycling
capacity by upgrading its lamp recycling machine at the Union Grove Facility and
expanding the Roseville Facility, which included doubling of the leased space
and construction of a new lamp recycling machine.

<PAGE>


INDUSTRY

         MERCURY AND ITS HAZARDS. Mercury has long been recognized as a valuable
metal because of its ability to expand and contract evenly through various
temperature ranges and its ability to be combined with other metals. The Company
believes that mercury is presently utilized principally in three applications in
the United States:

      *  Electrical and Electronic Applications utilize mercury in batteries,
         fluorescent lamps, wiring devices and switches.
      *  Measurement and Control Instruments (thermometers and barometers),
         laboratories (testing) and dentists (dental amalgams) utilize mercury
         in products, testing and dental fillings.
      *  The Chloralkali Industry utilizes mercury as the cathode in cells that
         produce chlorine and caustic soda through the electrolysis of brine.

         According to National Electrical Manufacturer's Association ("NEMA")
and United States Environmental Protection Agency ("EPA") estimates, there are
approximately 650 million mercury-containing lamps discarded annually in the
United States. The result is approximately 450 million pounds of recyclable
mercury-contaminated debris. According to estimates by the Association of
Lighting and Mercury Recyclers and NEMA, only 15-20% of the annual discarded
mercury-containing lamps are recycled. The remaining mercury-containing lamps
are being disposed of in landfills with other nonhazardous waste or are
incinerated. Once mercury is in the environment, combustion or biological
process cannot remove it. Mercury may either seep into the soil and then
possibly into the water supply or vaporize into the atmosphere and fall back to
earth through rain. If mercury enters a lake or river through rain or the water
supply, a portion of the mercury is converted into methyl mercury by bacteria
and other chemical processes. Methyl mercury then accumulates and concentrates
as it moves up the food chain. Once in older and larger fish, mercury
measurements can be 200,000 times higher than measurements in the same body of
water. When humans and animals consume mercury-contaminated fish, the methyl
mercury is transferred to their tissues.

         In humans, mercury poisoning affects the brain, spinal cord, kidneys
and liver. Mercury affects the ability to see, taste and move and leaves a
tingling sensation in the fingers and toes. Long-term exposure to mercury can
result in personality changes, stupor or a coma. Exposure of pregnant women to
mercury can affect development of the fetal brain and nervous system resulting
in children with lower intelligence, impaired hearing and poor coordination.

         The United States government has taken steps to alleviate the risks
from mercury poisoning including:

         *  Prohibitions on the sale of fish with certain levels of mercury;
         *  Publication of fish consumption advisories;
         *  Passage of the Clean Water Act requiring paper companies, smelters,
            sludge incinerators and chloralkali plants to limit the release of
            mercury into the water;
         *  Bans on uses of mercury connected with food production; and
         *  Development of draft strategy to further reduce risks to human
            health and the environment from existing and future exposure to
            priority persistent, bioaccumulative and toxic pollutants.

          REGULATORY FRAMEWORK. The disposal of mercury-containing
products/wastes is strictly regulated under the Resource Conservation and
Recovery Act ("RCRA"), as amended, which is discussed in more detail in the
"Regulation" section. RCRA regulates the generation, treatment, storage,
handling, transportation and disposal of hazardous wastes. Nearly all
mercury-containing products/wastes are classified as hazardous because they are
specifically listed as a hazardous waste or exhibit certain hazardous
characteristics. State and local laws also regulate mercury-containing
products/wastes in a similar manner, with some state and local laws being more
stringent than RCRA regulations.

         RECENT LEGISLATIVE DEVELOPMENTS. After over five years since the
initial proposal, the EPA finalized a rule addressing the management of spent
mercury-containing lamps. The new rule, which became effective in January 2000,
added fluorescent and other-mercury-containing lamps to the federal list of
universal wastes regulated under RCRA. The universal waste regulations allow a
few high volume post consumer hazardous wastes, such as batteries and now
mercury-containing lamps, to be managed under streamlined collection and
handling rules.

<PAGE>


          The EPA concluded that regulating spent hazardous waste lamps as a
universal waste will lead to better management of these lamps and will
facilitate compliance with hazardous waste requirements. Previously, the
management of fluorescent lamps was primarily regulated at the state level with
only a handful of states requiring recycling and/or hazardous waste treatment.
The new federal regulation makes it easier and more cost-effective for
generators to recycle fluorescent lamps. Handlers of universal wastes are
subject to less stringent standards for storing, transporting and collecting
these wastes, provided they are taken to recycling centers and not dumped in
landfills. According to the EPA, the universal waste rule is designed to reduce
the amount of hazardous waste items in the municipal solid waste stream and
encourage the recycling of common hazardous wastes. Approximately 650 million
fluorescent lamps are discarded annually according to the EPA and industry
estimates, the vast majority of which are not recycled. The EPA's goal is to
increase the current estimated recycling rate of 15-20% up to 60%. While the
Company believes this rule will increase the recycling of fluorescent lamps in
the future, there can be no assurance that this will result in a significant
increase in revenues.

         The EPA, in May 1999, issued an advance notice of proposed rulemaking
("ANPRM"). The EPA is considering publication of a proposed rule to revise the
40 CFR part 268 Land Disposal Restrictions ("LDR") treatment standards
applicable to mercury-bearing wastes. The ANPRM is intended to give advance
notice of EPA's comprehensive reevaluation of the treatment standards for
mercury-bearing hazardous wastes as well as various options, issues and data
needs related to potential mercury treatment standard revisions. The ANPRM
focuses on several key issues with the current LDR mercury treatment standards
including: incineration, retorting and source reduction options. The EPA
requested additional data and comments on these issues and options. The Company
submitted comments and data to the EPA regarding the ANPRM during the comment
period, which ended in October 1999.

         The EPA wants to investigate restricting the types of mercury waste
that are incinerated under current standards and develop more information on the
environmental impact of the treatment standards for the waste. RCRA requires
treatment of mercury-bearing wastes before they can be land-disposed. The EPA
has stated that potential problems associated with mercury waste are
significant, since mercury can leach out of hazardous wastes and be emitted from
treatment processes such as incineration. The EPA has also noted that mercury
and its compounds are mobile in the environment. The ANPRM stated that some
evidence exists that, because mercury is a PBT substance, small releases may
contribute to the buildup of mercury in the environment especially in the
aquatic environment. These small releases may increase the potential for
environmental and human health impacts.

         The nature, timing and extent of the amendments to the mercury
treatment standards have not yet been determined. The Company cannot predict a
likely outcome of this ANPRM due to its early stage, however, a lowering of the
mercury treatment standards would increase the amount of mercury-bearing waste
that could be directly land-disposed which in turn could have a future negative
impact on the Company's retorting revenues.

SERVICES AND PRODUCTS

         The Company is in the business of providing mercury waste recycling
solutions to mercury waste generators of all sizes. The Company's recycling
service operations consist of the following:

         MERCURY RETORTING. In 2001, approximately 56% of the Company's revenues
consisted of fees for retorting mercury waste to environmentally safe levels.
Retorting is the process by which mercury is separated from the contaminated
waste through the process of distilling. The Company has developed proprietary
processes that recover up to approximately 99.99% of available mercury from the
processed waste. The residual mercury levels in the processed waste satisfy
current federal and state environmental standards for mercury waste and require
no further treatment or handling as hazardous waste.

         The Company's mercury retorting facility in Union Grove, Wisconsin
utilizes two primary processes to retort mercury waste. The Company utilizes a
high capacity "continuous flow" oven that is designed to retort calcium
phosphate powder and other granular material such as soil and other items up to
3 inches in diameter. The Company also utilizes four high capacity electrically
powered stationary ovens. Each stationary oven can retort up to 30 drums at a
time. While the Company's continuous flow oven works well with granular
compounds, the stationary oven is able to process larger mercury-containing
items such as switches, batteries, thermostats, and filters.

<PAGE>


The electrically powered ovens heat the mercury bearing waste to a temperature
sufficient to release the mercury from the waste material and vaporize it.
Negative airflow pulls the vapors through a series of condensers where vaporized
mercury is returned to liquid form. The airflow proceeds through carbon filters
and a wet scrubber to remove any other potential impurities resulting from the
heating process. Mercury recovered in the retorting process is refined and sold
to laboratories, instrument manufacturers, dental supply companies and precious
metals brokers. The resale of recycled mercury represents less than 1% of the
Company's total revenues.

         The Company significantly increased its retorting capacity with the
expansion of the Union Grove Facility over the past three years. With what the
Company believes is industry leading processing capacity, the Company has the
ability to process large remediation projects in a timely manner.

         LAMP RECYCLING. In 2001, approximately 44% of the Company's revenues
consisted of lamp recycling services. The Company operates two lamp recycling
facilities, one in Roseville, Minnesota and one in Union Grove, Wisconsin.
Fluorescent lamps are transported to the Company's facilities using a
combination of Company-owned trucks, independent carriers that pick up
fluorescent lamps directly from the Company's customers and shipment via common
carrier utilizing the Company's LampTracker(TM) Program. Fluorescent lamps
received at the Company's Indianapolis and Atlanta facilities are then
consolidated for shipment to either the Roseville or Union Grove Facilities on a
weekly basis. Fluorescent lamps received at the Roseville and Union Grove
Facilities are then staged for processing.

         Fluorescent lamps are manually placed onto a conveyor belt that feeds
the lamps into an enclosed machine. The lamp recycling machines operate under
negative airflow to limit the escape of mercury vapors. The lamp recycling
machines break the lamps and separate the debris into three principal
components: the broken glass, the aluminum endcaps and the mercury-laced calcium
phosphate powder. Before the glass or aluminum endcaps remaining after
processing can leave the facility they must be independently tested for mercury
content and pass state regulatory standards. The mercury-laced calcium phosphate
powder is retorted at the Union Grove Facility. Any mercury that evaporates
within the machine during lamp processing is captured in hepa and carbon
filters. These filters are also retorted at the Union Grove Facility.

         In addition to the collection and recycling of fluorescent lamps, the
Company handles related types of waste including PCB and non-PCB ballasts.
Ballasts are an integral component of the fluorescent light fixture. Ballasts
manufactured before 1979 contain PCB's. The Company stores and processes both
PCB and non-PCB lighting ballasts in a separate building adjacent to the Union
Grove Facility.

         The Company offers its lamp and ballast recycling services on either a
cost per unit basis or through its turnkey recycling container programs. During
2000, the Company launched a new lamp recycling program called LampTracker(TM).
LampTracker(TM) is a turnkey recycling service for lamps, ballasts and batteries
that includes a recycling container shipped to the customers' door by common
carrier, return freight via UPS, and recycling of the materials. The Company
believes LampTracker(TM) provides the following benefits for its customers:

         *  A consistent, nation-wide lamp management and compliance program;
         *  Web-based ordering;
         *  The option of automatic reordering;
         *  Web-based documentation that includes recycling certificates and
            transaction records by location; and,
         *  Elimination of soft costs and handling risks related to sorting,
            counting, storage, documentation, scheduling and loading of lamps.

         Under the LampTracker(TM) program, the Company charges an up front fee
that covers the cost of the container, transportation and recycling.

         WASTE STORAGE FACILITIES. Storage capability, and in particular,
hazardous waste storage, is critical to the successful operation of recycling
facilities. Without storage, the Company would have to treat its customer's
waste immediately when received and would require the difficult task of
scheduling incoming shipments on a just-in-time basis. Lack of storage can also
be a governor on future revenue growth. As the Company has experienced,
obtaining permitted storage is a time-consuming, political and expensive
process. A major focus of the Company's has been the securing of the necessary
storage to serve as the foundation for future growth.

<PAGE>


         The Company's two primary hazardous waste storage facilities are
located in Union Grove, Wisconsin and Albany, New York. After a three-year
process, the Company secured its storage permit at the Union Grove facility in
July 2000. The permit allows the Company to store up to 769 drums of hazardous
waste for up to one year. The Company also has an 888-drum storage facility in
Albany, New York that was obtained as part of the acquisition of Mercury
Refining Company in May 1998. The Company's other facilities, in Roseville, MN;
Indianapolis, IN; Atlanta, GA and Kenosha, WI, all serve as 10-day transfer
facilities for hazardous waste and have permitted storage capability for
fluorescent lamps and ballasts.

COMPETITION

         The demand for mercury recycling services is highly dependent upon
governmental regulations, the federal and state enforcement of regulations and
the perception by mercury waste generators of the need for the Company's
services.

         The mercury recycling industry is highly competitive. A summary of the
Company's competition is as follows:

      >> SUPERIOR SPECIAL SERVICES: Superior Special Services is primarily a
         lamp recycling company, but also has retorting capability. In the last
         3 years, Superior has acquired lamp recycling companies with annualized
         revenue in excess of $20 million. With these acquisitions, Superior is
         the largest competitor in the industry with locations in Wisconsin,
         Minnesota, Ohio, Massachusetts, Florida and Arizona.
      >> ADVANCED ENVIRONMENTAL RECYCLING/MERCURY TECHNOLOGIES: AERC/MTI is a
         lamp recycling and mercury retorting company with locations in
         Pennsylvania, New Jersey, Florida and California
      >> BETHLEHEM APPARATUS: Bethlehem Apparatus is the oldest mercury recycler
         in the industry. Bethlehem is primarily a mercury retorting company and
         has one location in Pennsylvania.
      >> HAZARDOUS WASTE LANDFILLS AND INCINERATORS: A major indirect competitor
         to all mercury retorting companies are hazardous waste landfills and
         incinerators controlled by large hazardous waste management companies.
         Specifically, there are two landfills, located in Canada, which
         received the bulk of mercury waste that is not treated by retorting.
         The Company is optimistic that the amount of mercury waste sent to
         these landfills will decrease in the future due to environmental
         problems and regulatory constraints these landfills have had with
         mercury.
      >> REGIONALIZED LAMP RECYCLERS: There are approximately a dozen regional
         lamp recycling entities throughout the country that tend to service a
         2-3 state area.

         With revenues of approximately $7.98 million in 2001, the Company
believes it is the second or third largest company in the industry. The Company
believes its competitive advantages include its industry leading retorting
capacity supported by significant storage capability and its innovative lamp
recycling services, including the LampTracker(TM) program.

MARKETING AND SALES

         THE MARKET. Historically, the hazardous waste market has been
controlled by large national hazardous waste management companies who handle all
types of hazardous waste of their customers (which are typically large
industrial companies). These companies then consolidate this waste and then
either treat or dispose of it in the most economical fashion. Mercury waste is a
major waste type that most of these companies do not internally treat. These
companies either send this waste to mercury retorters like Mercury Waste
Solutions, or if the mercury content does not meet a certain level or if the
customer does not designate retorting as the desired treatment, the waste is
sent to hazardous waste landfills or is incinerated. As a result, these type of
companies are major customers of the Company as well as competitors. In addition
to these hazardous waste management companies, the Company derives mercury
retorting revenues from large direct generators including utilities, electrical
contractors, mercury lamp recyclers, electrical manufacturers of lights,
batteries and switches, amalgam manufacturers and chemical companies. The
Company also generates significant revenues from large soil remediation
projects, which are typically controlled by environmental contractors.

<PAGE>


         Although the Company receives lamps for recycling from the above
described companies, the vast majority of the Company's lamp recycling business
comes from direct generators and lighting related companies. Potential lamp
recycling customers include any entity that has a high quantity of fluorescent
lamps, such as property management companies, large distributors, large retail
chains, hotel chains, hospitals, government etc.

         SALES STRATEGIES. The Company informs potential customers that the
Company's mercury recycling services are designed to significantly eliminate
potential environmental financial liability associated with disposal of
mercury-bearing materials. The Company also initiates mercury waste collection
programs with hospitals, schools, electrical contractors and dentists. The
Company competes in each of its markets with respect to price, service, turnkey
nature of its recycling container programs, product quality and the processing
timeliness of its mercury retorting and lamp recycling services.

         The Company promotes its services and products through a direct sales
force. The sales force consists of specialized technical sales managers in the
areas of mercury retorting services and lamp recycling services. A customer who
recycles lamps may become a customer for mercury retorting of other wastes. Due
to the ongoing generation of waste material by Company customers, the sales and
marketing efforts benefit substantially from the ability to utilize a building
block approach. For its LampTracker(TM) program, the Company has also developed
distributor relationships with key lighting distributors.

         ADVERTISING AND PROMOTION. The Company's direct sales activities are
supported by targeted direct mail activities to waste generators, waste brokers,
waste transporters, permitted waste storage facilities, lighting contractors,
lighting distributors and various other related business entities. Due to the
identifiable nature of target customers, expensive mass media advertising is not
necessary. The Company also displays its products and services at various
regional and national trade shows on a regular basis.

REGULATION

         INTRODUCTION. The Company is currently subject to extensive and
evolving federal, state and local environmental laws and regulations that have
been enacted in response to technological advances and increased concern over
environmental issues. These regulations not only strictly regulate the conduct
of the Company's operations but are also related directly to the demand for many
of the services offered by the Company.

         The regulations affecting the Company are administered by the EPA and
various other federal, state and local environmental, zoning, health and safety
agencies. The Company believes that its facilities are currently in compliance
with all applicable federal, state and local laws, permits, orders and
regulations. The Company believes there will continue to be increased
regulation, legislation and regulatory enforcement actions related to the
hazardous waste and recycling industry. As a result, the Company attempts to
anticipate future regulatory requirements and to plan accordingly to remain in
compliance with the regulatory framework.

         In order to develop and operate a fluorescent lamp processing facility,
a mercury retorting facility or other hazardous waste related facilities, the
Company must typically go through several governmental review processes in order
to obtain one or more permits/licenses, zoning or other land use approvals.
Obtaining these permits/licenses and zoning or land use approvals is difficult,
time consuming and expensive and is often opposed by various local elected
officials and citizens' groups. Once obtained, operating permits generally must
be periodically renewed and are subject to fees, modification and revocation by
the issuing agency.

         In order to transport hazardous wastes, it is necessary for the Company
to possess one or more permits/licenses from state or local authorities. These
permits must be periodically renewed and are subject to fees, modification and
revocation by the issuing agency. The Company, as a nationwide transporter of
hazardous waste, is subject to strict hazardous waste transportation guidelines
under federal and state Department of Transportation ("DOT") regulations. The
Company is governed by both the Hazardous Materials and Federal Motor Carrier
Safety Regulations contained in Title 49 of the Code of Federal Regulations. An
accident during the transportation of hazardous waste or the failure to comply
with any DOT regulation could expose the Company to liability. An unsatisfactory
transportation rating from the DOT could severely limit the Company's ability to
transport hazardous waste.

<PAGE>


         The principal federal, state and local statutes and regulations
applicable to the Company's various operations are reviewed in part as follows:

         THE RESOURCE CONSERVATION AND RECOVERY ACT ("RCRA") OF 1976, AS
AMENDED. RCRA regulates the generation, treatment, storage, handling,
transportation and disposal of hazardous waste. All Company facilities are
governed by RCRA regulations. RCRA divides solid waste into two groups,
hazardous and nonhazardous. Wastes are generally classified as hazardous if they
(i) either (a) are specifically included on a list of hazardous wastes or (b)
exhibit certain hazardous characteristics and (ii) are not specifically
designated as nonhazardous. Wastes classified as hazardous under RCRA are
subject to much stricter regulation than wastes classified as nonhazardous.

         The EPA regulations issued under Subtitle C of RCRA impose a
comprehensive "cradle to grave" system for tracking the generation,
transportation, treatment, storage and disposal of hazardous wastes. The
Subtitle C regulations provide standards for generators, transporters and
disposers of hazardous wastes, and for the issuance of permits for sites where
such material is treated, stored or disposed. Subtitle C imposes detailed
operating, inspection, training and emergency preparedness and response
standards, as well as requirements for manifesting, record keeping and
reporting, facility closure and financial responsibilities. These regulations
require the Company to demonstrate financial assurance for sudden and non sudden
pollution occurrences and for future facility closure costs. The Company
believes that its hazardous waste transportation activities and its facilities
comply in all material respects with the applicable requirements of Subtitle C
of RCRA.

         THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY
ACT ("CERCLA") OF 1980, AS Amended. CERCLA established a regulatory and remedial
program intended to provide for the investigation and cleanup of facilities from
which there has been, or is threatened, a release of any hazardous substance
into the environment. CERCLA's primary mechanism for remedying such problems is
to impose strict joint and several liability for cleanup of facilities on
current owners and operators of the site, former owners and operators of the
site at the time of the disposal of the hazardous substances, as well as the
generators of the hazardous substances and the transporters who arranged for
disposal or transportation of the hazardous substances. The costs of a CERCLA
investigation and cleanup can be very substantial. Liability under CERCLA does
not depend upon the existence or disposal of "hazardous waste" as defined by
RCRA, but can also be founded upon the existence of even very small amounts of
the more than 700 "hazardous substances" listed by the EPA, many of which can be
found in household waste. If the Company were to be found to be a responsible
party for a CERCLA cleanup, the enforcing authority could hold the Company, or
any other generator, transporter or owner or operator of the facility,
completely responsible for all investigative and remedial costs even if others
may also be liable. CERCLA also authorizes the imposition of a lien in favor of
the United States upon the real property subject to, or affected by, a remedial
action for all costs for which a party is liable. CERCLA provides a responsible
party with the right to bring legal action against other responsible parties for
their allocable share of investigative and remedial costs. The Company's ability
to get others to reimburse it for their allocable share of such costs would be
limited by the Company's ability to find other responsible parties and prove the
extent of their responsibility and by the financial resources of such other
parties. CERCLA requires the EPA to establish a national priorities list of
sites at which hazardous substances have been or are threatened to be released
into the environment. Because the Company participates in the hazardous waste
industry, it bears an enhanced risk of being deemed a responsible party for
hazardous waste cleanup.

         THE CLEAN AIR ACT OF 1976, AS AMENDED. The Clean Air Act provides for
regulation, through state implementation of federal requirements, of the
emission of air pollutants from any operating facility. The Clean Air Act
Amendments of 1990 broadened the scope of the law to control air pollution from
additional and often smaller industries. Federal and state air quality
regulations may apply to any facility emitting something into the air. The
amount of air pollution released generally determines whether compliance is
necessary with air quality regulations. Any of the Company's facilities that
have air emissions are in some way governed by federal and state air emission
regulations, compliance agreements or permits and licenses. Some of the
Company's facilities have air emissions that are governed by federal and state
air emission regulations, compliance agreements or permits and licenses. Failure
to comply with air emission standards at any of the Company's facilities could
have a severe impact on the Company ability to operate that facility. Failure to
correct the air emission problems could lead to curtailed operations, fines and
penalties or even closure of the Company facility.

<PAGE>


         THE OCCUPATIONAL SAFETY AND HEALTH ACT OF 1970. The Occupational Safety
and Health Act of 1970, as amended, authorizes the Occupational Safety and
Health Administration ("OSHA") to promulgate occupational safety and health
standards. Several of these standards apply to many of the operations at all
Company facility locations. OSHA regulations set standards for employee
protection, including medical surveillance, the use of respirators, protective
clothing, hearing protection and personal protective equipment. OSHA specifies a
maximum permissible exposure level for hazardous materials, including mercury.
Company employees are required to receive hazardous waste training that includes
training to respond to an accidental spill or release of a hazardous material
during processing, recycling or transportation activities. Failure to comply
with OSHA standards could lead to fines or penalties. The inability to
immediately correct a serious problem could lead to curtailed operations or even
closure until the problem is corrected.

         EMERGENCY PLANNING AND COMMUNITY RIGHT-TO-KNOW ACT OF 1986 ("SARA TITLE
III"). This free-standing law is designed to address concerns about the effect
of chemical releases on communities. Section 312 contains community
right-to-know provisions that grant local emergency response personnel and the
general public access to information on chemicals present in local facilities.
Local participation varies, however, any of the Company's facilities may be
subject to this law and may also be subject to penalties for noncompliance.

         TOXIC SUBSTANCES CONTROL ACT ("TSCA") OF 1976. The act established a
system for identifying and evaluating environmental and health effects of
existing chemicals and any new substances entering the U.S. market. TSCA
provides for regulation of chemical substances and mixtures that present an
unreasonable risk of injury or health to the environment. As part of its
business, the Company may handle and/or transport substances (Polychlorinated
Biphenyls -- PCBs) subject to TSCA regulations. All of the Company's facilities
are currently subject to these regulations since it transports, consolidates,
stores and ships PCB lighting ballasts for recycling. Failure to comply with any
of the handling, storage, record keeping or transportation requirements could
lead to fines or penalties for the Company.

         STATE AND LOCAL REGULATIONS. Each state in which the Company currently
operates, or may operate within in the future, has laws and regulations
governing the generation, storage, treatment, recycling, handling,
transportation and disposal of solid and hazardous waste. States also regulate
water and air pollution and, in most cases, the siting, design, operation,
maintenance and closure of hazardous waste management facilities for any of the
activities previously stated. These regulations are in addition to the federal
regulations and state regulations may be even more restrictive than the federal
regulations. Failure to comply with any of the regulations could subject the
Company to curtailed operations, fines and penalties or even closure of Company
facilities.

         Within Minnesota, the primary responsibility for environmental programs
is shared by the Minnesota Pollution Control Agency ("MPCA") and the Minnesota
Attorney General's Office. The MPCA is responsible for developing environmental
regulations, issuing permits, investigating violations of environmental
requirements and initiating administrative enforcement actions. The Company's
Roseville Lamp Recycling Facility is subject to all of Minnesota's hazardous
waste regulations and rules. The Company has entered into a Facility Compliance
Agreement with the MPCA because there is currently no legislation which grants
the MPCA the authority to license/permit this type of facility. The Facility
Compliance Agreement sets standards under which the facility must operate. The
Attorney General is responsible for investigating criminal violations of
environmental laws, representing the MPCA in administrative hearings and
initiating civil judicial enforcement actions.

         In Wisconsin, the primary responsibility for environmental programs
rests with the Wisconsin Department of Natural Resources ("WDNR"). The WDNR is
responsible for developing environmental regulations, issuing permits,
investigating violations of environmental requirements and initiating
administrative actions. WDNR environmental regulations are contained within the
Wisconsin Administrative Code. The Union Grove Retorting Facility is subject to
all of the WDNR's environmental regulations. The Company's Indiana facility is
regulated by the Indiana Department of Environmental Management and the Georgia
facility is subject to regulations administered by the Georgian Department of
Natural Resources. The Company's New York facility is subject to regulations
administered by the New York Department of Environmental Conservation.

         In addition to state regulations, counties and municipalities may issue
operating licenses or permits to operate Company facilities. Failure to comply
with these requirements may also result in curtailed Company

<PAGE>


operations, fines and penalties or even closure of Company facilities. The
Company's Roseville Lamp Recycling Facility is located in Ramsey County,
Minnesota and some programs at the facility are regulated by the county. The
Special Hazardous Waste Program is licensed and regulated by Ramsey County which
has been granted authority by the MPCA to regulate such program.

         Many counties and municipalities also have ordinances, local laws and
environmental regulations affecting the Company's operations. These include
zoning and health measures that limit any type of hazardous waste management
facility to specified sites or activities. There has been an increasing trend at
the state and local level to mandate and encourage waste reduction at the source
and to provide waste recycling and limit or prohibit the disposal of certain
types of solid wastes in landfills.

         Many states including Wisconsin and Minnesota, have programs that
require investigation and cleanup of sites containing hazardous materials in a
manner comparable to CERCLA. These statutes impose requirements for
investigation and cleanup of contaminated sites and liability for costs and
damages associated with such sites and some provide for the imposition of liens
on property owned by responsible parties.

         The primary cost of complying with the above laws and regulations is
the establishment of assurance funds which are available to cover processing and
closure costs related to the Company's facilities. In certain jurisdictions, the
Company has funded these obligations with cash held in restricted accounts and
in other jurisdictions this obligation has been funded with insurance. At
December 31, 2001, the Company had approximately $106,000 deposited in closure
trust funds. In addition, the Company had ongoing regulatory permit related
costs that totaled approximately $53,000 in 2001.

INTELLECTUAL PROPERTY

         The Company's patent application for its lamp processing technology was
approved in January 2000 by the United States Patent and Trademark Office. The
Company has no patents on its retorting technology. There is significant risk
that third parties will independently develop similar technology. The Company
has applied to the United States Patent and Trademark Office for protection of
certain aspects of its technology relating to its retorting equipment and
certain elements of its LampTracker(TM) program, however, no assurance can be
given that patent protection will be obtained. There is also no assurance that
any of the Company's intellectual property rights will be enforceable, even if
patented or registered, against any prior users of similar intellectual property
or that the Company will be successful in defending itself against a third party
claiming that the Company's technologies violates an existing patent. Any such
claim, with or without merit, could also be time consuming and costly to defend.

EMPLOYEES

         As of March 4, 2002 the Company employed 56 persons, two of which are
part-time. No employee is covered by a collective bargaining agreement, and the
Company has never experienced an organized work stoppage, strike or labor
dispute. The Company believes that its relationship with its employees is good.

BUSINESS AND INDUSTRY RISKS

         THE FOLLOWING INCLUDES SOME, BUT NOT ALL, OF THE RISKS AND
CONSIDERATIONS INVOLVED WITH THE COMPANY AND ITS BUSINESS. WHERE A RISK OR
CONSIDERATION IS INDICATED, A MORE DETAILED DESCRIPTION MAY HAVE BEEN INCLUDED
PREVIOUSLY IN THIS BUSINESS SECTION.

         GOVERNMENT REGULATION. The Company is subject to extensive and evolving
environmental laws and regulations that govern the Company's operations. These
laws and regulations affect the Company's business in many ways and will
continue to impose substantial costs on the Company.

         In order to develop and operate treatment and storage facilities, it is
necessary for the Company to obtain and maintain in effect one or more licenses
or permits as well as zoning, environmental and/or other land use approvals.
These licenses or permits and approvals are often difficult and time consuming
to obtain and are

<PAGE>


frequently subject to opposition by various elected officials and citizen
groups. Facility operating permits may be subject to modification or revocation.
Permits must be renewed periodically. There can be no assurance that the Company
will be successful in obtaining and maintaining the permits and approvals
required for the successful operation and growth of its business. The failure by
the Company to obtain or maintain in effect a permit or approval significant to
its business would have a material adverse effect on the Company's operations
and financial condition.

         POTENTIAL ENVIRONMENTAL LIABILITY. The Company, as a transporter,
recycler and operator of treatment and storage facilities of hazardous waste is
subject to liability for any contamination for which it is deemed responsible
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("Superfund" or "CERCLA"). The statute
provides for the remediation of contaminated facilities and imposes costs on the
responsible parties. The expense of conducting a cleanup and the damages can be
very significant. If the Company were to be found to be a responsible party for
a CERCLA cleanup, the enforcing authority could hold the Company completely
responsible for all investigative and remedial costs even if others may also be
liable.

         While the Company maintains insurance, such insurance is subject to
various deductible and coverage limits as well as certain coverage exclusions.
There can be no assurance that such insurance will continue to be available to
the Company on commercially reasonable terms, that the possible types of
liabilities that may be incurred will be covered, that the Company's insurance
carriers will be able to meet their obligations or that the dollar amount of
such liabilities will not exceed policy limits. An uninsured claim, if
successful and of significant magnitude, could have a material adverse effect on
the Company's business, results of operations and financial condition.

         HANDLING AND TREATMENT OF HAZARDOUS WASTE. The Company handles and
treats hazardous waste that is inherently dangerous to life and property in many
ways. While the Company strives to handle and treat such materials with care and
in accordance with accepted and safe methods, the possibility of accidents,
leaks, spills and acts of God always exist. Examples of how people and property
may be exposed to such materials could include truck accidents, damaged or
leaking containers, improper storage, vandalism, improper labeling of waste
material by customers or malfunctioning treatment equipment. Human beings,
animals or property might be injured, sickened or damaged by exposure to
mercury-bearing waste. This in turn could result in lawsuits in which the
Company could be found liable for such injuries.

         While the Company carries insurance intended to cover such
contingencies, particular instances, claims, damages or events may occur that
are not insured against or are inadequately insured against. An uninsured or
underinsured loss could be substantial and could have a material adverse effect
on the Company's business, results of operations and financial condition.

         CUSTOMER BASE CONSOLIDATION. Large hazardous waste management companies
are a major source of the Company's retorting revenues. The hazardous waste
management industry is currently experiencing significant consolidation, due in
part to financial difficulties of some of the larger companies in the industry.
While the Company's facilities have been approved by most hazardous waste
management companies, continued consolidation may require the Company to
establish or re-establish relationships and seek facility approvals with the
acquiring entities. Failure to maintain relationships amidst this industry
consolidation could have a negative impact on future revenues.

         LAMPTRACKER(TM) PROGRAM RISKS. The Company's LampTracker(TM) turnkey
recycling program is dependent on single source vendors for fulfillment,
manufacturing of the recycling containers and most importantly, for common
carrier transportation. While the Company believes these relationships will
continue, it is also evaluating alternative sources. If the Company were forced
to find another vendor, particularly for common carrier transportation, there
can be no assurance that the Company could find a cost-effective alternative.
Failure to secure alternative vendors would significantly reduce the future
viability of the LampTracker(TM) program.

         COMPETITION. The mercury recycling industry is extremely competitive
with respect to price, service, and location. New or existing competitors that
add capacity can affect the price charged for remediation services and the
volume of services performed. Mercury retort competitors have been in the market
for many years and some have established excellent reputations. The Company may
not be able to establish relationships with customers of these competitors. In
addition, a competitor may be able to quickly increase its market share by
buying existing

<PAGE>


companies or processes, by reducing prices or by utilizing other marketing
methods. See "Business - Competition."

         STOCK LIQUIDITY ISSUES. Since shares of the Company's Common Stock were
delisted from the NASDAQ Small Cap Market in March 2001, the Company's shares of
Common Stock have traded on the Over-the-Counter market ("OTC"). Shares traded
on the OTC generally attract little institutional investor interest and may be
relatively thinly traded. Accordingly, relatively larger purchase or sale orders
for the Company's Common Stock could materially impact the Company's stock
price.

         DILUTION BY PREFERRED STOCK ISSUANCES. In August 2000, in an effort to
maintain the Company's listing on NASDAQ, Bankers American Capital Corporation
("BACC"), a corporation wholly owned by Mr. Brad Buscher, the Company's Chairman
and Chief Executive Officer, converted $600,000 of Company debt in exchange for
$600,000 of Series A Convertible Preferred Stock ("Preferred Stock"). The
Preferred Stock is convertible, up to a maximum of 696,000 shares, into common
stock at a 25% discount to the 20-day average of the closing price prior to
conversion. Conversion into Common Stock as of March 4, 2002 would result in the
issuance of 696,000 additional shares of Common Stock, approximately 17% of the
then outstanding shares. The conversion of the Preferred Stock would result in
increased dilution to the Company's existing shareholders and substantially
increase the amount of shares beneficially owned by Mr. Buscher.

         Furthermore, assuming the above conversion, the Company would then have
to issue approximately $260,000 principal amount of Series B Preferred Stock on
terms to be negotiated between the Company and BACC. The issuance and ultimate
conversion of the Series B Preferred Stock would result in further dilution to
the Company's existing shareholders and would further increase the beneficial
ownership of Mr. Buscher.


ITEM 2. PROPERTIES

         The Company's corporate headquarters are located in Mankato, Minnesota.
The Company leases approximately 1,600 square feet of office space pursuant to a
lease expiring in January, 2003. The Company leases its 12,000 square foot
Roseville facility pursuant to a lease expiring in March 2006. The Company
leases its 28,000 square foot Union Grove Facility pursuant to a lease expiring
in May 2007, with four renewal options for five years each. The Company leases
its 5,000 square foot Kenosha storage facility pursuant to a month to month
lease. The 10,000 square foot Indianapolis facility is rented pursuant to a
lease expiring in December 2004. The Company leases its 8,000 square foot
Atlanta storage facility pursuant to a lease expiring in February 2005. The
Company leases its 2,600 square foot Albany storage facility pursuant to a lease
which expires in May 2003, with two renewal options totaling seven years.

ITEM 3. LEGAL PROCEEDINGS

         None

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

         None

<PAGE>


                                     PART II


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

         The Company's Common Stock had been traded on the NASDAQ Small Cap
Market since March 5, 1997, the closing date of its initial public offering. On
March 27, 2001, the Company's Common Stock was de-listed from the NASDAQ Small
Cap Market and effective on March 28, 2001, has been traded on the OTC Bulletin
Board. The following table sets forth the range of high and low closing sales
prices for the Company's Common Stock for the periods indicated below:


      -------------------------------------------------------------------
                                Fiscal 2001             Fiscal 2000

      -------------------------------------------------------------------
                              High       Low           High       Low
                              ----       ---           ----       ---
       First Quarter         $1.00      $0.19         $1.88      $0.78
       Second Quarter        $0.93      $0.37         $1.50      $0.81
       Third Quarter         $0.93      $0.38         $1.91      $0.80
       Fourth Quarter        $0.51      $0.28         $1.31      $0.53
      -------------------------------------------------------------------

         As of March 4, 2002, there were approximately 325 record holders of the
Company's Common Stock. The Company has not paid dividends on its Common Stock,
and the Board of Directors presently intends to retain all earnings, if any, for
use in the Company's business for the foreseeable future.


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

         The following discussion should be read in connection with the
Company's consolidated financial statements and related notes thereto included
within this document.

RESULTS OF OPERATIONS

         OVERVIEW. The Company provides services to mercury waste generators to
reduce the risk of liability associated with mercury waste disposal. The Company
currently operates a mercury waste retorting facility in Union Grove, Wisconsin,
two facilities for recycling and storing fluorescent and other
mercury-containing lamps located in Roseville, Minnesota and Union Grove,
Wisconsin and mercury waste storage and collection facilities in Kenosha,
Wisconsin; Indianapolis, Indiana; Atlanta, Georgia and Albany, New York.

         REVENUES. Total revenues were $7,979,163 for the year ended December
31, 2001 compared to $7,316,358 for the year ended December 31, 2000, an
increase of 9%.

         Mercury retorting revenues were $4,460,833 for the year ended December
31, 2001 compared to $3,795,550 for the year ended December 31, 2000, an
increase of 18%. The Company believes the increase in retort revenues in 2001
was due primarily to an increase in base business. During 2001, the Company
continued to add customers and gain market share by promoting and leveraging its
industry leading processing capacity. In addition, retort revenues can vary
significantly from period to period due to the extent or lack of one-time large
retort projects, the nature and extent of which varies from year to year. For
the year ended December 31, 2001, the Company had revenue from large retort
projects of approximately $690,000 compared to $650,000 for the year ended
December 31, 2000.

         Lamp recycling revenues were $3,518,330 for the year ended December 31,
2001 compared to $3,520,808 for the year ended December 31, 2000. The Company
believes the lack of growth in 2001 is due to the continued transition of the
Company's marketing focus to its LampTracker(TM) turnkey lamp recycling program.
The Company is aggressively marketing its LampTracker(TM) program through a
number of channels, including transitioning certain of its current customer
base, securing new direct customers and establishing strategic relationships
with certain large

<PAGE>


lighting distributors to sell the program to their customers. While the Company
believes this marketing strategy will be successful, significant revenue growth
has not yet been realized due to the long sales cycle, particularly with large
direct generators, and the significant amount of deferred revenue the program
generates. Under the LampTracker(TM) program, the Company charges an upfront fee
that covers the cost of the container, transportation and recycling. A portion
of this up front fee is deferred until all services are performed. Factoring out
deferred revenue adjustments, gross lamp recycling billings for the year ended
December 31, 2001 increased 8% over the year ended December 31, 2000.

         COST OF REVENUES. Cost of revenues consists primarily of direct labor
costs to process the waste, transportation costs and direct facility overhead
costs. Gross profit as a percent of revenue was 40% for both the 2001 and 2000
periods.

         Mercury retorting gross profit percentages were 44% and 36% for the
years ended December 31, 2001 and 2000, respectively. The Company believes the
increase in the mercury retorting gross profit margin was due primarily to
increased revenues, resulting in increased utilization of the fixed cost
structure of the Union Grove Facility, offset in part by increased wages and
insurance costs. Lamp recycling gross profit percentages were 35% and 44% for
the years ended December 31, 2001 and 2000, respectively. The Company believes
the decrease in gross profit margin in the 2001 period was due to an increase in
LampTracker(TM) sales through distributors which yield lower margins and due to
increased wages, rent, insurance and other costs related to the expansion of the
Roseville lamp recycling facility which was completed in the fourth quarter. The
Company expanded this facility to increase its lamp recycling capacity to
support its anticipated future growth.

         SALES AND MARKETING. Sales and marketing expense was $1,318,137 for the
year ended December 31, 2001 compared to $953,093 for the year ended December
31, 2000, an increase of 38%. The significant increase in 2001 was due primarily
to sales and marketing efforts related to the LampTracker(TM) program, including
increased sales and customer service personnel costs, travel costs, and
marketing materials.

         GENERAL AND ADMINISTRATIVE. General and administrative expense was
$1,756,047 for the year ended December 31, 2001 compared to $1,742,940 for the
year ended December 31, 2000, an increase of 1%. The increase in 2001 is due
primarily to increased salaries, travel and consulting fees, offset by
approximately $50,000 in one-time costs incurred in 2000 in connection with a
failed tender offer for the Company.

         INTEREST EXPENSE. Interest expense was $123,924 for the year ended
December 31, 2001 compared to $391,435 for the year ended December 31, 2000, a
decrease of 68%. The decrease in 2001 was due to lower interest rates and lower
average borrowings caused primarily by a $600,000 conversion of debt to
preferred stock in August 2000. See "Liquidity and Capital Resources." In
addition, the 2000 period had amortization of a debt discount related to the
March 2000 refinancing of the line of credit of $120,000.

         INCOME TAXES. There was no income tax expense (benefit) recorded in
2001 or in 2000. At December 31, 2001, the Company recorded a valuation
allowance of approximately $969,000 to fully reserve its net deferred tax assets
due to the uncertainty of their realization. The realization of these deferred
tax assets is dependent upon generating sufficient taxable income during the
period that deductible temporary differences and net operating loss
carryforwards are expected to be available to reduce taxable income. At December
31, 2001, the Company had net operating loss carryforwards of approximately
$1,600,000, of which $390,000 expire in 2012 and $1,210,000 expire in 2019.

         PREFERRED STOCK DIVIDENDS. Preferred stock dividends for the year ended
December 31, 2001 totaled $122,000 compared to $177,600 for the 2000 period and
consisted of the following: i) cash dividends paid on the Series A Preferred
Stock that was issued in August 2000 and ii) a deemed dividend resulting from
the amortization of the beneficial conversion feature related to the Series A
Preferred Stock. See "Liquidity and Capital Resources."

         NET LOSS APPLICABLE TO COMMON SHAREHOLDERS. Resulting from the factors
discussed above, the Company recorded a net loss applicable to common
shareholders of $143,251 and $343,774 for the years ended December 31, 2001 and
2000, respectively. Basic and diluted loss per share was $0.04 and $0.10 for the
years ended December 31, 2001 and 2000, respectively.

<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

         Net cash provided by operating activities for the year ended December
31, 2001 was $1,497,811, consisting of the net loss of $21,251 offset by
non-cash items including depreciation and amortization of $956,150 and a
positive net change in operating assets and liabilities of $562,912 caused
primarily by in increase in deferred revenue of $505,041. The deferred revenue
increase was due to an increase in up-front payments related to the
LampTracker(TM) program.

         Cash flows used in investing activities were $882,275 for the year
ended December 31, 2001, consisting primarily of capital expenditures for lamp
recycling equipment and facility expansion at the Roseville Facility. Due to the
anticipated growth in the lamp recycling business, the Company expanded the
Roseville Facility, which included doubling of the leased space and construction
of a new lamp recycling machine. In addition, the Company upgraded its lamp
recycling machine at the Union Grove Facility.

         In January 2001, the Company entered into an agreement with U.S.
Environmental, Inc. ("USE"), a related entity owned by the Company's President,
to manage the design, manufacturing, testing and installation of the new lamp
recycling equipment discussed above. The agreement required total payments to
USE of $138,000, of which all has been paid as of December 31, 2001.

         Cash flows used in financing activities were $605,428 for the year
ended December 31, 2001, consisting of payments of $350,000 on the Company's
line of credit, payments on term debt of $183,428 and payments for preferred
dividends of $72,000.

         The Company has a $1,500,000 revolving line of credit with Bankers
American Capital Corporation (BACC), a related entity owned by the Company's
major shareholder and CEO. The revolving line of credit requires monthly
interest only payments at 6% over the prime rate, is secured by all Company
assets and expires on June 30, 2003. At December 31, 2001, line of credit
borrowings totaled $500,000.

         In August 2000, BACC converted $600,000 of debt in exchange for
$600,000 of Series A Convertible Preferred Stock ("Preferred Stock"). The
Preferred Stock carries a 12% dividend rate payable in cash monthly and is
convertible into common stock at a 25% discount to the 20-day average of the
closing price prior to conversion with a conversion ceiling of $1.82 per share.
The Company cannot issue more than 696,000 shares of common stock upon
conversion of the Preferred Stock. In the event conversion of the Preferred
Stock is limited because the maximum of 696,000 shares have been issued, the
Company will convert the remaining Preferred Stock into Series B Preferred Stock
under terms to be negotiated. Furthermore, all of the Preferred Stock must be
converted into common stock within 36 months of issuance.

         Because the Preferred Stock can be converted to common stock at a 25
percent discount to average market value, a "beneficial conversion feature,"
which was valued at $200,000, was amortized over the period from the date of
issuance to the date of earliest conversion, which was six months. Amortization
related to this beneficial conversion feature totaled $50,000 and $150,000 for
the years ended December 31, 2001 and 2000.

         A summary of the Company's five year contractual cash obligations at
December 31, 2001, are as follows:

<TABLE>
<CAPTION>
                                                  PAYMENTS DUE BY PERIOD

CONTRACTUAL OBLIGATIONS     TOTAL         2002        2003        2004        2005        2006
-------------------------------------------------------------------------------------------------
<S>                       <C>           <C>         <C>         <C>         <C>         <C>
Operating Leases          $1,161,000    $384,000    $251,000    $197,000    $191,000    $138,000
Mgmt. Consulting
Agreements                   360,000     240,000    $120,000          --          --          --
                        -------------------------------------------------------------------------
         Total            $1,521,000    $624,000    $371,000    $197,000    $191,000    $138,000
                        =========================================================================
</TABLE>

         The chart above does not include the Company's commitment to repay its
revolving credit facility, which will mature on June 30, 2003, at which time all
outstanding revolving credit loans must be repaid.

<PAGE>


         The Company anticipates that its availability under its revolving line
of credit and cash generated by its operations will be sufficient to fund its
working capital needs, debt service and capital expenditures through at least
June 2003, provided that revenues continue to increase, which cannot be assured.
Liquidity beyond June 2003 will be dependent on increased revenues and
additional financing from BACC, or from another source on terms affordable to
the Company. There can be no assurance that additional financing will be
available at all or that if available, such financing would be obtainable on
terms favorable to the Company. Failure to obtain additional financing could
have a material adverse effect on the Company.

ACCOUNTING POLICIES

         The Company's significant accounting policies are summarized in the
footnotes to the financial statements. Some of the most important policies are
discussed below.

         The Company recognizes revenue upon receipt and acceptance of waste
materials at its facilities. For prepaid recycling programs, an upfront fee is
charged to cover the cost of the container, transportation and recycling. A
portion of this up front fee is deferred until all services are performed.

         As a matter of policy, the Company reviews its major assets for
impairment. The Company's major operating assets are accounts receivable,
property and equipment, and intangible assets. The Company has not experienced
significant bad debt expense and believes the reserve for doubtful accounts of
$50,000 should be adequate for any exposure to loss on accounts receivable as of
December 31, 2001. The Company depreciates its property and equipment as well as
intangible assets over their estimated useful lives and has not identified any
items that are impaired.

         The Company also has net deferred income tax assets of $969,000, which
are principally related to net operating loss carryforwards and have been fully
reserved due to uncertainty of realization.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In July 2001 FAS 141, "Business Combinations", was issued which
requires that all business combinations initiated after June 30, 2001 be
accounted for using the purchase method. Any business combination transactions
in the future would be accounted for under this new guidance.

         In July 2001 FAS 142, "Goodwill and Other Intangible Assets", was
issued which requires that goodwill be reviewed for impairment rather than
amortized, beginning on January 1, 2002. The adoption of FAS 142 in 2002 will
have the effect of reducing annual amortization expense by approximately
$109,000.

         In September 2001, the FASB issued Statement 143, Asset Retirement
Obligations. This Statement addresses financial accounting and reporting for
obligation associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The Statement will be effective for the
Company's fiscal year ending December 2003. The Company does not believe that
the adoption of this pronouncement will have a material effect on its financial
statements.

         In August 2001, the FASB issued Statement 144, Accounting for
Impairment or Disposal of Long-Lived Assets. This Statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The Statement will be effective for the Company's fiscal year ending December
2002. The Company does not believe that the adoption of this pronouncement will
have a material effect on its financial statements.

MARKET RISK AND IMPACT OF INFLATION

         The Company is subject to certain risks related to interest rate
fluctuations since debt instruments are at variable rates. The Company believes
that inflation has not had a material impact on its results of operations.
However, there can be no assurance that future inflation will not have an
adverse impact on the Company's operating results and financial condition.

<PAGE>


SEASONALITY

         The Company is not subject to any significant seasonal factors, other
than large retort projects, which tend to occur in the second and third
quarters.

FORWARD LOOKING STATEMENTS

         Statements contained in this report regarding the Company's future
operations, performance and results, and anticipated liquidity are
forward-looking and therefore are subject to certain risks and uncertainties,
including those discussed herein. In addition, any forward-looking information
regarding the operations of the Company will be affected by the ability of the
Company to implement its marketing strategies and increase revenues, to maintain
continued market acceptance of the LampTracker(TM) program, to maintain
liquidity on the OTC Bulletin Board, to secure new customers and maintain
existing customers, to manage its growth and cash flow, to operate its Union
Grove Facility without interruption and other Risk Factors included in this
filing. See "Business - Business and Industry Risks."

ITEM 7. FINANCIAL STATEMENTS

         The consolidated financial statements of the Company are included in a
separate financial section at the end of this Annual Report on Form 10-KSB.

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

         None.

                                    PART III


ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

         The information required by this item concerning the Company's
directors and executive officers is incorporated by reference from the Company's
Proxy Statement to be filed no later than 120 days following the close of the
fiscal year ended December 31, 2001.

ITEM 10. EXECUTIVE COMPENSATION

         The information required by this item is hereby incorporated by
reference from the Company's Proxy Statement relating to the Company's Annual
Meeting of Shareholders.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this item is hereby incorporated by
reference from the Company's Proxy Statement relating to the Company's Annual
Meeting of Shareholders.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this item is hereby incorporated by
reference from the Company's Proxy Statement relating to the Company's Annual
Meeting of Shareholders.

<PAGE>


                                     PART IV

ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K

(a)      Financial Statements

         The financial statements filed as part of this Annual Report on Form
         10-KSB are described in the Index to Consolidated Financial Statements
         on page F-1.

(b)      Reports on Form 8-K

         No reports on Form 8-K were filed for the year ended December 31, 2001.

(c)      Exhibits

     EXHIBIT NO.                            DESCRIPTION
     -----------                            -----------
         2        Asset Purchase Agreement by and between Mercury Waste
                  Solutions, Inc. and U.S. Environmental, Incorporated dated
                  January 4, 1996. (1)
         2.1      Asset Purchase Agreement dated March 11, 1998 by and between
                  MWS New York, Inc. and Mercury Refining Company, Inc. (3)
         3.1      Articles of Incorporation (1)
         3.2      By-laws (1)
         3.3      Certificate of Designation of Series A Convertible Preferred
                  Stock (5)
         10.1     Amended and Restated Distribution Rights Bill of Sale
                  Agreement by and between the Company and USE dated November
                  30, 1996. (1)
         10.2     Mercury Waste Solutions, Inc. Stock Option Plan dated
                  September 17, 1996. (1)
         10.3     Lease dated July 15, 1997 by and between Durand Properties and
                  Mercury Waste Solutions, Inc. for premises located at 21211
                  Durand Ave., Union Grove, Wisconsin 53182. (2)
         10.4     Lease dated May 11, 1998 between Mercury Refining Company,
                  Inc. and 26 Railroad Ave., Inc. and MWS New York, Inc. (a
                  wholly-owned subsidiary of Mercury Waste Solutions, Inc.) for
                  premises located at 26 Railroad Avenue, Albany, New York,
                  12205. (4)
         10.5     Loan Agreement dated May 8, 1998 by and between Bankers
                  American Capital Corporation and Mercury Waste Solutions, Inc.
                  (4)
         10.6     Warrant Agreement dated May 8, 1998 between Bankers American
                  Capital Corporation and Mercury Waste Solutions, Inc. (4)
         10.7     Warrant Agreement dated August 14, 2000 between Bankers
                  American Capital Corporation and Mercury Waste Solutions, Inc.
                  (5)
         10.8     Fifth Amendment to Loan Agreement dated May 8, 1998 between
                  Bankers American Capital Corporation and Mercury Waste
                  Solutions, Inc. (6)
         10.9     Consulting Agreement dated January 1, 2001 between Mercury
                  Waste Solutions, Inc. and Bankers American Capital Corp. (7)
         10.10    Consulting Agreement dated January 1, 2001 between Mercury
                  Waste Solutions, Inc. and Mark Edlund (7)
         10.11    Equipment Manufacturing Agreement dated January 1, 2001
                  between Mercury Waste Solutions, Inc. and U.S. Environmental,
                  Inc. (7)
         10.12    Sixth Amendment to Loan Agreement dated May 8, 1998 between
                  Bankers American Capital Corporation and Mercury Waste
                  Solutions, Inc. (8)
         10.13    $1,500,000 Revolving Credit Promissory Note dated October 1,
                  2001 between Bankers American Capital Corporation and Mercury
                  Waste Solutions, Inc. (8)

<PAGE>


         10.14    Consulting Agreement dated January 1, 2002 between Mercury
                  Waste Solutions, Inc. and Bankers American Capital Corp.
         10.15    Consulting Agreement dated January 1, 2002 between Mercury
                  Waste Solutions, Inc. and U.S. Environmental, Inc.
         23.1     Consent of McGladrey & Pullen, LLP

----------------------
         (1)      Filed as an exhibit to Registration Statement on Form SB-2, as
                  amended (SEC file no. 333-17399) filed on February 25, 1997
                  and incorporated herein by reference.
         (2)      Filed as an exhibit to Form 10-QSB for the third quarter of
                  fiscal 1997, filed on November 14, 1997, and incorporated
                  herein by reference.
         (3)      Filed as an exhibit to Form 10-QSB for the first quarter of
                  fiscal 1998, filed on May 15, 1998, and incorporated herein by
                  reference.
         (4)      Filed as an exhibit to Form 8-K filed on May 22, 1998, and
                  incorporated herein by reference.
         (5)      Filed as an exhibit to Form 10-QSB for the third quarter of
                  fiscal 2000, filed on November 13, 2000, and incorporated
                  herein by reference.
         (6)      Filed as an exhibit to Form 10-KSB for the year ended December
                  31, 2000, filed on March 29, 2001, and incorporated herein by
                  reference.
         (7)      Filed as an exhibit to Form 10-QSB for the first quarter of
                  fiscal 2001, filed on May 14, 2001, and incorporated herein by
                  reference.
         (8)      Filed as an exhibit to Form 10-QSB for the third quarter of
                  fiscal 2001, filed on November 2, 2001, and incorporated
                  herein by reference.

<PAGE>


                                   SIGNATURES

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


                                        MERCURY WASTE SOLUTIONS, INC.

                                        by: /s/ BRAD J. BUSCHER
                                            ------------------------------
                                            Brad J. Buscher
                                            Chairman of the Board of Directors
                                             and Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on March 28, 2002.


NAME                                       TITLE
----                                       -----


    /s/ BRAD J. BUSCHER                    Chairman of the Board of Directors
-----------------------------------        and Chief Executive Officer
     Brad J. Buscher


    /s/ TODD J. ANDERSON                   Chief Financial Officer and Treasurer
-----------------------------------
     Todd J. Anderson


    /s/ MARK G. EDLUND                     President and Director
-----------------------------------
     Mark G. Edlund


    /s/ ALAN R. GEIWITZ                    Director
-----------------------------------
     Alan R. Geiwitz


    /s/ JOEL H. GOTTESMAN                  Director
-----------------------------------
     Joel H. Gottesman


    /s/ ROBERT L. ETTER                    Director
-----------------------------------
     Robert L. Etter


    /s/ FRANK L. FARRAR                    Director
-----------------------------------
     Frank L. Farrar


    /s/ PEDER A. LARSON                    Director
-----------------------------------
     Peder A. Larson



                                     - 23 -
<PAGE>


                                    CONTENTS

--------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT                                                F-2
--------------------------------------------------------------------------------

FINANCIAL STATEMENTS

   Consolidated balance sheets                                        F-3 - F-4

   Consolidated statements of operations                                    F-5

   Consolidated statements of shareholders' equity                          F-6

   Consolidated statements of cash flows                                    F-7

   Notes to consolidated financial statements                        F-8 - F-15

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


                                      F-1
<PAGE>


                          INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Mercury Waste Solutions, Inc. and Subsidiaries
Mankato, Minnesota

We have audited the accompanying consolidated balance sheets of Mercury Waste
Solutions, Inc. and Subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, shareholders' equity, 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 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 Mercury Waste
Solutions, Inc. and Subsidiaries as of December 31, 2001 and 2000, 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.

                                                         McGladrey & Pullen, LLP

Minneapolis, Minnesota
February 8, 2002


                                       F-2
<PAGE>


MERCURY WASTE SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000

<TABLE>
<CAPTION>
ASSETS (NOTE 3)                                                         2001            2000
-------------------------------------------------------------------------------------------------
<S>                                                                <C>              <C>
Current Assets
  Cash and cash equivalents                                        $     46,580     $     36,472
  Accounts receivable, less allowance for doubtful accounts
    of $50,000 in 2001 and $105,000 in 2000                           1,366,851        1,305,702
  Other current assets                                                  164,027          194,034
                                                                 --------------------------------
         TOTAL CURRENT ASSETS                                         1,577,458        1,536,208
                                                                 --------------------------------



Property and Equipment, at cost
  Leasehold improvements                                                719,670          520,115
  Furniture, fixtures, and equipment                                    457,820          416,471
  Plant equipment                                                     2,681,535        2,210,025
  Construction in progress                                               54,521               --
                                                                 --------------------------------
                                                                      3,913,545        3,146,611

  Less accumulated depreciation                                       1,897,851        1,482,423
                                                                 --------------------------------
                                                                      2,015,694        1,664,188
                                                                 --------------------------------


Other Assets
  Cash restricted for closure (Note 5)                                  105,904           99,109
  Intangible assets, net (Note 2)                                     1,417,886        1,887,124
                                                                 --------------------------------
                                                                      1,523,790        1,986,233
                                                                 --------------------------------
         TOTAL ASSETS                                              $  5,116,943     $  5,186,629
                                                                 ================================
</TABLE>

See Notes to Consolidated Financial Statements.


                                      F-3
<PAGE>


<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY                                      2001              2000
-----------------------------------------------------------------------------------------------------
<S>                                                                   <C>               <C>
Current Liabilities
  Revolving line of credit (Note 3)                                   $         --      $    850,000
  Current portion of long-term debt                                             --            19,430
  Accounts payable                                                         435,162           378,133
  Accrued expenses (Note 5)                                                359,203           528,278
  Deferred revenue                                                         836,055           331,014
                                                                    ---------------------------------
         TOTAL CURRENT LIABILITIES                                       1,630,420         2,106,855
                                                                    ---------------------------------

Long-Term Liabilities
  Revolving line of credit (Note 3)                                        500,000                --
  Closure funds (Note 5)                                                    45,000            45,000
                                                                    ---------------------------------
                                                                           545,000            45,000
                                                                    ---------------------------------

Commitments and Contingencies (Note 5)


Shareholders' Equity (Notes 6 and 7)
  Series A convertible Preferred Stock, $0.01 par value; $600,000
    liquidation value; 600 shares issued and outstanding                         6                 6
  Common stock, $0.01 par value; authorized 10,000,000 shares;
    issued and outstanding 3,500,097 shares                                 35,001            35,001
  Additional paid-in capital                                             5,597,043         5,547,043
  Accumulated deficit                                                   (2,690,527)       (2,547,276)
                                                                    ---------------------------------
                                                                         2,941,523         3,034,774
                                                                    ---------------------------------
         TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                   $  5,116,943      $  5,186,629
                                                                    =================================
</TABLE>


                                      F-4
<PAGE>


MERCURY WASTE SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                   2001             2000
---------------------------------------------------------------------------------------------
<S>                                                           <C>               <C>
Revenues (Note 8)                                             $  7,979,163      $  7,316,358
Cost of revenues                                                 4,773,215         4,400,256
                                                            ---------------------------------
         GROSS PROFIT                                            3,205,948         2,916,102
                                                            ---------------------------------

Operating expenses:
  Sales and marketing                                            1,318,137           953,093
  General and administrative                                     1,756,047         1,742,940
  Loss on disposal of property and equipment                        37,062                --
                                                            ---------------------------------
                                                                 3,111,246         2,696,033
                                                            ---------------------------------

         OPERATING INCOME                                           94,702           220,069

Interest income                                                      7,972             5,192
Interest expense (Note 3)                                         (123,924)         (391,435)
                                                            ---------------------------------
         NET LOSS                                                  (21,251)         (166,174)

Cash dividends on preferred stock (Note 6)                          72,000            27,600
Deemed dividend resulting from amortization of beneficial
  conversion feature (Note 6)                                       50,000           150,000
                                                            ---------------------------------
         NET LOSS APPLICABLE TO COMMON SHAREHOLDERS           $   (143,251)     $   (343,774)
                                                            =================================

Basic and diluted loss per common share                       $      (0.04)     $      (0.10)
                                                            =================================

Weighted-average number of common and common equivalent
  shares outstanding:
  Basic and diluted                                              3,500,097         3,487,651
                                                            =================================
</TABLE>

See Notes to Consolidated Financial Statements.


                                      F-5
<PAGE>


MERCURY WASTE SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2001 AND 2000

<TABLE>
<CAPTION>
                                        Common Stock               Preferred Stock       Additional                       Total
                                  ------------------------    ------------------------     Paid-In      Accumulated   Shareholders'
                                    Shares        Amount        Shares        Amount       Capital        Deficit         Equity
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>         <C>            <C>          <C>           <C>            <C>            <C>
Balance, December 31, 1999         3,480,097   $    34,801            --   $        --   $ 4,799,394    $(2,203,502)   $ 2,630,693
  Exercise of warrants                20,000           200            --            --          (180)            --             20
  Issuance of Preferred Stock
    and warrant, net of issuance
    costs of $9,165 (Note 6)              --            --           600             6       590,829             --        590,835
  Dividends paid on preferred
    stock (Note 6)                        --            --            --            --            --        (27,600)       (27,600)
  Amortization of beneficial
    conversion feature (Note 6)           --            --            --            --       150,000       (150,000)            --
  Compensation expense on stock
    option grants (Note 7)                --            --            --            --         7,000             --          7,000
  Net loss                                --            --            --            --            --       (166,174)      (166,174)
                                  -------------------------------------------------------------------------------------------------
Balance, December 31, 2000         3,500,097        35,001           600             6     5,547,043     (2,547,276)     3,034,774
  Dividends paid on preferred
    stock (Note 6)                        --            --            --            --            --        (72,000)       (72,000)
  Amortization of beneficial
    conversion feature (Note 6)           --            --            --            --        50,000        (50,000)            --
  Net loss                                --            --            --            --            --        (21,251)       (21,251)
                                  -------------------------------------------------------------------------------------------------
Balance, December 31, 2001         3,500,097   $    35,001           600   $         6   $ 5,597,043    $(2,690,527)   $ 2,941,523
                                  =================================================================================================
</TABLE>

See Notes to Consolidated Financial Statements.


                                       F-6
<PAGE>


MERCURY WASTE SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001 AND 2000

<TABLE>
<CAPTION>
                                                                              2001             2000
--------------------------------------------------------------------------------------------------------
<S>                                                                      <C>               <C>
Cash Flows From Operating Activities
  Net loss                                                               $    (21,251)     $   (166,174)
  Adjustments to reconcile net loss to net cash provided by
    operating activities:
    Depreciation                                                              486,912           495,078
    Amortization                                                              469,238           463,367
    Noncash compensation                                                           --             7,000
    Loss on disposal of property and equipment                                 37,062                --
    Changes in assets and liabilities:
      Accounts receivable                                                     (61,149)         (117,781)
      Other current assets                                                    194,004            30,510
      Accounts payable                                                         57,029            25,572
      Accrued expenses                                                       (169,075)           81,865
      Deferred revenue                                                        505,041           203,715
                                                                       ---------------------------------
         NET CASH PROVIDED BY OPERATING ACTIVITIES                          1,497,811         1,023,152
                                                                       ---------------------------------

Cash Flows From Investing Activities
  Purchases of property and equipment and intangibles                        (875,480)         (304,618)
  Increase in restricted cash                                                  (6,795)           (4,593)
                                                                       ---------------------------------
         NET CASH USED IN INVESTING ACTIVITIES                               (882,275)         (309,211)
                                                                       ---------------------------------

Cash Flows From Financing Activities
  Decrease in line-of-credit borrowings                                      (350,000)         (150,000)
  Payments on short and long-term debt                                       (183,428)         (517,498)
  Preferred stock dividends and issuance costs and warrant exercise           (72,000)          (36,745)
                                                                       ---------------------------------
         NET CASH USED IN FINANCING ACTIVITIES                               (605,428)         (704,243)
                                                                       ---------------------------------

         INCREASE IN CASH AND CASH EQUIVALENTS                                 10,108             9,698

Cash and Cash Equivalents
  Beginning                                                                    36,472            26,774
                                                                       ---------------------------------
  Ending                                                                 $     46,580      $     36,472
                                                                       =================================

Supplemental Disclosures of Cash Flow Information
  Cash payments for interest                                             $    123,925      $    413,687
                                                                       =================================

Supplemental Schedules of Noncash Investing and Financial Activities
  Debt converted to preferred stock                                      $         --      $    600,000
  Closure fund liability capitalized in property and equipment                     --            14,700
  Insurance financed with notes payable                                       163,998            59,350
                                                                       =================================
</TABLE>

See Notes to Consolidated Financial Statements.


                                      F-7
<PAGE>


MERCURY WASTE SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1.  NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS AND BASIS OF PRESENTATION: Mercury Waste Solutions, Inc. and
Subsidiaries (the Company) is in the business of providing mercury waste
treatment and recycling solutions to mercury waste generators of all sizes. The
Company operates in one business segment and offers the following services:

MERCURY WASTE RETORTING: The Company operates a mercury waste retorting facility
in Union Grove, Wisconsin, that utilizes proprietary equipment to process
mercury-containing waste and the residual powder from fluorescent lamps.

LAMP RECYCLING: The Company operates recycling facilities in Roseville,
Minnesota, and Union Grove, Wisconsin, that utilize proprietary equipment to
recycle mercury-containing fluorescent lamps.

In addition to the above recycling facilities, the Company has mercury waste
collection and storage facilities in Kenosha, Wisconsin; Indianapolis, Indiana;
Atlanta, Georgia; and Albany, New York.

A summary of the Company's significant accounting policies follows:

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

REVENUE RECOGNITION: The Company recognizes revenue for retorting and recycling
services upon receipt and acceptance of the waste materials at its facilities.
Concurrently, the estimated recycling and disposal costs for the waste materials
are accrued. For certain of its prepaid recycling programs, amounts billed prior
to services being performed are recorded as deferred revenue. Shipping and
handling charges billed to customers are included in revenues, and shipping and
handling costs incurred by the Company are included in cost of revenues.

PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All intercompany
transactions are eliminated from the consolidated financial statements.

RECENT PRONOUNCEMENTS NOT YET ADOPTED: In July 2001 FAS 141, "Business
Combinations", was issued which requires that all business combinations
initiated after June 30, 2001 be accounted for using the purchase method. Any
business combination transactions in the future would be accounted for under
this new guidance.

In July 2001 FAS 142, "Goodwill and Other Intangible Assets", was issued which
requires that goodwill be reviewed for impairment rather than amortized,
beginning on January 1, 2002. The adoption of FAS 142 in 2002 will have the
effect of reducing annual amortization expense by approximately $109,000.


                                      F-8
<PAGE>


MERCURY WASTE SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1.  NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In September 2001, the FASB issued Statement 143, Asset Retirement Obligations.
This Statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. The Statement will be effective for the Company's fiscal
year ending December 2003. The Company does not believe that the adoption of
this pronouncement will have a material effect on its financial statements.

In August 2001, the FASB issued Statement 144, Accounting for Impairment or
Disposal of Long-Lived Assets. This Statement addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. The Statement
will be effective for the Company's fiscal year ending December 2002. The
Company does not believe that the adoption of this pronouncement will have a
material effect on its financial statements.

CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, the Company
considers all cash and Treasury bills, commercial paper, and money market funds
with an initial maturity of three months or less to be cash equivalents. The
Company maintains its cash in bank deposits and money market accounts which, at
times, exceed federally insured limits. The Company has not experienced any
losses in such accounts.

DEPRECIATION AND AMORTIZATION: Depreciation and amortization are provided using
the straight-line method based on the estimated useful lives of individual
assets over the following periods:

                                                                           Years
--------------------------------------------------------------------------------
Furniture, fixtures, and equipment                                           3-7
Leasehold improvements                                             Life of lease
Acquired equipment and facility rights                                        10
Goodwill                                                                      10
Other intangibles                                                           5-10

ACCOUNTING FOR LONG-LIVED ASSETS: The Company reviews its property, equipment,
and intangible assets periodically to determine potential impairment. An
impairment loss would be measured by comparing the amount by which the carrying
value exceeds the fair value of the assets. To date, management has determined
that no impairment of property, equipment, and intangible assets exists.

LOSS PER SHARE: Basic per share amounts are computed, generally, by dividing net
income or loss by the weighted-average number of common shares outstanding.
Diluted per share amounts assume the conversion, exercise, or issuance of all
potential common stock instruments unless the effect is antidilutive, thereby
reducing the loss or increasing the income per common share.

Options, warrants, and common shares issuable from conversion of preferred stock
totaling 1,089,000 and 1,483,771 for the years ended December 31, 2001 and 2000,
respectively, were excluded from the calculation of diluted per share results
because their effect was antidilutive. Therefore, basic and diluted loss per
share amounts are the same for 2001 and 2000.


                                      F-9
<PAGE>


MERCURY WASTE SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1.  NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES: Deferred taxes are provided for on an asset and liability method
whereby deferred tax assets are recognized for deductible temporary differences
and operating loss and tax credit carryforwards, and deferred tax liabilities
are recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
basis. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.

FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were
used to estimate the fair value of each class of financial instrument:

RESTRICTED CASH: Due to the short-term nature of the restricted cash, the
carrying amount approximates fair value.

SHORT- AND LONG-TERM DEBT: The fair value of the short- and long-term debt is
estimated based on interest rates for the same or similar debt offered to the
Company having the same or similar remaining maturities and collateral
requirements. The carrying value of the short- and long-term debt approximates
its fair value.


NOTE 2.  INTANGIBLES

Intangible assets consist of the following:

                                                            December 31
                                                 -------------------------------
                                                        2001            2000
--------------------------------------------------------------------------------
Goodwill                                           $  1,087,447    $  1,087,447
Customer lists                                          807,260         807,260
Acquired equipment and facility rights                  650,000         650,000
Permits                                                 739,348         739,348
Other intangibles                                       190,000         190,000
                                                 -------------------------------
                                                      3,474,055       3,474,055

Less accumulated amortization                         2,056,169       1,586,931
                                                 -------------------------------
                                                   $  1,417,886    $  1,887,124
                                                 ===============================


NOTE 3.  REVOLVING LINE OF CREDIT

The Company has a $1,500,000 revolving line of credit with Bankers American
Capital Corporation (BACC), a related entity owned by the Company's largest
shareholder and CEO. The revolving line of credit requires monthly interest-only
payments at 6 percent over the prime rate, is secured by all Company assets, and
matures on June 30, 2003. The line of credit provides for certain restrictive
covenants, certain of which were waived subsequent to year-end. Interest expense
to related parties totaled $116,583 and $375,063 for the years ended December
31, 2001 and 2000, respectively.


                                      F-10
<PAGE>


MERCURY WASTE SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 4.  INCOME TAXES

The components of deferred tax assets are as follows:

                                                           December 31
                                                --------------------------------
                                                       2001             2000
--------------------------------------------------------------------------------
Depreciation and amortization                     $    298,000     $    175,000
Deferred revenue                                        20,000           34,000
Allowance for doubtful accounts                         16,000           42,000
Net operating loss                                     635,000          721,000
Less valuation allowance                              (969,000)        (972,000)
                                                --------------------------------
Net deferred tax assets                           $         --     $         --
                                                ================================

No provision for income taxes has been recorded for the years ended December 31,
2001 and 2000, due to losses incurred. A valuation allowance has been
established to offset all deferred tax assets, since it is uncertain whether the
Company will realize any future benefit from its loss carryforwards and other
deferred tax assets.

Federal income taxes are different from those which would be computed applying
the statutory federal rates to income before income taxes. The following is a
summary of the major items affecting federal and state income taxes:


                                                           December 31
                                                --------------------------------
                                                      2001             2000
--------------------------------------------------------------------------------
Federal tax benefit at statutory rates            $     (7,000)    $    (58,000)
State taxes, net of federal effect                          --           (8,000)
Nondeductible expenses                                  10,000            2,000
Change in valuation allowance                           (3,000)          64,000
                                                --------------------------------
                                                  $         --     $         --
                                                ================================

The deferred tax assets include a valuation allowance of $969,000 to reduce the
total to an amount that management believes will ultimately be realized.
Realization of deferred tax assets is dependent upon sufficient future taxable
income during the period when deductible temporary differences and carryforwards
are expected to be available to reduce taxable income. At December 31, 2001, the
Company has net operating losses of approximately $1,600,000 available to offset
future taxable income, of which $390,000 expires in 2012 and $1,210,000 expires
in 2019.


NOTE 5.  COMMITMENTS AND CONTINGENCIES

OPERATING LEASES: The Company leases its facilities and certain equipment under
noncancelable operating leases with unrelated third parties, expiring at various
times through May 2007. In addition, the Company leases office space from a
related party substantially owned by the Company's major shareholder and CEO.
The lease calls for monthly rent of $1,500 and expires in January 2003.
Management believes rental payments under this lease approximate amounts that
would be payable to unrelated third parties for a similar facility. Certain
facility leases require that the Company pay a portion of the real estate taxes,
maintenance, utilities, and insurance.


                                      F-11
<PAGE>


MERCURY WASTE SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 5.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

Approximate future minimum rental commitments, excluding common area costs,
under these noncancelable operating leases are:

Years ending December 31:
  2002                                                              $   384,000
  2003                                                                  251,000
  2004                                                                  197,000
  2005                                                                  191,000
  2006                                                                  138,000
  Thereafter                                                             51,000
                                                                  --------------
                                                                    $ 1,212,000
                                                                  ==============

Rental expense, including common area costs and short-term equipment rentals,
was approximately $599,000 and $587,000 for the years ended December 31, 2001
and 2000, respectively.

CONSULTING AGREEMENT: The Company has a consulting agreement effective through
January 2003 with BACC. Consulting expense for the years ended December 31, 2001
and 2000, totaled $120,000 and $60,000, respectively.

CLOSURE FUNDS: State environmental laws require that the Company provide
assurance funds that would be available to cover processing and closure costs
related to its facilities. In certain jurisdictions, the Company has funded this
obligation with cash held in restricted accounts, and in other jurisdictions
this obligation has been funded with insurance. As of December 31, 2001, the
Company had deposited $105,904 in restricted cash accounts. The Company also has
recorded a related liability of $45,000 representing an estimate to close its
current facilities, should closure ever be required.


NOTE 6.  SHAREHOLDERS' EQUITY

PREFERRED STOCK: In August 2000, BACC converted $600,000 of the revolving credit
line into $600,000 of Series A Convertible Preferred Stock (Preferred Stock) at
$1,000 per share. The Preferred Stock carries a 12 percent dividend rate payable
in cash monthly and is convertible into common stock six months following
issuance at a 25 percent discount from the 20-day average closing price per
common share prior to conversion, with a conversion ceiling of $1.82 per share.
The Company cannot issue more than 696,000 shares of common stock upon
conversion of the Preferred Stock. In the event full conversion of the Preferred
Stock is limited to the 696,000 shares, the Company will convert the remaining
Preferred Stock investment into Series B Preferred Stock under terms to be
negotiated. Furthermore, all of the Preferred Stock must be converted within 36
months of issuance.


                                      F-12
<PAGE>


MERCURY WASTE SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 6.  SHAREHOLDERS' EQUITY (CONTINUED)

Because the Preferred Stock can be converted to common stock at a 25 percent
discount to average market value, a "beneficial conversion feature," which was
valued at $200,000 upon issuance, is being amortized over the period from the
date of issuance to the date of earliest conversion, which is six months.
Amortization related to this beneficial conversion feature totaled $50,000 and
$150,000 for the years ended December 31, 2001 and 2000, respectively. As
consideration for the debt conversion, BACC was granted a warrant for the
purchase of 70,000 shares of common stock of the Company at an exercise price of
$1.44 per share, the market price of the Company's common stock on the date of
the warrant's issuance. The value ascribed to the warrant was $60,000, which is
included in additional paid-in capital resulting from issuance of Preferred
Stock and warrant as reflected on the shareholders' equity statement. The
warrant carries a five-year term and is exercisable six months after issuance.

WARRANTS: The Company has issued warrants in conjunction with various debt and
equity transactions. A summary of warrant activity for the years ended December
31, 2001 and 2000, is as follows:

<TABLE>
<CAPTION>
                                                        2001                        2000
                                            ---------------------------   --------------------------
                                                            Weighted-                    Weighted-
                                                             Average                      Average
                                               Shares    Exercise Price     Shares    Exercise Price
----------------------------------------------------------------------------------------------------
<S>                                            <C>         <C>              <C>         <C>
Outstanding at beginning of period             490,771     $     4.02       440,771     $     4.24
  Granted                                           --             --        70,000           1.44
  Exercised (at less than $0.01 per share)          --             --       (20,000)            --
  Forfeited                                   (200,771)          4.55            --             --
                                            --------------------------------------------------------
Outstanding at end of period                   290,000     $     3.64       490,771     $     4.02
                                            ========================================================

Weighted-average fair value of warrants
  granted during the year                                  $       --                   $     0.86
</TABLE>


NOTE 7.  STOCK OPTION PLAN

The Company adopted the Mercury Waste Solutions, Inc. Stock Option Plan (the
Plan) which permits the granting of "incentive stock options" meeting the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended,
and nonqualified options, which do not meet the requirements of Section 422. A
total of 371,000 shares of the Company's common stock have been reserved for
issuance pursuant to options granted or shares awarded under the Plan. Grants
under the Plan are accounted for following APB Opinion No. 25 and related
interpretations. Compensation cost of $7,000 was charged to income for stock
option grants during the year ended December 31, 2000. Had compensation cost for
all of the stock-based compensation plans been determined based on the grant
date fair value of awards (the method described in FASB Statement No. 123),
reported net loss and basic and diluted loss per common share applicable to
common shareholders on a pro forma basis would have been as shown below:


                                      F-13
<PAGE>


MERCURY WASTE SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 7.  STOCK OPTION PLAN (CONTINUED)

<TABLE>
<CAPTION>
                                                                                      2001                2000
------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                 <C>
Net loss applicable to common shareholders:
  As reported                                                                    $   (143,251)       $   (343,774)
  Pro forma                                                                          (148,680)           (397,034)
Basic and diluted loss per share:
  As reported                                                                           (0.04)              (0.10)
  Pro forma                                                                             (0.04)              (0.11)
</TABLE>

The fair value of each option granted in 2001 and 2000 were estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:

<TABLE>
<S>                                                                              <C>                 <C>
Expected dividend yield                                                                    --                  --
Expected stock price volatility                                                           129%                 94%
Risk-free interest rate                                                                     5%                  5%
Expected life of options (years)                                                            3                   3
</TABLE>

A summary of the status of the Plan at December 31, 2001 and 2000, and changes
during the years then ended is as follows:

<TABLE>
<CAPTION>
                                                            2001                                 2000
                                             ----------------------------------     ------------------------------
                                                                    Weighted-                          Weighted-
                                                                     Average                            Average
                                                  Shares         Exercise Price        Shares       Exercise Price
------------------------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>                  <C>           <C>
Outstanding at beginning of year                  297,000         $      2.64          297,000       $      2.64
  Granted                                          25,000                0.30               --                --
  Forfeited                                      (219,000)               3.19               --                --
                                             ---------------------------------------------------------------------
Outstanding at end of year                        103,000         $      0.89          297,000       $      2.64
                                             =====================================================================
</TABLE>

The weighted-average fair value of options granted during 2001 was $0.23.

The following table summarizes information about stock options outstanding at
December 31, 2001:

<TABLE>
<CAPTION>
                                      Options Outstanding                             Options Exercisable
                   -------------------------------------------------------   -------------------------------------
                         Number        Weighted-Average                            Number
                     Outstanding at        Remaining          Weighted-        Exercisable at       Weighted-
    Range of          December 31,     Contractual Life        Average          December 31,         Average
Exercise Prices           2001              (Years)        Exercise Price           2001          Exercise Price
------------------------------------------------------------------------------------------------------------------
<S>                          <C>                   <C>      <C>                        <C>         <C>
$0.30 - $0.50                89,000                5.66     $        0.44              64,000      $        0.50
$3.00 - $3.88                 9,000                6.72              3.49               5,400               3.49
$4.00 - $5.00                 5,000                5.90              4.25               4,000               4.25
                   -----------------------------------------------------------------------------------------------
                            103,000                5.76     $        0.89              73,400      $        0.92
                   ===============================================================================================
</TABLE>

There were 180,200 options exercisable at December 31, 2000, with a
weighted-average exercise price of $2.65.


                                      F-14
<PAGE>


MERCURY WASTE SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 8.  SOURCES OF REVENUE

The Company's revenues were derived from the following sources:

                                                       Years ended December 31
                                                     ---------------------------
                                                          2001           2000
--------------------------------------------------------------------------------
Mercury waste retorting                                       56%            52%
Lamp recycling                                                44%            48%
                                                     ---------------------------
                                                             100%           100%
                                                     ===========================


NOTE 9.  INCENTIVE SAVINGS PLAN

The Company adopted an incentive savings plan that covers all eligible
employees. Employees are permitted to make voluntary contributions up to 20
percent of their annual aggregate compensation. The plan also provides for a
Company-sponsored match to be determined each year. There was no match in 2001
and 2000. The Company has the option of making discretionary contributions. For
an employee to be eligible for matching and discretionary contributions, she/he
must complete one year of service. There were no discretionary contributions
made in 2001 or 2000.


                                      F-15