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, 2000
                                       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: $7,316,358

The aggregate market value of voting stock held by nonaffiliates of the
Registrant's Common Stock, as of March 5, 2001 was approximately $1,300,000.
(based on the last sale price of such stock as reported by NASDAQ Stock Market).

The number of shares outstanding of the Registrant's Common Stock as of March 5,
2001 was 3,500,097.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the 2001 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
(hereinafter referred to as the "Model 2000B"), 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 include 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.


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:


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o        Electrical and Electronic Applications utilize mercury in batteries,
         fluorescent lamps, wiring devices and switches.

o        Measurement and Control Instruments (thermometers and barometers),
         laboratories (testing) and dentists (dental amalgams) utilize mercury
         in products, testing and dental fillings.

o        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:

o        Prohibitions on the sale of fish with certain levels of mercury;
o        Publication of fish consumption advisories;
o        Passage of the Clean Water Act requiring paper companies, smelters,
         sludge incinerators and chloralkali plants to limit the release of
         mercury into the water;
o        Bans on uses of mercury connected with food production; and
o        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.

         The Company believes that federal and state governments have been
slower to react to the risks posed by fluorescent lamps and other
mercury-containing lamps because any individual lamp contains a relatively small
amount of mercury relative to other mercury wastes and governmental agencies
have recognized the difficulty of gathering widely dispersed fragile products
such as fluorescent lamps.

         In July 1994, the EPA published a proposed rule addressing the
management of spent mercury-containing lamps. In the proposal, the EPA presented
two options for changing the regulations governing spent mercury-containing
lamps: (1) Add mercury-containing lamps to the universal waste regulations; or
(2) conditionally exempt mercury-containing lamps from the regulations as a
hazardous waste. The universal waste regulations allow a few high volume post
consumer hazardous wastes, such as batteries, to be managed under streamlined
collection and handling rules. In late 1998, the EPA drafted the final rule to
add spent mercury-containing lamps to the list of universal wastes, thereby
reducing the handling requirements for the lamps but not exempting them from the
hazardous waste provisions of the Resource Conservation and Recovery Act of
1976, as amended. In December of 1998, the EPA sent the final rule to the White
House Office of Management & Budget ("OMB") for review. In March 1999, the OMB
finished its review and approved the rule proposed by the EPA. The new rule,
which adds fluorescent and other-mercury-containing lamps to the federal list of
universal wastes regulated under the Resource


<PAGE>


Conservation and Recovery Act ("RCRA"), was published in the Federal Register in
July 1999 and became effective in January 2000.

          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.

         In addition to the disposal of fluorescent and HID lamps, the disposal
of other mercury-containing products/wastes is strictly regulated under 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.

         The EPA's Office of Air Quality Planning and Standards and the Office
of Research and Development released the congressionally mandated study on
mercury in December 1997. The report provides an assessment of the magnitude of
U.S. mercury emissions by source, the health and environmental implications of
those emissions, and the availability and cost of control technologies. While it
is unclear what impact this study will have on future governmental legislation
and regulation, the content of the report reaffirms the Company's belief that
mercury is a danger to the environment if not recycled properly.

         The EPA in 1998 established the Persistent, Bioaccumulative Toxic
Pollutants ("PBTs") Project to focus further attention on reducing risks from
persistent, bioaccumulative toxic pollutants. PBTs are highly toxic, long
lasting substances that can build up in the food chain to levels harmful to
human and ecosystem health. PBTs include many familiar toxic substances such as
mercury and PCBs. There are many efforts ongoing and planned within the EPA. One
major objective of the PBT Project is to provide an organizing framework for
these actions. The Company believes the EPA is committed to using its full range
of tools and resources to address PBT issues. This will include enforcement of
laws that already target these types of pollution problems and could involve the
development of new or revised regulations.

         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


<PAGE>


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 2000, approximately 52% of the Company's revenues
consisted of fees paid 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 certain larger
mercury-containing items such as switches, batteries, thermostats, and filters.
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
mercury-containing lamp manufacturers.

         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. In particular,
the Company's continuous flow oven can process material in less than one hour,
while conventional retorting methods take approximately 24 hours.

         LAMP RECYCLING. In 2000, approximately 48% 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. The
Roseville facility utilizes a Model 2000B to recycle fluorescent lamps, while
the Union Grove Facility utilizes a Model 3000 lamp recycling machine, a second
generation model of the 2000B.

         Fluorescent lamps are transported to the Company's facilities using a
combination of Company-owned trucks and independent carriers that pick up
fluorescent lamps directly from the Company's customers. 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 Model 2000B and 3000 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


<PAGE>


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:

o        A consistent, nation-wide lamp management and compliance program;
o        Web-based ordering;
o        The option of automatic reordering;
         Web-based documentation that includes recycling certificates and
         transaction records by location; and,
o        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 past three years has been the securing of the
necessary storage to serve as the foundation for future growth.

         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 and has
experienced rapid consolidation in the past two years. Prior to this
consolidation, the industry was highly fragmented with no one company having a
national presence. The primary consolidator has been Superior Special Services,
Inc. ("Superior") a division of Superior Services, Inc. a Milwaukee-based waste
company. Superior Services, Inc. was purchased by the large French conglomerate
Vivendi, SA in late 1999. A summary of the Company's competition, starting with
Superior, is as follows:

>        SUPERIOR: Superior is primarily a lamp recycling company, but also has
         retorting capability. In the last 2 years, Superior has acquired lamp
         recycling companies with annualized revenue in excess of $20 million.


<PAGE>


         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 recent 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 $7.3 million in 2000, 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.

         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 separate 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


<PAGE>


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.

         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.


<PAGE>


         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.

         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


<PAGE>


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 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


<PAGE>


jurisdictions this obligation has been funded with insurance. At December 31,
2000, the Company has approximately $99,000 deposited in closure trust funds. In
addition, the Company had ongoing regulatory permit related costs that totaled
approximately $56,000 in 2000.

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. Although 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, 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 5, 2001 the Company employed 52 persons, all of which are
full-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.


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, 2002. The Company leases its 6,500 square foot
Roseville facility pursuant to a lease expiring in March 2001. 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 2001. The Company leases its 12,750 square foot
Atlanta storage facility pursuant to a lease expiring in February 2002, with one
three year renewal option. The Company leases its 2,600 square foot Albany
storage facility pursuant to a lease which expires in May 2001, with three
renewal options totaling nine 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 has 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 by NASDAQ for the periods indicated below:


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

                               Fiscal 2000                 Fiscal 1999
-------------------------------------------------------------------------------
                            High          Low           High          Low
                           -----         -----         -----         -----
First Quarter              $1.88         $0.78         $4.25         $2.38
Second Quarter             $1.50         $0.81         $4.00         $2.00
Third Quarter              $1.91         $0.80         $2.69         $0.88
Fourth Quarter             $1.31         $0.53         $1.50         $0.50
-------------------------------------------------------------------------------



         As of March 5, 2001, there were approximately 450 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 $7,316,358 for the year ended December
31, 2000 compared to $5,538,291 for the year ended December 31, 1999, an
increase of 32%.

         Mercury retorting revenues were $3,795,550 for the year ended December
31, 2000 compared to $2,626,461 for the year ended December 31, 1999, an
increase of 45%. The Company believes the increase in retort revenues in 2000
was due in part to the increase in large retort projects. 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, 2000, the Company had revenue from large retort
projects of approximately $650,000 as compared to $75,000 for the year ended
December 31, 1999. In addition, retort revenues increased in 2000 due to a
significant increase in shipments (approximately $250,000) received from a major
competitor due to their own operating constraints.

         In June 2000, one of the Company's larger retort customers declared
bankruptcy under Chapter 11 of the bankruptcy code. For the years ended December
31 2000 and 1999, revenues from this customer totaled 5% and 8% of total
revenues, respectively. As of December 31, 2000, the Company had pre-petition
receivables due from this


<PAGE>


customer of approximately $50,000, the majority of which has been reserved for
in the bad debt allowance. The Company has continued to receive shipments from
this customer under what management believes are acceptable terms to the
Company. While the Company believes it is not economically dependent on this
customer and believes business from this customer will continue, it cannot
predict the ultimate resolution of the bankruptcy and the resultant effect on
the Company's future retort revenues.

         Lamp recycling revenues were $3,520,808 for the year ended December 31,
2000 compared to $2,911,830 for the year ended December 31, 1999, an increase of
21%. The Company believes the increase in lamp recycling revenue is due
primarily to the continued growth of its LampTracker(TM) turnkey lamp recycling
program. The Company has generated this growth in the LampTracker(TM) program
from its current customer base, by securing new direct customers and by
establishing strategic relationships with large lighting distributors to sell
the program to their customers.

         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 the year ended December
31, 2000 compared to 27% for the year ended December 31, 1999.

         Mercury retorting gross profit percentages were 36% and 9% for the
years ended December 31, 2000 and 1999, 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. Lamp recycling gross profit percentages
were 44% and 43% for the years ended December 31, 2000 and 1999, respectively.
The Company believes the slight improvement in lamp recycling gross margins is
primarily due to increased sales, which better leveraged the Company's fixed
facility and personnel related costs.

         SALES AND MARKETING. Sales and marketing expense was $953,093 for the
year ended December 31, 2000 compared to $1,066,230 for the year ended December
31, 1999, a decrease of 11%. The decrease was due primarily to sales personnel
and related cost cuts made in the second half of 1999, offset in part by
increased sales commissions. The Company has been able to increase sales in 2000
despite a reduced sales staff due to focused efforts to sell its LampTracker(TM)
program through distributors and a focus on large quantity mercury waste
generators.

         GENERAL AND ADMINISTRATIVE. General and administrative expense was
$1,742,940 for the year ended December 31, 2000 compared to $1,987,494 for the
year ended December 31, 1999, a decrease of 12%. The decrease in 2000 is
primarily due to a net decrease in one-time costs incurred, from approximately
$200,000 in 1999 compared to approximately $50,000 in 2000. One-time costs in
1999 consisted of legal costs and penalties related to certain regulatory
matters and in 2000, consisted of costs related to the failed acquisition of the
Company by Environmental Technologies Corp. The decrease in expense in 2000 is
further due to personnel and related cost cuts made in the second half of 1999.

         INSURANCE CLAIM RECOVERY. The insurance claim recovery of $328,940
recorded for the year ended December 31, 1999 represents net proceeds received
from the insurance company related to a 1998 business interruption insurance
claim.

         INTEREST EXPENSE. Interest expense was $391,435 for the year ended
December 31, 2000 compared to $267,267 for the year ended December 31, 1999, an
increase of 46%. The increase in 2000 was due to higher interest rates and fees
related to the refinancing of the line of credit in March 2000.

         INCOME TAXES. There was no income tax expense (benefit) recorded in
2000 or in 1999. At December 31, 2000, the Company recorded a valuation
allowance of approximately $1,029,000 on 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, 2000, the
Company had net operating loss carryforwards of approximately $1,950,000, of
which $740,000 expire in 2012 and $1,210,000 expire in 2019.


<PAGE>


         PREFERRED STOCK DIVIDENDS. Preferred stock dividends for the year ended
December 31, 2000 totaled $177,600 and consisted of the following: i) cash
dividends paid on the Series A Preferred Stock that was issued in August, 2000
($27,600) and ii) a deemed dividend resulting from the amortization of the
beneficial conversion feature related to the Series A Preferred Stock
($150,000). 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 $343,774 and $1,499,472 for the years ended December 31, 2000
and 1999, respectively. Basic and diluted loss per share was $0.10 and $0.43 for
the years ended December 31, 2000 and 1999, respectively.


LIQUIDITY AND CAPITAL RESOURCES

         Net cash provided by operating activities for the year ended December
31, 2000 was $963,802, consisting primarily of the net loss of $166,174 offset
by non-cash items including depreciation and amortization of $958,445 and a
change in operating assets of $164,531.

         Cash flows used in investing activities were $309,211 for the year
ended December 31, 2000, consisting primarily of payments for capital
expenditures related to the Union Grove Facility.

         Cash flows used in financing activities were $644,893 for the year
ended December 31, 2000, consisting primarily of payments of $150,000 on the
Company's line of credit and payments on long-term debt of $458,148.

         The Company had a $1,000,000 revolving credit loan and a $1,200,000
term loan with Bankers American Capital Corporation (BACC), a related entity
owned by the Company's major shareholder and CEO. In March 2000, the term loan
and the revolving credit loan, with a combined outstanding balance of
$1,910,000, were consolidated into one $2,000,000 revolving line of credit with
BACC. The new revolving line of credit required monthly interest only payments
at 6% over the prime rate, was secured by all Company assets and matured on
December 31, 2000. As consideration for restructuring the loan, BACC required a
$120,000 cash commitment fee. In conjunction with this transaction, BACC also
sold a $1,000,000 participation in the Restructured Loan to the First National
Bank of Fulda, an entity owned by Frank Farrar, a Board member of the Company.
This participation was repaid in full by BACC on December 31, 2000.

         In order to maintain its minimum tangible net worth listing requirement
with NASDAQ, BACC, in August 2000, converted $600,000 of the revolving credit
line in exchange for $600,000 of Series A Convertible Preferred Stock
("Preferred Stock") at $1,000 per share. The Preferred Stock carries a 12%
dividend rate payable in cash monthly and six months following issuance 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 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.

         Because the Preferred Stock can be converted to common stock at a 25
percent discount to average market value, a "beneficial conversion feature,"
which is valued at $200,000, 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 $150,000 for the year
ended December 31, 2000. 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 issuance. The value assigned to the
warrant was $60,000, which is included in additional paid-in capital resulting
from the issuance of the Preferred Stock and warrant. The warrant carries a
five-year term and is exercisable six months after issuance.

         In conjunction with the debt conversion, the total amount available
under the revolving line of credit was reduced from $2,000,000 to $1,500,000.
Subsequent to year end, the revolving line of credit was extended to December
31, 2001 under similar terms. At December 31, 2000, line of credit borrowings
totaled $850,000.


<PAGE>


         In November 2000, the Company received a letter from Nasdaq stating
that the Company's common stock had failed to maintain a minimum bid price of
$1.00 per share over the last 30 consecutive trading days as required for
continued listing and was given until January 31, 2001 to regain compliance.
When the Company's stock price failed to reach and maintain the $1.00 level by
the January 31 deadline, the Company requested a hearing with Nasdaq and
requested an additional extension in order to comply with Nasdaq's minimum price
requirements. In January 2001, the Company also received notice from Nasdaq that
it failed to comply with Nasdaq's minimum public float requirement.

         The Company's hearing with Nasdaq occurred on March 9, 2001. On March
27, 2001, the Company received notice indicating that Nasdaq denied its appeal
for continued listing on the Nasdaq Small Cap Market. As a result of the
decision, the Company's shares were de-listed from the Nasdaq Small Cap Market
and began trading on the OTC Bulletin Board with the opening of the market on
March 28, 2001.

         The Company anticipates that its availability under its revolving
credit loan and cash generated by its operations will be sufficient to fund its
working capital needs, debt service and capital expenditures through at least
December 31, 2001, provided that revenues continue to increase, which cannot be
assured. Liquidity beyond December 31, 2001 will be dependent on increased
revenues and additional financing from BACC, which would include the renewal of
the Restructured Loan due December 31, 2001, or from another source on
affordable terms 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.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         The staff of the Securities and Exchange Commission has issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 summarizes some of the staff's interpretations of the
application of generally accepted accounting principles to revenue recognition.
The Company began following the interpretations in SAB No. 101 in 2000, and
management believes the adoption of SAB No. 101 had no 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.

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 the
Registration Statement on Form SB-2, as amended, filed with the Securities and
Exchange Commission (File No. 333-17399.)


<PAGE>


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, 2000.

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.


                                     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

         On October 10, 2000, the Company filed a Form 8-K regarding the
termination of the letter of intent with Environmental Technologies Corp. On
November 13, 2000, the Company filed a Form 8-K regarding a letter


<PAGE>


received from Nasdaq regarding a possible delisting. On December 14, 2000, the
Company filed a Form 8-K regarding the successful launch of its LampTracker(TM)
program.

(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.
         10.9     $1,500,000 Revolving Credit Promissory Note dated December 31,
                  2000 between Bankers American Capital Corporation and Mercury
                  Waste Solutions, 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.


<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 29, 2001.


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


<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-16

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




                                      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, 2000 and 1999, 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mercury Waste
Solutions, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.

Minneapolis, Minnesota
February 9, 2001


                                      F-2
<PAGE>


MERCURY WASTE SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
<TABLE>
<CAPTION>

ASSETS (NOTE 3)                                                    2000           1999
-----------------------------------------------------------------------------------------
<S>                                                              <C>           <C>
Current Assets
  Cash and cash equivalents                                     $   36,472     $   26,774
  Accounts receivable, less allowance for doubtful accounts
    of $105,000 in 2000 and $90,000 in 1999                      1,305,702      1,187,921
  Other current assets                                             194,034        165,194
                                                                ----------     ----------
       TOTAL CURRENT ASSETS                                      1,536,208      1,379,889
                                                                ----------     ----------

Property and Equipment, at cost
  Leasehold improvements                                           520,115        485,825
  Furniture, fixtures, and equipment                               416,471        437,116
  Plant equipment                                                2,210,025      2,034,369
  Construction in progress                                              --         53,015
                                                                ----------     ----------
                                                                 3,146,611      3,010,325

  Less accumulated depreciation                                  1,482,423      1,081,029
                                                                ----------     ----------
                                                                 1,664,188      1,929,296
                                                                ----------     ----------

Other Assets
  Cash restricted for closure (Note 5)                              99,109         94,516
  Intangible assets, net (Note 2)                                1,887,124      2,261,143
                                                                ----------     ----------
                                                                 1,986,233      2,355,659
                                                                ----------     ----------
       TOTAL ASSETS                                             $5,186,629     $5,664,844
                                                                ==========     ==========
</TABLE>

See Notes to Consolidated Financial Statements.


                                      F-3
<PAGE>
<TABLE>
<CAPTION>

LIABILITIES AND SHAREHOLDERS' EQUITY                                     2000                1999
----------------------------------------------------------------------------------------------------
<S>                                                                   <C>               <C>
Current Liabilities
  Line of credit (Note 3)                                             $ 850,000         $ 1,000,000
  Current portion of long-term debt                                      19,430           1,058,148
  Accounts payable                                                      378,133             352,561
  Accrued expenses (Note 5)                                             528,278             446,413
  Deferred revenue                                                      331,014             127,299
                                                                ------------------------------------
       TOTAL CURRENT LIABILITIES                                      2,106,855           2,984,421
                                                                ------------------------------------
Long-Term Liabilities
  Long-term debt, less current portion (Note 3)                              --              19,430
  Closure funds (Note 5)                                                 45,000              30,300
                                                                ------------------------------------
                                                                         45,000              49,730
                                                                ------------------------------------
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                  --
  Common stock, $0.01 par value; authorized 10,000,000 shares;
    issued and outstanding 3,500,097 shares in 2000 and
    3,480,097 shares in 1999                                             35,001              34,801
  Additional paid-in capital                                          5,547,043           4,799,394
  Accumulated deficit                                                (2,547,276)         (2,203,502)
                                                                ------------------------------------
                                                                      3,034,774           2,630,693
                                                                ------------------------------------
       TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                   $ 5,186,629         $ 5,664,844
                                                                ====================================
</TABLE>


                                      F-4
<PAGE>


MERCURY WASTE SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 1999
<TABLE>
<CAPTION>
                                                                   2000                1999
-------------------------------------------------------------------------------------------------
<S>                                                              <C>                 <C>
Revenues (Note 8)                                                $ 7,316,358         $ 5,538,291
Cost of revenues                                                   4,400,256           4,049,250
                                                            -------------------------------------
       GROSS PROFIT                                                2,916,102           1,489,041
                                                            -------------------------------------

Operating expenses:
  Sales and marketing                                                953,093           1,066,230
  General and administrative                                       1,742,940           1,987,494
                                                            -------------------------------------
                                                                   2,696,033           3,053,724
                                                            -------------------------------------

       OPERATING INCOME (LOSS)                                       220,069          (1,564,683)

Business interruption claims recovery, net (Note 5)                        -             328,940
Interest income                                                        5,192               3,538
Interest expense (Note 3)                                           (391,435)           (267,267)
                                                            -------------------------------------
       NET LOSS                                                     (166,174)         (1,499,472)

Cash dividends on preferred stock (Note 6)                            27,600                   -
Deemed dividend resulting from amortization of beneficial
  conversion feature (Note 6)                                        150,000                   -
                                                            -------------------------------------
       NET LOSS APPLICABLE TO COMMON SHAREHOLDERS                 $ (343,774)       $ (1,499,472)
                                                            =====================================

Basic and diluted loss per common share                           $    (0.10)       $      (0.43)
                                                            =====================================

Weighted-average number of common and common equivalent
  shares outstanding:
  Basic and diluted                                                3,487,651           3,480,097
                                                            =====================================
</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, 2000 AND 1999
<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, 1998              3,480,097    $ 34,801            -       $ -    $ 4,792,394   $ (704,030)  $ 4,123,165
  Compensation expense on stock option
    grants (Note 7)                             -           -            -         -          7,000            -         7,000
  Net loss                                      -           -            -         -              -   (1,499,472)   (1,499,472)
                                     ------------------------------------------------------------------------------------------
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 (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
                                     ==========================================================================================
</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, 2000 AND 1999
<TABLE>
<CAPTION>
                                                                           2000            1999
-----------------------------------------------------------------------------------------------------
<S>                                                                    <C>              <C>
Cash Flows From Operating Activities
  Net loss                                                             $  (166,174)     $ (1,499,472)
  Adjustments to reconcile net loss to net cash provided by
    (used in) operating activities:
    Depreciation                                                           495,078           479,959
    Amortization                                                           463,367           460,747
    Noncash compensation                                                     7,000             7,000
    Changes in assets and liabilities:
      Accounts receivable                                                 (117,781)          271,836
      Other current assets                                                 (28,840)          151,829
      Accounts payable                                                      25,572           (43,153)
      Accrued expenses                                                      81,865           109,071
      Deferred revenue                                                     203,715            20,262
                                                                     --------------------------------
        NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                963,802           (41,921)
                                                                     --------------------------------
Cash Flows From Investing Activities
  Purchases of property and equipment and intangibles                     (304,618)         (273,811)
  Increase in restricted cash                                               (4,593)           (3,238)
                                                                     --------------------------------
        NET CASH USED IN INVESTING ACTIVITIES                             (309,211)         (277,049)
                                                                     --------------------------------
Cash Flows From Financing Activities
  Increase (decrease) in line-of-credit borrowings                        (150,000)          780,000
  Payments on long-term debt                                              (458,148)         (509,271)
  Preferred stock dividends and issuance costs                             (36,745)                -
                                                                     --------------------------------
        NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES               (644,893)          270,729
                                                                     --------------------------------
        INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                     9,698           (48,241)

Cash and Cash Equivalents
  Beginning                                                                 26,774            75,015
                                                                     --------------------------------
  Ending                                                               $    36,472      $     26,774
                                                                     ================================
Supplemental Disclosures of Cash Flow Information
  Cash payments for interest                                           $   413,687      $    291,605
                                                                     ================================

Supplemental Schedules of Noncash Investing and Financial Activities
  Prepaid insurance funded by notes payable                            $         -      $     51,885
  Debt converted to preferred stock                                        600,000                 -
  Closure fund liability capitalized in property and equipment              14,700                 -
                                                                     ================================
</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
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.

REVENUE RECOGNITION: The staff of the Securities and Exchange Commission has
issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in
Financial Statements." SAB No. 101 summarizes some of the staff's
interpretations of the application of generally accepted accounting principles
to revenue recognition. The Company began following the interpretations in SAB
No. 101 in 2000, and management believes the adoption of SAB No. 101 had no
effect on its financial statements.

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.
Amounts billed prior to services being performed are recorded as deferred
revenue.

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.

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.


                                      F-8
<PAGE>


MERCURY WASTE SOLUTIONS, INC. AND SUBSIDIARIES

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

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

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 asset. To date, management has determined
that no impairment of property, equipment, and intangible assets exists.

EARNINGS 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 1,483,771 and 737,771 for the years ended December 31, 2000 and 1999,
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 2000 and 1999.

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
bases. 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
their fair value.


                                      F-9
<PAGE>


MERCURY WASTE SOLUTIONS, INC. AND SUBSIDIARIES

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

NOTE 2.     INTANGIBLES

Intangible assets consist of the following:

                                                    December 31
                                       -------------------------------------
                                              2000                1999
----------------------------------------------------------------------------
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             650,000
Other intangibles                               190,000             190,000
                                       -------------------------------------
                                              3,474,055           3,384,707

Less accumulated amortization                 1,586,931           1,123,564
                                       -------------------------------------
                                            $ 1,887,124         $ 2,261,143
                                       =====================================


NOTE 3.     DEBT ARRANGEMENTS

REVOLVING LINE OF CREDIT: Prior to March 2000, the Company had a $1,000,000
revolving credit loan and a $1,200,000 term loan with Bankers American Capital
Corporation (BACC), a related entity owned by the Company's largest shareholder
and CEO. In March 2000, the term loan and the revolving credit loan, with a
combined outstanding balance of $1,910,000, were consolidated into one
$2,000,000 revolving line of credit with BACC. The new revolving line of credit
required monthly interest-only payments at 6 percent over the prime rate, was
secured by all Company assets, and matured on December 31, 2000. As
consideration for restructuring the loan, BACC required a $120,000 cash
commitment fee.

In August 2000, $600,000 of the revolving line of credit was converted to Series
A Preferred Stock (see Note 6). In conjunction with the debt conversion, the
total amount available under the revolving line of credit was reduced from
$2,000,000 to $1,500,000. Subsequent to year-end, the revolving line of credit
was extended to December 31, 2001, under similar terms.


                                      F-10
<PAGE>


MERCURY WASTE SOLUTIONS, INC. AND SUBSIDIARIES

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

NOTE 3.     DEBT ARRANGEMENTS (CONTINUED)

LONG-TERM DEBT:

                                                            December 31
                                               ---------------------------------
                                                     2000                1999
--------------------------------------------------------------------------------
8%-14% notes payable, due in varying monthly
 installments to April 2001, unsecured          $    19,430         $   106,207
Prime plus 6% term note payable to BACC,
 restructured in March 2000                               -             840,000
10% notes payable to related party, due in
  monthly installments of $11,550 to December 1,
  2000, secured by all assets of the Company              -             131,371
                                               ---------------------------------
                                                     19,430           1,077,578

Less current maturities                              19,430           1,058,148
                                               ---------------------------------
                                                $         -         $    19,430
                                               =================================


Interest expense to related parties totaled $375,063 and $247,345 for the years
ended December 31, 2000 and 1999, respectively.


NOTE 4.     INCOME TAXES

The components of deferred tax assets are as follows:

                                                            December 31
                                               ---------------------------------
                                                     2000                1999
--------------------------------------------------------------------------------
Depreciation and amortization                   $   175,000         $    96,000
Deferred revenue                                     34,000              51,000
Allowance for doubtful accounts                      42,000              34,000
Net operating loss                                  778,000             784,000
Less valuation allowance                         (1,029,000)           (965,000)
                                               ---------------------------------
Net deferred tax assets                         $        --         $        --
                                               =================================

No provision for income taxes has been recorded for the years ended December 31,
2000 and 1999, 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.


                                      F-11
<PAGE>


MERCURY WASTE SOLUTIONS, INC. AND SUBSIDIARIES

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

NOTE 4.     INCOME TAXES (CONTINUED)

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
                                         ---------------------------------------
                                                    2000               1999
--------------------------------------------------------------------------------
Federal tax benefit at statutory rates           $  (58,000)         $ (514,000)
State taxes, net of federal effect                   (8,000)            (73,000)
Nondeductible expenses                                2,000              52,000
Change in valuation allowance                        64,000             535,000
                                         ---------------------------------------
                                                 $        -          $        -
                                         =======================================

The deferred tax assets include a valuation allowance of $1,029,000 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 that deductible temporary differences and carryforwards
are expected to be available to reduce taxable income. At December 31, 2000, the
Company has net operating losses of approximately $1,950,000 available to offset
future taxable income, of which $740,000 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 $1,250 and expires in January 2002.
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.

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

Years ending December 31:

2001                                                       $   366,000
2002                                                           277,000
2003                                                           186,000
2004                                                           136,000
2005                                                           120,000
Thereafter                                                     185,000
                                                    -------------------
                                                           $ 1,270,000
                                                    ===================

Rental expense, including common area costs and short-term equipment rentals,
was approximately $587,000 and $586,000 for the years ended December 31, 2000
and 1999, respectively.


                                      F-12
<PAGE>


MERCURY WASTE SOLUTIONS, INC. AND SUBSIDIARIES

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

NOTE 5.     COMMITMENTS AND CONTINGENCIES (CONTINUED)

CONSULTING AGREEMENT: The Company has a consulting agreement effective through
January 2001 with BACC. The consulting fees were $10,000 per month and were
changed to $5,000 per month effective July 1999. Consulting expense for the
years ended December 31, 2000 and 1999, totaled $60,000 and $90,000,
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, 2000, the
Company had deposited $99,109 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.

BUSINESS INTERRUPTION CLAIM: In October 1998, the Company experienced a
processing incident that caused a business interruption during the fourth
quarter at the Union Grove facility. For the year ended December 31, 1999, the
Company recorded a net recovery on the related insurance claim of $328,940,
which consisted of gross proceeds received from the insurance company of
$434,000, net of direct expenses.

REGULATORY NOTICE: In February and July 1999, the Company received a Notice of
Violation from the Wisconsin Department of Natural Resources (WDNR) alleging
violation of certain state hazardous waste regulations relating to its Union
Grove Facility. The WDNR's letter identified several alleged violations and
informed the Company it has the authority to impose monetary penalties. The
Company responded to these violations and entered into settlement negotiations
with the State of Wisconsin on this civil proceeding. At December 31, 1999, the
Company accrued $100,000 for fines and other costs related to this action. In
June 2000, a final settlement agreement was reached with the State of Wisconsin,
which included a civil fine of $75,000, payable over three years.

NOTE 6.     SHAREHOLDERS' EQUITY

PREFERRED STOCK: In order to maintain the Company's minimum tangible net worth
listing requirement with NASDAQ, 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-13
<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, 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 $150,000 for the year ended December
31, 2000. 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, 2000 and 1999, is as follows:
<TABLE>
<CAPTION>
                                                            2000                                1999
                                              ----------------------------------  ---------------------------------
                                                                  Weighted-                          Weighted-
                                                                   Average                            Average
                                                   Shares       Exercise Price        Shares       Exercise Price
-------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>               <C>              <C>               <C>
Outstanding at beginning of period                     440,771           $ 4.24           420,771           $ 4.36
  Granted                                               70,000             1.44            20,000             1.75
  Exercised (at less than $0.01 per share)             (20,000)               -                 -                -
                                              ---------------------------------------------------------------------
Outstanding at end of period                           490,771           $ 4.02           440,771           $ 4.24
                                              =====================================================================
Weighted-average fair value of warrants
  granted during the year                                                $ 0.86                             $ 0.89

</TABLE>

NOTE 7.     STOCK OPTION PLAN

In September 1996, the Company adopted the Mercury Waste Solutions, Inc. Stock
Option Plan (the Plan). The Plan 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 for the each of the years ended December 31, 2000 and
1999. 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 on a pro forma basis would have been as shown below:

                                                     2000               1999
--------------------------------------------------------------------------------
Net loss applicable to common shareholders:
  As reported                                     $(343,774)       $ (1,499,472)
  Pro forma                                        (397,034)         (1,536,904)
Basic and diluted loss per share:
  As reported                                         (0.10)              (0.43)
  Pro forma                                           (0.11)              (0.44)


                                      F-14
<PAGE>


MERCURY WASTE SOLUTIONS, INC. AND SUBSIDIARIES

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


NOTE 7.     STOCK OPTION PLAN (CONTINUED)

The fair value of each option granted in 1999 was estimated on the date of the
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:

Expected dividend yield                                     -
Expected stock price volatility                         94.00%
Risk-free interest rate                                  5.10%
Expected life of options (years)                            3


A summary of the status of the Plan at December 31, 2000 and 1999, and changes
during the years then ended is as follows:
<TABLE>
<CAPTION>
                                                2000                                1999
                                   -------------------------------  ---------------------------------
                                                    Weighted-                          Weighted-
                                                     Average                            Average
                                     Shares       Exercise Price        Shares       Exercise Price
-----------------------------------------------------------------------------------------------------
<S>                                      <C>               <C>              <C>               <C>
Outstanding at beginning of year         297,000           $ 2.64           269,000           $ 2.80
  Granted                                      -                -            73,000             2.63
  Forfeited                                    -                -           (45,000)            3.64
                                   ------------------------------------------------------------------
Outstanding at end of year               297,000           $ 2.64           297,000           $ 2.64
                                   ==================================================================
</TABLE>

The weighted-average fair value of options granted during 1999 was $1.61.

The following table summarizes information about stock options outstanding at
December 31, 2000:
<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           2000              (Years)        Exercise Price           2000          Exercise Price
-------------------------------------------------------------------------------------------------------------------
<S>                        <C>                <C>            <C>                 <C>                <C>
$0.50                      64,000             5.00           $ 0.50              48,000             $ 0.50
$2.63 - $3.88             198,000             7.57             3.06             111,200               3.29
$4.00 - $5.00              35,000             6.87             4.18              21,000               4.18
                   ------------------------------------------------------------------------------------------------
                          297,000             6.93           $ 2.64             180,200             $ 2.65
                   ================================================================================================
</TABLE>

There were 130,800 options exercisable at December 31, 1999, with a
weighted-average exercise price of $2.81.

NOTE 8.     SOURCES OF REVENUE

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

                                                      2000               1999
--------------------------------------------------------------------------------
Mercury waste retorting                                 52%                 47%
Lamp recycling                                          48%                 53%
                                            ------------------------------------
                                                       100%                100%
                                            ====================================


                                      F-15
<PAGE>


MERCURY WASTE SOLUTIONS, INC. AND SUBSIDIARIES

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

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 2000
and 1999. 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 2000 or 1999.


                                      F-16