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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-KSBANNUAL REPORT PURSUANT TO SECTION 13OR 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

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

|Delaware(State or other Jurisdiction of
Incorporation or Organization)          |  | 76-0576542(I.R.S. Employer Identification No.)
|------------------------------------------------------------------------------- |  | ----------------------------------------------
|2450 Fondren, Suite 200, Houston, Texas(Address of Principal Executive Offices) |  | 77063(Zip Code)                               

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

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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. Yes /x/  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.

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

One
exhibit included.

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CLEARWORKS.NET, INC.
INDEX

|         |  |          |  |                                                                                       |  | Page No.
|-------- |  | -------- |  | ------------------------------------------------------------------------------------- |  | --------
|Part I   |  | Item 1.  |  | Business                                                                              |  | 3       
|         |  | Item 2.  |  | Properties                                                                            |  | 10      
|         |  | Item 3.  |  | Legal Proceedings                                                                     |  | 10      
|         |  | Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 13      
|Part II  |  | Item 5.  |  | Market for Registrant's Common Equity and Related Stockholder Matters                 |  | 13      
|         |  | Item 6.  |  | Selected Financial Data                                                               |  | 14      
|         |  | Item 7.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 14      
|         |  | Item 7A. |  | Quantitative and Qualitative Disclosures of Market Risk                               |  | 19      
|         |  | Item 8.  |  | Financial Statements and Supplementary Data                                           |  | 20      
|         |  | Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 39      
|Part III |  | Item 10. |  | Directors and Executive Officers of the Registrant                                    |  | 39      
|         |  | Item 11. |  | Executive Compensation                                                                |  | 40      
|         |  | Item 12. |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 43      
|         |  | Item 13. |  | Certain Relationships and Related Transactions                                        |  | 45      
|Part IV  |  | Item 14. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 46      

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## 

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

3



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.

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.

4



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 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.

5



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.

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

6



$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:



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

7



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. 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

8



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.

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.

9



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.

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.

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

10



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

11



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 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's subsidiary, ClearWorks Structured Wiring Services, Inc., 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

12



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 Services, 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 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.

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  |    
|June 30, 1998      |  | $    | 3.6250  |    
|September 30, 1998 |  | $    | 3.3125  |    
|December 31, 1998  |  | $    | 2.1563  |    
|March 31, 1999     |  | $    | 1.2500  |    
|June 30, 1999      |  | $    | 3.8750  |    
|September 30, 1999 |  | $    | 7.9844  |    
|December 31, 1999  |  | $    | 2.3438  |    
|March 31, 2000     |  | $    | 13.1250 |    

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.

13



## 

Item 6.  Selected Financial Data

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

|                                                      |  | 1999 |            | 1998 |   | 1997      |  
|----------------------------------------------------- |  | ---- | ---------- | ---- | - | --------- | -
|Income Statement Data                                 |  |      |            |      |   |           |  
|Revenues                                              |  | $    | 3,032,000  |      | $ | 1,090,000 |  
|Costs and expenses                                    |  |      | 6,782,000  |      |   | 1,332,000 |  
|Income (loss) from operations                         |  |      | (3,750,000 | )    |   | (242,000  | )
|Interest expense, net                                 |  |      | (18,000    | )    |   | (10,000   | )
|Net income (loss)                                     |  | $    | (3,768,000 | )    | $ | (252,000  | )
|Income (loss) per share:                              |  |      |            |      |   |           |  
|Basic                                                 |  | $    | (0.21      | )    | $ | (0.03     | )
|Diluted                                               |  | $    | (0.21      | )    | $ | (0.03     | )
|Weighted average number of common shares outstanding: |  |      |            |      |   |           |  
|Basic                                                 |  |      | 17,673,032 |      |   | 8,321,902 |  
|Diluted                                               |  |      | 17,673,032 |      |   | 8,321,902 |  
|Balance Sheet Data                                    |  |      |            |      |   |           |  
|Cash                                                  |  | $    | 1,247,000  |      | $ | 162,000   |  
|Inventories                                           |  |      | 332,000    |      |   | 12,000    |  
|Working capital                                       |  |      | 979,000    |      |   | 91,000    |  
|Total assets                                          |  |      | 14,900,000 |      |   | 1,190,000 |  
|Long-term debt inclusive of current maturities        |  |      | 1,545,000  |      |   | 70,000    |  
|Convertible debentures, net of discount               |  |      | 2,736,000  |      |   |          |  
|Shareholders' equity                                  |  |      | 6,962,000  |      |   | 885,000   |  
|Capital expenditures                                  |  |      | 1,994,000  |      |   | 208,000   |  

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:

|                                 |  | 1999 |            | 1998 |  
|-------------------------------- |  | ---- | ---------- | ---- | -
|Revenues                         |  | $    | 3,032,000  |      | $
|Costs and expenses               |  |      | 6,782,000  |      |  
|Loss from operations             |  |      | (3,750,000 | )    |  
|Net loss                         |  | $    | (3,768,000 | )    | $
|Basic and diluted loss per share |  | $    | (.21       | )    | $

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 | )    | $
|Net cash used by investing activities     |  | $    | (2,459,000 | )    | $
|Net cash provided by financing activities |  | $    | 6,241,000  |      | $

14



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 $3,768,000, 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 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 $6,782,000 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

15



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 $3,573,000 to $3,780,000 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 issuance of the stock was $1,277,000 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 $81,000 during 1999 and is composed of interest paid on field vehicle loans, accrued interest on promissory
notes with varying due dates and accrued interest on 6% convertible debentures issued on December 13, 1999.



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.



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

16



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 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. 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.



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.



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.

17



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:



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 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

18



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.



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 1999 net income by approximately $45,000 and its 1999 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.

19



## 

Item 8.  Financial Statements and Supplementary Data

INDEPENDENT AUDITORS' REPORT

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

We
have audited the accompanying consolidated balance sheet of ClearWorks.net, Inc. and subsidiaries as of December 31, 1999, and the consolidated statement 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.

KPMG
LLP

Houston,
Texas
March 30, 2000

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

20



CLEARWORKS.NET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 1999

|ASSETS                                                                                                | 
|----------------------------------------------------------------------------------------------------- | 
|Current assets:                                                                                       | 
|Cash                                                                                                  | 
|Accounts receivable, net of allowance for doubtful accounts of $93,000                                | 
|Stock subscription receivable                                                                         | 
|Inventories                                                                                           | 
|Prepaid expenses and other current assets                                                             | 
|                                                                                                      | 
|Total current assets                                                                                  | 
|                                                                                                      | 
|Property and equipment, net                                                                           | 
|                                                                                                      | 
|Other assets:                                                                                         | 
|Goodwill, net                                                                                         | 
|Deferred financing costs                                                                              | 
|Other                                                                                                 | 
|                                                                                                      | 
|                                                                                                      | 
|                                                                                                      | 
|Total assets                                                                                          | 
|                                                                                                      | 
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                  | 
|Current liabilities:                                                                                  | 
|Accounts payable, trade                                                                               | 
|Accrued expenses                                                                                      | 
|Current maturities of long-term debt                                                                  | 
|Note payable, shareholder                                                                             | 
|                                                                                                      | 
|Total current liabilities                                                                             | 
|                                                                                                      | 
|Long-term debt, net of current maturities                                                             | 
|6% Convertible debentures, net of discount of $265,000                                                | 
|Shareholders' equity:                                                                                 | 
|Common stock, $.001 par value; 50,000,000 shares authorized; 20,884,957 shares issued and outstanding | 
|Additional paid-in capital                                                                            | 
|Accumulated deficit                                                                                   | 
|                                                                                                      | 
|                                                                                                      | 
|                                                                                                      | 
|Total liabilities and shareholders' equity                                                            | 
|                                                                                                      | 

See
accompanying notes to consolidated financial statements.

21



CLEARWORKS.NET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

|                                                      |  | 1999 |            | 1998 |  
|----------------------------------------------------- |  | ---- | ---------- | ---- | -
|Revenues:                                             |  |      |            |      |  
|Integration services                                  |  | $    | 1,607,000  |      | $
|Structured wiring solutions                           |  |      | 1,383,000  |      |  
|Bundled Digital Services                              |  |      | 42,000     |      |  
|                                                      |  |      |            |      |  
|                                                      |  |      | 3,032,000  |      |  
|                                                      |  |      |            |      |  
|Costs and expenses:                                   |  |      |            |      |  
|Integration services and materials                    |  |      | 1,280,000  |      |  
|Structured wiring labor and materials                 |  |      | 1,295,000  |      |  
|Bundled Digital Services                              |  |      | 222,000    |      |  
|Selling, general and administrative expenses          |  |      | 3,780,000  |      |  
|Depreciation and amortization                         |  |      | 205,000    |      |  
|                                                      |  |      |            |      |  
|                                                      |  |      | 6,782,000  |      |  
|                                                      |  |      |            |      |  
|Loss from operations                                  |  |      | (3,750,000 | )    |  
|Other income/(expense):                               |  |      |            |      |  
|Interest income                                       |  |      | 63,000     |      |  
|Interest expense                                      |  |      | (81,000    | )    |  
|                                                      |  |      |            |      |  
|Net loss                                              |  | $    | (3,768,000 | )    | $
|                                                      |  |      |            |      |  
|Loss per share:                                       |  |      |            |      |  
|Basic                                                 |  | $    | (.21       | )    | $
|Diluted                                               |  | $    | (.21       | )    | $
|Weighted average number of common shares outstanding: |  |      |            |      |  
|Basic                                                 |  |      | 17,673,032 |      |  
|Diluted                                               |  |      | 17,673,032 |      |  

See
accompanying notes to consolidated financial statements.

22



CLEARWORKS.NET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

|                                                             |  | Shares of
Common Stock |  | Common
Stock |        | Additional
Paid-in
Capital |   | Retained Earnings
(Accumulated
Deficit) |   | Total
Shareholders'
Equity |           
|------------------------------------------------------------ |  | ---------------------- |  | ------------ | ------ | -------------------------- | - | --------------------------------------- | - | -------------------------- | ----------
|Balances, December 31, 1997                                  |  | 6,250,000              |  | $            | 6,000  |                            | $ | (5,000                                  | ) | $                          | 8,000     
|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                                 |   |                            |          
|Team Renaissance, Inc.                                       |  | 156,250                |  |              |       |                            |   | 322,000                                 |   |                            |          
|Vitadel Communications                                       |  | 98,039                 |  |              |       |                            |   | 150,000                                 |   |                            |          
|Conversion of notes payable                                  |  | 272,550                |  |              |       |                            |   | 27,000                                  |   |                            |          
|Stock issued for syndication costs                           |  | 2,477,000              |  |              | 2,000  |                            |   | (2,000                                  | ) |                            |          
|Stock issued for services                                    |  | 50,000                 |  |              |       |                            |   | 6,000                                   |   |                            |          
|Common stock issued for cash                                 |  | 532,450                |  |              | 1,000  |                            |   | 456,000                                 |   |                            |          
|Net loss                                                     |  |                        |  |              |        |                            |   |                                         |   |                            | (252,000  
|                                                             |  |                        |  |              |        |                            |   |                                         |   |                            |           
|Balances, December 31, 1998                                  |  | 11,460,249             |  |              | 11,000 |                            |   | 1,152,000                               |   |                            | (279,000  
|Stock issued for acquisitions                                |  | 2,075,000              |  |              | 2,000  |                            |   | 4,893,000                               |   |                            |          
|Stock issued for cash, net of registration fees and expenses |  | 6,817,910              |  |              | 7,000  |                            |   | 2,260,000                               |   |                            |          
|Warrants issued for services                                 |  |                       |  |              |       |                            |   | 1,142,000                               |   |                            |          
|Stock issued for incentive compensation and services         |  | 531,798                |  |              | 1,000  |                            |   | 1,276,000                               |   |                            |          
|Warrants issued with convertible debentures                  |  |                       |  |              |       |                            |   | 265,000                                 |   |                            |          
|Net loss                                                     |  |                        |  |              |        |                            |   |                                         |   |                            | (3,768,000
|                                                             |  |                        |  |              |        |                            |   |                                         |   |                            |           
|Balances, December 31, 1999                                  |  | 20,884,957             |  | $            | 21,000 |                            | $ | 10,988,000                              |   | $                          | (4,047,000
|                                                             |  |                        |  |              |        |                            |   |                                         |   |                            |           

See
accompanying notes to consolidated financial statements.

23



CLEARWORKS.NET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

|                                                                                                 |  | 1999 |            | 1998 |  
|------------------------------------------------------------------------------------------------ |  | ---- | ---------- | ---- | -
|Cash flows from operating activities:                                                            |  |      |            |      |  
|Net loss                                                                                         |  | $    | (3,768,000 | )    | $
|                                                                                                 |  |      |            |      |  
|Adjustments to reconcile net loss to net cash used by operating activities, net of acquisitions: |  |      |            |      |  
|Depreciation and amortization                                                                    |  |      | 205,000    |      |  
|Stock issued for compensation and services                                                       |  |      | 1,277,000  |      |  
|Increase in accounts receivable                                                                  |  |      | (739,000   | )    |  
|Increase in inventories                                                                          |  |      | (129,000   | )    |  
|Increase in prepaids and other current assets                                                    |  |      | (398,000   | )    |  
|Increase in accounts payable                                                                     |  |      | 926,000    |      |  
|Increase (decrease) in accrued expenses                                                          |  |      | (71,000    | )    |  
|                                                                                                 |  |      |            |      |  
|Total adjustments                                                                                |  |      | 1,071,000  |      |  
|                                                                                                 |  |      |            |      |  
|Net cash used by operating activities                                                            |  |      | (2,697,000 | )    |  
|Cash flows from investing activities:                                                            |  |      |            |      |  
|Acquisitions, net of cash received                                                               |  |      | (465,000   | )    |  
|Capital expenditures                                                                             |  |      | (1,994,000 | )    |  
|                                                                                                 |  |      |            |      |  
|Net cash used by investing activities                                                            |  |      | (2,459,000 | )    |  
|Cash flows from financing activities:                                                            |  |      |            |      |  
|Proceeds from notes payable, net of repayments                                                   |  |      | 1,424,000  |      |  
|Proceeds from issuance of 6% convertible debentures                                              |  |      | 3,000,000  |      |  
|Proceeds from common stock sales, net                                                            |  |      | 2,267,000  |      |  
|Increase in stock subscription receivable                                                        |  |      | (450,000   | )    |  
|                                                                                                 |  |      |            |      |  
|Net cash provided by financing activities                                                        |  |      | 6,241,000  |      |  
|Net increase in cash                                                                             |  |      | 1,085,000  |      |  
|Cash at the beginning of the period                                                              |  |      | 162,000    |      |  
|                                                                                                 |  |      |            |      |  
|Cash at the end of the period                                                                    |  | $    | 1,247,000  |      | $
|                                                                                                 |  |      |            |      |  
|Supplemental disclosures of cash flow information:                                               |  |      |            |      |  
|Interest paid                                                                                    |  | $    | 2,000      |      | $
|Taxes paid                                                                                       |  | $    |           |      | $
|Supplemental disclosures of non-cash investing activities:                                       |  |      |            |      |  
|Issuance of common stock for asset acquisitions                                                  |  | $    | 4,895,000  |      | $

See
accompanying notes to consolidated financial statements.

24



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





25









|                                         |  | 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.









26











27









Note 3.  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.

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

28



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.

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

29



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 |      | $
|Costs and expenses               |  |      | 18,295,000 |      |  
|                                 |  |      |            |      |  
|Net loss                         |  | $    | (5,054,000 | )    | $
|                                 |  |      |            |      |  
|Basic and diluted loss per share |  | $    | (.29       | )    | $
|                                 |  |      |            |      |  

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 4.  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 5.  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.

30



Note 6.  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 |  
|                                  |  |   |          

Note 7.  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 8.  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.

31



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 9.  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 $265,000 on the date of issuance and recorded this amount as a
discount against the convertible debentures.

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. 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 10.  Commitments and Contingent Liabilities



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.

32



CLEARWORKS.NET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10.  Commitments and Contingent Liabilities (Continued)

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 (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.

33



The
Company's subsidiary, ClearWorks Structured Wiring Services, Inc., 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.



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:

|             |  | Amount
|------------ |  | ------
|December 31, |  |       
|2000         |  | $     
|2001         |  |       
|2002         |  |       
|2003         |  |       
|             |  |       
|Total        |  | $     
|             |  |       

Note 11.  Stock Options and Warrants



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

34



terms
of options granted under the 1999 Plan. At December 31,1999, options to purchase 3,027,500 shares were outstanding under the 1999 Plan.

Stock
option activity during the periods indicated is as follows:

|                           |  | Number of
Shares |  | Weighted Average
Exercise Price
|-------------------------- |  | ---------------- |  | -------------------------------
|Balance December 31, 1998  |  |                 |  | $                              
|Granted                    |  | 3,027,500        |  |                                
|Exercised                  |  |                 |  |                                
|Forfeited                  |  |                 |  |                                
|Expired                    |  |                 |  |                                
|                           |  |                  |  |                                
|Balance, December 31, 9999 |  | 3,027,500        |  | $                              
|                           |  |                  |  |                                

At
December 31, 1999, the range of exercise prices and weighted-average remaining contractual life of outstanding options was $.25 - $3.00 and 4.2 years.

At
December 31, 1999, the number of vested options, which are not exercisable until approval of the 1999 Plan by the shareholders, was 1,277,375 and the weighted-average
exercise price of those options was $.77.



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. In addition, warrants to purchase 710,000 shares were issued during 1999 under the Warrant Plan at exercise prices ranging from $2.50 to $5.00 per share. 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.

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 $265,000 on the date of
issuance and recorded this amount as a discount against the convertible debentures (See Note 9). The Company
issued 500,000 warrants to two separate entities in connection with capital raising activities. The Company determined the total value of these warrants to be $1,142,000 on the date of issuance and
has recorded this amount as deferred financing costs, to be amortized over the expected period of benefit.

35



Note 12.  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         |  | $    | (1,281,000 | )    | $
|Increase in valuation allowance         |  |      | 1,137,000  |      |  
|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 doubtful accounts |  | $ | 29,000     |  
|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,
through 2019.

Note 13.  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

36



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 the fair value of the common stock on the date of issuance.

Note 14.  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 15.  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

37



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 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:

|                                     |  | ClearWorks
Communications |   | ClearWorks
Structured
Wiring |   | ClearWorks
Integration
Services |  | Corporate and
Eliminations |   | Consolidated |  
|------------------------------------ |  | ------------------------- | - | ---------------------------- | - | ------------------------------- |  | -------------------------- | - | ------------ | -
|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                         |  | (3,110,000                 | ) | (3,545,000   | )
|Total assets                         |  | 1,771,000                 |   | 784,000                      |   | 3,183,000                       |  | 9,162,000                  |   | 14,900,000   |  
|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       |  

Note 16.  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 9).

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.

38



## 

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

During the Company's two most recent fiscal years ended December 31, 1999, and the subsequent interim period through February 9, 2000, there were
no disagreements between the Company and McManus & Co., P.C. on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which
disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their opinion to the subject matter of the disagreement.

The
audit report of McManus & Co., P.C. on the consolidated financial statements of ClearWorks.net, Inc. and subsidiary as of and for the fiscal years ended
December 31, 1998 and 1997, did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.

During
the Company's two most recent fiscal years ended December 31, 1999, and the subsequent interim period through February 9, 2000, the Company did not consult with
KPMG LLP regarding any of the matters or events set forth in Item 304 (a) (2) (i) and (ii) of Regulation S-B.

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.

|Name                   |  | Age |  | Position with the Company                         |  | Director Since
|---------------------- |  | --- |  | ------------------------------------------------- |  | --------------
|Michael T. McClere     |  | 39  |  | Chairman of the Board and Chief Executive Officer |  | March 1998    
|Shannon D. McLeroy     |  | 34  |  | President and Secretary                           |  |              
|Carl A. Chase          |  | 50  |  | Chief Financial Officer and Treasurer             |  |              
|Raymond G. Harrell III |  | 37  |  | Director                                          |  | January 2000  
|Dennis Majeski         |  | 54  |  | Director                                          |  | January 2000  

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

39



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 is Chief Financial Officer and Treasurer. Mr. Chase is 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 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.

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.

40



Summary Compensation Table

|                                                                      |  |                |        |     |                       |  |             |  |             | Long Term Compensation |             | 
|--------------------------------------------------------------------- |  | -------------- | ------ | --- | --------------------- |  | ----------- |  | ----------- | ---------------------- | ----------- | 
|
|
|
|
|Michael T. McClere,
Chief Executive Officer and Chairman Of The Board |  | 1999
1998
1997 | (7)(8) | $$$ | 144,792
78,125
-0-    |  | -0-
-0-
-0- |  | -0-
-0-
-0- |                        | -0-
-0-
-0- | 
|Shannon D. McLeroy,
President and Secretary                           |  | 1999
1998
1997 | (7)    | $$$ | 104,792
73,375
11,250 |  | -0-
-0-
-0- |  | -0-
-0-
-0- |                        | -0-
-0-
-0- | 

---

41





|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

---

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.

|Name               |  | Options
Granted (#) |  | % of Total Options
Granted to Employees
in Fiscal Year |   | Exercise or Base
Price ($/Share) |            | Expiration
Date
|------------------ |  | ------------------- |  | ------------------------------------------------------ | - | -------------------------------- | ---------- | ---------------
|Michael T. McClere |  | 500,000             |  | 17.4                                                   | % | $                                | 2.00/Share |                
|Shannon D. McLeroy |  | 500,000             |  | 17.4                                                   | % | $                                | 2.00/Share |                

The
options described above were issued pursuant to the 1999 Long-Term Incentive Plan and will become exercisable only upon approval of that plan by the stockholders of the Company 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".



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

42



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 outstanding under the 1999 Plan and options to purchase 6,982,500 shares were
available to be granted pursuant to the 1999 Plan.

On
December 9, 1999, options to purchase 500,000 shares of Company common stock were granted to each of Michael T. McClere and Shannon McLeroy. These options are 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 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 issued to each of Messrs. McClere and McLeroy also are included above in both the Summary Compensation Table and the Option Grants Table.



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.



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.



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.

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

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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:

|Name and Address
of Beneficial Owner                                          |  | Number of Shares
Beneficially Owned(1) |        | Percentage of
Shares Outstanding |  
|----------------------------------------------------------------------------- |  | -------------------------------------- | ------ | -------------------------------- | -
|Michael T. McClere
2450 Fondren, Suite 200
Houston, Texas 77063               |  | 6,103,699                              | (2)    | 26.8                             | %
|Shannon D. McLeroy
2450 Fondren, Suite 200
Houston, Texas 77063               |  | 2,875,625                              | (3)    | 13.1                             | %
|Carl A. Chase
2450 Fondren, Suite 200
Houston, Texas 77063                    |  | 100,000                                | (4)    | *                                |  
|Raymond G. Harrell III
4335 Alysheba Lane
Friendswood, Texas 77546            |  | 600                                    |        | *                                |  
|Dennis Majeski
25227 Grogan's Mill Road, Suite 125
The Woodlands, Texas 77380 |  | 1,000                                  |        | *                                |  
|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                              | %

---

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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 to each of Michael T. McClere and Shannon McLeroy pursuant to the 1999 Plan. Upon
stockholder approval of the 1999 Plan, these options become exercisable at a price of $2.00 per share and all of the options will expire on December 9, 2004. Also on December 9, 1999,
options to purchase 400,000 shares at $.25 per share

45



were
granted to Carl A. Chase pursuant to the 1999 Plan. Upon stockholder approval of the 1999 Plan, options held by Mr. Chase to purchase 100,000 shares will then be immediately exercisable
and options to purchase 100,000 shares will become exercisable on each of August 16, 2001, August 16, 2002 and August 16, 2003. Mr. Chase's options also expire on
December 9, 2004.

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.

PART IV

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



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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. MCCLEREMichael T. McClere         |  | Chief Executive Officer (Principal Executive Officer); Chairman of the Board and Director Michael T. McClere |  | April 7, 2000
|/s/SHANNON D. MCLEROYShannon D. McLeroy         |  | President and Secretary                                                                                      |  | April 7, 2000
|/s/CARL A. CHASECarl A. Chase                   |  | Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)         |  | April 7, 2000
|/s/DENNIS MAJESKIDennis Majeski                 |  | Director                                                                                                     |  | April 7, 2000
|/s/RAYMOND G. HARRELL IIIRaymond G. Harrell III |  | Director                                                                                                     |  | April 7, 2000

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