SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


     FORM 10-KSB/A - ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                       SECURITIES EXCHANGE ACT OF 1934

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934
      For the year ended December 31, 1999

[  ]  TRANSITION  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
      EXCHANGE ACT OF 1934 for the transition period from
      _________________ to _______________

      Commission File Number 000-26547

                              CLEARWORKS.NET, INC.
--------------------------------------------------------------------------------
            (Exact Name of Registrant as specified in its Charter)

            Delaware                                          76-0576542
----------------------------------                     -------------------------
  State or other Jurisdiction of                            I.R.S. Employer
   Incorporation or Organization                           Identification No.

                  2450 Fondren, Suite 200, Houston, Texas 77063
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(Address of Principal Executive Offices)                      (Zip Code)

                                 (713) 334-2595
 ------------------------------------------------------------------------------
              (Registrant's Telephone Number, including Area Code)

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

      Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [ ]

      The issuers revenues for the year ended December 31, 1999 were $3,032,000.

      The aggregate market value of the voting stock held by non-affiliates is
$133,951,000.

Common Stock, $.001 par value                                21,919,717
------------------------------                      ----------------------------
Title of Class                                      Number of Shares outstanding
                                                         at March 31, 2000

One exhibit included.
<PAGE>
                              CLEARWORKS.NET, INC.

                                      INDEX

                                                                        PAGE NO.
                                                                        --------
PART I    Item 1.  Business                                                 3
          Item 2.  Properties                                               9
          Item 3.  Legal Proceedings                                        9
          Item 4.  Submission of Matters to a Vote of Security Holders     12

PART II   Item 5.  Market for Registrant's Common Equity and Related       13
                      Stockholder Matters
          Item 6.  Selected Financial Data                                 13
          Item 7.  Management's Discussion and Analysis of Financial       14
                   Condition and Results of Operations
          Item 7A. Quantitative and Qualitative Disclosures of Market Risk 18
          Item 8.  Financial Statements and Supplementary Data             19
          Item 9.  Changes in and Disagreements with Accountants on        37
                      Accounting and Financial Disclosure

PART III  Item 10. Directors and Executive Officers of the Registrant      37
          Item 11. Executive Compensation                                  40
          Item 12. Security Ownership of Certain Beneficial Owners and     43
                      Management
          Item 13. Certain Relationships and Related Transactions          44

PART IV   Item 14. Exhibits, Financial Statement Schedules and Reports on  45
                      Form 8-K
<PAGE>
                                     PART I

      THIS ANNUAL REPORT ON FORM 10-KSB (THE "ANNUAL REPORT") CONTAINS CERTAIN
FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, (THE "EXCHANGE ACT"), INCLUDING STATEMENTS
THAT INDICATE THE COMPANY "BELIEVES", "EXPECTS" AND "ANTICIPATES" OR SIMILAR
EXPRESSIONS. THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE
COMPANY TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED.

ITEM 1.     BUSINESS

STRATEGY

      ClearWorks.net, Inc. ("ClearWorks" or the "Company") is an integrated
communications carrier providing broadband data, video and voice communication
services to residential and commercial customers throughout the United States.
These services are provided over fiber-optic networks ("Fiber-To-The-Home" or
"FTTH") which it designs, constructs, owns and operates inside large residential
master-planned communities and office complexes. The Company's strategy is to
obtain multi-year contracts with major land developers and commercial builders
to deliver ultra high-speed dedicated Internet access, multi-channel digital
video, on-demand video rentals, local and long distance voice communications,
security monitoring and other enhanced services via fiber-optic connections to
the inside of its customers' residences and offices. The Company is taking
advantage of the convergence of telephone, cable TV, satellite TV, Internet and
telecommunications technologies to accomplish its objectives. The Company's
efforts are designed to take advantage of the deregulation of the
telecommunications industry based on the passage by the US Congress of the
Telecommunications Act of 1996.

      ClearWorks initially began developing voice, video and data integration
capabilities to address the needs of businesses. However, during early
operations, it recognized an opportunity to utilize its expertise to develop and
deliver Bundled Digital Services to residential customers directly. The Company
then developed a proprietary solution to deliver its digital services package
directly to consumers, and it developed technology that can utilize a high speed
Internet connection for the delivery of all services.

      ClearWorks began construction of its initial head-end facility in Houston,
Texas during March 1999 in the Canyon Gate at Northpointe sub-division and began
delivering its Bundled Digital Services to residents of Northpointe in July
1999. The Company is currently providing Bundled Digital Services to homeowners
and generating monthly bills for services. The percentage of homeowners at
Northpointe utilizing the Company's services, which are eligible for these
services is in excess of 90%. The Company has structured the pricing for its
Bundled Digital Services to make it advantageous, both from a price and
convenience basis, for the homeowner by providing the homeowner a full package
of voice, video and data services on one bill.

      The Company plans to expand these services within Houston, Texas and
additional areas within the United States which have been identified as fast
growing areas for the construction of single family homes and multi-family
dwelling units. Utilizing this strategy, the Company has established offices in
Las Vegas, Nevada, the San Antonio/Austin, Texas area, Phoenix, Arizona and it
intends to open a new office to be located in the Dallas/Ft. Worth, Texas area.
The Company intends to contract with large land developers to deploy its
fiber-optic infrastructure to new construction single family homes, multi-family
dwelling units and commercial building developments. The Company currently has
contracts with five land developers to provide its services to eight
sub-divisions in three cities, and presently is in negotiations with additional
land developers to expand its area of operations. The contracts with the land
developers allow them to differentiate their communities from their competitors'
by providing state-of-the-art technology. The Company pays the land developers a
percentage of the revenues from the respective community, thus providing a
stream of cash flow that was not previously available to the land developers.
The contracts with the land developers provide the Company a preferred
telecommunications vendor status within the community, marketing support by the
land developer and head-end facility space within the community to build its
integrated central office in order to provide its services.
<PAGE>
RESEARCH AND DEVELOPMENT

      The Company spent approximately $164,000 on research and development
("R&D") during 1999 and had no R&D expenditures during 1998. The Company expects
to continue to commit substantial resources for R&D in order to improve and
expand the performance and capability of its Bundled Digital Services.

PRINCIPAL OPERATING COMPANIES

      The Company has four wholly owned subsidiaries which constitute its
principal operating companies: ClearWorks Communications, Inc., a Texas
corporation; ClearWorks Home Systems, Inc., a Texas corporation, ClearWorks
Structured Wiring Services, Inc., a Texas corporation (formerly known as
Millennium Integration Technologies, Inc.) and ClearWorks Integration Services,
Inc., a Texas corporation, (formerly known as Archer Mickelson Technologies,
L.L.C., a Texas limited liability company). ClearWorks Integration has two
wholly owned subsidiaries named United Computing Group, Inc. and United
Consulting Group, Inc., both of which are Texas corporations. ClearWorks
Communications has four wholly owned subsidiaries named Northpointe Telecom
Services, L.L.C, Stonegate Telecom, L.L.C., Teravista Telecom Services, L.L.C.
and Southwest Telecom Services, L.L.C. By operating these limited liability
companies together, the Company believes it has an advantage since each company
is delivering similar services to both residential and commercial customers,
much like the regional Bell operating companies do today. Additionally, the
Company can utilize its proprietary technology to deliver voice, video and data
solutions to both sets of customers via the Internet.

      ClearWorks Communications, Inc. subsidiary focuses primarily on the
delivery of integrated voice, video and data services to the residential and
commercial marketplace. Its proprietary technology enables it to proceed into
the voice, video and data market for bundled consumption. The Company deploys
dial tone, multi-channel digital video services, dedicated Internet
connectivity, on-demand video rental, voicemail, security monitoring and a
community intranet as a Bundled Digital Service into the home or office. The
market for these customers is just beginning to develop and is benefited by a
strategic business alliance with other companies in the technology market.
ClearWorks Communications is providing solutions to consumers by implementing
technology, both within the community and within the home. Within the
residential community, ClearWorks Communications is installing fiber optic
backbones to deliver voice, video and data solutions directly to consumers.

      ClearWorks Home Systems, Inc. subsidiary focuses primarily on developing
residential accounts for deployment of structured wiring solutions, security
system installation and monitoring and sale of audio and visual equipment to new
construction single family homes and multi-family dwelling units. ClearWorks
Home Systems provides structured wiring solutions to sub-divisions whose
developers have contracts with the Company to provide its Bundled Digital
Services.

      ClearWorks Structured Wiring Services, Inc. subsidiary focuses primarily
on developing commercial and educational accounts for deployment of structured
wiring solutions. These customers consist of companies, school districts and
universities that seek outside expertise to deploy fiber-optic and copper-based
structured wiring solutions. ClearWorks Structured Wiring Services generates
revenue through time and materials billings, consulting contracts, service and
support contracts. The Company does not intend for ClearWorks Structured Wiring
Services to focus on product sales, but rather on acting as a provider of
structured wiring solutions.

      ClearWorks Integration Services, Inc. subsidiary provides information
technology staffing personnel, network engineering, vendor evaluation of network
hardware, resale of network hardware, implementation of network hardware and
support of private and enterprise networks. Additional services include desktop
rollouts, multi-platform supports and Local Area Networks ("LAN"), as well as
Wide Area Networks ("WAN") analysis and server deployment. Through its United
Computing Group and United Consulting Group subsidiaries, ClearWorks Integration
is engaged in the Internet consulting, design and implementation business. This
business includes the sale, installation and integration of computer hardware
equipment as well as information technology and staffing.

      The Company's products are designed to enhance its ability to provide
complex technology solutions for enterprise-wide networks. The Company is an
authorized nonexclusive reseller of networking products, which enables it to
deliver integration services. Generally, its products are technically
sophisticated and require a high
<PAGE>
level of integration services for successful deployment. The Company has
nonexclusive reseller relationships with many industry-leading vendors of
information technology products, including Compaq, Computer Associates, Network
Associates, IBM, Hewlett Packard, Alcatel Cabling Systems and 3Comm. It also
purchases technology from Cisco Systems, Netscape and General Instruments. It is
a value-added reseller; that is, it purchases hardware and software directly
from the manufacturer and resells these products at a higher price (retail)
directly to its customers. Its relationships with these leading aggregators of
computer hardware and software enable it to provide clients with competitive
product pricing, ready product availability and services such as electronic
product ordering, product configuration and testing and product warehousing and
delivery. Moreover, these relationships enable it to reduce inventory costs by
not carrying inventory normally associated with the delivery of these products.

      ClearWorks and its subsidiaries are nonexclusive value added resellers of
fiber and copper for companies such as Seicor Corporation, Lucent Technologies,
Panduit, Leviton Telecom, AMP Incorporated, Ortronics and Belldon Wire & Cable.
There are no binding long-term commitments with respect to any of the business
relationships referred to in this or the preceding paragraph of this section.
Each of these relationships can be terminated by either party at any time.

      REVENUES. For the twelve months ended December 31, 1999, the Company
derived 53% of its revenues from integration services, 46% of its revenues from
network cabling and wiring and 1% of its revenues from delivery of its Bundled
Digital Services. The Company anticipates revenues from delivery of its Bundled
Digital Services will be a major portion of its total revenue in the future.

      MARKETS, MARKETING AND ADVERTISING. Although the Company's core market is
the Houston, Texas area, potential markets include most suburban and urban areas
in the United States and perhaps in other countries. Most of its marketing comes
from direct efforts by employees. The remainder of its marketing is in the form
of referrals from suppliers, together with a limited amount of advertising in
trade magazines and newsletters.

      PRINCIPAL SUPPLIERS. ClearWorks Structured Wiring Services, Inc. purchases
all of its fiber, IBM Home Director boxes, switches, connectors, interducts, and
routers from several vendors, principally from G.E. Supply, Anixter, Accu-Tech
Supply, LiteComm Supply Company, TVC Communications, and Rexel/Summers.

      ClearWorks Integration Services, Inc. purchases most of its software
products from Tech Data or directly from the respective manufacturers of these
products.

      ClearWorks Communications, Inc. purchases most of its supplies and
equipment from TVN Entertainment Corp., B&H Commercial Services, TVC
Incorporated and Siecor Corporation. ClearWorks Communications also purchases
supplies and software from General Instruments, Cisco Systems, and Netscape,
either directly from the respective manufacturers of these products or through
distributors.

      The Company has not experienced shortages or other difficulties in
obtaining components, supplies or other materials. The Company currently
anticipates that components, supplies and other necessary materials will remain
readily available.

      WEBSITE. ClearWorks maintains an Internet website at
http://www.clearworks.net where information about its services and investor
relations can be found. The website provides customers with a mechanism to
request additional information on services and allows customers to obtain
contact information for particular services and support. However, the Company
does not earn any revenues from the operation of the website, which is
informational only.

BACKGROUND

      On September 18, 1997 Millennium Integration Technologies, L.L.C. (the
"LLC") was organized as a Texas limited liability company. At the time, the LLC
concentrated mainly on software administration and networking integration.
Shannon D. McLeroy, President of ClearWorks, was the founder of the LLC.
<PAGE>
      Michael T. McClere, the current Chief Executive Officer, joined the
management of the LLC in early 1998, and on April 9, 1998 the LLC reorganized
itself into Millennium Integration Technologies, Inc., a Texas corporation
("Millennium Texas").

      On April 27, 1998, Southeast Tire Recycling, Inc. ("Southeast"), a
publicly traded Florida corporation with no ongoing operations that previously
had been engaged in the tire recycling business, purchased the stock of
Millennium Texas. As a result, Millennium Texas became a wholly owned subsidiary
of Southeast. The exchange of shares between Millennium Texas and Southeast was
accounted for as a recapitalization of the Millennium Texas operations into the
corporate shell of Southeast. At the time of this transaction, Southeast was an
empty corporate shell.

      On May 12, 1998, Southeast merged with and into ClearWorks Technologies,
Inc., the Company. At the time of the merger, ClearWorks was a Delaware
corporation with no stockholders, and the stockholders of Southeast became
ClearWorks stockholders. The exchange of shares with Southeast was accounted for
as a second recapitalization of the Millennium Texas operations into ClearWorks'
corporate shell.

      The Company then proceeded to expand its high tech business by acquiring
InfraResources, L.L.C. through its wholly owned subsidiary, Millennium Texas, on
May 26, 1998. The Company paid $40,000 cash and 80,000 shares of its common
stock, which was valued at $2.06 per share for the purposes of this transaction,
in exchange for all the outstanding interests of InfraResources. The funding for
this acquisition was derived from ClearWorks revenues. InfraResources is a
provider of high-end consulting services with respect to integrated solutions
for client/server based computing.

      On May 29, 1998, ClearWorks acquired all the outstanding shares of Team
Renaissance, Inc. in exchange for 156,250 shares of common stock, which was
valued at $2.06 per share for the purposes of this transaction. Team Renaissance
is a provider of network computing solutions that specializes in delivering
systems integration services, design services, and structured wiring solutions.

      On November 19, 1998, ClearWorks purchased all the assets of Vidatel
Communications, a sole proprietorship owned by Juan "John" Diaz, which is
engaged in the business of laying fiber optic and copper based cable. ClearWorks
issued Mr. Diaz 98,039 shares of common stock, which was valued at $1.53 per
share for the purposes of this transaction, in exchange for the Vidatel assets.
The Company did not incur liabilities in this transaction except for assuming a
note payable bearing interest at 13.46%, due $513 monthly until September 2002,
in the principal amount of $18,078.

      On May 14, 1999, ClearWorks acquired all the membership interests of
Archer-Mickelson Technologies, L.L.C. ("Archer") and Archer became its wholly
owned subsidiary. Archer provides the integration services described above in
the description of the business of ClearWorks Integration Services, Inc. The
Company paid $50,000 and 75,000 shares of common stock for the purchase of
Archer, which was valued at $1.00 per share for the purposes of this
transaction. In addition, the Company agreed to pay obligations of Archer in the
amount of $5,547. The funding for the cash portion of this acquisition was
derived from the Company's revenues. On June 3, 1999, Archer reorganized itself
into ClearWorks Integration Services, Inc., a Texas corporation.

      In April 1999, the Company began using the name ClearWorks.net, Inc. The
primary reason for the use of the new name, which refers to the Internet, is
that the Company utilizes Internet protocol technology in providing Bundled
Digital Services to its customers. ClearWorks activities also relate to the
Internet because its use of high-speed fiber optics cable is anticipated to aid
in reducing Internet bottlenecks. By the time the Company started using the new
name, ClearWorks had three wholly owned subsidiaries:

      (1) ClearWorks Integration Services, Inc. (formerly Archer-Mickelson
Technologies),

      (2) ClearWorks Structured Wiring, Inc. (formerly Millennium Integration
Technologies, Inc.), and

      (3) ClearWorks Communications, Inc. (which has two wholly owned
subsidiaries called Northpointe Telecom Services, L.L.C. and Stonegate Telecom,
L.L.C.).
<PAGE>
      On December 30, 1999, the Company acquired all the outstanding stock of
two Texas corporations, United Computing Group, Inc. and United Consulting
Group, Inc. (collectively referred to as "UCG"). Both companies became wholly
owned subsidiaries of ClearWorks Integration Services, Inc. UCG provides
Internet consulting, design, and implementation, including the sale,
installation and integration of computer hardware equipment, as well as
information technology and staffing. This type of business is typically referred
to in the technology industry as an accelerator company. ClearWorks paid
2,000,000 shares of common stock for the purchase of UCG, which was valued at
$2.41 per share for the purposes of this transaction. In addition, ClearWorks
provided UCG a $500,000 loan, the proceeds of which were used to repay loans to
UCG made by former shareholders of UCG and distribution of UCG retained
earnings. The funding for the cash portion of this acquisition was derived from
funds raised in a private placement of the Company's common stock.

      On January 10, 2000, the Company formed ClearWorks Home Systems, Inc., a
Texas Corporation. ClearWorks Home Systems provides structured wiring solutions,
security wiring and security system installations and monitoring and audio and
video solutions for residential customers. On March 17, 2000, ClearWorks Home
Systems acquired all of the assets of Secure-All Security, a sole proprietorship
owned by Ronnie Evans. Secure-All Security is in the business of selling and
installing security systems and monitoring the systems it installs. The Company
paid Ronnie Evans $225,000 and 34,000 shares of common stock for the assets of
Secure-All Security. The common stock was valued at $9 per share for purposes of
this transaction. The Company assumed liabilities of Secure-All Security
totaling $131,000.

BUSINESS DEVELOPMENTS

      ClearWorks has formed a strategic business alliance with Land Tejas
Development, L.L.C. ("Land Tejas"), a major real estate developer in Houston,
Texas. The Company currently has begun installing a state-of-the-art
multi-channel video, telephone and Internet communications network, which is
referred to as Bundled Digital Services, in each of the Land Tejas development
projects in Houston, Texas. The first development project to receive this
network was the Canyon Gate at Northpointe project. The project began delivering
Bundled Digital Services in July 1999 and fiber optic cable will be installed in
each of the Land Tejas communities. On March 26, 1999, ClearWorks entered into a
service agreement with Land Tejas Development at Northpointe, L.L.C. and the
Canyon Gate at Northpointe Home Owner's Association to begin installing Bundled
Digital Services in the Northpointe subdivision. Moreover, on March 26, 1999,
ClearWorks Communications, Inc. formed a wholly owned subsidiary company,
Northpointe Telecom Services, L.L.C., and it is anticipated that this company
will service the Northpointe area. It is further anticipated that the Bundled
Digital Services will provide many benefits to the homeowners in these
communities, and the Company believes its efforts will receive national
attention based on the types of services delivered and the innovation associated
with its delivery.

      At Northpointe homes are connected to receive the Company's cable and
Internet transmission services, with basic local telephone exchange service
newly available at the election of each homeowner. After a complimentary
three-month period of full Bundled Digital Services, which cost is incurred by
the land developer, the Company anticipates substantially all these homes will
elect to subscribe to Bundled Digital Services at their own expense.

      The Bundled Digital Services installation at Canyon Gate communities is
anticipated to be completed over a span of three years ranging through mid-year
2002.

BUNDLED DIGITAL SERVICES

      ClearWorks believes that there is substantial demand from customers for
bundled telecommunications services provided on a single monthly bill and with a
single point of contact for all sales and services. Through its Bundled Digital
Services business, the Company can provide a broad array of telecommunications
services aimed at addressing customers' needs, including basic local exchange
services (i.e. local telephone services or dialtone), enhanced switch services
(i.e. telephone options such as call waiting, caller identification, voicemail,
etc.), Internet services, and video channel transmission services.

      The Company's Bundled Digital Services customers receive video, audio and
data signals transmitted by nearby television and radio broadcast stations,
terrestrial microwave relay services and communications satellites.
<PAGE>
The signals are then amplified and distributed by optical fiber to the premises
of customers who pay a fee for the service. In many cases, video signals also
originate and distribute local programming. The Company's multi-channel video
systems generally will carry up to 1,000 digital channels.

HIGH-SPEED INTERNET ACCESS

      The use of computers, online services and the Internet has increased
significantly over the last few years. The Company believes in the revenue
opportunities of Internet-related services and is taking advantage of these
opportunities by developing and providing high-speed Internet access via its
advanced network and point to point optical fiber. By using Bundled Digital
Services network technology that delivers multi-channel video and telephone
services, users can access the Internet at speeds up to 200 times faster than a
digital subscriber line ("DSL").

SERVICE AND PROGRAMMING CHARGES

      Subscribers to the Company's Bundled Digital Services generally will be
charged monthly fees based on the level of service selected, either Basic
Bundled Services, Enhanced Bundled Services or Maximum Bundled Services. Monthly
prices for the various levels of services (excluding services offered on a
per-channel or per-program basis) range generally from $65 to $140 for
residential customers. Other services offered include equipment rentals, usually
for an additional monthly fee. Systems offering pay-per-view movies generally
charge between $4 and $6 per movie, and systems offering pay-per-view events
generally charge between $6 and $50, depending on the event. A one-time
installation fee generally is charged for connecting subscribers to the Bundled
Digital Services, however, the installation fee has been waived for the
residents at Canyon Gate at Northpointe.

SALES FORCE

      The Company's sales professionals are trained to provide commercial and
residential customers with sales and customer service relating to all of its
services. Once a customer contracts with ClearWorks for services, the Company
assigns a single account relations representative who has the responsibility of
proactively contacting the customer to confirm satisfaction with existing
products and to promote new services and programs. The Company's sales staff
works to gain a better understanding of the customer's operations in order to
develop innovative, application-specific solutions to each customer's needs.
Sales personnel locate potential business customers by several methods,
including customer referral, market research, cold calling and other networking
alliances.

POSSIBLE FUTURE ACQUISITIONS

      The Company has examined the size and highly fragmented composition of its
industry and has identified the potential to carry out a market roll-up within
the systems integration marketplace. Initially, the Company intends to expand
its business through selective, strategic acquisitions of other companies with
complementary businesses, which companies' revenues range from $1 million to $15
million. It is believed that companies in this range of revenues may be
receptive to the Company's acquisition program because often they are too small
to be identified by larger public companies as acquisition targets or to
independently attempt their own public offering. In particular, ClearWorks
intends to focus its acquisition strategy on candidates which have a proven
record of delivering high-quality technical services and a customer base of
large and mid-sized companies and which could benefit from the Company's
anticipated access to sources of financing as well as its long-term growth
strategy.

      Generally, acquisition candidates are introduced to the Company through
mutual colleagues or referrals from suppliers and vendors and, occasionally,
companies that are seeking to be acquired present themselves to the Company. The
Company anticipates using its common stock as the primary source of funding
future acquisitions. ClearWorks typically conducts its acquisitions by entering
into stock-for-stock transactions or asset purchase agreements.

      ClearWorks continues to seek out acquisition candidates that are
identified in the manner described above and is currently exploring acquisition
possibilities, on a preliminary basis, with a number of possible candidates.
<PAGE>
COMPETITIVE LOCAL EXCHANGE CARRIER

      On August 26, 1999, the Public Utility Commission of Texas approved the
Company's application for a service provider certificate of operating authority
("SPCOA") and the Company became a Competitive Local Exchange Carrier ("CLEC").
Furthermore, on February 15, 2000, the Company's application for SPCOA was
approved by the Nevada Public Utility Commission. As a result, the Company
qualifies as a CLEC in Nevada and may offer telecom services in Nevada.

      ClearWorks pursued its SPCOA applications because the Telecommunications
Act of 1996 mandated that the monopoly in local exchange service be opened to
competition. Thus, incumbent local exchange carriers ("ILEC's") must allow other
companies to interconnect with existing phone networks and buy facilities from
the owners of these networks. These steps are critical for competitors to
solicit customers with the assurance that they will receive quality service.
Becoming a CLEC gave the Company access to Southwestern Bell, GTE Southwest,
Nevada Bell, Sprint and Sprint dial tone, thus saving potentially tens or
hundreds of millions of dollars on infrastructure investments.

      There can be no assurance that appropriate regulatory approvals will
continue to be obtained, or that approvals required with respect to the
telephone and cable services for the Bundled Digital Services market will be
obtained. The enactment by Federal, state and local governments of new laws or
regulations or a change in the interpretation of existing regulations could
affect the market for the Company's services in a material negative manner if
these laws or regulations required significant capital outlays or restrictions
on the Company's business, or if the Company were otherwise not in compliance
with any newly enacted regulations.

EMPLOYEES

      The Company had a total of 108 employees at March 15, 2000 in addition to
independent contractors. The Company currently outsources human resources
functions for employment administration and benefits management services. None
of its employees is represented by a labor union with respect to his or her
employment by the Company. The Company has not experienced any organized work
stoppages and believes that its relationship with its employees is good.

RISK FACTORS

THE COMPANY HAD OPERATING LOSSES IN THE PAST AND THERE IS NO GUARANTEE THAT IT
WILL AGAIN BE PROFITABLE.

The Company had net losses of $5,159,000 for the fiscal year ended December 31,
1999 and of $2,826,000 for the three-month period ended March 31, 2000. Although
it did have revenues of $3,032,000 for the fiscal year ended December 31, 1999,
there is no assurance that the Company's future operations will be profitable.
If the Company does not become profitable in the future, the value of its common
stock may fall and it could have difficulty obtaining funds to continue its
operations. The Company expects to continue incurring operating losses during
the foreseeable future while it expands its operations, infrastructure, service
offerings and customer base in its target markets.

SUCCESS OF THE COMPANY'S BUNDLED SERVICES DEPENDS ON ITS ABILITY TO FORM AND
MAINTAIN ALLIANCES WITH REAL ESTATE DEVELOPERS.

      The Company's ability to form alliances with real estate developers to
install video, telephone and Internet communications networks in residential
development projects is necessary for the success of its business plan. The
costs associated with installing such bundled digital services in existing
buildings or homes is prohibitive. Therefore, the Company's ability to expand
its bundled digital services is dependent on the alliances with land developers.
The Company cannot assure that it can maintain those alliances or develop new
alliances. Further, the Company depends on the developers to promote its bundled
digital services to purchasers of new homes. The Company cannot assure that the
new home purchasers will utilize its services or that the Company will be able
to recoup its costs of installing the networks. Although the Company has been
delivering its bundled digital services to a number of customers, the Company
cannot assure that customer demand for its bundled services will continue to
grow or be maintained.

<PAGE>

IF THE COMPANY DOES NOT SUCCESSFULLY MAINTAIN ITS KEY RELATIONSHIPS WITH THIRD
PARTY VENDORS, ITS BUSINESS COULD BE ADVERSELY AFFECTED.

      The Company relies on other companies, such as IBM, SIECOR, and Alcatel,
to supply certain key components for its bundled digital services, including,
technology to facilitate delivery of the bundled digital services, fiber optics
cabling and fiber technology and core electronics. While the Company has not
experienced delays or problems for such components, the Company cannot assure
that it will be able to obtain such services on the scale and within the time
frames required by it at an affordable cost, or at all. Any failure to obtain
such services on the scale and within the time frames required by the Company at
an affordable cost, or at all, would have a material adverse effect on its
business. Further, the loss of one or more of its relationships with these
organizations could have a material adverse effect on our business, financial
condition and results of operations.

THE COMPANY MAY EXPERIENCE DIFFICULTIES DEVELOPING AND IMPLEMENTING ITS
MARKETING AND BUSINESS PLANS.

      Although the Company began operations in 1997, its first launch of its
bundled digital services occurred in the second quarter of 1999. As a result,
its operating, sales and management and other strategies are still being
developed, and the Company does not have a history which may give it an
indication of how the Company may respond to situations presented to the
Company. The Company's revenues were primarily derived from its integration and
wiring services. The Company anticipates focusing its wiring services, not on
product sales, but on structured wiring solutions to be implemented for its
bundled digital services. If the Company is not successful in implementing its
marketing and business plans on a timely basis or otherwise effectively managing
its development, its business, operating results and financial condition will be
materially adversely affected.

THE SUCCESSFUL COMPLETION OF ANY STRATEGIC INVESTMENTS AND BUSINESS COMBINATIONS
MAY REQUIRE SUBSTANTIAL CAPITAL AND THE INTEGRATION OF THE ACQUIRED BUSINESS.

      The Company may pursue one or more acquisitions of companies engaged in
businesses similar to or related to its business. As consideration for such
acquisitions, the Company may be required to incur additional indebtedness or
issue capital. The Company may not be able to obtain such financing on favorable
terms or at all. In addition, the Company may from time to time engage in
discussions with potential business partners looking toward formation of
business combinations or strategic alliances that would expand the reach of its
networks or services. The Company also may look to potential strategic investors
who have expressed an interest in making an investment in it. Such acquisitions,
combinations or alliances, if consummated, could divert our resources and the
Company's management's time, and would require integration with its existing
services. The Company may not be successful in completing any acquisitions,
combinations or alliances or, if consummated, these transactions may not be on
terms favorable to the Company or successfully integrated into our operations.

THE COMPANY IS GROWING RAPIDLY AND MAY NOT BE ABLE TO SUSTAIN ITS RAPID GROWTH.

      Because of the Company's small size, the Company desires to continue to
grow rapidly in order to achieve economies of scale. Although there is no
assurance that this rapid growth will occur, to the extent that it does occur it
will place a significant strain on its financial, technical, operational and
administrative resources. If the Company fails to continue to upgrade its
technical, administrative, operating and financial control systems, or if
unexpected difficulties occur, the Company's business, financial condition and
results of operations could be negatively affected and its growth rate could be
slowed or eliminated. There can be no assurance that the Company has made
adequate allowances for the costs and risks associated with this expansion, that
its systems, procedures or controls will be adequate to support its operations
or that its management will be able to achieve the rapid execution necessary to
successfully offer its products and services and implement our business plan
simultaneously.

      The Company's rapid growth has placed, and in the future will continue to
place, a significant strain on its administrative, operational and financial
resources. Failure to retain and attract additional management personnel who can
manage our growth effectively would have a material adverse effect on the
Company and its growth. To manage its growth successfully, the Company will have
to continue to improve and upgrade operational, financial, accounting and
information systems, controls and infrastructure as well as expand, train and
manage its employees. Any failure by the Company's management to effectively
anticipate, implement and manage the changes required to sustain its growth
could have a material adverse effect on its business, results of operations and
financial condition. The Company may not be able to effectively manage such
change.

<PAGE>

THE COMPANY'S SUCCESS DEPENDS ON MAINTAINING THE EMPLOYMENT OF KEY PERSONNEL.

      The Company is currently managed by a small number of key management and
operating personnel whose efforts will largely determine its success. The
Company's success also depends upon its ability to hire and retain qualified
operating, marketing, sales, financial, accounting and technical personnel.
Competition for qualified personnel in the telecommunications industry is
intense and, accordingly, the Company may not be able to continue to hire or
retain necessary personnel. The loss of key management personnel would likely
have a material adverse impact on the Company's business, results of operations
and financial condition.

THE COMPANY DEPENDS ON THE AVAILABILITY OF SKILLED LABOR WHICH IS DIFFICULT TO
ATTRACT AND RETAIN.

      The Company is growing rapidly, and its future success will depend to a
significant extent upon its ability to attract, train and retain skilled
technical, management, sales, marketing and consulting personnel. Competition
for skilled personnel is intense. The Company may not be successful in
attracting and retaining the personnel necessary to conduct its business
successfully. In addition, the Company's inability to attract, hire, assimilate
and retain such personnel could have a material adverse effect on our business,
financial condition and results of operations.

<PAGE>

THE INDUSTRY IN WHICH THE COMPANY OPERATES IS SUBJECT TO RAPID TECHNOLOGICAL
CHANGE WHICH COULD RENDER ITS OPERATIONS OBSOLETE.

      The voice, data and video convergence industry is subject to rapid and
significant technological changes that materially affect the continued use of
fiber optic cable or the electronics utilized in our networks. Future
technological changes, including changes related to the emerging wireline and
wireless transmission and switching technologies and Internet-related services
and technologies, could have a material adverse effect on the Company's
business, results of operations and financial condition.

      The market for the Company's services is characterized by rapidly changing
technology, evolving industry standards, emerging competition and frequent new
product and service introductions. The Company may not be able to successfully
identify new service opportunities and develop and bring new services to market.
The Company's pursuit of necessary technological advances may require
substantial time and expense, and the Company may not succeed in adapting its
services to meet these rapid changes.

THE COMPANY OPERATES IN A HIGHLY COMPETITIVE INDUSTRY AND MANY OF ITS
COMPETITORS HAVE MORE RESOURCES THAN THE COMPANY.

      The Company's bundled digital services business is in intense competition
with many cable, telephone and Internet companies, and competition is expected
to increase. Our ability to compete depends upon many factors, some of which are
beyond the Company's control, including the timing of introduction of new
products and enhancements to existing products that the Company and its
competitors have developed, customer service and support, sales and marketing
efforts, and the performance, price and reliability of its products. The Company
operates in a highly competitive environment and currently does not have a
significant market share in any of its markets. The Company currently represents
less than 1% of the domestic cable, telecommunications, and Internet market. The
Company's competition includes Internet service providers, telecommunications
companies and cable television companies that have longer operating histories,
longer customer relationships, and substantially greater financial, management,
technical development, sales, marketing, and other resources. Most of its actual
and potential competitors have substantially greater financial, technical,
marketing and other resources (including brand name recognition) than the
Company does. Also, the continuing trend toward business alliances in the
telecommunications industry and the absence of substantial barriers to entry in
the cable data and Internet services markets, could give rise to significant new
competition.

      In each of its markets, the Company's primary competitor with respect to
telecommunications is the incumbent local exchange carrier commonly referred to
in our industry as an ILEC, serving that geographic area. ILECs are established
providers of dedicated and local telephone services to all or virtually all
telephone subscribers within their respective service areas. ILECs also have
long-standing relationships with regulatory authorities at the federal and state
levels. The Company is considered a competitive local exchange carrier known in
our industry as a CLEC. In addition to the ILECs, the Company also faces strong
competition from other CLECs. While recent FCC administrative decisions and
initiatives provide increased business opportunities to voice, cable, data and
Internet service providers such as the Company, they also provide the ILECs with
increased pricing flexibility for their private line and special access and
switched access services and increased opportunities for other CLECs. If future
regulatory decisions afford the ILECs increased access services, pricing
flexibility or other regulatory relief, such decisions could also have a
material adverse effect on the Company and other competitors to the ILECs.

      In the local exchange market, the Company also faces competition or
prospective competition from several other carriers, most of which have
significantly greater financial resources than the Company. For example, AT&T
Communications, MCI Worldcom and Sprint Corporation which historically have been
purely long distance carriers, have each begun to offer local telecommunications
services in major U.S. markets using their own facilities or by resale of the
ILECs', other CLECs' or other providers' unbundled network elements or services.
In addition to these long distance service providers, entities that currently
offer or are potentially capable of offering local switched services include
companies that have previously been known purely as competitive access
providers, cable television companies, electric utilities, microwave carriers,
wireless telephone system operators and large customers who build private
networks. These entities, upon entering into appropriate interconnection
agreements or resale agreements with other CLECs or with ILECs, including
regional Bell operating companies, can offer single source local and long
distance services. New start-up companies also may enter markets and provide
services in


                                      -1-
<PAGE>

competition with the Company. In addition, a continuing trend towards business
combinations and alliances in the telecommunications industry may create
significant new competitors. Most of these combined entities may have resources
far greater than the Company's resources. These combined entities may provide a
bundled package of telecommunications products, that is in direct competition
with the products offered by the Company.

      The Company will also face competition from various fixed wireless
services, wireless communications services, FCC Part 15 unlicenced wireless
radio devices, and other services that use existing point-to-point wireless
channels on other frequencies. The FCC has issued or is in the process of
issuing licenses for these services to provide broadband integrated
telecommunications services on a point-to-point and/or point-to-multipoint
basis. Many of these service providers have already raised substantial capital
and have commenced building their wide-area networks, primarily in urban areas.
Upon entering into appropriate interconnection agreements with ILECs, these
service providers can provide integrated voice and data services comparable to
those currently offered by the Company or intended to be offered by the Company.
Many of these companies have announced plans to target small and medium-sized
businesses and may enjoy certain advantages over the Company with respect to the
speed with which they can deploy their own facilities directly serving end user
premises to the extent that they need not lease or resell "last mile" facilities
from the ILEC.

      With respect to mobile wireless telephone system operators, the FCC has
authorized cellular personal communications service and other cellular mobile
radio service, also known as CMRS, providers to offer wireless services to fixed
locations, rather than just to mobile customers, in whatever capacity such CMRS
providers choose. Previously, cellular providers could provide service to fixed
locations only on an ancillary or incidental basis. This authority to provide
fixed as well as mobile services will enable CMRS providers to offer wireless
local loop service and other services to fixed locations (e.g., office and
apartment buildings) in direct competition with us and other providers of
traditional wireless telephone service.

THE COMPANY OPERATES IN A HIGHLY REGULATED INDUSTRY AND THERE CAN BE NO
ASSURANCE THAT THE COMPANY WILL RECEIVE THE REGULATORY APPROVALS TO CONDUCT ITS
OPERATIONS.

      Under Federal Telecommunications Act of 1996, commonly referred to as the
FTA, state and local legal requirements which prohibit or have the effect of
prohibiting any entity from providing any intrastate or interstate
telecommunications service are preempted. States and local authorities continue
to have the authority to regulate, however, and to require telecommunications
carriers to obtain certification, licenses, permits or similar approvals before
providing services. Thus, the Company's ability to provide additional intrastate
services is independent upon its receipt of requisite state regulatory approval.
The inability to obtain the necessary approvals could have a material adverse
effect on its business, results of operations and financial condition. The
Company has received CLEC status in Texas and Nevada. The Company can make no
assurances that it will maintain such certification or that it will receive CLEC
status in any other state.

      The FTA imposes a duty upon all ILECs to negotiate in good faith with
potential competitive telecommunications providers such as us to provide
interconnection to the ILEC's network, exchange local traffic, make unbundled
network elements available and permit resale of most local telephone services.
In the event that negotiations with the ILECs do not succeed, the Company has a
right to seek arbitration with the state regulatory authority of any unresolved
issues. Arbitration decisions involving interconnection arrangements in several
states have been challenged and appealed to federal courts.

      Although passage of the FTA should result in increased opportunities for
companies that are competing with the ILECs or other CLECs, current or future
regulations adopted by the FCC or state regulators or other legislative or
judicial initiatives relating to the telecommunications industry could have a
material adverse effect on the Company's business. In addition, although the FTA
makes entry into the in-region long distance market by regional Bell operating
companies conditional upon their offering of local interconnection arrangements
to other telecommunications service providers, these ILECs may nonetheless delay
the timely implementation of the required interconnection and other legal
requirements.

      Internet-related information services are not currently subject to direct
regulation by the FCC or any other U.S. agency other than regulation applicable
to businesses generally. The FCC is considering whether additional regulations
should be applied to Internet services and whether Internet service providers,
or ISPs, should pay

                                      -2-
<PAGE>

interexchange access charges and universal service fees. Moreover, as discussed
below, the FTA and similar state laws create civil and criminal penalties for
the knowing transmission of "indecent" material over the Internet. Additionally,
the FTA may permit telecommunications companies, regional Bell operating
companies or others to increase the scope or reduce the cost of their Internet
access services. These and other changes in the regulatory environment relating
to the telecommunications or Internet-related services industry could have an
adverse effect on our Internet-related services business.

      The Company can make no assurances that appropriate regulatory approvals
will continue to be obtained, or that approvals required with respect to the
telephone and cable services for its bundled services will be obtained. The
enactment by Federal, state and local governments of new laws regulations or a
change in the interpretation of existing regulations could cause a material
adverse affect for the market for the Company's services if these laws or
regulations require significant capital outlays or restrictions on the Company's
businesses or if the Company fails to maintain compliance with any newly enacted
regulations.

THE POTENTIAL LIABILITY OF INTERNET ACCESS PROVIDERS IS UNCERTAIN.

      The law governing the liability of on-line services providers and Internet
access providers for participating in the hosting or transmission of
objectionable materials or information currently is unsettled. Because the
Company does not hold itself out as editing or otherwise controlling the content
of communications that traverse its systems, the Company is generally unaffected
by government content regulation.

      However, the ultimate imposition of potential liability on Internet access
providers for information which they host, distribute, or to transport could
materially change the way they must conduct business. To avoid undue exposure to
such liability, Internet access providers could be compelled to engage in
burdensome investigation of subscriber materials or even discontinue offering
services altogether. Any such event could have a material adverse effect on the
Company's business, results of operations and financial condition.

THE SUCCESS OF THE COMPANY'S BUNDLED DIGITAL SERVICES IS SUBJECT TO MANY FACTORS
BEYOND THE COMPANY'S CONTROL.

      The costs associated with integrating bundled digital services into
existing homes or buildings is prohibitive. Therefore, the success of the
Company's bundled digital services is dependent on residential and commercial
development and construction. As such, the Company is subject to the same
national and regional economic and demographic factors that affect demand in the
housing industry generally. These factors include inflation, the costs of raw
materials, interest rates, the availability of financing, and consumer
confidence. Any of these factors could cause development of residential and
commercial properties to be limited or discontinued which could cause a material
adverse effect on the success on the Company's bundled digital services.

THERE IS A LIMITED TRADING MARKET FOR OUR COMMON STOCK.

      On May 25, 2000, the Company's common stock was listed on the American
Stock Exchange. The Company has no way to estimate what its average daily
trading volume for its common stock will be. The Company cannot assure that a
more active trading market will develop. Because there is a small public float
in the Company's common stock and it is thinly traded, sales of small amounts of
common stock in the public market could materially adversely affect the market
price for the Company's common stock. If a more active market does not develop,
the Company may not be able to sell shares in the future promptly, for prices
that the Company deems appropriate, or perhaps at all.

A BLOCK OF THE COMPANY'S STOCK IS OWNED BY INSIDERS.

      As of June 28, 2000, the Company's current officers and directors as a
group, together with their affiliates, beneficially owned approximately 33% of
our stock. Accordingly, these stockholders will have substantial influence over
policies and its management.


                                      -3-
<PAGE>

THE COMPANY HAS NOT PAID DIVIDENDS AND DOES NOT EXPECT TO IN THE FORESEEABLE
FUTURE, SO THE COMPANY'S STOCKHOLDERS WILL NOT BE ABLE TO RECEIVE A RETURN ON
THEIR INVESTMENT WITHOUT SELLING THEIR SHARES.

      The Company has not paid dividends since its inception and does not expect
to in the foreseeable future, so the Company's stockholders will not be able to
receive a return on their investments without selling their shares. The Company
presently anticipates that all earnings, if any, will be retained for
development of its business. Any future dividends will be subject to the
discretion of the board of directors and will depend on, among other things,
future earnings, the Company's operating and financial condition, the Company's
capital requirements and general business conditions.

THE MARKET PRICE OF THE COMPANY'S COMMON STOCK COULD BE ADVERSELY AFFECTED BY
SALES OF SUBSTANTIAL AMOUNTS OF COMMON STOCK IN THE PUBLIC MARKET OR THE
PERCEPTION THAT SUCH SALES COULD OCCUR.

      As of June 28, 2000, the Company had 24,334,925 shares of common stock
outstanding. Approximately 4,510,606 additional shares of common stock were
issuable upon the exercise of outstanding options, warrants and convertible
securities. The market price of our common stock could be adversely affected by
sales of substantial amounts of common stock in the public market or the
perception that such sales could occur.


ITEM 2.     DESCRIPTION OF PROPERTIES

      The principal offices of ClearWorks are located in Houston, Texas,
consisting of approximately 9,000 square feet of space. The Company leases this
space under an agreement that expires in 2003 at a current annual base rental of
approximately $129,000. The Company also leases warehouse space in Houston,
Texas at a current annual rental rate of approximately $20,000. This agreement
expires on September 30, 2000. There are also small offices located in Las
Vegas, Nevada and Phoenix, Arizona, and with the recent acquisition of
Secure-All Security, offices in San Antonio, McAllen and Laredo, Texas.

      United Computing Group, Inc. leases approximately 8,000 square feet of
office and warehouse space in Houston, Texas. The current annual base rental is
approximately $74,000 and the lease expires on August 31, 2001. United Computing
Group also has office and warehouse space leased at an annual rental rate of
approximately $17,000 which lease expires on February 28, 2001. United Computing
Group has sub-leased this space through the end of the lease to a third party at
an annual sub-lease rate of $12,000.

ITEM 3.     LEGAL PROCEEDINGS

      The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. The Company does not expect that the results in any
of these legal proceedings will have a material adverse effect on its financial
condition or results of operations.

      ClearWorks is currently plaintiff in ClearWorks.net, Inc. v. Michael C.
Callihan and Linda Callihan; 157th Judicial District Court of Harris County,
Texas; Cause No. 2000-10296. The suit was filed February 25, 2000 [after
attempts to mediate were unsuccessful] alleging causes of action based on breach
of contract, breach of warranty, fraud in stock transactions and common law
fraud. The facts underlying the lawsuit are as follows: On or about May 21,
1998, the principal shareholder of Team Renaissance, Inc. entered into a merger
agreement with ClearWorks. Shortly thereafter, the principal shareholder,
Michael Callihan, requested that the Company pay in full promissory notes in
which Mr. Callihan was the payee. However, those promissory notes were neither
disclosed in the merger agreement nor attached to the merger agreement as
exhibits. A dispute arose between ClearWorks and Mr. Callihan regarding the
validity of the promissory notes. Additionally, a dispute arose regarding credit
card accounts held in the name of Mr. Callihan which Mr. Callihan claims are the
obligation of the Company and which the Company claims are the personal debt of
Mr. and Mrs. Callihan. Also, prior to closing, ClearWorks learned that the
Callihans had failed to make payments to its employees and contractors, and had
also failed to pay its suppliers, in direct violation of the merger agreement
between the parties. In this suit, ClearWorks seeks return of shares previously
issued to Mr. Callihan in connection with the events underlying the suit.

      The Company intends to continue to vigorously prosecute its claims against
the Callihans.

                                      -4-
<PAGE>
      ClearWorks is currently defendant in Cause No. 98-34190; Martin R. Nathan
v. ClearWorks Technologies, Inc., et. al.; In the 216th Judicial District Court,
Harris County, Texas, which case has been referred to arbitration in Case No.
70-168-00402-99; American Arbitration Association, ClearWorks Technologies,
Inc.; Michael T. McClere, Rachel McClere 1998 Trust; McClere Family Trust; and
Shannon McLeroy vs. Tim Pennington, Recoh Tricote, Inc., Internal Revenue
Service and McManus & Company, P.C., James W. Walters, J. Stanford Lifsey and
Janet W. Lifsey, Earl Stover and Debra Smith. This suit was instituted by
Plaintiff's Original Petition filed in the above referenced cause of action by
Martin R. Nathan, alleged escrow agent, against the Company and others. This
suit was filed as an interpleader action and arises out of the reverse merger
pursuant to that one certain Agreement for Purchase of Common Stock dated April
1, 1998, which created the public form of the Company as it now exists. Pursuant
to the terms of certain escrow agreements or arrangements between the original
shareholders of Millennium Integration Technologies, a predecessor to the
Company, and Southeast Tire Recycling, Inc, the original owners of Southeast
Tire escrowed shares of stock in the Company that they received in the
transaction in order to satisfy any disclosed or undisclosed outstanding
obligations of Southeast Tire as of the date of the merger. The claimants in the
proceeding are the Company and the former shareholders of Millennium Integration
Technologies. The principal respondents are those former shareholders of
Southeast Tire (hereinafter "Walters Group") who are alleged to have indemnity
obligations to the claimants and who have escrowed approximately 86,000 shares
of the Company's common stock to secure any outstanding obligations claimed by
any party and arising prior to the date of the merger. The remaining
respondents, Recoh Tricote, Inc., Internal Revenue Service and McManus &
Company, P.C. are known claimants.

      Pursuant to an order of the District Court, the proceedings in the
District Court have been stayed pending arbitration. All the claims described
above are now the subject of the above-referenced arbitration proceedings,
except for those related to the claims of Tim Pennington. The claims by Tim
Pennington have been severed and made the subject of a separate cause of action
now pending before the District Court, which is described below. The Order
Compelling Arbitration was entered in December 1999. At this time, there has
been no action in the arbitration proceeding. Discovery must be taken and is
expected to begin promptly. No scheduling order or preliminary hearing before
the arbitrators has been held. In fact, arbitrators have not yet been selected.
All parties have not yet made an appearance in the arbitration. It is
anticipated that all appearances will be made within the next 60 days, and, that
thereafter, procedures to select arbitrators and to begin the arbitration
process will take place.

      The Company's intentions with regard to this case are to obtain a
Declaratory Judgment identifying all outstanding claims that may exist against
the Company arising from pre-merger activity, to liquidate such claims, and to
obtain payment of those claims from the proceeds available from liquidation of
shares held in the registry of the state court for the purpose of satisfying
such claims. At this time, the Company has identified the following claimants:
Recoh Tricote, Inc., Internal Revenue Service, McManus & Co., P.C. These claims
are believed to be in a total sum of less than $150,000. Discovery is underway
to obtain the identification of any other claims that might exist. Although the
Walter's Group has not yet answered, it is expected that the Walter's Group will
dispute any and all liability.

      The  Company  intends to  vigorously  contest  claims in this case other
than those identified above by Recoh Tricote,  Inc.,  Internal Revenue Service
and  McManus  & Co.,  P. C. and to  prosecute  the case with the goal that the
Company  should recover  payment of all the known and  discovered  outstanding
obligations,  its attorneys fees,  expenses and all costs from the proceeds of
the sale of the shares on deposit in the registry of the Court.

      The Company is currently a defendant in Cause No. 98-34190; Tim Pennington
v. ClearWorks Technologies, Inc. and James W. Walters; In the 269th Judicial
District Court of Harris County, Texas. Reference is made to the foregoing
paragraphs describing the Nathan lawsuit. While all other interpleader claims
referenced in the foregoing paragraphs were referred to arbitration, the
remaining claim by Tim Pennington was severed into an independent cause of
action. Tim Pennington has recently filed a petition asserting claims against
the Company. These claims allegedly first arose with Mr. Pennington's employment
with Southeast Tire Recycling, Inc. Mr. Pennington claims that he had an
employment agreement with Southeast Tire Recycling, Inc. providing him with
options to purchase up to 175,000 shares of free trading stock, 100,000 shares
of restricted stock, and an additional 50,000 shares for every six (6) months of
Pennington's employment. Pennington claims that his employment agreement was
breached by Southeast Tire prior to the merger. Pennington also claims that he
was also the owner of 300,000 shares of common stock of Southeast Tire.
Pennington's claims are addressed to ClearWorks, although the alleged misconduct
was not the conduct of ClearWorks but that of its predecessor, Southeast Tire,
and its shareholders,

                                      -5-
<PAGE>
officers and directors. Pennington's claims are grounded in fraud, state and
federal securities fraud, and conversion. Pennington seeks a judgment in excess
of $100,000 plus punitive damages, court cost, attorneys' fees and interest. The
Company has filed its answer to the recent filing by Pennington. The answer was
due on March 1, 2000. The Company intends to vigorously defend the claim and to
raise affirmative defenses on behalf of the Company, such as estoppel, latches
and that Pennington's claims are not against the Company, but are against former
officers, directors, and shareholders. The Company has just been sued. No
discovery has been taken. A recent conference with the Court has scheduled a
trial date for December 11, 2000. Discovery is to take place between the present
time and November 15, 2000. The Company intends to vigorously contest all claims
in this case. The Company also expects to pursue its indemnity claims in this
proceeding and in the arbitration proceeding against the former shareholders of
Southeast Tire of whom have agreed to indemnify the Company of these claims or
are otherwise legally obligated to do so. The Company also expects to assert
claims for any out of pocket expenses, attorneys' fees and other costs of
defense in this case against the proceeds of the shares of stock held in the
registry of the District Court in the proceeding identified in the Nathan
lawsuit above.

      The Company also currently is a defendant in Cause No. 1999-15281; Robert
Horn vs. ClearWorks Technologies, Inc. Suit was filed March 25, 1999, in the
333rd Judicial District Court of Harris County, Texas, alleging causes of action
based on breach of contract in the amount of approximately $200,000. The facts
underlying this lawsuit are as follows: Robert Horn entered into an employment
agreement with the Comapny effective April 1, 1998. The employment agreement
contained a condition precedent which stated: "The completion and subsequent
release of escrow money associated with the initial 504 offering of the
Company's securities on or before May 1, 1998, is a condition precedent to the
obligation of any party hereunder." The condition precedent was not met because
the Company did not have a 504 offering prior to May 1, 1998. On July 1, 1998,
Mr. Horn tendered his notice of resignation effective July 31, 1998. On March
25, 1999, Mr. Horn filed a lawsuit claiming that the Company had terminated Mr.
Horn's employment without cause. The Company filed an answer on April 16, 1999,
denying the claim and asserting its affirmative defenses. The Company is
vigorously contesting these claims by Robert Horn on the basis that they are
without merit.

      The Company is a plaintiff in Cause No. 1999-45751; ClearWorks.net, Inc.
vs. Rapid Release Research, L.L.C., Successor in Interest to MCG Unlimited,
Inc., and the American Arbitration Association. Suit was filed September 14,
1999, in the 152nd Judicial District Court of Harris County, Texas, seeking a
temporary restraining order, temporary injunction and permanent injunction
against the defendants. Specifically, the Company sought to retrain defendants
from arbitrating a dispute pursuant to the American Arbitration Association
rules ("AAA"). The facts underlying this lawsuit are as follows: ClearWorks and
MCG Unlimited, Inc., the predecessor to Rapid Release Research (in which Martin
Nathan is a principal), entered into a consulting agreement. Under the terms of
that agreement, the parties agreed to arbitrate any disputes under the agreement
pursuant to the Texas Arbitration Act. In March 1999 a dispute arose regarding
whether the Company owed to Rapid Release Research additional compensation under
the agreement and whether the Company agreed to select three arbitrators for
arbitration (one selected by each party and the third selected by the first two
arbitrators). The 152nd Judicial District Court referred the matter to
arbitration to be arbitrated by three unbiased arbitrators.

      The Company is a defendant in Cause No. 1999-62209; Sherman Gerald Mason,
d/b/a Castle Developments, Ltd. v. ClearWorks.net, Inc. formerly ClearWorks
Technologies, Inc.; In the District Court of Harris County, Texas; 157th
Judicial District. On December 17, 1999, Sherman Gerald Mason d/b/a Castle
Developments, Ltd. filed suit against the Company in the 157th Judicial District
Court of Harris County, Texas. In his Original Petition, Mr. Mason alleges the
breach of a consulting agreement with the Company and seeks recovery of 500,000
shares of stock. He also seeks recovery of alleged monthly retainer payments in
an undisclosed amount and seeks injunctive relief. The Company has filed an
answer disputing all liability, asserting that the contract was terminable and
that the contract is not enforceable because of the prior breaches of the
consulting agreement by Mr. Mason.

      This suit was only recently served upon the Company. The Company has
answered. No discovery has been propounded and no scheduling order or trial date
has been entered in connection with the case.

      The Company is a defendant in Cause No. 728431; Charterwood Associates,
Ltd. v. ClearWorks Structured Wiring, Inc.; in the County Civil Court at Law
Number Three (3), Harris County, Texas. On January 21, 2000, Charterwood
Associates, a Texas Limited Partnership, sued ClearWorks Structured Wiring
Services, Inc., a subsidiary of the Company. The suit presents claims for breach
of a contract to design, operate and maintain "bundled digital
<PAGE>
services" to Plaintiff's apartment complex. The suit seeks recovery of damages
in the sum of $78,747 plus interest, attorneys' fees and cost of court. The
Company denies the claims. The Company maintains its own claims for breach of
contract in connection with the same project. The Company has filed an affidavit
claiming lien against the apartment project owned by the Plaintiffs claiming
that $52,800 is unpaid for services and materials provided. The Company will
seek attorneys' fees, interest and costs of court in connection with its
counter-claim, when filed.

      The Company has just been sued and has filed its Answer. No discovery has
been taken. No trial setting or pre-trial schedule has been established.

      The Company intends to vigorously contest all claims in this case. The
Company also expects to vigorously pursue collection of its claims for services
rendered and materials provided.

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

      No matters were submitted during the fourth quarter of the period covered
in this report to a vote of shareholders.

                                      -7-
<PAGE>
                                     PART II

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

      The Company's common stock is quoted on the OTC Bulletin Board under the
ticker symbol "CLWK". The table below presents the range of high and low closing
bid prices per share for the common stock during each of the quarters indicated.
These quotations were obtained from National Quotation Bureau, LLC and reflect
inter-dealer prices, without retail mark up, mark down or commission, and may
not represent actual transactions.

                  QUARTER ENDED                    HIGH            LOW
      ---------------------------------------    --------        -------
      March 31, 1998                              $0.5625        $0.3750
      June 30, 1998                               $3.6250        $0.5625
      September 30, 1998                          $3.3125        $1.0313
      December 31, 1998                           $2.1563        $0.3125
      March 31, 1999                              $1.2500        $0.4375
      June 30, 1999                               $3.8750        $1.0500
      September 30, 1999                          $7.9844        $2.0000
      December 31, 1999                           $2.3438        $2.0000
      March 31, 2000                             $13.1250        $2.7188

      The Company has not paid any dividends with respect to its common stock
and does not expect to pay dividends on the common stock in the foreseeable
future. Any future dividends will be declared by the Board of Directors and will
depend, among other things, upon the financial condition, capital requirements,
earnings and liquidity of the Company.

ITEM 6.     SELECTED FINANCIAL DATA

Following is selected financial data for the years ended December 31, 1999, 1998
and 1997:

<TABLE>
<CAPTION>
                                                                                 1999                 1998                 1997
                                                                             ------------         ------------         ------------
<S>                                                                          <C>                  <C>                  <C>
INCOME STATEMENT DATA

Revenues ............................................................        $  3,032,000         $  1,090,000         $    114,000
Costs and expenses ..................................................           7,430,000            1,332,000              105,000
Income (loss) from operations .......................................          (4,398,000)            (242,000)               9,000
Interest expense, net ...............................................            (761,000)             (10,000)              (1,000)
Net income (loss) ...................................................        $ ( 5,159,000)       $   (252,000)        $      8,000
Income (loss) per share:
    Basic ...........................................................        $      (0.29)        $      (0.03)                 NIL
    Diluted .........................................................        $      (0.29)        $      (0.03)                 NIL

Weighted average number of common shares outstanding:
    Basic ...........................................................          17,673,032            8,321,902            1,562,500
    Diluted .........................................................          17,673,032            8,321,902            1,562,500

BALANCE SHEET DATA

Cash ................................................................        $  1,247,000         $    162,000         $      4,000
Inventories .........................................................             332,000               12,000                 --
Working capital .....................................................             978,000               91,000                4,000
Total assets ........................................................          13,758,000            1,190,000               72,000
Long-term debt inclusive of current maturities ......................           1,545,000               70,000               46,000
Convertible debentures, net of discount .............................           2,785,000                 --                   --
Shareholders' equity ................................................           5,770,000              884,000                9,000
Capital expenditures ................................................           1,994,000              208,000                2,000

</TABLE>

                                      -8-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

FISCAL 1999 COMPARED TO FISCAL 1998

      The following table sets forth certain operating information regarding the
Company for the years ended December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                                                        1999               1998
                                                                                                     -----------        -----------
<S>                                                                                                  <C>                <C>

                  Revenues ...................................................................       $ 3,032,000        $ 1,090,000
                  Costs and expenses .........................................................         7,430,000          1,332,000
                  Loss from operations .......................................................        (4,398,000)          (242,000)
                  Net loss ...................................................................       $(5,159,000)       $  (252,000)
                  Basic and diluted loss per share ...........................................       $      (.29)       $      (.03)


                  The following summary table presents comparative cash flows of
the Company for the years ended December 31, 1999 and 1998:

                                                                                                        1999                1998
                                                                                                     -----------        -----------
                  Net cash used by operating activities ......................................       $(2,697,000)       $   (91,000)
                  Net cash used by investing activities ......................................       $(2,459,000)       $  (235,000)
                  Net cash provided by financing activities ..................................       $ 6,241,000        $   484,000
</TABLE>


      Cash used in operating activities for the year ended December 31, 1999 was
$2,697,000, an increase of $2,606,000 over the same period in 1998. The primary
components of the increase were a net loss of $ 5,159,000, partially offset by
non-cash charges to interest expense, amortization of deferred financing charges
and warrants issued for services, an increase in accounts receivable of $739,000
and an increase in inventories and other assets of $129,000 and $398,000,
respectively. This was partially offset by an increase in accounts payable of
$926,000. Cash used by investing activities was $2,459,000, an increase of
$2,224,000 over the same period in 1998. The primary components of the increase
were the construction of the head-end facility at the Canyon Gate at Northpointe
sub-division and cash issued in the Company's two 1999 acquisitions. Cash
provided by financing activities for the 1999 period was $6,241,000 which was
provided by the sale of Company common stock, borrowings and the issuance of 6%
convertible debentures. This was an increase of $5,757,000 over the 1998 period.


      REVENUES. Total revenue increased by $1,942,000 over fiscal 1998 to
$3,032,000 (an increase of 178%) for the year ended December 31, 1999. The
Company acquired three companies during 1998 and two companies during 1999. As a
direct result of these acquisitions, the Company has been able to increase
significantly its revenue in the primary areas in which it operates. Further
increases are projected for year 2000 as a result of the acquisition of United
Computing Group, Inc. and United Consulting Group, Inc. on December 30, 1999.

      Revenues from integration services increased from $535,000 during 1998 to
$1,607,000 (an increase of 200%) for the 1999 period. Integration revenues are
derived from three principal product lines; information technology staffing and
network engineering, vendor evaluation of network hardware and implementation of
network hardware and support of private and enterprise networks. The Company has
been able to increase its revenues in the integration area primarily due to the
acquisition of Archer Mickelson, LLC in May 1999 and an increased customer base
and expansion of its Bundled Digital Services.

      Revenues from structured wiring solutions for residential, commercial and
education customers was $1,383,000, an increase of $828,000 (149%) over the same
period last year. ClearWorks Structured Wiring Services, Inc. deployed its
structured wiring solutions in 408 homes in the Canyon Gate at Northpointe,
Stonegate, the Brazos and Cinco Ranch sub-divisions in the Houston area during
the twelve months ended December 31, 1999. A total of eight home-builders used
the Company's structured wiring solutions during this period. The Company

                                      -9-
<PAGE>
also deployed its structured wiring solutions to three Houston area independent
school districts, two universities and twenty one commercial customers.

      Revenues from delivery of the Company's Bundled Digital Services were
$42,000 for the year ended December 31, 1999. The Company began billing for its
services at Canyon Gate at Northpointe sub-division in September 1999. The
Company currently delivers video and data services to homes at Northpointe and
has signed an interconnection agreement with Southwestern Bell Telephone Company
to begin delivering voice during the first quarter of 2000. Subscriber revenues
will increase as additional homes are completed within the sub-division and a
full complement of integrated voice, video and data services are delivered to
the homes. Furthermore, revenues will increase as the Company begins to provide
its Bundled Digital Services to the back-log of new sub-divisions it currently
has under contract.


      COSTS AND EXPENSES. Costs and expenses increased to $7,430,000 for fiscal
1999 compared to $1,332,000 for fiscal 1998. Integration services and materials
increased to $1,280,000, an increase of $778,000 over the 1998 period. Salaries
of network engineers and information technology consultants, coupled with
increased purchases for resale of computer hardware and software were the
primary components of the increase. The gross profit margin for integration
services increased from 7% in fiscal 1998 to 26% for fiscal 1999. This increase
resulted primarily from the acquisition of Archer Mickelson, which had customers
that provided better profit margins than the Company's customers during 1998.
Structured wiring labor and materials increased to $1,295,000 for fiscal 1999,
an increase of $756,000 over the 1998 period. Increased business activity was
the primary reason for the increase. The gross profit margin for structured
wiring increased from 3% for fiscal 1998 to 7% for fiscal 1999. Bundled Digital
Services costs were $222,000. There were no Bundled Digital Services costs for
fiscal 1998. The Company is building its infrastructure and, as such, has
incurred start-up expenses for deployment of its services.

      Selling, general and administrative expenses increased by $ 4,221,000 to $
4,428,000 for the year ended December 31, 1999, from $207,000 in 1998. During
1999, the Company concentrated on building infrastructure for implementation of
its business plan. It added key management and other personnel in all areas of
its organization to provide support for deployment of its Bundled Digital
Services and other revenue generating areas. Salaries and related expenses
increased from $12,000 for fiscal 1998 to $1,187,000. The Company had 22
management, sales and administrative personnel at December 31, 1999. As part of
the Company's compensation plan, the Company awarded shares of its common stock
and cash to certain of its employees and other service providers during 1999.
The value associated with the issuances of the stock and warrants was $1,277,000
and $648,000, respectively, and was a non-cash charge against earnings. There
was no stock issued for compensation to employees in fiscal 1998.


      Legal fees increased from $10,000 in fiscal 1998 to $243,000 in fiscal
1999. Legal fees were related to SEC filings, litigation and general corporate
matters in the amounts of $66,000, $84,000 and $93,000, respectively. Accounting
fees were $139,000 and were comprised of expenses associated with the Company's
audit for the year ended December 31, 1998, SEC reporting and compliance and
outside consultants. There were no accounting fees incurred during 1998. The
cost of investor relations increased from $3,000 in fiscal 1998 to $175,000 in
fiscal 1999. These expenses are comprised of transfer agent expenses, investor
relations firm fees, press release services, printing and postage. Rents
increased from $15,000 in fiscal 1998 to $112,000 in fiscal 1999. The primary
component of this category was the cost associated with the Company's executive
office lease. Other selling, general and administrative expenses increased from
$167,000 in fiscal 1998 to $607,000 in fiscal 1999. This category is primarily
comprised of travel and entertainment expenses, outside consultants, insurance,
office supplies and telephone and communications expenses.

      The Company has recorded goodwill equivalent to the excess of the cost of
companies acquired over the fair value of their net assets at the dates of
acquisition. The Company amortizes this cost over a five-year period.
Amortization of goodwill was $121,000 and $70,000 for the 1999 and 1998 periods,
respectively. Depreciation expense for the 1999 period was $84,000 compared to
$14,000 for the 1998 period.


      OTHER INCOME/EXPENSE. Other income and expense is comprised of interest
income and expense. The Company earned $63,000 in interest during the year ended
December 31, 1999. Interest expense increased to $824,000 during 1999 and is
composed primarily of the value attributable to the beneficial conversion
feature on the 6% convertible debentures issued in December 1999 plus interest
accrued on field vehicle loans and promissory notes.


                                      -10-
<PAGE>
      CAPITAL EXPENDITURES

      The Company has incurred capital expenditures for construction of
operating facilities, transportation and other field equipment, office furniture
and computer equipment and software used in its operations. Capital expenditures
for the year ended December 31, 1999, totaled $1,994,000 and for the year ended
December 31, 1998, totaled $208,000. The Company has now completed its head-end
facility at Canyon Gate at Northpointe and has recently begun installing conduit
in the ground at the Stonegate sub-division to begin deployment of its Bundled
Digital Services to the residents of Stonegate.

      CAPITAL RESOURCES

      During 1999, the Company's capital resources have been provided primarily
through an offering of its Common Stock under Rule 504 of Regulation D under the
Securities Act of 1933 which realized $1,000,000 and two private placements of
common stock to a total of three entities which realized $1,450,000.
Additionally, the Company issued a promissory note on August 4, 1999 due July 9,
2000, in the principal amount of $802,000 at an annual interest rate of twelve
percent (12%). If the note and all accrued interest is not paid when due, the
delinquent amount automatically converts into shares of the Company's common
stock at the rate of one share for each $1.375 of principal and/or interest. The
Company may prepay principal and interest only after giving the holder 30 days
prior notice to effect the conversion. At maturity, the holder of the note has
the right to convert the principal and unpaid interest of the note into
restricted Company common stock. On October 14, 1999, the Company issued a
promissory note in the principal amount of $500,000. The note carries a twelve
percent (12%) rate per annum and is payable on or before May 1, 2001. On
December 13, 1999, the Company borrowed $150,000 from Michael T. McClere, its
Chief Executive Officer, at a twelve percent (12%) rate per annum, which is
payable on January 13, 2000. The note and accrued interest were repaid on
January 10, 2000.


      On December 13, 1999, the Company closed a private placement transaction
with Candlelight Investors, LLC, ("Candlelight") a Delaware limited liability
company. In the private placement, the Company received from Candlelight a total
of $3,000,000 in exchange for $3,000,000 total face value 6% convertible
debentures together with warrants to purchase up to 210,000 shares of common
stock. The warrants are exercisable at $3.16 per share. The debentures are
convertible at the lower of $3.30 per share or 92 percent of the average of the
three lowest closing bid prices for the Company's common stock during the 30
trading days immediately preceding conversion. However, if the average lowest
closing price is less than $1.50 per share, then the conversion price of the
debentures shall be equal to the average lowest closing price without
modification. Because the conversion price of these debentures was less than the
fair value of the Company's common stock on the date of issuance, the Company
has recorded as interest expense the intrinsic value of the beneficial
conversion feature. The intrinsic value of the beneficial conversion feature was
determined to be $650,000. The Company also gave Candlelight the right to
acquire, upon total payment to the Company of $2,000,000, an additional
$2,000,000 face value of debentures and additional warrants to purchase up to
140,000 shares of common stock. The Company registered resales of the common
stock underlying all debentures and warrants that have been or may be issued to
Candlelight.


      In connection with the private placement, the Company agreed not to sell
any of its securities until July 4, 2000, unless the securities are (1) issued
in connection with a public offering of at least $15 million, (2) in connection
with and acquisition of additional businesses or assets or (3) as compensation
to employees, consultants, officers or directors.


      On February 14, 2000, Candlelight converted $1,500,000 face value and
accrued interest thereon of the convertible debentures into 724,760 shares of
common stock. Furthermore, on March 15, 2000, the Company issued to Candlelight
the remaining $2,000,000 face value of the 6% convertible debentures together
with warrants to purchase 140,000 shares of common stock. Because the conversion
price of these debentures were less than the fair value of the Company's common
stock on the date of issuance, the Company recorded as interest expense
$1,701,000 based on the value of the beneficial conversion feature related to
this issuance.


                                      -11-
<PAGE>
      LIQUIDITY

      The ability of the Company to satisfy its obligations depends in part upon
its ability to reach a profitable level of operations and securing short and
long-term financing for development of its commercial and residential products.
The Company is currently in discussions with other financial institutions to
provide additional funding through a combination of debt and equity to fund its
business plan. There is no assurance that short and long-term financing can be
obtained to fulfill the Company's capital needs. Without the short or long-term
financing, the Company will attempt to sell additional common stock to meet its
current and future capital needs. If the Company is not able to obtain either
short or long-term funding or funding through the sale of its common stock, the
Company would be required to cut back its expansion plans and operate the
facilities it currently has built, and fund its operations with internally
generated funds from its integration, structured wiring and communications
business units.

      YEAR 2000 READINESS DISCLOSURE

      Historically, many computer systems and applications used two-digit date
fields to designate a year. Thus, prior to January 1, 2000, there was a great
deal of concern whether date sensitive systems would recognize the year 2000 as
1900 or not at all; if these systems were not able to recognize or properly
treat the year 2000, critical financial and operational information would be
incorrectly processed. This situation is referred to as the Year 2000 Issue.

      During 1999, the Company assessed the impact of the Year 2000 Issue on its
computer systems, software and other equipment (collectively, the "Systems") and
initiated a program to eliminate or mitigate potential effects of the Year 2000
Issue on its operations. The Company utilized both internal and external
resources in implementing its Year 2000 program, which consisted of the
following phases:

o  Assessment Phase. Structured evaluation, including a detailed inventory
   outlining the impact that the Year 2000 Issue may have on its operations.

o  Detailed Planning Phase. Establishment of priorities, development of specific
   action steps and allocation of resources to address the issues identified in
   the Assessment Phase.

o  Conversion Phase. Implementation of the necessary system modifications as
   outlined in the Detailed Planning Phase.

o  Testing Phase. Verification that the modifications implemented in the
   Conversion Phase were successful in resolving the Year 2000 Issue so that all
   inventory items will function properly, both individually and on an
   integrated basis.

o  Implementation Phase. Final roll-out of fully tested components into an
   operational unit.

      The Company completed each of the phases described above and confirmed
that its Systems were Year 2000 compliant. Based on communications with
suppliers, vendors and customers, the Company believes, but have not received
written confirmation, that its suppliers, vendors and customers are Year 2000
compliant. However, date sensitive systems may in the future encounter
difficulties with recognizing the year 2000 because accounting, operating and
other systems have not yet been required to reconcile dates prior to January 1,
2000 with those on or after January 1, 2000. Therefore, there can be no
assurance that the Company's evaluations of Year 2000 compliance matters will
continue to be correct until, at the earliest, January 1, 2001.

      A significant source of the Company's continuing revenue comes from sales
of cable television signals and access to telephone and Internet services
(collectively, the "Communications Products"). The Company obtains the
Communications Products from third-party vendors. In the event that any
Communications Products provider does not remain Year 2000 compliant, the
Company's operations may be materially adversely impacted because it would not
be able to re-sell the affected Communications Product to its customers. As a
contingency in the event of such failure, the Company will attempt to obtain any
affected Communications Products from other third-party vendors. However,
noncompliance by a Communications Products provider would also affect its
competitors and the Company would then be in competition for the acquisition of
replacement Communications Products. There is no

                                      -12-
<PAGE>
assurance that the Company would be able to obtain adequate replacement
Communications Products in a timely manner or at a non-material cost.

      The Company also has considered other potential effects on its operations
if its Systems, suppliers, vendors and customers do not remain compliant. Except
as described above regarding Communications Products, the Company believes that
the non-compliance of any one supplier, vendor or customer would not have a
material adverse impact on its operations, although such an impact may occur if
several or all of its suppliers, vendors or customers are non-compliant. As a
contingency, the Company maintains paper records of information contained in its
Systems regarding its suppliers, vendors and customers, and the Company updates
these paper records regularly. The Company believes that these records regularly
contain information sufficient to allow it to continue its operations in the
ordinary course of business without incurring material costs or delays in excess
of those currently incurred in furtherance of its operations.

      The Company incurred approximately $7,500 in costs related to its Year
2000 program. The Company believes that these costs were not material and, based
on its previous actions in connection with achieving Year 2000 compliance, no
material additional costs are expected to be incurred in connection with ongoing
monitoring of the Year 2000 Issue. However, there can be no guarantee that the
estimate of future costs will be achieved and actual results could differ
materially from the estimate due to as yet unforeseen changes in circumstances.

      If the Company's analyses and attempts to mitigate potential effects of
the impact of the Year 2000 Issue on its operations are erroneous, the Year 2000
Issue could significantly disrupt its ability to transact business with itsr
customers and suppliers and could have a material impact on its operations.
There can be no assurance that the systems of other companies with which the
Company's Systems interact will remain compliant, or that any such
non-compliance would not ultimately have an adverse effect on its business or
operations.

      The Company has experienced no material adverse affects resulting from
Year 2000 issues.

      IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

      In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS
133"). SFAS 133 establishes new accounting and reporting standards requiring
that all derivative instruments (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either an asset
or liability measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement and requires that a company must formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. SFAS 133, as amended, is effective for all fiscal years beginning
after June 15, 2000. The Company has not yet determined the impact, if any, SFAS
133 will have on its financial position or results of operations, and plans to
adopt this standard during the year ending December 31, 2001.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK


      The Company is exposed to market risks. Market risk is the potential loss
arising from adverse changes in market prices and rates. The Company does not
enter into derivative or other financial instruments for trading or speculative
purposes. The Company's market risk could arise from changes in interest rates.
Assuming its current level of borrowings, a 100 basis point increase in interest
rates under its borrowings would decrease its 2000 net income by approximately
$45,000 and its 2000 cash flow from operations by approximately $45,000. In the
event of an adverse change in interest rates, the Company could take action to
mitigate its exposure. Due to the uncertainty of the actions that would be taken
and their possible effects, this analysis assumes no such actions. Furthermore,
this analysis does not consider the effects of the change in the overall
economic activity that could exist in such an environment.


                                      -13-
<PAGE>
ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors
ClearWorks.net, Inc.


      We have audited the accompanying consolidated balance sheet of
ClearWorks.net, Inc. and subsidiaries as of December 31, 1999, and the
consolidated statements of operations, shareholders' equity and cash flows for
the year ended December 31, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.


      We conducted our audit 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 audit provides 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
ClearWorks.net, Inc. and subsidiaries as of December 31, 1999, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.


      As discussed in Note 3, the accompanying consolidated financial statements
as of and for the year ended December 31, 1999 have been restated.


KPMG LLP

Houston, Texas


March 30, 2000, except as to notes 2, 3, 4, 10, 12, 13 and 16, which are as of
June 23, 2000.


                                      -14
<PAGE>
                         INDEPENDENT ACCOUNTANT'S REPORT

To the Board of Directors
ClearWorks.net, Inc. and Subsidiary

      We have audited the accompanying consolidated statement of operations,
stockholders' equity and cash flows of ClearWorks.net, Inc. and Subsidiary for
the year ended December 31, 1998. These financial statements are the
responsibility of ClearWorks.net, Inc.'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 audit provides a reasonable basis for our opinion.

      In our opinion, based on our audit, the consolidated financial statements
referred to above present fairly, in all material respects, the results of
operations, shareholders' equity and cash flows of ClearWorks.net, Inc. and
Subsidiary for the year ended December 31, 1998, in conformity with generally
accepted accounting principles.

McManus & Co., P.C.

Morris Plains, New Jersey
May 18, 1999

                                      -15-
<PAGE>
                     CLEARWORKS.NET, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET

                          DECEMBER 31, 1999 (Restated)

          ASSETS

Current assets:
  Cash .........................................................   $  1,247,000
  Accounts receivable, net of allowance for doubtful
    accounts of $93,000 ........................................      3,388,000
  Stock subscription receivable ................................        450,000
  Inventories ..................................................        332,000
  Prepaid expenses and other current assets ....................        229,000
                                                                   ------------

        Total current assets ...................................      5,646,000
                                                                   ------------

Property and equipment, net ....................................      2,256,000
                                                                   ------------

Other assets:

  Goodwill, net ................................................      5,449,000
  Deferred financing costs .....................................        378,000
  Other ........................................................         29,000
                                                                   ------------
                                                                      5,856,000
                                                                   ------------
        Total assets ...........................................   $ 13,758,000
                                                                   ============


          LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable, trade ......................................   $  3,197,000
  Accrued expenses .............................................        461,000
  Current maturities of long-term debt .........................        860,000
  Note payable, shareholder ....................................        150,000
                                                                   ------------
        Total current liabilities ..............................      4,668,000
                                                                   ------------

Long-term debt, net of current maturities ......................        535,000


6% Convertible debentures, net of discount of $215,000 .........      2,785,000


Shareholders' equity:
  Common stock, $.001 par value; 50,000,000 shares authorized;
     20,884,957 shares issued and outstanding ..................         21,000



  Additional paid-in capital ...................................     11,472,000

Deferred financing charges .....................................       (285,000)
  Accumulated deficit ..........................................     (5,438,000)
                                                                   ------------
                                                                      5,770,000

        Total liabilities and shareholders' equity .............   $ 13,758,000
                                                                   ============

          See accompanying notes to consolidated financial statements.


                                      -16-
<PAGE>
                      CLEARWORKS.NET, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998



                                                      1999            1998
                                                  ------------    ------------
                                                   (RESTATED)

Revenues:
    Integration services ........................    1,607,000         535,000
    Structured wiring solutions .................    1,383,000         555,000
    Bundled Digital Services ....................       42,000            --
                                                  ------------    ------------
                                                     3,032,000       1,090,000
                                                  ------------    ------------

Costs and expenses:

    Integration services and materials ..........    1,280,000         502,000
    Structured wiring labor and materials .......    1,295,000         539,000
    Bundled Digital Services ....................      222,000            --
    Selling, general and administrative expenses     4,428,000         207,000
    Depreciation and amortization ...............      205,000          84,000
                                                  ------------    ------------
                                                     7,430,000       1,332,000
                                                  ------------    ------------
Loss from operations ............................   (4,398,000)       (242,000)


Other income/(expense):

    Interest income .............................       63,000            --
    Interest expense ............................     (824,000)        (10,000)
                                                  ------------    ------------
Net loss ........................................ $ (5,159,000)   $   (252,000)
                                                  ============    ============


Loss per share:

    Basic ....................................... $       (.29)   $       (.03)
    Diluted ..................................... $       (.29)   $       (.03)


Weighted average number of common shares
  outstanding:

    Basic .......................................   17,673,032       8,321,902
    Diluted .....................................   17,673,032       8,321,902

See accompanying notes to consolidated financial statements.

                                      -17-
<PAGE>
                    CLEARWORKS.NET, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

          FOR THE YEARS ENDED DECEMBER 31, 1999 (Restated) AND 1998


<TABLE>
<CAPTION>
                                                                         ADDITIONAL    DEFERRED     RETAINED EARNINGS    TOTAL
                                            SHARES OF       COMMON         PAID-IN     FINANCING     (ACCUMULATED     SHAREHOLDERS'
                                           COMMON STOCK      STOCK         CAPITAL      CHARGES         DEFICIT)         EQUITY
                                           ------------   ------------   ------------ ------------    ------------    ------------
<S>                                        <C>            <C>            <C>          <C>             <C>             <C>

Balances, December 31, 1997 ...............   6,250,000   $      6,000   $     (5,000) $      --      $      8,000    $      9,000

Conversion from LLC to C-Corp .............        --             --           35,000         --           (35,000)           --

Stock issued for merger with

    Southeast Tire Recycling, Inc. ........   1,543,960          2,000         (2,000)        --              --              --


Stock issued for acquisitions:

    InfraResources, LLC ...................      80,000           --          165,000         --              --           165,000
    Team Renaissance, Inc. ................     156,250           --          322,000         --              --           322,000
    Vitadel Communications ................      98,039           --          150,000         --              --           150,000

Conversion of notes payable ...............     272,550           --           27,000         --              --            27,000


Stock  issued for syndication

    costs .................................   2,477,000          2,000         (2,000)        --              --              --

Stock issued for services .................      50,000           --            6,000         --              --             6,000

Common stock issued for cash ..............     532,450          1,000        456,000         --              --           457,000

Net loss ..................................        --             --             --           --          (252,000)       (252,000)
                                           ------------   ------------   ------------ ------------    ------------    ------------

Balances, December 31, 1998 ...............  11,460,249   $     11,000   $  1,152,000 $       --      $   (279,000)        884,000
                                           ============   ============   ============ ============    ============    ============

Stock issued for acquisitions .............   2,075,000          2,000      4,893,000         --              --         4,895,000

Stock issued for cash, net of .............   6,817,910          7,000      2,260,000         --              --         2,267,000
    registration fees and expenses

Warrants issued for services ..............        --             --        1,026,000     (378,000)           --           648,000


Stock issued for incentive

    compensation and services .............     531,798          1,000      1,276,000         --              --         1,277,000

Beneficial conversion feature
  for 6% convertible debenture ............        --             --          650,000         --              --           650,000

Warrants issued with convertible ..........        --             --          215,000         --              --           215,000
    Debentures

Amortization of deferred financing charges         --             --             --         93,000            --            93,000

Net loss ..................................        --             --             --           --        (5,159,000)     (5,159,000)


Balances, December 31, 1999 ...............  20,884,957   $     21,000   $ 11,472,000 $   (285,000)   $ (5,438,000)   $  5,770,000
                                           ============   ============   ============ ============    ============    ============

</TABLE>

See accompanying notes to consolidated financial statements.

                                      -18-
<PAGE>
                      CLEARWORKS.NET, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                                                    1999                 1998
                                                                                               ---------------      ---------------
<S>                                                                                            <C>                  <C>

Cash flows from operating activities:                                                             (Restated)

  Net loss ...............................................................................     $    (5,159,000)     $      (252,000)
  Adjustments to reconcile net loss to net cash
    used by operating activities, net of acquisitions:

       Depreciation and amortization .....................................................             205,000               84,000
       Non-cash interest expense .........................................................             650,000                 --
       Amortization of deferred financing charges ........................................              93,000                 --
       Warrants issued for services ......................................................             648,000                 --
       Stock issued for compensation and services ........................................           1,277,000                6,000
       Increase in accounts receivable ...................................................            (739,000)            (125,000)
       Increase in inventories ...........................................................            (129,000)                --
       Increase in  prepaids and other current assets ....................................            (398,000)              (5,000)
       Increase in accounts payable ......................................................             926,000                 --
       Increase (decrease) in accrued expenses ...........................................             (71,000)             201,000
                                                                                               ---------------      ---------------
    Total adjustments ....................................................................           2,462,000              161,000
                                                                                               ---------------      ---------------
  Net cash used by operating activities ..................................................          (2,697,000)             (91,000)


Cash flows from investing activities:
       Acquisitions, net of cash received ................................................            (465,000)             (27,000)
       Capital expenditures ..............................................................          (1,994,000)            (208,000)
                                                                                               ---------------      ---------------
  Net cash used by investing activities ..................................................          (2,459,000)            (235,000)

Cash flows from financing activities:
       Proceeds from notes payable, net of repayments ....................................           1,424,000               27,000
       Proceeds from issuance of 6% convertible debentures ...............................           3,000,000                 --
       Proceeds from common stock sales, net .............................................           2,267,000              457,000
       Increase in stock subscription receivable .........................................            (450,000)                --
                                                                                               ---------------      ---------------
  Net cash provided by financing activities ..............................................           6,241,000              484,000

  Net increase in cash ...................................................................           1,085,000              158,000

Cash at the beginning of the period ......................................................             162,000                4,000
                                                                                               ---------------      ---------------

Cash at the end of the period ............................................................     $     1,247,000      $       162,000
                                                                                               ===============      ===============

Supplemental disclosures of cash flow information:
        Interest paid ....................................................................     $         2,000      $        10,000
        Taxes paid .......................................................................     $          --        $          --

Supplemental disclosures of non-cash Investing activities:
        Issuance of common stock for asset acquisitions ..................................     $     4,895,000      $       637,000
</TABLE>

See accompanying notes to consolidated financial statements.

                                      -19-
<PAGE>
                    CLEARWORKS.NET, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1999

Note 1.     Organization and Nature of Business

      ClearWorks.net, Inc. and subsidiaries (the "Company" or "ClearWorks"),
commenced operations on September 18, 1997 as Millennium Integration
Technologies, LLC ("MIT"), a Texas limited liability company. On March 5, 1998,
a separate company, Millennium Integration Technologies, Inc. ("Millennium") was
organized under the rules and regulations of the State of Delaware.

      On April 1, 1998, Southeast Tire Recycling, Inc. ("Southeast"), a publicly
traded Florida corporation with no ongoing operations that previously had been
engaged in the tire recycling business, entered into an agreement to purchase
one hundred percent of the stock of MIT, which converted to a Texas corporation
on April 9, 1998. The acquisition was consummated effective April 27, 1998 and
MIT, Inc. became a wholly owned subsidiary of Southeast. The exchange of shares
between MIT, Inc. and Southeast was accounted for as a recapitalization of the
MIT, Inc. operations into the corporate shell of Southeast. At the time of this
transaction, Southeast was an empty corporate shell.

      Effective May 8, 1998, Millennium changed its name to ClearWorks
Technologies, Inc. On May 12, 1998, Southeast merged with and into ClearWorks
Technologies, Inc. whereby ClearWorks Technologies, Inc. was the surviving
entity. The exchange of shares with Southeast was accounted for as a second
recapitalization of the Millennium operations into the corporate shell. On April
27, 1999, ClearWorks Technologies, Inc. began operating under the name of
ClearWorks.net, Inc.

      The Company is a communications carrier providing broadband data, video
and voice communication services to residential and commercial customers,
currently within Houston, Texas. These services are provided over fiber-optic
networks ("Fiber-To-The-Home" or "FTTH") which the Company designs, constructs,
owns and operates inside large residential master-planned communities and office
complexes. The Company also provides information technology staffing personnel,
network engineering, vendor evaluation of network hardware, implementation of
network hardware and support of private and enterprise networks, as well as,
developing residential, commercial and education accounts for deployment of
structured wiring solutions.

Note 2.     Summary of Significant Accounting Policies

A)    CONSOLIDATION

      At December 31, 1999, the Company has three wholly owned subsidiaries:
      ClearWorks Communications, Inc., ClearWorks Structured Wiring Services,
      Inc. and ClearWorks Integration Services, Inc. The consolidated financial
      statements include the accounts of the Company and its subsidiaries. All
      significant inter-company transactions and balances have been eliminated
      in consolidation.


B)    LIQUIDITY

      The ability of the Company to satisfy its obligations depends in part upon
      its ability to reach a profitable level of operations and securing short
      and long-term financing for development of its commercial and residential
      products. The Company is currently in discussions with other financial
      institutions to provide additional funding through a combination of debt
      and equity to fund its business plan. There is no assurance that short and
      long-term financing can be obtained to fulfill the Company's capital
      needs. Without the short or long-term financing, the Company will attempt
      to sell additional common stock to meet its current and future capital
      needs. If the Company is not able to obtain either short or long-term
      funding or funding through the sale of its common stock, the Company would
      be required to cut back its expansion plans and operate the facilities it
      currently has built, and fund its operations with internally generated
      funds from its integration, structured wiring and communications business
      units.


                                      -20-
<PAGE>
                    CLEARWORKS.NET, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

C)    USE OF ESTIMATES

      The preparation of financial statements in conformity with generally
      accepted accounting principles requires management to make estimates and
      assumptions that effect 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 could differ from those
      estimates. The markets for the Company's services are characterized by
      intense competition, rapid technological development, regulatory changes
      and frequent new product introductions, all of which could impact the
      future value of the Company's assets.

D)    CASH AND CASH EQUIVALENTS

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

E)    PROPERTY AND EQUIPMENT

      Property and equipment are carried at cost less accumulated depreciation.
      Depreciation is calculated by using the straight-line method over the
      following useful lives:

                                                                          YEARS
                                                                          -----
            Head-end facilities                                             20
            Field operating equipment                                      3-7
            Satellite demonstration equipment                                7
            Furniture, fixtures and office equipment                       2-7

      Expenditures for maintenance and repairs are charged against income as
      incurred and major improvements are capitalized.

F)    INVENTORIES

      Inventories are valued at the lower of cost or market. The cost is
      determined by using the first in first out ("FIFO") method. Inventories
      consist primarily of purchased technical equipment.

G)    RESEARCH AND DEVELOPMENT

      The Company charges to expense research and development ("R&D") costs as
      incurred. The Company spent approximately $164,000 on R&D during 1999 and
      had no R&D expenditures during 1998. The Company expects to continue to
      commit substantial resources for R&D in order to improve and expand the
      performance and capability of its Bundled Digital Services.

H)    GOODWILL

      Goodwill, which represents the excess of purchase price over fair value of
      net assets acquired, is amortized on a straight-line basis over five
      years. The Company assesses the recoverability of this intangible asset by
      determining whether the amortization of the goodwill balance over its
      remaining life can be recovered through undiscounted future operating cash
      flows of the acquired operation. The amount of goodwill impairment, if
      any, is measured based on projected discounted future operating cash flows
      using a discount rate reflecting the Company's average cost of funds. The
      assessment of the recoverability of goodwill will be impacted if the
      estimated future operating cash flows are not achieved. Goodwill
      amortization expense for the years ended December 31, 1999 and 1998 was
      $121,000 and $70,000, respectively. Accumulated amortization at December
      31, 1999, was $191,000.

                                      -21-
<PAGE>
                    CLEARWORKS.NET, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

      I)    INCOME TAXES

      During 1998, the Company converted from a limited liability company to a
      C-Corporation and, as such, income taxes are accounted for under the asset
      and liability method. Deferred tax assets and liabilities are recognized
      for the future tax consequences attributable to differences between the
      financial statement carrying amounts of existing assets and liabilities
      and their respective tax bases and operating loss and tax credit
      carryforwards. Deferred tax assets and liabilities are measured using the
      enacted tax rates expected to apply to taxable income in the years in
      which those temporary differences are expected to be recovered or settled.
      The effect on deferred tax assets and liabilities of a change in tax rates
      is recognized in income in the period that includes the enactment date.

J)    REVENUE RECOGNITION

      The Company recognizes revenue and the related costs at the time the
      services are rendered. Revenue is derived from fees charged for the
      delivery of Bundled Digital Services, integration services and cabling and
      wiring.

      Revenue from long-term contracts is recognized using the percentage
      completion method, measured by the percentage of total costs incurred to
      date to estimated total costs for each contract. This is used because
      management considers actual costs to be the best available measure of
      progress on these contracts.

K)    EARNINGS (LOSS) PER COMMON SHARE


      The Company computes net loss per share pursuant to Statement of Financial
      Accounting Standards No. 128, "Earnings Per Share". Basic net loss per
      share is computed by dividing income or loss applicable to common
      stockholders by the weighted average number of shares of the Company's
      common stock outstanding during the period. Diluted net loss per share is
      determined in the same manner as basic net loss per share except that the
      interest expense related to the Company's convertible debentures, net of
      tax, is added back to income or loss applicable to common stockholders and
      the number of shares is increased assuming exercise of dilutive stock
      options and warrants using the treasury stock method and dilutive
      conversion of the Company's convertible debt.


      During the years ended December 31, 1999 and 1998, warrants to purchase
      2,710,000 and 2,000,000, respectively, shares of common stock were
      excluded from the calculation of earnings per share since their inclusion
      would be antidilutive.

L)    FAIR VALUE OF FINANCIAL INSTRUMENTS

      Fair value estimates are made at discrete points in time based on relevant
      market information. These estimates may be subjective in nature and
      involve uncertainties and matters of significant judgement, and therefore
      cannot be determined with precision.

      The Company believes that the carrying amounts of its financial instrument
      current assets and liabilities approximate the fair value of such items
      due to their nature. The carrying amounts of long-term debt and
      convertible debentures approximate fair value as the interest rates
      thereon approximate market.

M)    RECLASSIFICATIONS

                                      -22-
<PAGE>
                    CLEARWORKS.NET, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

           The Company has reclassified certain revenues, costs and expenses for
           the year ended December 31, 1998, to facilitate comparison to the
           year ended December 31, 1999.

Note 3.  Restatement Adjustments

The Company has recorded certain accounting adjustments that were required to
restate the December 31, 1999 financial statements as originally filed. These
restatement adjustments increased previously reported net loss by $1,391,000,
and consist of the following: an increase to interest expense of $650,000 to
record the beneficial conversion feature attributable to the 6% convertible
debentures issued in December 1999; an increase to selling, general and
administrative expenses of $648,000 for the elimination of improperly recognized
deferred financing costs related to warrants issued to consultants of the
Company in 1999; and an additional increase in interest expense of $93,000
related to the amortization of deferred financing charges.

Other adjustments that did not affect net loss, but that did affect other
amounts as previously filed include the following: a reclassification of $50,000
to reduce debt discount and increase additional paid-in capital due to a
corrected estimate of the relative fair value of the detachable warrants issued
with the 6% convertible debentures; a reclassification of cash-incurred debt
finance costs from other assets to deferred financing costs in the amount of
$378,000 (no effect on total assets or shareholders' equity); and a corrected
estimate of warrants issued for debt financing costs, resulting in a reduction
of $116,000 to the fair value ascribed to such warrants and the reclassification
of the resulting amount to deferred financing charges as a separate component of
shareholders' equity. The deferred financing charges classified as a reduction
to shareholders' equity will be amortized to interest expense over the life of
the debt.

The effect of the restatement adjustments are as follows:

<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999     AS PREVIOUSLY REPORTED   AS RESTATED
----------------------------------------------     ----------------------   -----------
<S>                                                <C>                      <C>
Balance sheet:
  Deferred financing costs .....................   $            1,142,000   $   378,000
  Other assets .................................                  407,000        29,000
  6% convertible debentures ....................                2,735,000     2,785,000
  Additional paid in capital ...................               10,988,000    11,472,000
  Deferred financing charges ...................                     --        (285,000)
  Accumulated deficit ..........................               (4,047,000)   (5,438,000)
Statement of Operations:
  Selling, general and administrative expenses .   $            3,780,000   $ 4,428,000
  Interest expense .............................                   81,000       824,000
  Net loss .....................................               (3,768,000)   (5,159,000)
  Loss per share ...............................                     (.21)         (.29)
</TABLE>


Note 4. Business Combinations

      On April 30, 1999, the Company acquired Archer Mickelson Technologies, LLC
("Archer") a systems integration firm located in Houston, Texas. In exchange for
one hundred percent (100%) of the membership interests of Archer, the Company
paid $50,000 in cash and issued 75,000 shares of its restricted common stock,
issued under Rule 144, to the sole member. The total purchase price paid for
this acquisition, including certain acquisition costs, was $130,500. Goodwill in
the approximate amount of $76,000 resulted from this transaction.

                                      -23-
<PAGE>
                    CLEARWORKS.NET, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

      On December 30, 1999, the Company acquired United Computing Group, Inc.
and United Consulting Group, Inc. (collectively "UCG"), an accelerator company
and computer hardware reseller firm located in Houston, Texas. The Company
issued 2,000,000 shares of its restricted common stock and paid $500,000. The
total purchase price for this acquisition was $5,320,000. Goodwill in the
approximate amount of $4,942,000 resulted from this transaction

      The Company has entered into employment and stock option agreements with
the former principals of United Computing Group, Inc. at the time of
acquisition. Under the terms of the employment agreements, the former principals
receive a base salary, a monthly cash bonus based on a percentage of earnings of
United Computing Group, Inc. before interest and taxes, reimbursement of all
reasonable, ordinary and necessary business expenses and participation in the
Company's employee benefit plan. In addition, the Company has entered into
option agreements with the former principals pursuant to which they can earn
options to purchase up to a total of 1,000,000 shares of the Company's common
stock to be issued pursuant to the Company's 1999 Long-Term Incentive Plan,
based upon certain pre-determined revenue goals for United Computing Group, Inc.
The options are exercisable, only if the revenue goals are met, at $.25 per
share and expire December 30, 2000. In general, the options become exercisable
in increasing amounts to the extent, if any, that United Computing Group, Inc.'s
revenues exceed $15 million for the calendar year 2000, and all 1,000,000
options become exercisable if United Computing Group, Inc.'s revenues equal or
exceed $42 million for the calendar year 2000.

      The purchase agreement provides that, at the election of the UCG
shareholders, all the shares of UCG will be returned to the UCG shareholders and
the UCG shareholders will return all but 500,000 shares of the Company's common
stock (i) if the closing bid price for the Company's common stock is less than
$1.50 per share during certain specified periods, or (ii) if the Company does
not provide UCG sufficient capital for UCG to maintain a positive working
capital ratio of 1.2 during the period from March 1, 2000 until December 31,
2000. Should the Company return all of the shares of UCG to the UCG shareholders
and the UCG shareholders return all but 500,000 shares of the Company's common
stock to the Company, UCG would be required to repay the $500,000 paid to UCG at
closing.

The net purchase price of the 1999 acquisitions has been allocated as follows:

      Accounts receivable, net                                    $  2,526,000
      Inventories                                                      191,000
      Prepaid expenses and other current assets                        131,000
      Property and equipment, net                                       92,000
      Goodwill                                                       5,018,000
      Other assets                                                      19,000
      Accounts payable                                              (2,278,000)
      Accrued expenses                                                (290,000)
      Notes payable                                                    (50,000)
                                                                  -------------
          Purchase price, net of cash received                    $  5,359,000
                                                                  =============

      On May 26, 1998, the Company acquired InfraResources, LLC
("InfraResources") in a business combination accounted for as a purchase.
InfraResources is primarily engaged in integration technology services. To
culminate this transaction, the Company issued 80,000 shares of restricted
common stock valued at $165,000 and paid no cash to InfraResources. However, the
Company assumed debt of $40,000 and immediately paid it off. Goodwill in the
approximate amount of $204,000 resulted from this transaction.

      On May 29, 1998, the Company acquired Team Renaissance, Inc. ("Team
Renaissance") in a business combination accounted for as a purchase. Team
Renaissance is primarily engaged in structured wiring solutions for residences
and businesses. The Company issued 156,250 shares of restricted common stock
valued at $322,000 to Team Renaissance in culminating this transaction. Goodwill
in the approximate amount of $292,000 resulted from this transaction.

                                      -24-
<PAGE>
      The Company purchased the assets of John Diaz, dba Vitadel Communications,
an individual residing in Texas, on November 19, 1998. In exchange for these
assets, the Company issued 98,039 shares of its common stock valued at $150,000.
Goodwill in the approximate amount of $126,000 resulted from this transaction.

      The following unaudited pro forma information represents the combined
results of operations of the Company as if the acquisitions had occurred as of
January 1, 1998 and 1999:

                                                     1999              1998
                                                 ------------      ------------

      Revenues .............................     $ 13,241,000      $  3,430,000
      Costs and expenses ...................       19,686,000         4,748,000

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

      Net loss .............................     $ (6,445,000)     $ (1,318,000)

                                                 ============      ============
      Basic and diluted loss per share .....     $       (.36)     $       (.16)
                                                 ============      ============

      The pro forma information is not necessarily indicative of operating
results that would have occurred if the acquisitions had in fact occurred on
January 1, 1998, nor is it necessarily indicative of future operating results.
The actual results of operations of an acquired company are included in the
Company's consolidated financial statements only from the date of acquisition.


Note 5.     Factoring


      In August 1998, the Company entered into a factoring agreement with
Amerisource Funding, Inc. ("ASF"). Under the agreement, ASF could purchase the
Company's accounts receivable at the Company's discretion in accordance with the
terms of the agreement.

      ASF purchased acceptable accounts from the Company at a discount of 6.25%.
Under the agreement, ASF reserved the right to withhold 13.75% of any account in
a non-interest bearing reserve account until the account had been fully paid
and/or satisfied. If ASF deemed any portion of an account to be uncollectable,
the Company was required to repurchase those accounts and proceed with its own
collection. During 1999, the Company terminated its factoring agreement with
ASF.


Note 6.     Stock Subscription Receivable


      The Company sold 1,800,000 shares of its common stock to KMA Investments
during April 1999 and recorded a stock subscription receivable in the amount of
$450,000. The funds for this stock sale were subsequently collected in February
2000.


Note 7.     Property and Equipment


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

      Head-end facilities                                         $  1,576,000
      Field operating equipment                                        288,000
      Satellite demonstration equipment                                337,000
      Furniture, fixtures and equipment                                177,000
                                                                  ------------
          Total                                                      2,378,000
      Accumulated depreciation                                        (122,000)
                                                                  ------------
          Property and equipment, net                             $  2,256,000
                                                                  ============

                                      -25-
<PAGE>
                    CLEARWORKS.NET, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


Note 8.     Accrued Expenses


      Accrued expenses consist of the following at December 31, 1999:

      Sales taxes payable                                         $    175,000
      Accrued payroll                                                   45,000
      Accrued interest                                                  80,000
      Federal income taxes payable                                     137,000
      Other                                                             24,000
                                                                  ------------
          Total accrued expenses                                  $    461,000
                                                                  ============


Note 9.     Notes Payable


      The following table lists the Company's note obligations as of December
31, 1999:

                                           ANNUAL
                                          INTEREST
                                            RATE       DUE DATE
                                          --------    ---------   ------------
      KMA Investments                       12.0%     July 2000        802,000
      NTL Securities                        12.0%      May 2001        500,000
      Other                                Various     Various          93,000
                                                                  ------------
          Total notes payable                                        1,395,000
      Less current portion                                            (860,000)
                                                                  ------------
          Total long-term debt                                      $  535,000
                                                                  ============

      On August 4, 1999, the Company borrowed $802,000 from KMA Investments at
an interest rate of 12% per year. This loan is due and payable on or before July
9, 2000, and is evidenced by a promissory note. If the note and all accrued
interest is not paid when due, the delinquent amount automatically converts into
shares of the Company's common stock at the rate of one share for each $1.375 of
principal and/or interest outstanding. The Company may prepay the principal and
accrued interest only after giving the holder 30 days prior notice to effect
conversion.

      On October 14, 1999, the Company borrowed $500,000 from NTL Securities.
This loan is evidenced by a promissory note and accrues interest at the rate of
12% per year. All accrued interest and unpaid principal are due on May 1, 2001.

      Two notes payable to Michael T. McClere, the Company's Chief Executive
Officer, outstanding at December 31, 1998 were repaid during 1999. On December
13, 1999, the Company borrowed $150,000 from Mr. McClere. This loan was
evidenced by a promissory note and bore interest at the rate of 12% per year
until it was repaid on January 10, 2000.


Note 10. Convertible Debentures

      On December 13, 1999, the Company closed a private placement transaction
with Candlelight Investors, LLC, ("Candlelight") a Delaware limited liability
company. In the private placement, the Company received from Candlelight a total
of $3,000,000 in exchange for $3,000,000 total face value 6% convertible
debentures due December 13, 2001, together with warrants to purchase up to
210,000 shares of common stock. The Company determined the warrants to have a
total value of $215,000 on the date of issuance and recorded this amount as a
discount against the convertible debentures.


                                      -26-
<PAGE>
                    CLEARWORKS.NET, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


      The warrants are exercisable at $3.16 per share. The debentures are
convertible at the lower of $3.30 per share or 92 percent of the average of the
three lowest closing bid prices for the Company's common stock during the 30
days immediately preceding conversion. However, if the average lowest closing
price is less than $1.50 per share, then the conversion price of the debentures
shall be equal to the average lowest closing price without modification. Because
the conversion price of these debentures was less than the fair value of the
Company's common stock on the date of issuance, the Company has recorded as
interest expense the intrinsic value of the beneficial conversion feature. The
intrinsic value of the beneficial conversion feature was determined to be
$650,000.


      The Company also gave Candlelight the right to acquire, upon total payment
to the Company of $2,000,000, an additional $2,000,000 face value of debentures
and additional warrants to purchase up to 140,000 shares of common stock.

      In connection with the private placement, the Company agreed not to sell
any of its securities until July 4, 2000, unless the securities are (1) issued
in connection with a public offering of at least $15 million, (2) in connection
with an acquisition of additional businesses or assets or (3) as compensation to
employees, consultants, officers or directors.


Note 11.    Commitments and Contingent Liabilities


      LEGAL PROCEEDINGS

      Coinciding with the reverse merger with Southeast, the former management
of Southeast established a trust to provide for the orderly liquidation of any
alleged claims existing as of the date of acquisition. Certain stockholders of
Southeast have contributed 86,000 free trading shares of the Company's common
stock to the trust to satisfy approximately $150,000 of alleged claims. Due to
the resignation of the trustee, the trust shares have been deposited in the
registry of the Harris County Texas District Court, and the Company has been
named a nominal defendant in an Interpleader action. The Company intends to
vigorously defend its position by requesting the court release the stock for
payment of all alleged claims as was originally intended. The Company's
management does not expect that the results of this legal proceeding will have a
material adverse effect on the Company's financial condition or results of
operations.

      The Company is currently a plaintiff in ClearWorks.net, Inc. v. Michael C.
Callihan and Linda Callihan. The suit was filed February 25, 2000 [after
attempts to mediate were unsuccessful] alleging causes of action based on breach
of contract, breach of warranty, fraud in stock transactions and common law
fraud. The facts underlying the lawsuit are as follows: On or about May 21,
1998, the principal shareholder of Team Renaissance, Inc. entered into a merger
agreement with ClearWorks. Shortly thereafter, the principal shareholder,
Michael Callihan, requested that the Company pay in full promissory notes in
which Mr. Callihan was the payee. However, those promissory notes were neither
disclosed in the merger agreement nor attached to the merger agreement as
exhibits. A dispute arose between ClearWorks and Mr. Callihan regarding the
validity of the promissory notes. Additionally, a dispute arose regarding credit
card accounts held in the name of Mr. Callihan which Mr. Callihan claims are the
obligation of the Company and which the Company claims are the personal debt of
Mr. and Mrs. Callihan. Also, prior to closing, ClearWorks learned that the
Callihans had failed to make payments to its employees and contractors, and had
also failed to pay its suppliers, in direct violation of the merger agreement
between the parties. In this suit, ClearWorks seeks return of shares previously
issued to Mr. Callihan in connection with the events underlying the suit. The
Company intends to continue to vigorously prosecute its claims against the
Callihans.

      The Company is currently a defendant in Tim Pennington v. ClearWorks
Technologies, Inc. and James W. Walters. Tim Pennington has recently filed a
petition asserting claims against the Company. These claims allegedly first
arose with Mr. Pennington's employment with Southeast Tire Recycling, Inc. Mr.
Pennington claims that he had an employment agreement with Southeast Tire
Recycling, Inc. providing him with options to purchase up to 175,000 shares of
free trading stock, 100,000 shares of restricted stock, and an additional 50,000
shares for every six

                                      -27-
<PAGE>
(6) months of Pennington's employment. Pennington claims that his employment
agreement was breached by Southeast Tire prior to the merger. Pennington also
claims that he was also the owner of 300,000 shares of common stock of Southeast
Tire. Pennington's claims are addressed to ClearWorks, although the alleged
misconduct was not the conduct of ClearWorks but that of its predecessor,
Southeast Tire, and its shareholders, officers and directors. Pennington's
claims are grounded in fraud, state and federal securities fraud, and
conversion. Pennington seeks a judgment in excess of $100,000 plus punitive
damages, court cost, attorneys' fees and interest. The Company has filed its
answer to the recent filing by Pennington. The answer was due on March 1, 2000.
The Company intends to vigorously defend the claim and to raise affirmative
defenses on behalf of the Company, such as estoppel, latches and that
Pennington's claims are not against the Company, but are against former
officers, directors, and shareholders.

      The Company also currently is a defendant in Robert Horn vs. ClearWorks
Technologies, Inc. The suit was filed March 25, 1999, alleging causes of action
based on breach of contract in the amount of approximately $200,000. The facts
underlying this lawsuit are as follows: Robert Horn entered into an employment
agreement with the Company effective April 1, 1998. The employment agreement
contained a condition precedent which stated: "The completion and subsequent
release of escrow money associated with the initial 504 offering of the
Company's securities on or before May 1, 1998, is a condition precedent to the
obligation of any party hereunder." The condition precedent was not met because
the Company did not have a 504 offering prior to May 1, 1998. On July 1, 1998,
Mr. Horn tendered his notice of resignation effective July 31, 1998. On March
25, 1999, Mr. Horn filed a lawsuit claiming that the Company had terminated Mr.
Horn's employment without cause. The Company filed an answer on April 16, 1999,
denying the claim and asserting its affirmative defenses. The Company is
vigorously contesting these claims by Robert Horn on the basis that they are
without merit.


      The Company is a defendant in Sherman Gerald Mason, d/b/a Castle
Developments, Ltd. v. ClearWorks.net, Inc. formerly ClearWorks Technologies,
Inc. On December 17, 1999, Sherman Gerald Mason d/b/a Castle Developments, Ltd.
filed suit against the Company. In his Original Petition, Mr. Mason alleges the
breach of a consulting agreement with the Company and seeks recovery of 500,000
shares of stock. He also seeks recovery of alleged monthly retainer payments in
an undisclosed amount and seeks injunctive relief. The Company has filed an
answer disputing all liability, asserting that the contract was terminable and
that the contract is not enforceable because of the prior breaches of the
consulting agreement by Mr. Mason.


      This suit was only recently served upon the Company. The Company has
answered. No discovery has been propounded and no scheduling order or trial date
has been entered in connection with the case.

      LEASE COMMITMENTS

      The Company leases its principal offices in Houston, Texas, consisting of
approximately 9,000 square feet of office space, expiring in 2003. The Company
also leases warehouse space in Houston, Texas, expiring in 2000. There are small
offices located in Las Vegas, Nevada and Phoenix, Arizona. United Computing
Group, Inc. leases approximately 8,000 square feet of office and warehouse space
in Houston, Texas, expiring in 2001.

      Future minimum lease payments for non-cancelable operating leases having
initial or remaining terms in excess of one year are as follows:

      December 31,                                                    AMOUNT
                                                                   -----------
      2000                                                         $   246,000
      2001                                                             203,000
      2002                                                             143,000
      2003                                                              46,000
                                                                   -----------
          Total                                                    $   638,000
                                                                   ===========

                                      -28-
<PAGE>
                    CLEARWORKS.NET, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)


Note 12. Stock Options and Warrants


      LONG-TERM INCENTIVE PLAN


      On May 12, 1999, the Long-Term Incentive Plan (the "1999 Plan") was
adopted by the Board of Directors. In order to become and remain fully
effective, the 1999 Plan must be approved by the shareholders of the Company on
or before May 12, 2000. None of the options granted pursuant to the 1999 Plan
may be exercised unless and until the 1999 Plan is approved by the shareholders.
Pursuant to the 1999 Plan, an aggregate of 10,000,000 shares of common stock may
be granted to key employees, directors and other persons who have contributed or
are contributing to the Company's success. Alternatively, options to purchase
common stock, stock appreciation rights or cash may be granted instead of
outright awards of stock. The options that may be granted pursuant to the 1999
Plan may be either incentive options qualifying for beneficial tax treatment for
the recipient or nonqualified options. The 1999 Plan is administered by the
Board of Directors. Administration of the 1999 Plan includes determination of
the terms of options granted under the 1999 Plan. At December 31,1999, options
to purchase 3,027,500 shares were granted upon stockholder approval under the
1999 Plan. On April 30, 2000, the Company held its Annual Stockholder's meeting
in which a proposal to approve the 1999 Plan was submitted to the stockholders
for a vote. The proposal did not pass and the meeting was continued until May
11, 2000. At such time, the proposal failed.


      STOCK WARRANT PLAN

      Effective as of April 24, 1998, Southeast instituted a Stock Warrant Plan
(the "Warrant Plan"). After the merger of Southeast into the Company on May 12,
1998, the Warrant Plan continued to be effective as the Company's stock warrant
plan. Pursuant to the Warrant Plan, the Company may issue Class A Warrants or
Class B Warrants to key employees, directors, and other persons who have
contributed or are contributing to the Company's success. Each Class A or Class
B Warrant allows the holder to purchase one share of common stock. The maximum
number of shares underlying all warrants that may be granted pursuant to the
Warrant Plan is limited to 5,000,000 shares. The warrants granted pursuant to
the Warrant Plan may be considered either incentive options qualifying for
beneficial tax treatment for the recipient or nonqualified options. The Warrant
Plan is administered by the Board of Directors. At December 31, 1999, Class A
Warrants to purchase 1,000,000 shares at $3.00 per share and Class B Warrants to
purchase 1,000,000 shares at $6.00 per share were outstanding under the Warrant
Plan.


      During 1999, the Company issued 210,000 warrants in connection with the
issuance of 6% convertible debentures and determined them to have a total value
of $215,000 on the date of issuance and recorded this amount as a discount
against the convertible debentures (See Note 10). The Company issued an
additional 250,000 warrants to an entity in connection with capital raising
activities. The Company determined the fair value of these warrants to be $
378,000 on the date of issuance and has recorded this amount as deferred
financing charges, as a separate component of stockholders' equity to be
amortized over the expected period of benefit. The Company also issued and
additional 250,000 warrants to a consultant of the Company for services
performed. The Company determined the fair value of these warrants to be
$648,000 on the date of issuance and charged this amount to earnings on that
date.

      Of the 2,710,000 warrants outstanding at December 31, 1999, 500,000 expire
during 2000; 210,000 expire during 2002; 1,000,000 expire on April 24, 2003; and
1,000,000 expire on April 24, 2008.


                                      -29-
<PAGE>
                      CLEARWORKS.NET, INC. AND SUBSIDIARIES
                         NOTES TO CONSOLIDATED FINANCIAL
                                   STATEMENTS
                                   (CONTINUED)


    Note 13.    Income Taxes


          Income tax expense (benefit) attributable to income from continuing
    operations differed from the amounts computed by applying the U.S. federal
    income tax rate of 34% to pretax income from continuing operations as a
    result of the following:

                                                        1999           1998
                                                    ------------    ----------

      Computed "expected" tax benefit               $ (1,754,000)   $  (86,000)
      Increase in valuation allowance                  1,137,000        86,000
      Non-deductible warrant and beneficial
        conversion expenses                              473,000            --
      Non-deductible amortization of goodwill             40,000            --
      Non-deductible stock option expense                 77,000            --
      Other                                               27,000            --

                                                    ------------    ----------
                                                    $         --    $       --
                                                    ============    ==========

      The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1999 are presented below:

      Deferred tax assets:
          Accounts receivable, principally due to allowance for  $      29,000
            doubtful accounts

          Net operating loss carryforwards                           1,457,000
          Other                                                          6,000
                                                                 -------------
              Total gross deferred tax assets                        1,492,000
          Less valuation allowance                                 ( 1,409,000)

                                                                 -------------
              Net deferred tax assets                                   83,000
                                                                 -------------
      Deferred tax liabilities:
          Plant and equipment, principally due to differences
            in depreciation                                            (83,000)
                                                                 -------------
      Net deferred tax asset                                         $      --
                                                                 =============


      The valuation allowance for deferred tax assets as of December 31, 1999
was $1,409,000. The net change in the total valuation allowance for the year
ended December 31, 1999 was an increase of $1,137,000. At December 31, 1999, the
Company has net operating loss carryforwards of $4,284,000 which are available
to offset future federal taxable income, if any, with expirations through 2019.

Note 14. Issuance of Common Stock


      During the year ended December 31, 1999, the Company issued 9,424,708
shares of common stock. The following table summarizes the shares of common
stock issued:

      Shares outstanding December 31, 1998                    11,460,249
          Shares issued for cash                               5,730,000
          Shares issued for acquisitions                       2,075,000
          Shares issued for syndication costs                  1,087,910
          Shares issued for compensation and services            531,798
                                                            ------------
      Shares outstanding December 31, 1999                    20,884,957

                                      -30-
<PAGE>
                    CLEARWORKS.NET, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (CONTINUED)

      During 1999, the Company issued 5,730,000 shares of its common stock for
cash in three separate issuances. The first issuance was 2,930,000 shares for
cash consideration of $831,000 and was in accordance with the transactional
exemption from registration afforded by Rule 504 of Regulation D, as promulgated
under Section 3(b) of the Securities Exchange Act of 1933. The second issuance
was 1,000,000 shares of restricted common stock to two entities, neither of
which is affiliated with a director or executive officer of the Company, for
cash consideration of $500,000 each or an aggregate of $1,000,000. The third
issuance was 1,800,000 shares of common stock to one entity, which is not
affiliated with a director or executive officer of the Company, for cash
consideration of $450,000.

      The Company issued  2,000,000  shares of its  restricted  common stock for
the acquisition of United Computing  Group,  Inc. and United  Consulting  Group,
Inc. and 75,000 shares of its  restricted  common stock for the  acquisition  of
Archer Mickelson Technologies, LLC.

      The Company issued 1,087,910 shares of its common stock to certain persons
or entities as compensation for syndication services on behalf of the Company in
completing its Rule 504 placement of common stock as discussed above.

      The Company issued 531,798 shares of its restricted common stock to
certain employees of the Company and non-affiliated personnel as compensation
for services to the Company. The Company charged as compensation expense the
fair value of the common stock on the date of issuance.


Note 15. Major Customers


      During the year ended December 31, 1999, the Company had sales to the
Texas A&M University system that accounted for 12% of total revenues for the
year. During the period ended December 31, 1998, the Company had sales to Enron
Corp. that accounted for 20% of total revenues for the year.


Note 16. Industry Segments


      The Company has adopted the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." At December 31, 1999 the
Company's three business units have separate management teams and
infrastructures that offer different products and services. The business units
have been aggregated into three reportable segments (described below) since the
long-term financial performance of these reportable segments is affected by
similar economic conditions.

      CLEARWORKS COMMUNICATIONS, INC. subsidiary focuses primarily on the
delivery of integrated voice, video and data services to the residential and
commercial marketplace. Its proprietary technology enables it to proceed into
the voice, video and data market for bundled consumption. The Company deploys
dial tone, multi-channel digital video services, dedicated Internet
connectivity, on-demand video rental, voicemail, security monitoring and a
community intranet as a Bundled Digital Service into the home or office.
ClearWorks Communications provides solutions to consumers by implementing
technology, both within the community and within the home. Within the
residential community, ClearWorks Communications is installing fiber optic
backbones to deliver voice, video and data solutions directly to consumers.

      CLEARWORKS STRUCTURED WIRING SERVICES, INC. subsidiary focuses primarily
on developing residential, commercial and educational accounts for deployment of
structured wiring solutions and sale of audio and visual equipment to new
construction single family and multi-family dwelling units. These customers
consist of companies, school districts and universities and individuals that
seek outside expertise to deploy fiber-optic and copper-based structured wiring
solutions. ClearWorks Structured Wiring Services generates revenue through time
and materials billings, consulting contracts, service and support contracts

      CLEARWORKS INTEGRATION SERVICES, INC. subsidiary provides information
technology staffing personnel, network engineering, vendor evaluation of network
hardware, resale of network hardware, implementation of

                                      -31-
<PAGE>
network hardware and support of private and enterprise networks. Additional
services include desktop rollouts, multi-platform supports and Local Area
Networks ("LAN"), as well as Wide Area Networks ("WAN") analysis and server
deployment.

      The accounting policies of the reportable segments are the same as those
described in Note 2. The Company evaluates the performance of its operating
segments based on income before net interest expense, income taxes, depreciation
and amortization expense, accounting changes and non-recurring items.

      Summarized financial information concerning the Company's reportable
segments is shown below in the following table:

<TABLE>
<CAPTION>
                                                             CLEARWORKS         CLEARWORKS
                                          CLEARWORKS         STRUCTURED         INTEGRATION     CORPORATE AND
                                        COMMUNICATIONS         WIRING            SERVICES        ELIMINATIONS       CONSOLIDATED
                                        ---------------    ---------------    ---------------   ---------------    ---------------
<S>                                     <C>                <C>                <C>               <C>                <C>
Year ended December 31, 1999:

  Revenues from unaffiliated customers .         42,000          1,383,000          1,607,000              --            3,032,000
  Segment profit (loss) ................       (419,000)          (127,000)           111,000        (3,758,000)        (4,193,000)
  Total assets .........................      1,771,000            784,000          3,183,000         8,020,000         13,758,000
  Capital expenditures .................      1,778,000             92,000             24,000           100,000          1,994,000
  Depreciation and amortization ........         14,000             38,000              1,000           152,000            205,000

Year Ended December 31, 1998:
  Revenues from unaffiliated customers .           --              555,000            535,000              --            1,090,000
  Segment profit (loss) ................           --               16,000             33,000          (207,000)          (158,000)
  Total assets .........................           --               42,000             47,000         1,101,000          1,190,000
  Capital expenditures .................           --                 --                 --             208,000            208,000
  Depreciation and amortization ........           --               13,000               --              71,000             84,000
</TABLE>


The following reconciles segment profit (loss) to loss from operations per the
1999 and 1998 consolidated statements of operations:

                                                       1999             1998
                                                    -----------     -----------
Total loss from reportable segments ............    $(4,193,000)    $  (158,000)
Depreciation and amortization ..................       (205,000)        (84,000)
                                                    -----------     -----------
  Loss from operations .........................     (4,398,000)       (242,000)

Note 17.    Subsequent Events

      On February 14, 2000, Candlelight converted $1,500,000 face value and
accrued interest thereon of the convertible debentures into 724,760 shares of
common stock. Additionally, on March 15, 2000, the Company issued to Candlelight
the remaining $2,000,000 face value of the 6% convertible debentures together
with warrants to purchase 140,000 shares of common stock. (See Note 10).


      On March 17, 2000, ClearWorks Home Systems, Inc. acquired all of the
assets of Secure-All Security, a sole proprietorship owned by Ronnie Evans.
Secure-All Security is in the business of selling and installing security
systems and monitoring the systems it installs. The Company paid Ronnie Evans
$225,000 and 34,000 shares of common stock for the assets of Secure-All
Security. The common stock was valued at approximately $9 per share for purposes
of this transaction. The Company assumed liabilities of Secure-All Security
totaling $131,000.

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


None.


                                      -32-
<PAGE>
                                    PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      Set forth in the following table are the names of the directors and each
of the executive officers, their respective positions and ages, and the year in
which each director was first elected. Each director has been elected to hold
office until the next annual meeting of stockholders and thereafter until his
successor is elected and has been qualified. Additional information concerning
each of these individuals follows the table.

<TABLE>
<CAPTION>
            NAME                          AGE           POSITION WITH THE COMPANY                               DIRECTOR SINCE
            ----                          ---         -----------------------------                             --------------
<S>                                       <C>         <C>                                                       <C>
Michael T. McClere                        39          Chairman of the Board and                                   March 1998
                                                      Chief Executive Officer

Shannon D. McLeroy                        34          President and Secretary                                        - -

Carl A. Chase                             50          Chief Financial Officer                                        - -
                                                      and Treasurer

Raymond G. Harrell III                    37          Director                                                   January 2000


D. Dennis Majeski                         54          Director                                                   January 2000

</TABLE>

      Michael T. McClere. Mr. McClere is Chairman of the Board, Chief Executive
Officer and a director. Prior to joining the Company, Mr. McClere had been
involved in several businesses in the information technology (IT) area, serving
on the board of directors and as chief executive officer. Mr. McClere has been
involved in the purchasing of numerous businesses, as well as selling businesses
that he had assisted in the development. Mr. McClere's business background
includes all aspects of the development and implementation of information
technology businesses. Mr. McClere has also assisted in the development and
implementation of major technology deployments for NASA in various space centers
throughout the world. As a consultant on information systems, Mr. McClere
assisted Lockheed Engineering & Sciences Company from May 1988 to October 1990,
SAE, Inc. from May 1984 to May 1988, and Baker Hughes from May 1979 to May 1984.
Mr. McClere has over seventeen years experience in the information technology
field. He has received a BS in Computer Science from The University of
Houston-University Park in 1988.

      Mr. McClere is not a director of any other entity that has securities
registered under the Securities Exchange Act of 1934.

      Shannon D. McLeroy. Mr. McLeroy serves as President and Secretary. Mr.
McLeroy has been in the systems integration business for over ten years. He has
worked beginning as a technician and has progressed through various stages of
management. Mr. McLeroy has managed teams of engineers to deploy technical
computer services with the last three companies with which he has worked. Mr.
McLeroy was solely responsible for managing and putting together a team of
computer professionals to run a major portion of Exxon USA's network. This
network was responsible for delivering key financial and business data to enable
Exxon to perform its business.


      Carl A. Chase. Mr. Chase served as Chief Financial Officer and Treasurer
from August 16, 1999 to May 8, 2000, during which time he was responsible for
managing the finance, accounting, tax, treasury, investor relations and risk
management functions. Prior to joining the Company, Mr. Chase was Vice
President-Finance and Chief Financial Officer of Bannon Energy Incorporated, a
privately owned energy company involved in the exploration for and production of
oil, natural gas and natural gas liquids from December 1992 to August 1999. At
Bannon, Mr. Chase was responsible for the financial and administrative functions
including financial reporting, investor relations, liaison with financial
institutions, financing for capital programs, product price hedging and risk
management. Mr. Chase has 24 years experience in the areas of finance,
accounting and administration, primarily in the oil and gas industry. He has
held various positions with both major and independent oil and gas companies. In
those positions, Mr. Chase was responsible for SEC reporting and compliance,
obtaining financing for capital programs, mergers

                                      -33-
<PAGE>
and acquisitions, budgeting and forecasting and policies, procedures and
internal controls. Mr. Chase received a Bachelor of Accountancy degree from the
University of Oklahoma in 1975.


      Raymond G. Harrell III has been a director of the Company since January
2000. Mr. Harrell currently is employed by Continental Airlines as a Director of
International Schedules and has been employed by Continental Airlines since
September 1987. He attended the University of Houston and in 1985 earned a
Bachelor of Science degree in Industrial Distribution.

      Mr. Harrell is not a director of any other entity that has securities
registered under the Securities Exchange Act of 1934.


      D. Dennis Majeski has been a director of the Company since January 2000.
He has been involved in the information technology field for over 25 years. Mr.
Majeski currently is employed by Alcatel, Inc. as a Territory Manager and has
been employed by Alcatel (formerly known as Xylan) for two years. His business
background includes all aspects of the development and implementation of
information technology. He was employed by Milky Way Networks, Inc. from 1996 to
1997, Luxcom, Inc. from 1991 to 1996, and AT&T from 1970 to 1982. He attended
the University of Nebraska (1968 to 1974) and the Longview College (1974 to
1976).


      Mr. Majeski is not a director of any other entity that has securities
registered under the Securities Exchange Act of 1934.

ITEM 11.    EXECUTIVE COMPENSATION


      The following table sets forth in summary form the compensation received
during each of the last three successive completed fiscal years by Michael T.
McClere, Chief Executive Officer and Chairman of The Board and Shannon D.
McLeroy, President and Secretary. None of the other executive officers received
total salary and bonus exceeding $100,000 during any of the last three completed
years. Carl A. Chase, Chief Financial Officer and Treasurer, was earning an
annual salary of $108,000 for 1999.


                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                    ANNUAL COMPENSATION
                                       ---------------------------------------------------------------------------
NAME AND                                                                                            OTHER ANNUAL
PRINCIPAL POSITION                      FISCAL YEAR             SALARY ($)(1)     BONUS ($)(2    COMPENSATION ($)(3)
                                       ---------------         ---------------   ---------------   ---------------
<S>                                    <C>                     <C>               <C>               <C>
Michael T. McClere, ................
Chief Executive Officer                           1999         $       144,792               -0-               -0-
and Chairman Of The                               1998 (7)(8)  $        78,125               -0-               -0-
Board                                             1997                    $-0-               -0-               -0-
                                       ---------------         ---------------   ---------------   ---------------
                                                  1999         $       104,792               -0-               -0-
Shannon D. McLeroy, ................              1998 (7)     $        73,375               -0-               -0-
President and Secretary ............              1997         $        11,250               -0-               -0-
                                       ---------------         ---------------   ---------------   ---------------

<CAPTION>
                                                     LONG TERM COMPENSATION
                                       ---------------------------------------------------
                                                    AWARDS                     PAYOUTS
                                       ---------------------------------   ---------------
NAME AND                                 RESTRICTED         OPTIONS         LTIP PAYOUTS       ALL OTHER
PRINCIPAL POSITION                     STOCK AWARDS ($)       (#)              ($)(4)      COMPENSATION ($)(5)
                                       ---------------   ---------------   ---------------   ---------------
<S>                                    <C>               <C>               <C>               <C>
Michael T. McClere, ................
Chief Executive Officer                            -0-           500,000 (6)           -0-               -0-
and Chairman Of The                                -0-               -0-               -0-               -0-
Board                                              -0-               -0-               -0-               -0-
                                       ---------------   ---------------   ---------------   ---------------
                                                   -0-           500,000 (6)           -0-               -0-
Shannon D. McLeroy, ................               -0-               -0-               -0-               -0-
President and Secretary                            -0-               -0-               -0-               -0-
                                       ---------------   ---------------   ---------------   ---------------
</TABLE>

      (1) The dollar value of base salary (cash and non-cash) received during
the year indicated.

      (2) The dollar value of bonus (cash and non-cash) received during the year
indicated.

      (3) During the period covered by the Summary Compensation Table, the
Company did not pay any other annual compensation not properly categorized as
salary or bonus, including perquisites and other personal benefits, securities
or property.


      (4) Except for the Long Term Incentive Plan and Stock Warrant Plan (which
was not approved by the stockholders), the Company does not have in effect any
plan that is intended to serve as incentive for performance to occur over a
period longer than one fiscal year.


      (5) All other compensation received that the Company could not properly
report in any other column of the Summary

                                      -34-
<PAGE>
Compensation Table including annual contributions or other allocations to vested
and unvested defined contribution plans, and the dollar value of any insurance
premiums paid by the Company on its behalf with respect to term life insurance
for the benefit of the named executive officer, and the full dollar value of the
remainder of the premiums paid by the Company on its behalf.


      (6) These options were granted subject to stockholder approval in
accordance with the Company's 1999 Long Term Incentive Plan. For additional
information regarding this plan, please see below "1999 Long Term Incentive
Plan".


      (7) As part of the Company's April 1998 recapitalization with Southeast, a
Stock Warrant Plan dated April 24, 1998 was executed by the former management of
Southeast in conjunction with the Agreement for Purchase of Common Stock dated
April 1, 1998 and Addendum to Agreement for Purchase of Common Stock dated April
24, 1998. In the Addendum to Agreement for Purchase of Common Stock, the
management of Southeast agreed to issue warrants to each of the stockholders of
Southeast in amounts proportionate to their stockholdings in Southeast. The
names of the stockholders and the number of warrants issued to each are set
forth below. Although Mr. McLeroy, Mr. McClere and entities related to Mr.
McClere each received warrants in this transaction, the Company did not
recognize issuance of the warrants to be compensation to either Mr. McLeroy or
Mr. McClere because the warrants were exchanged for equity interests owned by
each of the persons or entities named below:

      NAME:                        WARRANT CLASS             AMOUNT
      -----                        -------------            -------
      Shannon D. McLeroy                  A                 300,000
                                          B                 300,000

      Michael T. McClere                  A                 210,000
                                          B                 210,000

      Tech Technologies Services LLC*     A                 240,000
                                          B                 240,000

      Rachel McClere 1998 Trust           A                  50,000
                                          B                  50,000

      McClere Family Trust                A                 200,000
                                          B                 200,000
      ---------------------------

      * Celia Figueroa is the General Manager of Tech Technologies Services LLC
      and therefore may be considered a beneficial owner of the warrants held in
      the name of Tech Technologies. At the time of the transaction described
      above, Ms. Figueroa was Secretary and General Counsel of the Company.

      (8) From January 1, 1998 to March 31, 1998, the Company engaged Tech
Technologies as a consultant pursuant to a consulting agreement that provided
that Tech Technologies would provide financial and managerial consulting
services to the Company in exchange for $10,000 per month. During that period,
Michael T. McClere was the General Manager of Tech Technologies. Effective April
1, 1998 the consulting agreement with Tech Technologies was terminated and Mr.
McClere became an employee of the Company.

OPTION GRANTS TABLE

      The following table sets forth information concerning individual grants of
stock options made during the fiscal year ended December 31, 1999 to each person
named above in the Summary Compensation Table.

---------------------------------------------------------------------------
                                    % OF TOTAL
                                     OPTIONS       EXERCISE OR
                        OPTIONS     GRANTED TO        BASE
                        GRANTED     EMPLOYEES        PRICE       EXPIRATION
NAME                      (#)     IN FISCAL YEAR   ($/SHARE)        DATE
---------------------------------------------------------------------------
Michael T. McClere      500,000             17.4%  $2.00/Share      12/9/04
Shannon D. McLeroy      500,000             17.4%  $2.00/Share      12/9/04


The options described above were granted upon stockholder approval pursuant to
the 1999 Long-Term Incentive Plan and as described below in "Long-Term Incentive
Plan". The options are shown in this table and also in the Summary Compensation
Table under "Long Term Compensation Awards - Options". The 1999 Plan was not
approved by the stockholders of the Company at the Annual Stockholders meeting.


                                      -35-
<PAGE>
Long-Term Incentive Plan


    On May 12, 1999, the Long-Term Incentive Plan (the "1999 Plan") was adopted
by the Board of Directors. In order to become and remain fully effective, the
1999 Plan must be approved by the stockholders of the Company on or before May
12, 2000. None of the options granted pursuant to the 1999 Plan may be exercised
unless and until the 1999 Plan is approved by the stockholders. Pursuant to the
1999 Plan, an aggregate of 10,000,000 shares of common stock may be granted to
key employees, directors and other persons who have contributed or are
contributing to the Company's success. Alternatively, options to purchase common
stock, stock appreciation rights or cash may be granted instead of outright
awards of stock. The options that may be granted pursuant to the 1999 Plan may
be either incentive options qualifying for beneficial tax treatment for the
recipient or nonqualified options. The 1999 Plan is administered by the Board of
Directors. Administration of the 1999 Plan includes determination of the terms
of options granted under the 1999 Plan. At March 31, 2000, options to purchase
3,027,500 shares were granted subject to stockholder approval under the 1999
Plan and options to purchase 6,982,500 shares were available to be granted
pursuant to the 1999 Plan. The 1999 Plan was not approved by the stockholders of
the Company at the Annual Stockholder's meeting.

    On December 9, 1999, options to purchase 500,000 shares of Company common
stock were granted subject to stockholder approval to each of Michael T. McClere
and Shannon McLeroy. These options were exercisable at a price of $2.00 per
share and all of the options expire on December 9, 2004. Also on December 9,
1999, options to purchase 400,000 shares at $.25 per share were granted subject
to stockholder approval to Carl A. Chase pursuant to the 1999 Plan. Mr. Chase's
options also expire on December 9, 2004. Upon stockholder approval of the 1999
Plan, options held by Mr. Chase to purchase 100,000 shares will then be
exercisable and options to purchase 100,000 shares will become exercisable on
each of August 16, 2001, August 16, 2002 and August 16, 2003. The options
granted subject to stockholder approval to each of Messrs. McClere and McLeroy
also are included above in both the Summary Compensation Table and the Option
Grants Table. The 1999 Plan was not approved by the stockholders of the Company
at the Annual Stockholder's meeting.


Stock Warrant Plan

    Effective as of April 24, 1998, Southeast instituted a Stock Warrant Plan
(the "Warrant Plan"). After the merger of Southeast into the Company on May 12,
1998, the Warrant Plan continued to be effective as the Company's stock warrant
plan. Pursuant to the Warrant Plan, the Company may issue Class A Warrants or
Class B Warrants to key employees, directors, and other persons who have
contributed or are contributing to the Company's success. Each Class A or Class
B Warrant allows the holder to purchase one share of common stock. The maximum
number of shares underlying all warrants that may be granted pursuant to the
Warrant Plan is limited to 5,000,000 shares. The warrants granted pursuant to
the Warrant Plan may be considered either incentive options qualifying for
beneficial tax treatment for the recipient or nonqualified options. The Warrant
Plan is administered by the Board of Directors. At February 17, 2000, Class A
Warrants to purchase 1,000,000 shares and Class B Warrants to purchase 1,000,000
shares were outstanding under the Warrant Plan, and warrants to purchase
3,000,000 shares were available to be granted pursuant to the Warrant Plan.

Compensation of Outside Directors

      Members of the Board of Directors, regardless of whether employed by the
Company, are not compensated for meeting attendance or otherwise, but are
entitled to reimbursement for travel expenses. The Company does not pay
additional amounts for committee participation or special assignments of the
Board Of Directors.

Employment Contracts and Termination of Employment and Change-in-Control
Arrangements

      Currently, there are no written employment contracts with respect to any
of the Company's officers and no compensatory plan or arrangement that results
or will result from the resignation, retirement, or any other termination of an
executive officer's employment or from a change in control of the company or a
change in an executive officer's responsibilities following a change in control.

                                      -36-
<PAGE>
ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      As of February 17, 2000, there were 20,894,957 shares of common stock
outstanding. The following table sets forth information as of that date with
respect to the beneficial ownership of common stock by each director and nominee
for director, by all executive officers and directors as a group, and by each
other person known by the Company to be the beneficial owner of more than five
percent of the common stock:

                                            NUMBER OF SHARES     PERCENTAGE OF
             NAME AND ADDRESS OF           BENEFICIALLY OWNED        SHARES
              BENEFICIAL OWNER                    (1)             OUTSTANDING
      -----------------------------------  ------------------    -------------
      Michael T. McClere                         6,103,699 (2)           26.8%
      2450 Fondren, Suite 200
      Houston, Texas  77063

      Shannon D. McLeroy                         2,875,625 (3)           13.1%
      2450 Fondren, Suite 200
      Houston, Texas  77063

      Carl A. Chase                                100,000 (4)              *
      2450 Fondren, Suite 200
      Houston, Texas  77063

      Raymond G. Harrell III                           600                  *
      4335 Alysheba Lane
      Friendswood, Texas  77546


      D. Dennis Majeski                              1,000                  *
      25227 Grogan's Mill Road, Suite 125
      The Woodlands, Texas  77380


      All Executive Officers and
      Directors as a group (five persons)        9,380,924 (2)(3)        38.6%

      Tech Technologies Services LLC
      2450 Fondren, Suite 205
      Houston, Texas 77063                       1,980,000 (5)            9.3%

      *Less than one percent.

(1)   "Beneficial ownership" is defined in the regulations promulgated by the
      U.S. Securities and Exchange Commission as having or sharing, directly or
      indirectly (i) voting power, which includes the power to vote or to direct
      the voting, or (ii) investment power, which includes the power to dispose
      or to direct the disposition, of shares of the common stock of an issuer.
      The definition of beneficial ownership includes shares underlying options
      or warrants to purchase common stock, or other securities convertible into
      common stock, that currently are exercisable or convertible or that will
      become exercisable or convertible within 60 days. Unless otherwise
      indicated, the beneficial owner has sole voting and investment power.


(2)   Includes options to purchase up to 500,000 shares of common stock which
      were granted pursuant to the 1999 Plan and would have become exercisable
      only upon approval of the 1999 Plan by the stockholders. The 1999 Plan was
      not approved by the stockholders of the Company at the stockholders annual
      meeting. Also includes Class A warrants to purchase 210,000 shares of
      common stock held by Mr. McClere, Class A warrants to purchase 50,000
      shares held by the Rachel McClere 1998 Trust and Class A warrants to
      purchase 200,000 shares held by the McClere Family Trust. The Class A
      warrants currently are exercisable at an exercise price of $3.00 per share
      until the warrants expire on April 24, 2003. Also includes Class B
      warrants to purchase 210,000 shares of common stock held by Mr. McClere,
      Class B warrants to purchase 50,000 shares held by the Rachel McClere 1998
      Trust and Class B warrants to purchase 200,000 shares held by the McClere
      Family Trust. The Class B warrants currently are exercisable at an
      exercise price of $6.00 per share until the warrants expire on April 24,
      2008. Also includes 312,500 shares held by the Rachel McClere 1998 Trust
      and 1,250,000 shares held by the McClere Family Trust. Also includes
      1,500,000 shares of common stock and

                                      -37-
<PAGE>
      warrants to purchase 480,000 shares of common stock, all of which are held
      by Tech Technologies Services LLC. Mr. McClere owns 90 percent of the
      outstanding equity interests in Tech Technologies Services LLC. The
      warrants held by Tech Technologies are described in footnote (4) below.
      The securities held by Tech Technologies are included twice in the table;
      they are listed as being held beneficially by both Mr. McClere and Tech
      Technologies.

(3)   Includes options to purchase up to 500,000 shares of common stock at an
      exercise price of $2.00 per share, which were granted pursuant to the 1999
      Plan and would have become exercisable only upon approval of the 1999 Plan
      by the stockholders. The 1999 Plan was not approved by the stockholders of
      the Company at annual stockholders meeting. Also includes immediately
      exercisable Class A warrants to purchase 300,000 shares of common stock at
      an exercise price of $3.00 per share until the warrants expire on April
      24, 2003. Also includes immediately exercisable Class B warrants to
      purchase 300,000 shares of common stock at an exercise price of $6.00 per
      share until the warrants expire on April 24, 2008. Also includes 625
      shares held by Mr. McLeroy's wife.

(4)   Includes options to purchase up to 100,000 shares of common stock upon
      stockholder approval of the 1999 Plan. On December 9, 1999, Mr. Chase was
      granted, upon stockholder approval, options to purchase up to 400,000
      shares. The 1999 Plan was not approved by the stockholders of the Company
      at the annual stockholders meeting.


(5)   Includes currently exercisable Class A warrants to purchase 240,000 shares
      of common stock at an exercise price of $3.00 per share until the warrants
      expire on April 24, 2003. Also includes currently exercisable Class B
      warrants to purchase 240,000 shares of common stock at an exercise price
      of $6.00 per share until the warrants expire on April 24, 2008. All of the
      securities indicated are included twice in the table; they are listed as
      being held beneficially by both Michael T. McClere and Tech Technologies
      Services LLC. Mr. McClere owns 90 percent of the outstanding equity
      interests in Tech Technologies.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      In connection with the transaction between Millennium Integration
Technologies, Inc., a Texas corporation, ("Millennium Texas") and Southeast Tire
Recycling, Inc., during 1998 a total of 1,312,500 shares of common stock were
issued to Michael T. McClere and 1,875,000 shares of common stock were issued to
Shannon D. McLeroy, who together were the principal stockholders of Millennium
Texas. The Company also agreed to issue warrants to purchase 920,000 shares of
stock to Mr. McClere and his affiliates, warrants to purchase 600,000 shares of
stock to Mr. McLeroy and warrants to purchase 480,000 shares of stock to Tech
Technologies Services LLC. Mr. McClere is the beneficial owner of 90 percent of
the outstanding equity interests of Tech Technologies. The General Manager of
Tech Technologies is Celia Figueroa who was our General Counsel and Secretary at
the time of this transaction. One-half of the warrants were Class A warrants and
one-half were Class B warrants.

      During the fiscal year 1997, the Company borrowed $22,000 from Michael T.
McClere, Chairman of the Board, with a note due November 13, 1998; and borrowed
an additional $30,000 with a note due March 31, 1999. These notes were repaid
during 1999. On December 13, 1999, the Company borrowed $150,000 from Mr.
McClere. This loan was evidenced by a promissory note and bore interest at the
rate of 12% per year until it was repaid on January 10, 2000.


      On December 9, 1999, options to purchase 500,000 shares of common stock
were granted subject to stockholder approval to each of Michael T. McClere and
Shannon McLeroy pursuant to the 1999 Plan. Also on December 9, 1999, options to
purchase 400,000 shares at $.25 per share were granted subject to stockholder
approval to Carl A. Chase pursuant to the 1999 Plan. The 1999 Plan was not
approved by the stockholders of the Company at the Annual Stockholders meeting.


      Except as described above, during the last two years there were no
transactions between the Company and its directors, executive officers or known
holders of greater than five percent of the common stock in which the amount
involved exceeded $60,000 and in which any of the foregoing persons had or will
have a material interest.

                                      -38-
<PAGE>
                                     PART IV

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


(A) EXHIBITS

3(i) Articles of Incorporation of the Registrant*

3(ii) Amendment to Articles of Incorporation*

3(iii) By-Laws of the Registrant*

4(a) Convertible Note Regarding KMA Investments among Registrant and KMA
Investments dated July 9, 1999**

4(b) Form of Debenture to Candlelight Investment (Issued pursuant to the
Securities Purchase Agreement dated December 13, 1999 among Registrant and
Candlelight Investment)****

4(c) Form of Warrant to Candlelight Investments (Issued pursuant to the
Securities Purchase Agreement dated December 13, 1999 among Registrant and
Candlelight Investment)****

4(d) Form of Conditional Warrant to Candlelight Investments (Issued pursuant to
the Securities Purchase Agreement dated December 13, 1999 among Registrant and
Candlelight Investment)****

10(a) Stock Option Plan dated May 12, 1999*

10(b) Stock Warrant Plan dated April 1998*

10(c) Agreement and Plan of Acquisition (Archer Mickelson Technologies, Inc.)
dated April 1, 1999 among Registrant and Archer Mickelson Technologies*

10(d) Agreement and Plan of Acquisition (United Computing Group, Inc. and United
Consulting Group, Inc.) dated December 20, 1999 among Registrant and United
Computing Group, Inc. ***

10(e) Securities Purchase Agreement with Candlelight Investments dated December
13, 1999 among Registrant and Candlelight Investment ****

10(l) Agreement regarding strategic business alliance with Land Tejas
Development, L.L.C. dated March 26, 1999 among Registrant and Land Tejas**

21 A description of the subsidiaries of the Registrant

27 Financial Data Schedule

(b) Reports on Form 8-K
The Company filed the following report on Form 8-K during the quarter ended
December 31, 1999:


                                      -39-
<PAGE>

(1) Current Report on Form 8-K filed to report, among other things, the
resignation of one of the Company's directors.

* Incorporated by reference from Registrant's Form 10-SB, which was previously
filed on June 29, 1999.

** Incorporated by reference from Registrant's Form 10-SB, which was previously
filed on September 20, 1999.

*** Incorporated by reference from Registrant's Form 8-K, which was previously
filed on January 7, 2000.

**** Incorporated by reference from Registrant's Form SB-2, which was previously
filed on January 12, 2000.


                                      -40-
<PAGE>
                                     SIGNATURES

      Pursuant to the requirements of the 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.

SIGNATURE                        TITLE                         DATE
---------                        -----                         ----

/S/ MICHAEL T. MCCLERE           Chief Executive Officer       July 3, 2000
-----------------------------    (Principal Executive
Michael T. McClere               Officer); Chairman of the
                                 Board and Director


/S/ SHANNON D. MCLEROY           President and Secretary       July 3, 2000
-----------------------------
Shannon D. McLeroy

/S/ D. DENNIS MAJESKI            Director                      July 3, 2000
-----------------------------
Dennis Majeski

/S/ RAYMOND G. HARRELL III       Director                      July 3, 2000
-----------------------------
Raymond G. Harrell III

                                      -41-