SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K
(Mark One)
[ X ]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1999

                                       OR

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

                          Commission file number 1-1363

                               ENVIROSOURCE, INC.
             (Exact name of Registrant as specified in its charter)

                  Delaware                         34-0617390
             (State or other jurisdiction of      (I.R.S. Employer
              incorporation or organization)      Identification No.)

               1155 Business Center Drive, Horsham, PA 19044-3454
               (Address of principal executive offices) (Zip Code)

              Registrant's telephone number, including area code:
                                 (215) 956-5500

           Securities registered pursuant to Section 12(b) of the Act:

                                                  Name of each exchange on
              Title of each class                 which registered

              Common Stock, par value $.05        Pacific Exchange, Inc.
                per share

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter  period the Registrant was required
to file such reports),  and (2) has been subject to such filing requirements for
the past 90 days.

         Yes  X     No

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

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant was $1,490,376 as of March 1, 2000.

The number of shares  outstanding  of the  Registrant's  Common  Stock as of the
close of business on March 1, 2000 was 5,813,394.

<PAGE>
                               ENVIROSOURCE, INC.

                                     PART I

ITEM 1.  Business.

THE COMPANY

         Envirosource,  Inc. (the "Company") supplies industrial  customers with
specialized  services,  primarily  the  recycling,  handling,  stabilization  or
landfilling of environmentally  sensitive wastes or by-products.  These services
are generally provided pursuant to long-term  contracts which enable the Company
to integrate its processes with those of its customers.  The Company's principal
business  segments are (a) the IMS segment,  which  provides the steel  industry
with slag processing, metal recovery, materials handling, scrap management and a
wide range of specialty  services,  such as surface  conditioning and high speed
flame cutting of steel slabs; and (b) the Technologies  segment,  which provides
hazardous  waste  treatment,  stabilization  and disposal  services,  regulatory
assistance and laboratory  services for the steel industry and other  industrial
and governmental customers.

         The  Company   conducts   its   operations   exclusively   through  its
subsidiaries.  International  Mill Service,  Inc. and its  subsidiaries  ("IMS")
constitute the IMS segment, and Envirosource Technologies, Inc. ("Technologies")
and its subsidiaries constitute the Technologies segment.

         References  herein to the Company  include its  subsidiaries as well as
its Ohio predecessor,  NEOAX, Inc., except where the context requires otherwise.
"Note"  references  herein  are to Notes to  Consolidated  Financial  Statements
appearing elsewhere in this Report.

DEVELOPMENT OF THE COMPANY

         The Company's  predecessor was originally  incorporated in Ohio in 1915
as White Motor  Corporation.  Its name was changed to Northeast Ohio Axle,  Inc.
when it emerged from reorganization proceedings in 1983 and was changed again in
1986 to NEOAX, Inc.  ("NEOAX").  In 1987, NEOAX  reincorporated in Delaware.  In
1989,  the  Company  changed its name to  EnviroSource,  Inc.,  and in 1998,  to
Envirosource, Inc.

         Envirosource's  present business units originally represented a portion
of the operations of IU International Corporation ("IU International"). Early in
1988,  the Company  acquired IU  International  with the goal of  establishing a
substantial  operating  company  centered  primarily on the Company's stable and
growing steel industry  business  relationships  and prospects.  Since 1988, the
Company  has  disposed  of all  the  businesses  it had  owned  prior  to the IU
International acquisition and virtually all of IU International's operations and
assets other than the present IMS and Technologies segments.

         During 1993,  the Company  completed a  comprehensive  recapitalization
that  resulted in an affiliate of Freeman  Spogli & Co.  ("FS&Co")  purchasing a
significant amount of the Company's equity securities.  As of December 31, 1999,
FS&Co held  approximately  47% of the outstanding  shares of Common Stock of the
Company.  Also during 1993,  the Company sold $220 million  principal  amount of
9-3/4% Senior Notes Due 2003 (the "1993  Notes").  A significant  portion of the

                                       1

<PAGE>

                               ENVIROSOURCE, INC.

proceeds  from the sale of the  1993  Notes  was  used to  retire  $150  million
principal amount of the Company's 14% Extendible Reset Senior Subordinated Notes
Due 1998.

         In 1996, the Company moved its headquarters from Stamford, Connecticut,
consolidating  the  activities  of its  corporate  headquarters,  as well as the
headquarters for its IMS and Technologies segments, in Horsham, Pennsylvania.

         In 1997,  the  Company  issued $50 million of 9-3/4%  Senior  Notes Due
2003,  Series B, (the "1997 Notes") having  substantially  the same terms as the
Company's 1993 Notes. The Company used  substantially all of the net proceeds to
repay borrowings under the Company's bank credit facility that had been incurred
to finance capital expenditures.

         In the  first  quarter  of  1998,  the  Company  embarked  on a  profit
improvement  program  entitled  "ENSO 2000" that was intended to lower costs and
increase  revenues  significantly.  Management  believes  that  it has  realized
substantial  benefits  from this program and will  continue to do so in 2000 and
beyond.


BUSINESS SEGMENTS

         IMS

         The  Company  has  served  the steel  industry  for over 60 years.  The
Company   believes  it  increases  its  customers'   productivity  by  providing
cost-effective and reliable on-site  reclamation of steel and iron and a variety
of other specialized services that are essential to the efficient functioning of
steel mills.

         North   America's   steel  mills   operate  in  a  highly   competitive
environment.  Services  that  help to  reduce  their  total  process  costs  are
therefore of  significant  value.  IMS  generally  provides  recycling and metal
recovery operations under long-term  contracts with a diversified  customer base
of over 50 steel  mill  sites  in North  America,  including  integrated  mills,
mini-mills and specialty mills. Using specially designed equipment, IMS provides
a  total   recycling   solution  by  processing  slag  (a  co-product  of  steel
production),  recovering  valuable  metallics and selling the residual aggregate
for  road  base  and  other  uses.   These   services   are   economically   and
environmentally  attractive.  Moreover,  the  effective  removal  of  slag  on a
continuous basis is critical to a steel mill's ability to remain in operation.

         The Company has  pursued a strategy  of building on its  experience  by
offering an expanded  range of  services  that  enhance  mill  productivity  and
provide IMS with growth  opportunities.  These services include processing blast
furnace iron scrap through an IMS-developed  iron crushing  process,  as well as
specialized  materials  handling.  IMS's  services  also  include a  proprietary
specialized steel slab surface conditioning process (called scarfing) that helps
its customers increase product yields and improve product quality, while gaining
measurable  cost  savings.  This  service is  currently  provided at seven steel
mills.

                                       2

<PAGE>

                               ENVIROSOURCE, INC.

         Substantially  all of IMS's  services  are  provided  on-site  at steel
mills, by  IMS employees  using IMS  equipment.  IMS's  services are  integrated
with the operations of its customers, providing for strong working partnerships.

         IMS's  largest  site  is at USX  Corporation's  Gary  Works,  in  Gary,
Indiana,  the  largest  steel  mill in the U.S.  During  the three  years  ended
December 31, 1999, USX Corporation contributed approximately 18 to 20 percent of
the Company's consolidated revenues of continuing operations (including revenues
attributable to services performed by the Technologies segment).

         Competition. Competition in IMS's markets is based primarily on quality
         -----------
of service,  reliability,  technology and price.  In its core steel  reclamation
business,  the Company  believes that IMS services  customers  which account for
approximately 25% of total domestic steel production.  The Company believes that
IMS has one large  competitor  and a number of  smaller  competitors,  including
several newer entrants. The Company believes that IMS's significant market share
is based on its reliability, competitiveness,  responsiveness to customer needs,
reputation and breadth of experience.

         TECHNOLOGIES

         Technologies has been dedicated to the safe,  economical  treatment and
disposal of industrial and hazardous  wastes since 1976.  Through its Envirosafe
subsidiaries,  Envirosafe  Services of Ohio,  Inc.  and  Envirosafe  Services of
Idaho, Inc. (collectively,  "Envirosafe"), Technologies owns and operates two of
the 19 hazardous waste landfills in the United States.  Envirosafe services over
20 steel  companies,  as well as companies in other  industries  and  government
agencies.

         The Ohio and Idaho facilities hold operating  permits,  issued by state
and federal environmental  agencies under the Resource Conservation and Recovery
Act, as amended  ("RCRA"),  that require renewal and  modification  from time to
time. The Company expects that it will obtain the renewals and  modifications to
its permits that it requires to continue to provide waste  management  services.
Historically,  the Company's  hazardous  waste  treatment and disposal  services
business has been somewhat  seasonal,  with fewer waste remediation  projects in
the winter.  However,  the  Company  believes  that the volume of  electric  arc
furnace  ("EAF") dust  stabilized at its  facilities has made this business less
seasonal.

         Envirosafe and its  competitors and customers are subject to a complex,
evolving array of federal,  state and local  environmental laws and regulations.
Such requirements not only can affect the demand for Envirosafe's  services, but
could also  require the Company to incur  significant  costs for such matters as
facility upgrading, remediation or other corrective action, facility closure and
post-closure  maintenance and monitoring.  It is possible that future changes in
environmental   compliance   requirements   could  have  a  material  effect  on
Technologies'  future  results of  operations  or financial  condition,  but the
Company is unable to predict any such future requirements.  The Company believes
that the Consolidated  Financial  Statements  appearing elsewhere in this Report
appropriately  reflect all presently known  compliance  costs in accordance with
generally   accepted   accounting   principles.   Stringent   interpretation  of
environmental  laws and  regulations  governing  hazardous  waste  treatment and
disposal  facilities by state and federal regulators also subjects Envirosafe to

                                       3

<PAGE>

                               ENVIROSOURCE, INC.

violations  and fines from time to time,  none of which has been material to the
Company.  In fact, the Company  believes that it has an excellent  environmental
compliance record.

         A  Technologies  unit is the sole licensee of a proprietary  technology
(Super  Detox(R)) for  stabilizing  EAF dust - a listed  hazardous  waste (KO61)
under  RCRA  that  is  generated  by  steel  mills.  Technologies,  through  its
subsidiaries,  currently operates an EAF dust stabilization  facility on-site at
one of the larger domestic mini-mills, and provides Super Detox(R) stabilization
for EAF dust at both of its regional  Envirosafe  facilities.  In recent  years,
Technologies  entered  into a number of new  contracts  to receive,  process and
dispose  of  EAF  dust  at  its  Envirosafe  facilities.  Technologies  actively
continues  to  market  this  treatment  and  disposal   service  to  other  U.S.
mini-mills.  The Company believes that the Super Detox(R)  technology provides a
more cost-effective  solution that is environmentally more safe than competitive
off-site thermal processes.

         Competition.  The  Company's  hazardous  waste  treatment  and disposal
         -----------
business is  characterized  by intense  competition.  The Company  believes that
Technologies  treats and disposes of approximately 30% of the total domestic EAF
dust  production.  Technologies  has two  primary  competitors  in this  market:
Horsehead Resource Development Company, Inc., a thermal metal recovery processor
that has a larger market share, and another thermal recovery  processor that has
a smaller market share. In addition, there are a number of smaller competitors.

         There are a limited  number of  competitors  in the off-site  hazardous
waste  landfill  business,  only two of which  operate more than two  landfills.
There are 19 active,  permitted commercial hazardous waste landfills in the U.S.
There are also several  competitors engaged in the treatment or stabilization of
hazardous  waste.  Competition  in this  industry is based on service,  site and
process  integrity and the all-in cost of disposal,  which  includes  treatment,
transportation  costs  and  taxes.  The  market  for  hazardous  waste  services
generally is geographically  broad, but is narrowed depending on factors such as
the types of waste a facility  is  permitted  to accept,  the types of  services
offered by a facility,  the cost of operation of a facility and the proximity of
the facility to the customer.

SEGMENT DATA

         See  Note  10  to  the  Consolidated   Financial  Statements  appearing
elsewhere  in this Report for  information  concerning  revenues  and  operating
income by segment for the years ended  December 31, 1999,  1998 and 1997 and the
percentage  of  total  revenues  contributed  by each  class of  service  of the
Company's continuing operations for each such year.

EMPLOYEES

         At March 1, 2000, the Company employed  approximately  1,450 persons. A
majority  of the hourly  employees  in both  business  segments  are  covered by
site-specific  collective bargaining  agreements with various unions,  including
the International Union of Operating Engineers,  the United Steelworkers and the
International  Brotherhood  of  Teamsters.  Several of these  contracts  will be
renegotiated in 2000.

                                       4

<PAGE>

                               ENVIROSOURCE, INC.

ITEM 2.  Properties.

HEADQUARTERS

         The Company,  IMS and  Technologies  maintain their  headquarters  at a
single location in Horsham, Pennsylvania in leased premises.

IMS

         IMS has operations providing metal recovery and other services at steel
mills throughout the continental United States and in Canada.  Equipment located
at the  sites  operated  by IMS  and  its  subsidiaries  includes  prefabricated
storage,  shop and office  structures,  pot  carriers,  slab  haulers,  loaders,
railcars,   cranes,  trucks,  metal  recovery  plants  and  crushers  and  other
specialized  mobile and stationary  equipment used in metal-recovery  operations
and industrial  service work,  most of which is owned.  In addition,  IMS leases
office space near Pittsburgh, Pennsylvania.

         Management  believes that the physical facilities for the Company's IMS
segment are adequate for its operations and provide sufficient  capacity to meet
its   anticipated   requirements.   The  metal  recovery  and  slag   processing
installations  are generally  located at specific  customer  facilities  and are
adequate to handle current levels of customer  operations and anticipated future
needs for current customers.

TECHNOLOGIES

         Envirosafe owns substantially all of the land,  buildings and equipment
used in its  treatment and disposal  operations  in Oregon,  Ohio and near Grand
View, Idaho. Technologies' Conversion Systems, Inc. subsidiary owns the building
and equipment at one stabilization  facility in Illinois and one in Pennsylvania
and leases land for both facilities.

         The Envirosafe  facilities currently have an aggregate of approximately
1.9 million cubic yards of permitted, unused waste disposal capacity. Management
believes  that the physical  facilities  for  Technologies  are adequate for its
operations and provide sufficient capacity to meet its anticipated requirements.

                                       5

<PAGE>

                               ENVIROSOURCE, INC.

ITEM 3.  Legal Proceedings.

         The information  pertaining to the litigation described under Note 7 to
the  Consolidated  Financial  Statements  appearing  elsewhere in this Report is
incorporated herein by reference.

ITEM 4.  Submission of Matters to a Vote of Security Holders.

         Not applicable.



                                     * * *


EXECUTIVE OFFICERS OF THE COMPANY

         The Company's executive officers are as follows:

Name                         Age                Position

Robert N. Gurnitz            61                Chairman of the Board; Director

John T. DiLacqua             47                President and Chief Executive
                                               Officer; Director

John C. Heenan               49                Senior Vice President and Chief
                                               Financial Officer

John P. Carroll              45                Vice President, Human Resources

William B. Davis             49                Vice President and Treasurer

Richard J. Fitz              51                Controller

Leon Z. Heller               50                Vice President, General Counsel
                                               and Secretary

         The  specified  age of each  Executive  Officer of the Company is as of
March 31, 2000.

         Officers are elected  annually  and hold office until their  successors
are elected and qualified.

         Robert N. Gurnitz became a director of the Company in November 1997 and
Chairman of the Board of the Company in December  1998.  Mr.  Gurnitz  served as
President and Chief Executive  Officer of  Northwestern  Steel and Wire Co. from
1991 to 1993 and as its Chairman and Chief Executive  Officer from 1993 to 1997.
Prior to that he served in various senior  management  capacities  with Rockwell

                                       6

<PAGE>

                               ENVIROSOURCE, INC.

International   Corporation,    Bethlehem   Steel   Corporation   and   Webcraft
Technologies.

         John T.  DiLacqua  became  President,  Chief  Executive  Officer  and a
director of the Company in January 1999. From October 1997 to December 1998, Mr.
DiLacqua served as President of the U.S.  Ferrous  Operations of Philip Services
Corporation, which included, among others, the former Luria Brothers Division of
Connell  Limited  Partnership.  Prior to that, he served as the President of the
Luria Brothers Division of Connell Limited  Partnership from May 1994 to October
1997,  and, from  December 1990 to May 1994, he served as its Vice  President of
Finance and Administration.

         John C.  Heenan has been  Senior  Vice  President  and Chief  Financial
Officer of the Company  since August 1999.  Prior to that,  Mr.  Heenan had been
Senior Vice President, Finance, Administration and Planning of the Company since
February  1999.  From October 1997 to December  1998, Mr. Heenan served as Chief
Financial Officer of the U.S. Ferrous Operations of Philip Services Corporation,
which  included,  among others,  the former Luria  Brothers  Division of Connell
Limited Partnership. Prior to that, he served as the Vice President - Controller
of the Luria Brothers Division of Connell Limited Partnership from April 1997 to
October 1997.  Prior to that, he served as Chief  Financial  Officer of Standard
Chlorine Chemical Company from 1993 to 1997.

         John P.  Carroll was elected  Vice  President - Human  Resources of the
Company in June 1999. Mr. Carroll has been the Vice President - Human  Resources
of the Company's  International  Mill Service,  Inc.  subsidiary since September
1995.  Prior to that, Mr. Carroll had been  International  Mill Service,  Inc.'s
Director  -  Human   Resources   since   September   1994.  Mr.  Carroll  joined
International Mill Service, Inc. in 1980.

         William B. Davis was elected Vice  President of the Company in February
1995 and has been  Treasurer  of the Company  since  September  1991.  Mr. Davis
joined the Company in July 1987 as Assistant Treasurer.

         Richard J. Fitz was  elected  Controller  of the  Company in June 1999.
Prior to that,  Mr.  Fitz had been the  Company's  Director of  Corporate  Audit
Services since March 1988.

         Leon Z. Heller was elected  Vice  President  of the Company in February
1998 and has  served  as the  Company's  General  Counsel  and  Secretary  since
September  1996. Mr. Heller also has been the Vice President and General Counsel
of International Mill Service, Inc., a subsidiary of the Company, since February
1991.

                                       7

<PAGE>

                               ENVIROSOURCE, INC.

                                     PART II


ITEM 5.  Market for the Registrant's Common Equity and Related
            Stockholder Matters.

         The Company's  Common Stock trades on the OTC Bulletin  Board under the
symbol  "ENSO"  and on The  Pacific  Exchange  under the symbol  "ES".  Prior to
September 2, 1999,  the Company's  stock traded on The Nasdaq Stock Market under
the symbol  "ENSO"  and on The  Pacific  Exchange  under the  symbol  "ES".  The
following  table sets forth the high and low sales  prices for the Common  Stock
for each of the calendar  quarters of 1999 and 1998,  based upon prices supplied
by The Nasdaq Stock Market and  Commodity  Systems,  Inc. On June 22, 1998,  the
Company  effected  a 1-for-7  reverse  stock  split.  Prices per share have been
restated accordingly for all periods presented.

                             1999                                1998
                    High              Low              High               Low
                    ----              ---              ----               ---
First Quarter       $5.25             $1.38            $21.44             $13.34
Second Quarter       2.72               .94             17.63              12.25
Third Quarter        3.38               .25             17.25               8.13
Fourth Quarter        .80               .38              8.13               4.00

         The Company has not paid a cash  dividend on its Common Stock since the
confirmation of its plan of  reorganization  in November 1983 and has no present
plan to pay cash dividends. The Company is currently prohibited from paying cash
dividends on its Common Stock by its bank credit agreement and by the indentures
under which the 1993 Notes and the 1997 Notes were issued.

         On March 1, 2000 the Company had approximately  2,900 holders of record
of its Common Stock.

                                        8

<PAGE>

                               ENVIROSOURCE, INC.


ITEM 6.      Selected Financial Data

The  information  presented  below  should  be  read  in  conjunction  with  the
accompanying Consolidated Financial Statements and Notes thereto.

<TABLE>
<CAPTION>
                                               1999              1998              1997              1996              1995
                                            -----------       -----------       -----------       -----------       -----------
                                                                (In thousands, except for per share amounts)

<S>                                         <C>               <C>               <C>               <C>               <C>
FOR THE YEAR ENDED DECEMBER 31:
Revenues                                    $  211,975        $  232,376        $  227,678        $  212,789        $  223,722
Costs and expenses                             195,985           209,449           205,387           188,443           189,233
                                            -----------       -----------       -----------       -----------       -----------
Operating income before unusual charges         15,990            22,927            22,291            24,346            34,489
Unusual charges (credits)                       81,035             7,934             1,300             5,471            (2,624)
                                            -----------       -----------       -----------       -----------       -----------
Operating income (loss)                        (65,045)           14,993            20,991            18,875            37,113
Interest expense, net of income                 29,754            29,248            28,085            26,831            22,350
                                            -----------       -----------       -----------       -----------       -----------
Income (loss) from continuing operations
  before income taxes                          (94,799)          (14,255)           (7,094)           (7,956)           14,763
Income tax expense (benefit)                       952            16,384             1,368            (3,266)            5,208
                                            -----------       -----------       -----------       -----------       -----------
Income (loss) from continuing operations       (95,751)          (30,639)           (8,462)           (4,690)            9,555
Income from discontinued operations                  -                 -             9,600               399               949
Extraordinary items and cumulative
  effect of accounting change                        -                 -              (639)                -              (806)
                                            -----------       -----------       -----------       -----------       -----------
Net income (loss)                           $  (95,751)       $  (30,639)       $      499        $   (4,291)       $    9,698
                                            ===========       ===========       ===========       ===========       ===========

Income (loss) applicable to common share    $  (95,751)       $  (30,639)       $      499        $   (4,442)       $    7,959
                                            ===========       ===========       ===========       ===========       ===========
Per share:
  Income (loss) from continuing operations  $   (16.47)       $    (5.27)       $    (1.46)       $    (0.84)       $     1.35
  Income from discontinued operations                -                 -              1.66              0.07              0.16
  Extraordinary items and cumulative
    effect of accounting change                      -                 -             (0.11)                -             (0.13)
                                            -----------       -----------       -----------       -----------       -----------
  Net income (loss)                         $   (16.47)       $    (5.27)       $     0.09        $    (0.77)       $     1.38
                                            ===========       ===========       ===========       ===========       ===========

Average common shares outstanding                5,813             5,813             5,787             5,775             5,787

OTHER DATA:
EBITDA of continuing operations (1)         $   53,992        $   61,840        $   59,483        $   57,346        $   64,967
Cash flow provided by operating activities  $   24,948        $   27,883        $   30,523        $   28,163        $   41,905
Cash flow provided (used) before
  financing activities                      $   16,359        $  (12,980)       $   41,032        $   (4,158)       $  (12,383)

AT DECEMBER 31:
Total assets                                $  278,257        $  387,456        $  413,302        $  459,909        $  444,436
Working capital (deficiency)                $    3,961        $     (444)       $     (779)       $   (8,762)       $  (34,099)
Long-term debt                              $  278,666        $  298,023        $  281,614        $  268,424        $  275,158
Total debt                                  $  284,952        $  303,572        $  295,400        $  332,928        $  283,682
Stockholders' equity (deficit)              $  (85,563)       $    9,843        $   40,211        $   39,057        $   32,604
-----------------------------------------
(1)  EBITDA  represents  earnings from  continuing  operations  before  interest
     expense,  income  taxes,  depreciation  and  amortization  expenses (net of
     amortization of deferred financing costs),  and unusual charges.  It should
     not be  considered  as an  alternative  measure to  operating  income as an
     indicator of the Company's  results of operations,  nor should it be viewed
     as an  alternative  to cash flow as an indicator of the  Company's  overall
     liquidity,   as  presented  in  the  accompanying   financial   statements.
     Furthermore,  EBITDA  measures shown for the Company in this report may not
     be comparable to similarly titled measures given by other companies.

</TABLE>

                                        9

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                               ENVIROSOURCE, INC.

ITEM 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations.

RESULTS OF OPERATIONS
1999 COMPARED WITH 1998
-----------------------



                                  Year Ended                     1999
                                 December 31,             Increase (decrease)
                           -------------------------   -------------------------
                              1999          1998         Amount          %
                           -----------   -----------   -----------   -----------
                                           (Dollars in thousands)
REVENUES
  IMS                      $  180,697    $  191,438    $  (10,741)      (5.6)%
  Technologies                 31,278        40,938        (9,660)     (23.6)%
                           -----------   -----------   -----------
                           $  211,975    $  232,376    $  (20,401)      (8.8)%
                           ===========   ===========   ===========

GROSS PROFIT (LOSS)
  IMS                      $   40,611    $   42,190    $   (1,579)      (3.7)%
  Technologies                 (2,058)        3,766        (5,824)    (154.6)%
                           -----------   -----------   -----------
                           $   38,553    $   45,956    $   (7,403)     (16.1)%
                           ===========   ===========   ===========

OPERATING INCOME (LOSS)

  IMS                      $   25,254    $   26,465    $   (1,211)
  Technologies                 (7,538)         (796)       (6,742)
  Corporate headquarters       (1,726)       (2,742)        1,016
                           -----------   -----------   -----------
                               15,990        22,927        (6,937)     (30.3)%
  Technologies impairment
    loss                      (75,192)       ------       (75,192)

  Other unusual charges:
    IMS                        (2,924)       (2,851)          (73)
    Technologies                 (530)         (790)          260
    Corporate headquarters     (2,389)       (4,293)        1,904
                           -----------   -----------   -----------
                               (5,843)       (7,934)        2,091
                           -----------   -----------   -----------
CONSOLIDATED OPERATING
  INCOME (LOSS)            $  (65,045)   $   14,993    $  (80,038)
                           ===========   ===========   ===========

         Consolidated  revenue  for  1999  decreased  $20.4  million,  or  8.8%,
compared with 1998.  Both  operating  segments  reported lower revenues in 1999.
Revenues  of the  IMS  segment  decreased  primarily  from  the  loss of a steel
industry customer in late 1998 that had contributed almost five percent of total
IMS 1998  revenue.  Reduced  steel  production in North America by the Company's
ongoing  customers  during early 1999 also  contributed to the decrease,  though
this effect was partly  mitigated in the latter half of the year. As a result of
heightened  competition,  contracts with two large IMS steel mill customers were
not renewed and expired near year-end  1999,  which will affect results in 2000.
Technologies  segment  revenues for 1999 decreased  significantly,  due to price
reductions  resulting from overall  competition in the waste processing markets,
and a change in the mix of material processed.

         Consolidated  gross profit during 1999 decreased from the same period a
year ago. The gross profit decline of $7.4 million  resulted  primarily from the
revenue decrease noted above. The IMS segment  benefited from cost reductions as
a result of the Company's  profit  improvement  program  originated in 1998. The
Technologies  segment  experienced  a gross  loss in  1999,  resulting  from the
revenue  decline,  and from the margin effects of the unfavorable  change in the
mix of material processed.

         Selling,  general and administrative  expenses for 1999 were reduced by
4.4% from 1998.

                                       10

<PAGE>

                               ENVIROSOURCE, INC.

RESULTS OF OPERATIONS (CONTINUED)

         The Company  announced in early 1999 that it was  evaluating  strategic
alternatives  for its  Technologies  business,  including its potential sale. In
December 1999, the Company announced it had not received satisfactory offers for
Technologies, and would retain this business. Concurrent with that announcement,
the Company completed a thorough review of the Technologies operations. Due to a
very  competitive  market,  the  average  price per ton for waste  processed  at
Technologies'  landfill  sites had  decreased  significantly  in late 1998,  and
remained well below  expectations  throughout  1999.  Management  did not expect
significant  future price  improvements,  though further  deterioration  was not
anticipated  either.  Based on the above,  management  determined  that  certain
assets  of  the  Technologies   business  were  no  longer  fully   recoverable.
Accordingly,  in the fourth  quarter  of 1999 the  Company  recorded  an unusual
non-cash  charge  totaling  $75.2  million for  impaired  assets  related to the
Company's  waste landfill  sites in Ohio and Idaho.  As a result of this charge,
the Company expects to realize non-cash cost savings of approximately $8 million
in 2000 from reduced depreciation and amortization expenses.

         In addition,  the Company recorded other unusual charges during 1999 of
$5.8 million. Included in these charges were $2.8 million recorded in the fourth
quarter of 1999  related to the  write-down  to net  realizable  value of excess
capital equipment that resulted  primarily from the Company's loss of contracts.
Also  included were $3.0 million of unusual  charges  recorded in the 1999 first
quarter related to a profit improvement  program initiated by the Company during
1998,  of which $2.3 million were for employee  severance  costs and the balance
for  consulting  expenses.  During 1998 the  Company  recorded  $7.9  million of
unusual charges,  which included $7.3 million related to the profit  improvement
program,  and  consisted  of $3 million of excess  equipment  write-downs,  $2.2
million of consulting fees, and $2.1 million of severance costs.

         Although the Company had significantly  reduced outstanding  borrowings
on its  revolving  credit  facility  by the  end of  1999,  average  outstanding
borrowings  during the year were not  significantly  different  from 1998.  As a
result, interest expense for 1999 was essentially unchanged from the prior year.

         In the 1998 fourth quarter the Company recorded a charge totaling $15.3
million to write-off all of its  previously  recorded  deferred tax assets.  The
reversal was made when the Company reported negative quarterly operating income,
preventing a  determination  that it was more likely than not the Company  would
earn  sufficient  taxable income during the  next  several  years to realize its
net deferred tax assets.

         The Company  recorded a net loss for 1999 totaling  $95.8  million,  or
$16.47 per  share.  The net loss in 1998  totaled  $30.6  million,  or $5.27 per
share.

                                       11

<PAGE>

                               ENVIROSOURCE, INC.

RESULTS OF OPERATIONS
1998 COMPARED WITH 1997
-----------------------

                                  Year Ended                    1998
                                 December 31,             Increase (decrease)
                           -------------------------   -------------------------
                              1998          1997         Amount          %
                           -----------   -----------   -----------   -----------
                                           (Dollars in thousands)
REVENUES
  IMS                      $  191,438    $  185,587    $    5,851        3.2%
  Technologies                 40,938        42,091        (1,153)      (2.7)%
                           -----------   -----------   -----------
                           $  232,376    $  227,678    $    4,698        2.1%
                           ===========   ===========   ===========

GROSS PROFIT
  IMS                      $   42,190    $   42,320    $     (130)      (0.3)%
  Technologies                  3,766         5,235        (1,469)     (28.1)%
                           -----------   -----------   -----------
                           $   45,956    $   47,555    $   (1,599)      (3.4)%
                           ===========   ===========   ===========

OPERATING INCOME (LOSS)

  IMS                      $   26,465    $   26,494    $      (29)
  Technologies                   (796)         (173)         (623)
  Corporate headquarters       (2,742)       (4,030)        1,288
                           -----------   -----------   -----------
                               22,927        22,291           636        2.9%
  Unusual charges:
    IMS                        (2,851)           69        (2,920)
    Technologies                 (790)       (1,491)          701
    Corporate headquarters     (4,293)          122        (4,415)
                           -----------   -----------   -----------
                               (7,934)       (1,300)       (6,634)
                           -----------   -----------   -----------
CONSOLIDATED OPERATING
  INCOME                   $   14,993    $   20,991    $   (5,998)
                           ===========   ===========   ===========

         IMS 1998  revenues  increased  $5.9  million or 3% over 1997  primarily
because  1997  revenues  were  reduced by the  effects of a strike  (settled  in
mid-August  1997) by employees of a major steel industry  customer.  The revenue
increase was partially offset by a revenue  decrease  attributable to an overall
steel industry slowdown.  Technologies revenues decreased in 1998 as compared to
1997. While the volume of waste processed increased over the prior year, average
prices were lower in 1998 because much of the volume  increase was  lower-priced
cleanup project business and because the market was very competitive.

         The gross profit  contribution  associated with IMS's increased revenue
in 1998 was entirely offset by the negative  effects of blast furnace outages at
the segment's  largest customer,  changes in manufacturing  practices at several
important customers and the overall steel industry slowdown, which significantly
reduced steel production in the fourth quarter. IMS results were impacted by the
production  volumes  of its steel mill  customers.  Technologies'  gross  profit
decreased due to processing  lower-priced  cleanup  project  business and market
conditions noted above.

         Selling,  general and administrative  expenses decreased as compared to
1997  primarily  due to cost  reductions  resulting  from the  Company's  profit
improvement program and a reduction in legal expenses attributable to litigation
between the Company and its largest  competitor in the electric arc furnace dust
processing market (concluded in the 1998 first quarter).

                                       12

<PAGE>

                               ENVIROSOURCE, INC.

RESULTS OF OPERATIONS (CONTINUED)

         In 1998  unusual  charges  totaled  $7.9  million,  consisting  of $7.3
million of costs related to the Company's profit improvement  program (including
$3 million to write down excess  equipment  to its net  realizable  value,  $2.2
million of program consulting costs and $2.1 million of severance costs) and $.6
million for other costs.  The 1997 unusual charges of $1.3 million were recorded
for costs to satisfy  regulatory  requirements at waste disposal sites that have
been inactive  since before the Company's 1988  acquisition of IU  International
Corporation  ("IU  International")  and to  vacate  an  office  as  part  of the
Company's consolidation of operations.

         Interest  expense  increased $1.2 million as the overall debt level was
higher in 1998.

         In 1998 the Company wrote off its deferred tax assets of $15.3 million.
Prior to 1997, the Company had recognized $26 million of net deferred tax assets
in its balance sheet. Of this amount,  $12 million was realized when the Company
utilized  income  tax loss  carryforwards  and  other  deferred  tax  assets  to
eliminate  income tax  payments  on the gain from the  January  1997 sale of its
IMSAMET  subsidiary.  An additional  $1.3 million of net deferred tax assets was
recognized  in 1997.  In the fourth  quarter of 1998,  all of the  Company's net
deferred tax assets were charged  against  operations when the production of the
Company's steel industry  customers  declined  sharply and the Company  reported
negative quarterly operating income, thus preventing a determination that it was
more likely than not that the Company will earn sufficient taxable income during
the next several years to realize its net deferred tax assets.

         In 1997 the Company sold its IMSAMET subsidiary  realizing an after-tax
gain of $9.6 million.  Also in 1997, the Company recognized a $.6 million charge
for the cumulative effect of a mandatory accounting change.

         The 1998 net loss was $30.6  million as compared with net income of $.5
million in 1997.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's  liquidity  requirements arise primarily from the funding
of capital expenditures, working capital needs, and debt service obligations. At
December  31,  1999,  the Company had working  capital  totaling  $4.0  million,
compared with negative  working capital of $.4 million at December 31, 1998. The
1999  working  capital  total  included  $15.2  million of a trust fund that had
provided financial assurance for the estimated closure and post-closure costs at
the Company's  Idaho waste landfill site. This trust fund had been classified as
a long-lived asset on the 1998 balance sheet.  During 1999 the Company requested
permission from various regulatory agencies to replace the Idaho trust fund with
a surety bond as an alternative form of financial  assurance.  The $15.2 million
in the trust fund was subsequently recovered by the Company in the first quarter
of 2000, and accordingly  was classified as a current asset on the  accompanying
balance sheet for 1999.  Excluding the trust fund,  working  capital at December
31, 1999 decreased  approximately  $10.8 million,  mostly due to higher accounts
payable and accrued expenses.

                                       13

<PAGE>

                               ENVIROSOURCE, INC.

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

         The  Company's  capital  expenditures  for 1999 were $17.3  million,  a
reduction of $18.3 million or 51% from 1998. These  expenditures  were primarily
for equipment replacements and providing new services. In 1999 IMS was awarded a
significant new contract to provide  services at a "greenfield"  steel mill unit
of an established  customer that is expected to begin  operations in early 2001.
Due to this contract, the Company expects capital expenditures in 2000 to exceed
1999  levels.  At December  31, 1999 the  Company  had  commitments  for capital
equipment additions totaling approximately $29.4 million for 2000 and beyond.

         In  November  1999,  the  Company  replaced  its  previous  bank credit
facility with a new $40 million loan agreement  with Bank of America,  N.A. (the
"Agreement"). The Agreement matures March 31, 2003, and replaces a facility that
would have expired January 2001. After deducting  outstanding  borrowings,  $5.7
million of commitments for standby letters of credit,  and minimum  availability
requirements,  approximately  $20.3 million of the total facility was unused and
available at December 31, 1999.  The  Agreement is secured by various  assets of
the  Company's  IMS  subsidiary,   primarily   capital  equipment  and  accounts
receivable.  The Agreement contains covenants which, among other things, require
the Company to meet  various  performance  ratios.  At December  31,  1999,  the
Company was in compliance with all such covenants of the Agreement.

         During 1999 the Company made net repayments totaling $16 million on its
bank facilities, compared with net borrowings of $14 million in 1998. Management
intends  to  continue  using  cash  flow  from  operations  to fund its  capital
expenditure needs, and to further reduce its outstanding borrowings.  Management
believes  it has  sufficient  resources,  either  through  cash  generated  from
operations,  or from  its  bank  credit  facility,  to  enable  it to  meet  its
objectives; see risk factors in the "Forward-Looking Information" section below.

YEAR 2000

         The Year 2000 issue is the result of computer  programs  being  written
using two digits rather than four to define applicable years.  Computer programs
that have  date-sensitive  software may  recognize a date coded "00" as the year
1900  rather  than the year  2000.  This  could  result  in system  failures  or
miscalculations that could cause disruptions of operations,  including temporary
inability to process transactions.

         Prior to year-end 1999,  the Company  completed an assessment of all of
its significant  operating  systems.  The Company had, in the ordinary course of
business, purchased new software packages for most of its computer systems. Most
of these purchases  occurred prior to the 1999 fiscal year. The Company had also
implemented,  through routine software releases, Year 2000-compliant upgrades to
most  of  its  financial  and  operational  software.   Any  remaining  software
applications were insignificant to the Company's  operations,  and were upgraded
to Year 2000-compliant status prior to the end of 1999.

                                       14

<PAGE>

                               ENVIROSOURCE, INC.

YEAR 2000 (CONTINUED)


         The  Company  had  also  addressed  the  Year  2000  activities  of its
suppliers and customers. By reviewing their Year 2000 Readiness Disclosures,  or
by  direct  contact,  the  Company  determined  that  substantially  all  of its
significant  suppliers and customers were Year 2000  compliant.  The Company has
not, to date,  experienced any negative  effects from its suppliers or customers
related to the Year 2000 issue.  While there can be no guarantee  that Year 2000
issues by a third party will not occur in future periods, and such effects could
have a material  adverse  effect on the Company,  management  believes  that its
continuing  communications  with its suppliers and customers will minimize these
risks.


         The Company has to date not experienced  any negative  effects from the
Year 2000 date change,  and does not expect any such effects in future  periods.
The  Company  has not  incurred  and  does  not  anticipate  incurring  material
incremental  costs for Year 2000  issues  relating to its  computer  information
systems,  since all  updates or  replacements  of such  systems  occurred in the
ordinary course of business, most of which occurred prior to the 1999 year.

FORWARD-LOOKING INFORMATION ("SAFE HARBOR STATEMENT")

         Certain   matters   discussed  in  this  report  are   "forward-looking
statements" as defined in the Private  Securities  Litigation Reform Act (PSLRA)
of 1995. Although the Company believes that its  forward-looking  statements are
based on  expectations  and  assumptions  that are  reasonable,  forward-looking
statements  are  inherently  subject to risks and  uncertainties,  some of which
cannot be predicted.  Various  uncertainties exist with respect to the Company's
operations and business environment, and their outcomes are dependent on various
important risk factors.  The Company cautions users of this report that numerous
important  risk factors  discussed  below,  among others,  may have caused prior
actual results,  and could cause future results, to differ materially from those
expressed  in any  forward-looking  statements  made by,  or on behalf  of,  the
Company.  Among the factors or uncertainties  that could cause actual results to
differ from forward-looking statements are:

o    Dependence on steel mill  production;  economic  conditions - The Company's
     revenues are impacted by the level of steel  production  at its  customers'
     sites in North America.  In addition to commercial  factors such as foreign
     imports,  other  factors such as weather,  labor issues or mill outages for
     refurbishment  can  negatively  affect  production  levels of the Company's
     customers.

o    Dependence on key customers;  competition - The Company derives significant
     revenue  from a  single  customer,  USX  Corporation.  The  loss of any key
     customer as a result of termination  or non-renewal of its contracts  could
     have a material  adverse  effect on the  Company's  revenue  and  operating
     income.  Both the IMS and Technologies  operating segments face significant
     competition in their respective  industries.  Heightened competition during
     1999  resulted in the loss of two large steel mill  contracts  for IMS. The
     Company's  Technologies  business experienced  significant price reductions
     for waste  processing  during the late 1990s due to competitive  pressures.
     There can be no assurance  that the Company will not continue to experience
     negative effects from increased  competition,  with possible future effects
     of reduced revenue, gross margins, and operating income.

o    Operational  efficiency - The Company's inability to achieve cost reduction
     targets,  maintain relationships with its vendors, and obtain skilled labor
     could have a material effect on the Company's future operations.

                                       15

<PAGE>

                               ENVIROSOURCE, INC.

FORWARD-LOOKING INFORMATION (CONTINUED)

o    Environmental     regulation     -    Because    its     businesses     are
     environmentally-oriented,  and therefore highly regulated, the Company, and
     in particular its Technologies business, is subject to a complex,  evolving
     array of federal, state and local environmental laws and regulations. It is
     possible  that future  imposition of  additional  environmental  compliance
     requirements  could  have a material  effect on the  Company,  however  the
     Company cannot predict any such future requirements.

o    Financial  leverage and debt service - The Company has $8.5 million of debt
     due in late 2002, and $270 million of publicly held debt due in June, 2003.
     The Company also currently has a negative net worth,  resulting from losses
     in recent years.  However,  the Company has, through its positive operating
     cash flow, continued to successfully service its outstanding debt and other
     obligations,  and is currently in compliance  with all of its  requirements
     under its bank credit facility. The ability of the Company to meet its debt
     obligations  in the future  will be  dependent  on its future  performance,
     which is subject to,  among other  things,  the various  factors  discussed
     above.  If unable to meet its debt  obligations,  the Company would have to
     seek additional  financing,  or refinancing of its outstanding  debt. There
     can be no assurance that any such additional financing or refinancing would
     be possible.

                                       16

<PAGE>
                               ENVIROSOURCE, INC.

ITEM 7A.  Quantitative and Qualitative Disclosure About Market Risk.

         Since the Company performs services principally on a contractual basis,
and operates  mostly within the United  States,  its primary  market risk is the
exposure  to  interest  rate  fluctuations  on its  debt  instruments.  The bank
revolving credit facility of the Company's IMS subsidiary,  which bears interest
at variable rates, is classified in the accompanying balance sheet as short-term
debt,  as it was fully repaid  during the first  quarter of 2000.  The Company's
long-term debt at December 31, 1999 bears fixed interest rates.  The table below
presents  expected  maturity of the Company's debt in thousands of dollars,  and
the related  average  interest  rates in effect during each year,  and should be
read  in  conjunction   with  Note  6  in  Item  8,  Financial   Statements  and
Supplementary Data, included in this Report.

<TABLE>
<CAPTION>
                            2000              2001              2002           2003              2004
                         -----------       -----------       -----------    -----------       -----------
<S>                      <C>               <C>               <C>            <C>               <C>
Fixed rate debt          $      301        $       37        $    8,539     $  270,043        $       47
Weighted average
  interest rate               10.2%             10.2%             10.3%          10.2%             10.0%
Variable rate debt       $    5,985                --                --             --                --
Weighted average
  interest rate                9.8%                --                --             --                --

</TABLE>

                                       17

<PAGE>

                               ENVIROSOURCE, INC.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         INDEX TO FINANCIAL STATEMENTS (ITEM 14(A) 1)

         Reports of Independent Auditors

         Consolidated Balance Sheet at December 31, 1999 and 1998

         Consolidated Statement of Operations for the Years Ended
           December 31, 1999, 1998 and 1997

         Consolidated Statement of Stockholders' Equity for the Years Ended
           December 31, 1999, 1998 and 1997

         Consolidated Statement of Cash Flows for the Years Ended
           December 31, 1999, 1998 and 1997

         Notes to Consolidated Financial Statements

         FINANCIAL STATEMENT SCHEDULES (ITEM 14(A) 2)

         Financial statement schedules have been omitted because either they are
           not  applicable,  or  the  required  information  is  included in the
           financial statements or the notes thereto.

                                       18

<PAGE>

               Report of Independent Certified Public Accountants
               --------------------------------------------------


Board of Directors and Shareholders
Envirosource, Inc.

         We  have  audited  the  accompanying   consolidated  balance  sheet  of
Envirosource,  Inc. and  subsidiaries  as of December 31, 1999,  and the related
consolidated  statement of operations,  stockholders' equity, and cash flows for
the year then ended.  These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our 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  financial  statements  referred to above  present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Envirosource,   Inc.  and   subsidiaries  as  of  December  31,  1999,  and  the
consolidated  results of their operations and their  consolidated cash flows for
the year then ended in conformity with generally accepted accounting principles.


/s/ Grant Thornton LLP

Philadelphia, Pennsylvania
February 23, 2000

                                       19

<PAGE>
                         REPORT OF INDEPENDENT AUDITORS



Stockholders and Board of Directors
Envirosource, Inc.


We have audited the  accompanying  consolidated  balance sheet of  Envirosource,
Inc.  as of  December  31,  1998,  and the related  consolidated  statements  of
operations,  stockholders'  equity,  and cash flows for each of the two years in
the  period  ended  December  31,  1998.  These  financial  statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Envirosource,  Inc. at December 31, 1998,  and the  consolidated  results of its
operations  and its cash  flows  for each of the two years in the  period  ended
December 31, 1998, in conformity with accounting  principles  generally accepted
in the United States.

As discussed in Footnote No. 1 to the financial statements,  in 1997 the Company
changed its method of accounting for systems development costs.


                                             /s/ Ernst & Young LLP

Philadelphia, Pennsylvania
March 19, 1999

                                       20

<PAGE>
<TABLE>
<CAPTION>
                               ENVIROSOURCE, INC.
                           CONSOLIDATED BALANCE SHEET
                             (Dollars in thousands)


                                                          December 31,
                                                  -----------------------------
                                                     1999              1998
                                                  -----------       -----------
<S>                                               <C>               <C>
ASSETS
Current assets:
  Cash and cash equivalents                       $    2,125        $    5,134
  Accounts receivable, less allowance
   for doubtful accounts                              32,829            32,305
  Trust fund                                          15,173                 -
  Other current assets                                 3,645             3,520
                                                  -----------       -----------
    Total current assets                              53,772            40,959

Property, plant and equipment, net                   103,192           146,937

Goodwill, less accumulated amortization              109,586           127,931
Closure trust funds and deferred charges,
  less accumulated amortization                          402            33,205
Landfill permits, less accumulated amortization            -            22,974
Other assets                                          11,305            15,450
                                                  -----------       -----------
                                                  $  278,257        $  387,456
                                                  ===========       ===========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable                                $   14,933        $   10,949
  Salaries, wages and related benefits                 8,345             7,370
  Insurance obligations                                4,290             4,588
  Other current liabilities                           15,957            12,947
  Current portion of debt                              6,286             5,549
                                                  -----------       -----------
    Total current liabilities                         49,811            41,403

Long-term debt:
  Senior Notes due 2003                              270,000           270,000
  Other long-term debt                                 8,666            28,023
                                                  -----------       -----------
    Total long-term debt                             278,666           298,023

Other long-term liabilities                           35,343            38,187

Stockholders' equity (deficit):
  Common stock, par value $.05 per share,
    shares authorized -- 20,000,000 shares
    issued and outstanding - 5,813,394 at
    December 31, 1999 and 1998                           291               291
  Capital in excess of par value                     175,969           175,969
  Accumulated deficit                               (260,522)         (164,771)
  Accumulated other comprehensive losses              (1,211)           (1,556)
  Stock purchase loan receivable from officer            (90)              (90)
                                                  -----------       -----------
    Total stockholders' equity (deficit)             (85,563)            9,843
                                                  -----------       -----------
                                                  $   278,257       $  387,456
                                                  ===========       ===========

</TABLE>

                            See accompanying notes.

                                       21

<PAGE>
<TABLE>
<CAPTION>
                               ENVIROSOURCE, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
              (Dollars in thousands, except for per share amounts)

                                                              Years Ended December 31,
                                                   -----------------------------------------------
                                                      1999              1998              1997
                                                   -----------       -----------       -----------
<S>                                                <C>               <C>               <C>
Revenues                                           $  211,975        $  232,376        $  227,678
                                                   -----------       -----------       -----------
Expenses:
  Cost of revenues                                    142,763           155,063           150,210
  Selling, general and administrative                  16,004            16,735            19,208
  Depreciation and amortization
    (less interest amortization)                       37,218            37,651            35,969
  Loss on impairment of long-lived assets              75,192                 -                 -
  Other unusual charges                                 5,843             7,934             1,300
                                                   -----------       -----------       -----------
    Total expenses                                    277,020           217,383           206,687
                                                   -----------       -----------       -----------

Operating income (loss)                               (65,045)           14,993            20,991

Interest income                                           784             1,262             1,223
Interest expense                                      (30,538)          (30,510)          (29,308)
                                                   -----------       -----------       -----------

Loss from continuing operations
  before income taxes                                 (94,799)          (14,255)           (7,094)

Income tax expense:
  Current                                                (952)           (1,047)           (1,399)
  Deferred                                                  -           (15,337)               31
                                                   -----------       -----------       -----------
   Total income tax expense                              (952)          (16,384)           (1,368)
                                                   -----------       -----------       -----------

Loss from continuing operations                       (95,751)          (30,639)           (8,462)

Income from discontinued operations,
  after taxes                                               -                 -             9,600
                                                   -----------       -----------       -----------

Income (loss) before cumulative
  effect of accounting change                         (95,751)          (30,639)            1,138

Cumulative effect of accounting change,
  after taxes                                               -                 -              (639)
                                                   -----------       -----------       -----------

Net income (loss)                                  $  (95,751)       $  (30,639)       $      499
                                                   ===========       ===========       ===========

Basic and diluted income (loss) per share:
  Continuing operations                            $   (16.47)       $    (5.27)       $    (1.46)
  Discontinued operations                                   -                 -              1.66
  Cumulative effect of accounting change                    -                 -             (0.11)
                                                   -----------       -----------       -----------
Net income (loss)                                  $   (16.47)       $    (5.27)       $     0.09
                                                   ===========       ===========       ===========

Weighted average shares                                  5,813            5,813             5,787
                                                   ===========       ===========       ===========

</TABLE>


                            See accompanying notes.

                                       22
<PAGE>
<TABLE>
<CAPTION>
                               ENVIROSOURCE, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                             (Dollars in thousands)

                                                                                     Accumulated
                                                     Capital in                         Other             Stock
                                     Common          Excess of        Accumulated    Comprehensive      Purchase
                                     Stock           Par Value          Deficit      Income (Loss)        Loans              Total
                                  -----------       -----------       -----------    -----------       -----------       -----------
<S>                               <C>               <C>               <C>            <C>               <C>               <C>
Balance at January 1, 1997        $      288        $  175,202        $ (134,631)    $     (992)       $     (810)       $   39,057
Comprehensive income (loss):
  Net income                                                                 499                                                499
  Translation adjustment                                                                   (232)                               (232)
                                                                                                                         -----------
    Total comprehensive
      income (loss)                                                                                                             267
                                                                                                                         -----------

Common stock issued
  (51,760 shares)                          3               737                                                                  740
Loan repayment                                                                                                147               147
                                  -----------       -----------       -----------    -----------       -----------       -----------
BALANCE AT DECEMBER 31, 1997             291           175,939          (134,132)        (1,224)             (663)           40,211
Comprehensive income (loss):
  Net loss                                                               (30,639)                                           (30,639)
  Translation adjustment                                                                   (332)                               (332)
                                                                                                                         -----------
    Total comprehensive
      income (loss)                                                                                                         (30,971)
                                                                                                                         -----------

Loan repayment                                                                                                573               573
Other                                                       30                                                                   30
                                  -----------       -----------       -----------    -----------       -----------       -----------
BALANCE AT DECEMBER 31, 1998             291           175,969          (164,771)        (1,556)              (90)            9,843
Comprehensive income (loss):
  Net loss                                                               (95,751)                                           (95,751)
  Translation adjustment                                                                    345                                 345
                                                                                                                         -----------
    Total comprehensive
      income (loss)                                                                                                         (95,406)
                                                                                                                         -----------

                                  -----------       -----------       -----------    -----------       -----------       -----------
BALANCE AT DECEMBER 31, 1999      $      291        $  175,969        $ (260,522)    $   (1,211)       $      (90)       $  (85,563)
                                  ===========       ===========       ===========    ===========       ===========       ===========
</TABLE>

                            See accompanying notes.

                                       23

<PAGE>
<TABLE>
<CAPTION>
                               ENVIROSOURCE, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                             (Dollars in thousands)

                                                              Years Ended December 31,
                                                   -----------------------------------------------
                                                      1999              1998              1997
                                                   -----------       -----------       -----------
<S>                                                <C>               <C>               <C>
OPERATING ACTIVITIES
  Loss from continuing operations                  $  (95,751)       $  (30,639)       $   (8,462)
  Adjustments to reconcile loss from
    continuing operations to cash provided by
      operating activities:
    Non-cash impairment loss on long-lived assets      75,192                 -                 -
    Other unusual charges, net of payments              2,479             4,896              (628)
    Deferred income taxes                                   -            15,337            11,969
    Depreciation                                       26,832            27,330            26,492
    Amortization                                       12,437            12,075            11,029
    Changes in working capital                          3,449            (2,031)             (271)
    Other, net                                            310               915             2,394
                                                   -----------       -----------       -----------
      Cash provided by continuing operations           24,948            27,883            42,523
      Net cash used by discontinued operations              -                 -           (12,000)
                                                   -----------       -----------       -----------
Cash provided by operating activities                  24,948            27,883            30,523
                                                   -----------       -----------       -----------

INVESTING ACTIVITIES:
  Additions to property, plant and equipment          (17,336)          (35,588)          (29,354)
  Proceeds from dispositions of assets                  3,099             1,475               883
  Landfill permit additions and closure
    expenditures                                         (419)           (2,751)           (4,044)
  Closure trust fund recovery (payments), net             171            (1,072)           (1,515)
  Cash flows related to IU International
    acquisition, net                                    6,129            (2,400)          (10,808)
  Other                                                  (233)             (527)           (1,117)
  Proceeds from sale of discontinued operations             -                 -            56,464
                                                   -----------       -----------       -----------
Cash provided by (used for) investing activities       (8,589)          (40,863)           10,509
                                                   -----------       -----------       -----------

Cash provided (used) before financing activities       16,359           (12,980)           41,032
                                                   -----------       -----------       -----------

FINANCING ACTIVITIES:
  Revolving credit facility:
    Borrowings                                         78,719            68,000            32,000
    Repayments                                        (94,734)          (54,000)         (113,000)
                                                   -----------       -----------       -----------
                                                      (16,015)           14,000           (81,000)
                                                   -----------       -----------       -----------
  Long-term debt issued                                     -                 -            50,000
  Other debt repayment                                 (2,521)           (5,828)           (6,528)
  Debt issuance costs                                    (832)                -            (3,240)
                                                   -----------       -----------       -----------
Cash provided by (used for) financing activities      (19,368)            8,172           (40,768)
                                                   -----------       -----------       -----------

CASH AND CASH EQUIVALENTS:
  Increase (decrease) during the year                  (3,009)           (4,808)              264
  Beginning of year                                     5,134             9,942             9,678
                                                   -----------       -----------       -----------
  End of year                                      $    2,125        $    5,134        $    9,942
                                                   ===========       ===========       ===========

</TABLE>

                            See accompanying notes.

                                       24
<PAGE>
                               ENVIROSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.   ACCOUNTING POLICIES

Principles of consolidation:  The consolidated  financial statements include the
---------------------------
accounts  of  the  Company  and  its  subsidiaries.  Intercompany  accounts  and
transactions have been eliminated.  Certain amounts reported in prior years have
been reclassified for comparative purposes.

Use of estimates:  Preparing  financial  statements in accordance with generally
----------------
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from those estimates.

Cash equivalents: Cash equivalents are highly liquid investments with maturities
----------------
of three months or less when acquired.

Long-lived assets: Property, plant and equipment is stated at cost. Depreciation
-----------------
is computed by the straight-line method based on the following lives:  buildings
and improvements -- 10 to 30 years and machinery and equipment -- 3 to 25 years.
Landfill  development costs are depreciated based on the ratio of cubic yards of
disposal  capacity  utilized  to  total  cubic  yards  of disposal capacity (see
Note 2).

Landfill permit costs to acquire and maintain  landfill permits are deferred and
amortized  based on the ratio of cubic  yards of disposal  capacity  utilized to
total cubic yards of disposal capacity (see Note 2).

Landfill closure costs and post-closure  obligations  (accrued as liabilities in
the balance  sheet) at the  Company's  landfill in Idaho were secured by a trust
fund  invested  in U.S.  government  and  government  agency  securities.  These
investments,  totaling  $15.2 million and $15.3 million at December 31, 1999 and
1998,  were  classified as  "available-for-sale,"  and were carried at amortized
cost which  approximates  market value.  Interest  income and realized gains and
losses were  recognized in earnings.  The Company  obtained  permission from the
necessary  regulatory  agencies to replace this trust fund  with  a surety  bond
obtained  from an insurance  company.  The entire $15.2  million  balance of the
trust fund was  recovered in the first quarter of 2000.  Accordingly,  the trust
fund was classified as short-term on the accompanying  balance sheet at December
31, 1999.

Ohio landfill trust fund balances  represent deferred charges that are amortized
as part of closure  costs.  These trusts (also  invested in U.S.  government and
government  agency  securities)  will fund the latter stages of closure activity
and all post-closure activity in perpetuity. Excess funds, if any, revert to the
State of Ohio; accordingly, no interest income is recognized (see Note 2).

The  excess  of  purchase  price  over  fair  value of net  assets  of  acquired
businesses   (goodwill)  is  recorded  as  an  asset  and  amortized  using  the
straight-line method over periods of 15 to 40 years (see Note 2).

Costs of computer software developed or obtained for internal use expended after
December  31,  1998  are  generally   expensed  as  incurred,   however  certain
development  stage costs may be capitalized , based on guidance  provided by the
Accounting Institute of Certified Public Accountants'  Statement of Position No.
98-1. In 1997 the Company wrote-off  $639,000 of unamortized  software selection
costs it had previously capitalized,  pursuant to the Emerging Issues Task Force
issue 97-13, which required such costs to be expensed as incurred.

                                       25

<PAGE>

                               ENVIROSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  ACCOUNTING POLICIES (continued)

The Company accounts for potential impairment of long-lived assets in accordance
with the  Financial  Accounting  Standards  Board's  (FASB)  Statement  No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." As required by that Statement, the carrying value of long-lived
assets will be reviewed when facts and circumstances  suggest that they may have
become  impaired.  If this review  indicates  that such assets will not be fully
recoverable,  as determined based on anticipated cash flows over their estimated
remaining  useful  lives,  the carrying  value of such assets will be reduced to
their fair value,  based on the discounted present value of the anticipated cash
flows (see Note 2).

Closure costs: The estimated costs of future closure and post-closure monitoring
-------------
and  maintenance  of landfills  are  amortized or accrued  based on the ratio of
cubic  yards of  disposal  capacity  utilized  to total  cubic yards of disposal
capacity.  Closure  costs are similar to  landfill  development  costs,  but are
generally incurred for aboveground construction  (see Note 2).

Revenues:  The Company's revenues are recognized as services are provided.
--------

Earnings per share:  Basic  earnings per share is calculated by dividing  income
------------------
(loss)  applicable  to common  shares by the weighted  average  number of shares
outstanding  during the period,  excluding  any dilutive  effects of options and
warrants.  Diluted  earnings  per share  includes  the  effects of common  stock
equivalents  outstanding during the period. Basic and diluted earnings per share
amounts are the same in each year because  there is no dilution  when there is a
loss from continuing operations.

In June 1998 the company  completed a 1-for-7  reverse  stock split.  Numbers of
shares and per share amounts have been restated for all periods  presented prior
to that date.

Stock-based  compensation plans: The Company follows Accounting Principles Board
-------------------------------
Opinion No. 25,  Accounting  for Stock Issued to Employees,  in  accounting  for
stock-based  compensation  plans and discloses the fair value of options granted
and pro forma  effects  of  compensation  expense on  earnings  as  required  by
Statement of  Financial  Accounting  Standards  (SFAS) No. 123,  Accounting  for
Stock-Based Compensation.

NOTE 2.  UNUSUAL ITEMS

1999
----
During 1999, the Company's  Technologies  business  recognized  operating losses
significantly in excess of both historical trends and current year expectations.
The average price per ton of waste processed at its landfill sites remained well
below  expectations  during the year.  Management  does not  expect  significant
future improvements in such prices, though further deterioration is not expected
either.  The Company had announced in early 1999 that  management  was examining
various  strategic  alternatives  for the Technologies  business,  including its
potential  sale.  Negotiations  with outside  parties held  throughout 1999 were
unsuccessful,  and in December  1999 the Company  announced  it would retain the
Technologies business. During these negotiations,  however, the Company received
bids  significantly less than the carrying value of the long-lived assets on the
Technologies balance sheet at the time.

                                       26

<PAGE>

                               ENVIROSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2.  UNUSUAL ITEMS (continued)

Based on the  above  factors,  management  deemed  an  impairment  review of the
Technologies  long-lived assets was required,  and performed such a review.  The
resulting  estimate  of  undiscounted  future  cash  flows  of the  Technologies
businesses  indicated  an  impairment  of the  long-lived  assets  in use at the
Company's two major waste  landfill  sites.  Management  then estimated the fair
value of these assets using the  estimated  future cash flows,  discounted  at a
rate commensurate with the Company's long-term borrowing rates. Accordingly,  in
December  1999 the Company  recorded an  impairment  loss of $75.2  million,  or
$12.94 per share,  to reduce the  long-lived  assets  related to these  landfill
sites to their  estimated fair value.  The write-down  included $28.4 million of
property, plant and equipment,  $20.5 million of landfill permits, $15.8 million
of  non-recoverable  trust funds and other  deferred  charges,  $8.6  million of
goodwill,  and $1.9 million related to other long-lived assets. In addition, the
estimated lives of certain remaining assets at the Company's landfill sites were
reviewed and subsequently reduced, corresponding to the estimates of future cash
flows used to calculate their fair value.

The Company  recorded  other unusual  charges  during 1999 of $5.8 million.  The
charges  included a fourth quarter non-cash charge of $2.8 million to write-down
excess equipment to net realizable  value,  and related costs.  Also included in
the 1999 total were first  quarter  charges  totaling $3 million  related to the
Company's profit improvement  program,  which had originated in 1998. The profit
improvement  program  charge  consisted of $2.3  million for employee  severance
costs and the balance for  consulting  fees.  During 1999,  the Company  charged
costs against its unusual item  liabilities  totaling $6 million,  consisting of
$2.5 million for severance costs, $1.9 million for excess equipment,  consulting
fees  totaling $.9 million and $.7 million of other  costs,  leaving a remaining
liability for all unusual items of $2.7 million at December 31, 1999.

1998
----
Unusual  charges of $7.9  million  consisted  primarily  of $7.3 million for the
Company's  profit  improvement  program,  and  included $3 million to write down
excess equipment to its net realizable value, $2.2 million of program consulting
costs and $2.1  million of  severance  costs.  During  1998,  costs  totaling $8
million were charged against these and other unusual item liabilities, leaving a
balance of $2.9 million at December 31, 1998.

1997
----
Unusual  charges of $1.3 million were  recorded for costs to satisfy  regulatory
requirements  at the inactive waste disposal sites and to vacate another office.
During 1997, costs totaling $2.5 million were charged against these and previous
unusual item liabilities.

NOTE 3. INCOME TAXES

In the fourth quarter of 1998, all of the Company's net deferred tax assets were
written-off with a charge against operations, when the Company reported negative
quarterly  operating  income,  thus preventing a determination  that it was more
likely than not that the Company will earn sufficient  taxable income during the
next several years to realize its net deferred tax assets.  In 1997, the Company
utilized  income tax loss  carryforwards  and other deferred tax assets totaling
$12 million to  eliminate  income tax payments on the gain from the January 1997
sale of its IMSAMET  subsidiary  (see Note 4). An additional $1.3 million of net
deferred  tax assets was  recognized,  virtually  all of which was  credited  to
goodwill.

                                       27

<PAGE>

                               ENVIROSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. INCOME TAXES (continued)

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows (in thousands):

                                                      1999              1998
                                                   -----------       -----------
Deferred tax assets:
  Net operating loss carryforwards                 $   38,509        $   35,652
  Asset impairment                                     23,317                --
  Insurance accruals                                    1,950             2,232
  Pension and other postretirement benefits
    accruals                                            3,909             4,040
  Closure cost accruals                                 4,778             4,216
  Other accruals                                        6,581             6,068
                                                   -----------       -----------
    Total deferred tax assets                          79,044            52,208
  Valuation allowance                                 (65,533)          (36,811)
                                                   -----------       -----------
    Net deferred tax assets                            13,511            15,397

Deferred tax liabilities:
  Tax over book depreciation plus
    IU International  acquisition purchase
    price allocation to property, plant,
    and equipment                                      (5,002)           (6,365)
  Tax over book post-closure deductions                (5,125)           (5,417)
  Tax over book landfill permit amortization           (3,384)           (3,615)
                                                   -----------       -----------
    Total deferred tax liabilities                    (13,511)          (15,397)
                                                   -----------       -----------
    Net deferred taxes                             $       --        $       --
                                                   ===========       ===========

The $38.5  million  deferred  tax asset  above  represents  net  operating  loss
carryforwards  totaling  $110 million that expire at various  dates from 2001 to
2019.  Subject to the Company's  ability to generate  sufficient  future taxable
income,  upon  recognition  of  additional  net deferred  tax assets,  the $65.5
million valuation  allowance would be credited as follows: $2 million to capital
in excess of par value,  $8.8  million to goodwill  and $54.7  million to reduce
income tax expense.

In 1999 the valuation allowance was increased by a net $28.7 million,  primarily
due to the asset impairment charge. In 1998 the valuation  allowance was reduced
by a net $33.7 million,  primarily because the $15.3 million increase  resulting
from the corresponding  charge against  operations was more than offset by a $49
million reduction due to the write-off of the deferred tax asset representing an
expired net operating loss carryforward and other changes. In 1997 the valuation
allowance  increased  by a net $1.5  million  because the  deferred  tax benefit
applicable  to  continuing  operations  for the year was more than offset by the
reversal of a portion of the valuation allowance that was credited to capital in
excess of par value in 1996.

                                       28

<PAGE>

                               ENVIROSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. INCOME TAXES (continued)

The  components  of income tax  (expense)  benefit  attributable  to  continuing
operations are as follows (in thousands):

                                    1999              1998              1997
                                 -----------       -----------       -----------
Current:
  State                          $     (749)       $     (897)       $   (1,170)
  Canadian                             (203)             (150)             (229)
                                 -----------       -----------       -----------
                                       (952)           (1,047)           (1,399)

Deferred:
     Federal                             --           (15,337)               31
                                 -----------       -----------       -----------
                                 $     (952)       $  (16,384)       $   (1,368)
                                 ===========       ===========       ===========

Canadian income before income taxes was not significant in 1999, 1998 and 1997.

Income tax (expense)  benefit  varies from amounts  computed by applying the 35%
federal statutory rate for the following reasons (in thousands):

                                    1999              1998              1997
                                 -----------       -----------       -----------
Benefit of pre-tax loss from
  continuing operations at
  statutory rate                 $   33,180        $    4,989        $    2,483
Goodwill amortization                (1,633)           (1,692)           (1,692)

Effect of increasing deferred
  tax valuation allowance           (32,012)          (19,098)           (1,454)
Effect of state and Canadian
  income taxes                         (487)             (583)             (761)

Other                                    --                --                56
                                 -----------       -----------       -----------
                                 $     (952)       $  (16,384)       $   (1,368)
                                 ===========       ===========       ===========

NOTE 4.  DISCONTINUED OPERATION

In January  1997,  the  Company  sold the  capital  stock of  IMSAMET,  Inc.,  a
wholly-owned  subsidiary that performed  recycling and waste management services
for the aluminum  industry.  After deferred income tax charges of $12.0 million,
the 1997 gain on sale  amounted  to $9.6  million or $1.66 per share.  Operating
results of the discontinued operation were not significant for 1997.

                                       29

<PAGE>

                               ENVIROSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5.  OTHER BALANCE SHEET INFORMATION
Long-lived assets (in thousands):

                                                      1999              1998
                                                   -----------       -----------
Property, plant and equipment, at cost:
  Land and improvements                            $       --        $    1,184
  Landfill development                                 17,080            34,729
  Buildings and improvements                           25,338            35,024
  Machinery and equipment                             212,060           233,387
                                                   -----------       -----------
                                                      254,478           304,324
Less accumulated depreciation                        (151,286)         (157,387)
                                                   -----------       -----------
                                                   $  103,192        $  146,937
                                                   ===========       ===========


Goodwill, at cost                                  $  167,875        $  181,556
Less accumulated amortization                         (58,289)          (53,625)
                                                   -----------       -----------
                                                   $  109,586        $  127,931
                                                   ===========       ===========

Long-term closure trust funds & deferred
  charges, at cost                                 $   17,721        $   48,865
Less accumulated amortization                         (17,319)          (15,660)
                                                   -----------       -----------
                                                   $      402        $   33,205
                                                   ===========       ===========

Landfill permits, at cost                          $   22,242        $   42,504
Less accumulated amortization                         (22,242)          (19,530)
                                                   -----------       -----------
                                                   $       --        $   22,974
                                                   ===========       ===========

Costs and accumulated  depreciation and  amortization  amounts shown at December
31,  1999  include  the  effects  of a  $75.2  million  unusual  charge  for the
impairment of long-lived assets (see Note 2).

Other long-term liabilities (in thousands):
  Closure and post-closure liabilities             $   10,715        $    9,078
  Other                                                24,628            29,109
                                                   -----------       -----------
                                                   $   35,343        $   38,187
                                                   ===========       ===========

Allowance for doubtful accounts (in thousands):

                                    1999              1998              1997
                                 -----------       -----------       -----------

Balance at the beginning of year $    1,045        $      701        $    1,220
Additions charged to expense             36               728               158
Amounts written off                    (185)             (384)             (677)
                                 -----------       -----------       -----------
Balance at end of year           $      896        $    1,045        $      701
                                 ===========       ===========       ===========

                                       30

<PAGE>

                               ENVIROSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6.  LONG-TERM DEBT

Long-term debt is summarized as follows (in thousands):

                                                      1999              1998
                                                   -----------       -----------
9 3/4% Senior Notes due 2003                       $  270,000        $  270,000
Revolving credit facility                               5,985            22,000
Industrial revenue bond financings,
  equipment loans and other                             8,967            11,572
                                                   -----------       -----------
                                                      284,952           303,572
Less current maturities                                (6,286)           (5,549)
                                                   -----------       -----------
Long-term debt                                     $  278,666        $  298,023
                                                   ===========       ===========

At December  31,  1999,  required  principal  payments by year for the next five
years are as follows:  $.3 million in 2000, $.1 million in 2001, $8.5 million in
2002,  and $270  million in 2003,  and none in 2004.  The Company  repaid the $6
million  outstanding on its revolving  credit facility at December 31 during the
first quarter of 2000.

All of the Senior Notes (10.2% effective rate including amortization of issuance
costs) are redeemable, in whole or in part, at the Company's option at 103.3% of
principal amount,  declining to 100% by June 15, 2001. Upon a change in control,
the Company must offer to purchase the Senior Notes at 101% of principal amount.
The Senior  Notes  indenture  contains  restrictions  customarily  found in such
agreements,  such as limits on indebtedness and payments with respect to capital
stock.

On November 17,  1999,  the Company,  through its IMS  subsidiary,  replaced its
previous $43.8 million bank credit facility, which would have expired in January
2001,  with a new $40 million  credit  facility (the  "Agreement")  with Bank of
America,  N.A. As required by the Emerging  Issues Task Force issue  98-14,  the
unamortized issuance costs from the previous bank facility totaling $1.1 million
were  combined  with  issuance  costs from the  Agreement  and will be amortized
through the  Agreement's  maturity  date of March 31,  2003.  The  Agreement  is
secured by certain assets of IMS, principally equipment and accounts receivable.
Interest on  borrowings  is based on either the bank's  prime rate or the London
Interbank  Offering Rate (LIBOR),  plus a negotiated  bank margin.  The interest
rate on outstanding  borrowings at December 31, 1999 was 9.75%. The Company also
pays a commitment fee on the unused portion of the facility,  as well as fees on
any outstanding  letters of credit. The Agreement contains certain  restrictions
on  the  Company  and  its  subsidiaries,   including,  among  other  things,  a
requirement  to maintain a specified  minimum level of available  credit,  and a
prohibition for payment of cash dividends. The Agreement also contains covenants
that require the Company to meet certain financial ratios and tests. At December
31, 1999, the Company was in compliance with all such covenants. After deducting
outstanding  borrowings,  $5.7  million of  commitments  for standby  letters of
credit, and minimum  availability  requirements,  approximately $20.3 million of
the total facility was unused and available.

An $8.5 million  industrial revenue bond financing carries an effective interest
rate of 9.3%.  Equipment loans and other debt carry a weighted average effective
interest rate of 9.6%.

                                       31

<PAGE>

                               ENVIROSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7.  IU INTERNATIONAL ACQUISITION OBLIGATIONS

The Company has certain  obligations  resulting from the 1988  acquisition of IU
International  Corporation ("IU") that are unrelated to current  operations.  At
December  31, 1999,  these  liabilities  totaled  $22.6  million,  of which $5.6
million  were  classified  as  short-term,  and $17 million as  long-term on the
accompanying balance sheet. At December 31, 1998, such liabilities totaled $21.7
million,  of  which  $2.7  million  were  short-term.  These  amounts  represent
obligations for product liability claims, insurance, employee benefits and other
matters.

The product  liability  obligations  primarily pertain to personal injury claims
for certain asbestos-related  products distributed by two IU subsidiaries during
the 1960s and 1970s.  The two  subsidiaries  are  participants in the Center for
Claims  Resolution  ("CCR"),  a  group  of  manufacturers  and  distributors  of
asbestos-related  products.  The CCR acts as a central  administrative entity to
attempt  cost-effective  claims handling,  reduce  litigation  costs, and effect
broad-based settlements of claims.

Management believes: a) that most of the Company's product liability and related
litigation defense costs will ultimately be recovered through its various layers
of insurance coverage in place during the periods covered by such claims, and b)
the  ultimate  exposure  to the  Company  will  result  primarily  from  certain
insurance  companies,  operating  outside the United  States,  that provided the
Company  with  insurance  coverage  for  such  claims,  and  have  since  become
insolvent.  Management is actively  pursuing  recovery claims from the insolvent
estates and potential  reinsurance  such  insolvent  companies may have had with
other solvent insurers. Management cannot with any reasonable certainty estimate
the  ultimate  amount of claims  probable of  assertion,  nor can it  accurately
predict the level of success expected with its pursuit to secure recoveries from
insolvent  insurers.  However,  management  has  recorded a  liability  which it
believes reflects all currently  available  information  including known claims,
and probable  insurance  coverage.  Management will continue to evaluate whether
the Company's  ultimate liability for product liability claims can be reasonably
estimated.  If such an estimate is feasible,  charges against future  operations
may be  necessary,  however  the  timing  or amount  of any such  charge  cannot
presently be determined.

During  1999,  the Company  received a cash  settlement  of $8.7 million from an
insurance  company in settlement of its  obligations to insure the Company under
two insurance policies. Any previously asserted or future claims covered by such
policies become the responsibility of the Company.  The net cash inflow for 1999
related to the IU International  acquisition obligations was $6.1 million, which
included the cash settlement noted above.

NOTE 8.  STOCKHOLDERS' EQUITY (DEFICIT)

At December 31, 1999, a total of 878,159  shares of the  Company's  common stock
have been reserved for stock options (see Note 9). Under the terms of the Senior
Notes  indenture  and bank credit  facility,  the Company may not declare or pay
dividends or make cash distributions to the common stockholders.

An affiliate of Freeman  Spogli & Co. owns  approximately  47% of the  Company's
common stock.

The Company is authorized to issue 5.6 million  shares of preferred  stock,  par
value $.25 per share,  with such terms and  conditions  as shall be specified by
the Company's Board of Directors.

                                       32

<PAGE>

                               ENVIROSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 8.  STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

The Company has a loan to an employee which  originated to purchase common stock
of the Company in 1989. The loan bears  interest at 6%, and requires  payment in
full within 30 days of the employee's  termination  and provides for forgiveness
in the event of the employee's death. As of December 31, 1999 and 1998, the loan
principal balance was $90,000. Accrued intrest receivable on the loan as of such
dates was approximately $51,000 and $47,000, respectively.

NOTE 9.  STOCK OPTIONS

The  Company   maintains   plans  that  provide   incentive  stock  options  and
non-qualified stock options to key employees to purchase shares of the Company's
common stock. The terms,  conditions and numbers of shares are determined by the
Compensation and Stock Option Committee of the Board of Directors.  In 1999, the
Company  adopted  the 1999 Stock  Option Plan (the "1999  Plan").  The 1999 Plan
provided  for up to 500,000  shares of the  Company's  common  stock  subject to
grants issued under the Plan,  such grants may be in the form of incentive stock
options,  non-qualified stock options, or stock appreciation rights, with a term
not to exceed ten years from the grant date.  Incentive stock options may not be
granted at exercise  prices less than the fair market  value of the stock at the
time of grant. Options generally vest over three or five year periods.

Option activity is summarized below:

<TABLE>
<CAPTION>
                                                                       Weighted
                                       Number of Shares                -Average
                                  -----------------------------
                                                       Under           Exercise                  Range
                                                                                     -----------------------------
                                   Available          Option             Price          From               To
                                  -----------       -----------       -----------    -----------       -----------
<S>                               <C>               <C>               <C>            <C>               <C>
Balance at January 1, 1997           189,117           237,682              29.13         17.50             58.63

  Granted                            (15,140)           15,140              13.51         10.06             20.13
  Canceled                            24,701           (24,701)             27.49         17.50             57.75
                                  -----------       -----------
BALANCE AT DECEMBER 31, 1997         198,678           228,121              28.27         10.63             57.75

  Granted                            (82,747)           82,747              14.34         13.60             21.00
  Canceled                            45,229           (45,229)             31.27         10.06             57.75
                                  -----------       -----------
BALANCE AT DECEMBER 31, 1998         161,160           265,639              23.42         10.06             49.00
                                  -----------       -----------

  Authorized                         500,000            ------
  Granted                           (167,856)          167,856               4.09          2.06              5.13
  Canceled                            82,786          (131,426)             27.05         14.00             49.00
                                  -----------       -----------
BALANCE AT DECEMBER 31, 1999         576,090           302,069              11.10          2.06             45.50
                                  ===========       ===========
</TABLE>

                                       33

<PAGE>

                               ENVIROSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9.  STOCK OPTIONS (CONTINUED)

Summarized  information about stock options  outstanding at December 31, 1999 is
as follows:


<TABLE>
<CAPTION>
                                      Weighted-
                                       Average        Weighted-                      Weighted-
    Range of          Number of       Remaining        Average        Number of       Average
    Exercise           Options       Contractual      Exercise         Options        Exercise
     Prices          Outstanding        Life           Price         Exercisable       Price
----------------     -----------     -----------     -----------     -----------     -----------
<S>                  <C>             <C>             <C>             <C>             <C>
$2.06 to $21.00         252,876       8.5 years      $     7.84          53,497      $    15.70
$21.01 to $30.63         46,764       4.8                 27.23          46,077           27.22
$30.64 to $45.50          2,429        .2                 45.50           2,429           45.50
                     -----------                                     -----------
$2.06 to $45.50         302,069       7.8                 11.15         102,003           21.61
                     ===========                                     ===========

</TABLE>

The Company also  maintains a stock option plan for outside  directors  that are
neither  employees of the Company nor affiliated with Freeman Spogli & Co. Under
the plan,  on  January 1 of each year each  such  outside  director  is  granted
options  to  purchase  714  shares of the  Company's  common  stock at the prior
year-end market price.  The plan also allows these directors to elect to receive
below-market  options  in lieu of  their  annual  directors'  fees.  In 1998 two
directors,  and in 1997 one director  elected to receive such options in lieu of
their $15,000 annual  directors' fees. All options granted under the plan become
exercisable on the following January 1.

In addition,  three outside  directors  hold options,  granted prior to 1995, to
purchase 8,571 shares of the Company's  common stock at exercise prices equal to
the fair market value at the time of grant.

Using the  Black-Scholes  option pricing model, the estimated per share weighted
average fair values of stock  options  granted were $1.18 in 1999,  $9.95 during
1998 and $8.19 during 1997.  Assumptions  made in  determining  the estimates of
fair value include:  risk-free  interest rates of 6.6% in 1999, 4.7% in 1998 and
5.5% in 1997; a volatility  factor of .58 in 1999 and 1998, and .48 in 1997; and
a weighted-average expected life of 8 years for all three years.

The following table summarizes the pro forma effects assuming  compensation cost
for such  awards  had  been  recorded  based  upon  estimated  fair  values  (in
thousands, except for per share amounts):

                                    1999              1998              1997
                                 -----------       -----------       -----------
Pro forma net (loss) income      $  (95,845)       $  (30,913)       $      213

Pro forma net (loss) income
  per share                      $   (16.49)       $    (5.32)       $      .04

                                       34

<PAGE>

                               ENVIROSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10.  OPERATING SEGMENTS

The  Company's  reportable  operating  segments,  which are organized by type of
service,  are: IMS, which provides recycling and other specialized  services for
the steel industry,  and Technologies,  which operates  hazardous waste disposal
landfills and provides waste management and stabilization services for the steel
industry,  as well as companies in other industries and  governmental  agencies.
Information by reportable segment for the three years ended December 31, 1999 is
as follows (in thousands):

                                    1999              1998              1997
                                 -----------       -----------       -----------
REVENUES
  IMS                            $  180,697        $  191,438        $  185,587
  Technologies                       31,278            40,938            42,091
                                 -----------       -----------       -----------
                                 $  211,975        $  232,376        $  227,678
                                 ===========       ===========       ===========

UNUSUAL ITEM (CHARGES)
  CREDITS, NET
  IMS                            $   (2,924)       $   (2,851)       $       69
  Technologies                      (75,722)             (790)           (1,491)
  Corporate headquarters             (2,389)           (4,293)              122
                                 -----------       -----------       -----------
                                 $  (81,035)       $   (7,934)       $   (1,300)
                                 ===========       ===========       ===========

TOTAL OPERATING INCOME (LOSS)
  IMS                            $   22,330        $   23,614        $   26,563
  Technologies                      (83,260)           (1,586)           (1,664)
  Corporate headquarters             (4,115)           (7,035)           (3,908)
                                 -----------       -----------       -----------
                                 $  (65,045)       $   14,993        $   20,991
                                 ===========       ===========       ===========

IDENTIFIABLE ASSETS
  IMS                            $  226,763        $  246,768        $  252,584
  Technologies                       45,395           131,440           131,231
  Corporate headquarters              6,099             9,248            29,487
                                 -----------       -----------       -----------
                                 $  278,257        $  387,456        $  413,302
                                 ===========       ===========       ===========

DEPRECIATION AND AMORTIZATION
  IMS                            $   26,613        $   27,079        $   25,925
  Technologies                       11,498            11,275            10,807
  Corporate headquarters              1,158             1,051               789
                                 -----------       -----------       -----------
                                 $   39,269        $   39,405        $   37,521
                                 ===========       ===========       ===========

CAPITAL EXPENDITURES
  IMS                            $   15,876        $   27,874        $   21,002
  Technologies                        1,460             7,714             8,342
  Corporate headquarters              -----             -----                10
                                 -----------       -----------       -----------
                                 $   17,336        $   35,588        $   29,354
                                 ===========       ===========       ===========

Corporate  headquarters  expenses and assets  support both  segments but are not
directly  associated with either.  Corporate assets consist  principally of cash
and cash equivalents,  unamortized debt issuance costs, and in 1997 deferred tax
assets.

                                       35

<PAGE>

                               ENVIROSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10.  OPERATING SEGMENTS (continued)

Revenues from USX Corporation,  the Company's  largest steel industry  customer,
ranged from  approximately  $41 to $46 million  annually  during the three years
ended  December  31,  1999.  Almost  all of this  revenue  was  recorded  by the
Company's IMS business.  Accounts  receivable due from USX  Corporation  totaled
$4.2 million at December 31, 1999. The Company  conducts  business  primarily in
the United States, its IMS business has some Canadian customers, however foreign
operations are not material.  Technologies'  waste landfill sites are located in
Idaho and Ohio.

The following  table sets forth the  percentage of total revenue  contributed by
each class of services during the three years ended December 31, 1999:

                                    1999              1998              1997
                                 -----------       -----------       -----------
Industrial recycling                  70.6%             69.6%             67.8%

Specialized services                  14.6%             12.8%             13.7%

Waste stabilization and disposal      14.8%             17.6%             18.5%
                                 -----------       -----------       -----------
                                     100.0%            100.0%            100.0%
                                 -----------       -----------       -----------

NOTE 11.  RETIREMENT PLANS

The Company has several  non-contributory defined benefit pension plans covering
certain salaried and hourly  employees.  The plans provide pension benefits that
are based on varying levels of service and compensation. Assets of the plans are
principally  common stocks,  fixed income securities and cash  equivalents.  The
Company's  contributions  are  based on  funding  standards  established  by the
Employee Retirement Income Security Act of 1974.

                                       36

<PAGE>

                               ENVIROSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11.  RETIREMENT PLANS (continued)

                                                      1999              1998
                                                   -----------       -----------
Change in benefit obligations:

  Benefit obligations at beginning of year         $   21,443        $   21,585
  Service cost                                            475               564
  Interest cost                                         1,504             1,550
  Net actuarial (gains) losses                           (792)              553
  Benefits paid                                        (2,950)           (2,886)
  Other                                                    36                77
                                                   -----------       -----------
  Benefit obligations at end of year               $   19,716        $   21,443
                                                   ===========       ===========

Change in plan assets:
  Fair value of plan assets at beginning of year   $   20,294        $   21,766
  Actual return on assets                               4,284             1,533
  Employer contributions                                  145               226
  Benefits paid                                        (2,950)           (2,886)
  Plan expenses                                          (338)             (312)
  Other                                                    28               (33)
                                                   -----------       -----------
  Fair value of plan assets at end of year         $   21,463        $   20,294
                                                   ===========       ===========

Funded status                                      $    1,747        $   (1,149)
Unrecognized net actuarial (gains) losses              (2,998)              393
Unamortized prior service cost decrease                (2,798)           (3,120)
Other                                                      (7)               (9)
                                                   -----------       -----------
Accrued pension cost                               $   (4,056)       $   (3,885)
                                                   ===========       ===========

Net periodic  pension cost for defined  benefit plans includes the following (in
thousands):

                                    1999              1998              1997
                                 -----------       -----------       -----------
  Service cost                   $      475        $      564        $      700
  Interest cost                       1,524             1,550             1,533
  Expected return on plan assets     (1,427)           (1,463)           (1,423)
  Net amortization and deferral        (257)             (195)             (267)
                                 -----------       -----------       -----------
  Net periodic pension costs     $      315        $      456        $      543
                                 ===========       ===========       ===========

The actuarial  present value of projected  benefit  obligations  was  determined
using  discount  rates of 7.75% in 1999 and 7.25% in 1998.  The expected  annual
long-term rate of return on plan assets used in determining net periodic pension
cost was 8.5% in both years.

The Company also sponsors  several  defined  contribution  retirement  plans for
which  contributions  and costs are based on percentages of defined  earnings of
participating employees.  Costs for these plans amounted to $1.2 million in 1999
and 1998, and $1.4 million in 1997.

                                       37

<PAGE>

                               ENVIROSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11.  RETIREMENT PLANS (continued)

In  addition,  for the  benefit  of certain  unionized  employees,  the  Company
participates in defined benefit  multiemployer pension plans, for which reliable
information  concerning the Company's  share of related  estimated plan benefits
and assets is not  available,  and defined  contribution  multiemployer  pension
plans.  Costs for multiemployer  pension plans amounted to $2.4 million in 1999,
$2.2 million in 1998 and $1.8 million in 1997.

The Company also  participates  in several  defined  contribution  multiemployer
plans that provide health care and other welfare  benefits to certain  unionized
employees during their working lives and after retirement. Costs for these plans
amounted to $2.2 million in 1999, $2.1 million in 1998 and $2 million in 1997.

The Company also has several defined benefit  postretirement  plans that provide
varying amounts of medical and death benefits,  primarily to retired  employees.
The  actuarially  computed  cost  for  these  plans  was $.5  million  in  1999,
$.3 million in 1998 and $.4  million  in 1997.  The  plans are not  funded,  the
Company pays  postretirement  benefits as required for individual  participants.
The accrued  postretirement benefit obligation at December 31, 1999 and 1998 was
$4.4 million, of which $4 million represents obligations in connnection with the
IU International acquisition. The discount rate used to actuarially compute this
liability was 7.75% for 1999 and 7.25% for 1998.

Future cost  increases  in health care  benefits are assumed to be 7.5% in 1999,
decreasing  less  than 1% per year to 5% by 2002  and  remaining  at that  level
thereafter.   Increasing  these  rates  by  1%  each  year  would  increase  the
accumulated  postretirement  benefit  obligation  as of December 31, 1999 by $.2
million  and  would  not have had a  significant  impact  on the  postretirement
benefit cost for 1999.

NOTE 12.  SUPPLEMENTAL CASH FLOW INFORMATION

Amortization in the consolidated  statement of cash flows includes  amortization
of goodwill,  landfill  permits and deferred charges related to landfill closure
together with non-cash interest costs.

Changes in working capital include the following (in thousands):

                                    1999              1998              1997
                                 -----------       -----------       -----------
  Accounts receivable            $     (524)         $    664        $   (2,000)
  Other current assets                 (581)              446               425
  Accounts payable and other
    current liabilities               4,554            (3,141)            1,304
                                 -----------       -----------       -----------
  Cash provided (used)           $    3,449        $   (2,031)       $     (271)
                                 ===========       ===========       ===========

                                       38

<PAGE>

                               ENVIROSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12.  SUPPLEMENTAL CASH FLOW INFORMATION (continued)

Closure trust fund  recoveries  (payments)  include the  following  activity (in
thousands):

                                    1999              1998              1997
                                 -----------       -----------       -----------
  Purchases of investments       $     (797)       $   (1,243)       $   (1,654)
  Sales of investments                  968               171               139
                                 -----------       -----------       -----------
  Cash recovered (used)          $      171        $   (1,072)       $   (1,515)
                                 ===========       ===========       ===========

Net cash  flows  related to the IU  International  acquisition  are  principally
payments of  pre-acquisition  obligations.  In 1999, the Company  recovered $8.7
million from an insurance company related to such obligations.

The Company paid  interest of $28.5  million in 1999,  and $28.8 million in 1998
and 1997.  Payments for income taxes, net of refunds,  were $.9 million in 1999,
$1.4 million in 1998 and $1.1 million in 1997.


NOTE 13.  FINANCIAL INSTRUMENTS

The  estimated  fair values of financial  instruments  carried in the  Company's
consolidated balance sheet are as follows (in thousands):

                                     1999                         1998
                           -------------------------   -------------------------
                            Carrying        Fair        Carrying         Fair
                             Amounts       Values        Amounts        Values
                           -----------   -----------   -----------   -----------

Long-term debt             $  278,666    $  189,566    $  298,023    $  276,423
Other non-current assets
  and stock purchase loans        138           138         1,375         1,375

The fair  values  of  financial  instruments  included  in  current  assets  and
liabilities  approximate  their carrying  amounts.  The fair value of fixed-rate
long-term debt, which is thinly traded,  is based on management's best knowledge
of recent trading prices.  The fair values of other non-current assets and stock
purchase loans are estimated  using  discounted cash flow analysis and borrowing
rates in the Company's bank credit facility.

NOTE 14.  COMMITMENTS AND CONTINGENCIES

Future minimum lease payments for non-cancelable operating leases as of December
31, 1999 amount to $8.4 million in 2000,  $6.6 million in 2001,  $4.9 million in
2002,  $2.6  million in 2003,  $1.2  million  in 2004,  and  decreasing  amounts
thereafter.  Operating  leases are primarily for machinery and  equipment.  Rent
expense was $11.7  million in 1999,  $11.6  million in 1998 and $10.2 million in
1997.

                                       39

<PAGE>

                               ENVIROSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14.  COMMITMENTS AND CONTINGENCIES (continued)

At  December  31,  1999,  the  Company had  commitments  for  capital  equipment
additions totaling $29.4 million.  This amount includes expenditures the Company
may seek to finance through  operating leases which have not yet obtained by the
Company,  and not included in the non-cancelable  lease amounts disclosed above.
The total commitment amount includes amounts that may be expended beyond 2000.

The Company's Ohio and Idaho  facilities hold operating  permits issued by state
and federal environmental  agencies under the Resource Conservation and Recovery
Act, as amended,  that require renewal and  modification  from time to time. The
Company expects to obtain the required renewals and modifications to its permits
to continue to provide landfill capacity in its approved disposal cells.

The Company,  its competitors  and customers are subject to a complex,  evolving
array of  federal,  state and local  environmental  laws and  regulations.  Such
regulations may not only affect the demand for treatment and disposal  services,
but could also require the Company to incur significant costs for remediation or
other  corrective  action,  facility  closure and  post-closure  maintenance and
monitoring.   It  is  possible   that  the  future   imposition   of  additional
environmental  compliance  requirements  could  have a  material  effect  on the
Company's  results of  operations  or  financial  condition,  but the Company is
unable to predict any such future  requirements.  The Company  believes that the
consolidated  financial  statements  appropriately  reflect all presently  known
compliance costs in accordance with generally accepted accounting principles.

The  Company  is a party to  litigation  and  proceedings  arising in the normal
course  of its  present  or  former  businesses.  The  Company  has  recorded  a
contingent  liability for certain product liability claims related to its former
businesses  (see IU Acquisition  Obligations  at Note 7 in this Report).  In the
opinion of management,  based on currently  available  information,  the outcome
of such  matters  will not  have a  material  adverse  effect  on the  Company's
financial condition or results of operations.

                                       40

<PAGE>

                               ENVIROSOURCE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share amounts)

                             Fourth         Third        Second         First
                            Quarter(1)     Quarter       Quarter       Quarter
                           -----------   -----------   -----------   -----------
1999
Revenues                   $   54,271    $   55,584    $   53,837    $   48,283
Gross profit                    9,124        10,948        10,434         8,047
Unusual charges               (78,071)           --            --        (2,964)
Operating income (loss)       (74,474)        5,867         4,733        (1,171)
Net loss                   $  (81,966)   $   (1,633)   $   (3,088)   $   (9,064)
                           ===========   ===========   ===========   ===========

Basic and diluted net
  loss per share           $   (14.10)   $     (.28)   $     (.53)   $    (1.56)
                           ===========   ===========   ===========   ===========


                             Fourth         Third        Second         First
                            Quarter(2)     Quarter       Quarter       Quarter
                           -----------   -----------   -----------   -----------
1998
Revenues                   $   52,124    $   57,710    $   62,963    $   59,579
Gross profit                    8,220        11,944        14,431        11,361
Unusual charges                (3,508)         (526)       (3,489)         (411)
Operating income (loss)        (1,065)        6,294         5,075         4,689
Net loss                   $  (23,921)   $   (4,259)   $     (887)   $   (1,572)
                           ===========   ===========   ===========   ===========

Basic and diluted net
  loss per share           $    (4.12)   $     (.73)   $     (.15)   $     (.27)
                           ===========   ===========   ===========   ===========


(1) Included in the 1999 fourth  quarter  is a loss on  impaired assets totaling
    $75.2 million related to the waste landfills  of  the Company's Technologies
    business.
(2) Included in the 1998 fourth quarter is a write-down of all  of the Company's
    deferred tax assets totaling $15.3 million.

                                       41

<PAGE>

                               ENVIROSOURCE, INC.


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


           The Company filed a Current  Report on Form 8-K, Item 4,  regarding a
           change in the Company's independent accountants,  dated September 24,
           1999.


                                       42

<PAGE>


                               ENVIROSOURCE, INC.

                                    PART III


ITEM 10.  Directors and Executive Officers of the Company.

         Reference is made to the  information  set forth under the headings (i)
"Election  of  Class  B  Directors"  and  "Section  16(a)  Beneficial  Ownership
Reporting  Compliance" in the Company's  Proxy Statement to be filed pursuant to
Regulation  14A under the  Securities Act of 1934 within 120 days after December
31, 1999 and (ii)  "Executive  Officers of the Company" in Part I of this Annual
Report on Form 10-K, which information is incorporated herein by reference.


ITEM 11.  Executive Compensation.

         Reference  is made to the  information  set  forth  under  the  heading
"Executive  Compensation"  in the Company's Proxy Statement to be filed pursuant
to  Regulation  14A under  the  Securities  Act of 1934  within  120 days  after
December 31, 1999, which information is incorporated herein by reference.


ITEM 12.  Security Ownership of Certain Beneficial Owners and
          Management.

         Reference  is made to the  information  set  forth  under  the  heading
"Security  Ownership  of  Certain  Beneficial  Owners  and  Management"  in  the
Company's  Proxy  Statement  to be filed  pursuant to  Regulation  14A under the
Securities  Act  of  1934  within  120  days  after  December  31,  1999,  which
information is incorporated herein by reference.


ITEM 13.  Certain Relationships and Related Transactions.

         Reference  is made to the  information  set  forth  under  the  heading
"Certain  Transactions" in the Company's Proxy Statement to be filed pursuant to
Regulation  14A under the  Securities Act of 1934 within 120 days after December
31, 1999, which information is incorporated herein by reference.

                                       43

<PAGE>


                               ENVIROSOURCE, INC.

                                     PART IV

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

     (a) Financial Statements, Financial Statement Schedules and Exhibits filed.
         (1) and (2)

              Financial  statements and schedules are shown in the index and
              other information contained in Item 8 of this report.

         (3)              Exhibits.
                          --------

    3.1       Amended and Restated  Certificate of  Incorporation of the Company
              (incorporated herein by reference to Appendix A (pages A-1 to A-3)
              to the Company's  Proxy Statement filed April 29, 1996, in respect
              of its 1996 Annual Meeting of Stockholders (File No. 1-1363)).

    3.2       Amendment of Amended and  Restated  Certificate  of  Incorporation
              (incorporated herein by reference to Page 2 to the Company's Proxy
              Statement  filed  April 30,  1997,  in respect of its 1997  Annual
              Meeting of Stockholders (File No. 1-1363)).

    3.3       Amendment of Amended and  Restated  Certificate  of  Incorporation
              (incorporated  herein  by  reference  to  Pages  13  and 14 of the
              Company's  Proxy Statement filed April 30, 1998, in respect of its
              1998 Annual Meeting of Stockholders (File No. 1-1363)).

    3.4       By-Laws  of the  Company  (incorporated  herein  by  reference  to
              Exhibit  C (pages  C-1 to C-9) to the  Company's  Proxy  Statement
              filed April 24,  1987,  in respect of its 1987  Annual  Meeting of
              Stockholders (File No. 1-1363)).

    3.5       Amendment  to the By-Laws of the Company  (incorporated  herein by
              reference to Exhibit 3.4 to the  Company's  Annual  Report on Form
              10-K for the  fiscal  year  ended  December  31,  1987  (File  No.
              1-1363)).

    3.6       By-Laws  Amendment  Adopted  March 26, 1997 By  Unanimous  Written
              Consent  of the  Board  of  Directors,  Effective  June  19,  1997
              (incorporated  by  reference  to  Exhibit  3.5  to  the  Company's
              Quarterly  Report on Form 10-Q for the fiscal  quarter  ended June
              30, 1997 (File No. 1- 1363)).

                                       44

<PAGE>

                               ENVIROSOURCE, INC.

    4.1       Indenture,  dated as of July 1,  1993,  between  the  Company  and
              United States Trust  Company of New York, as Trustee,  relating to
              the Company's 9-3/4% Senior Notes due 2003,  including the form of
              such Notes attached as Exhibit A thereto  (incorporated  herein by
              reference to Exhibit  4.10 to the  Company's  Quarterly  Report on
              Form 10-Q for the fiscal  quarter  ended  June 30,  1993 (File No.
              1-1363)).

    4.2       First  Supplemental  Indenture,  dated  as of  November  2,  1995,
              between the Company and United  States Trust  Company of New York,
              as Trustee, relating to the Company's 9-3/4% Senior Notes due 2003
              (incorporated herein by reference to Exhibit 4.15 to the Company's
              Quarterly  Report  on Form  10-Q  for  the  fiscal  quarter  ended
              September 30, 1995 (File No. 1-1363)).

    4.3       Second  Supplemental  Indenture,  dated as of September  24, 1997,
              between the Company and United  States Trust  Company of New York,
              as Trustee, relating to the Company's 9-3/4% Senior Notes due 2003
              (incorporated  herein by reference to Exhibit 4.5 to the Company's
              Quarterly  Report  on Form  10-Q  for  the  fiscal  quarter  ended
              September 30, 1997 (File No. 1-1363)).

    4.4       Indenture, dated as of September 30, 1997, between the Company and
              United States Trust  Company of New York, as Trustee,  relating to
              the Company's  9-3/4% Senior Notes due 2003,  Series B,  including
              the form of such Notes attached as Exhibit A thereto (incorporated
              herein by  reference  to Exhibit  4.6 to the  Company's  Quarterly
              Report on Form 10-Q for the fiscal  quarter  ended  September  30,
              1997 (File No. 1-1363)).

    4.5       Registration  Rights  Agreement,  dated as of September  30, 1997,
              among the  Company  and Morgan  Stanley  Dean  Witter,  Jeffries &
              Company, Inc. and NationsBanc Capital Markets, Inc.  (incorporated
              herein by  reference  to Exhibit  4.7 to the  Company's  Quarterly
              Report on Form 10-Q for the fiscal  quarter  ended  September  30,
              1997 (File No. 1-1363)).

    4.6       Registration Rights Agreement, dated as of May 13, 1993, among the
              Company,  FS Equity  Partners II, L.P.,  The IBM  Retirement  Plan
              Trust  Fund  and  Enso  Partners,  L.P.  (incorporated  herein  by
              reference  to Exhibit  4.29 to  Amendment  No. 1 to the  Company's
              Registration  Statement on Form S-1, filed June 14, 1993 (File No.
              33-62050)).

    4.7       Loan Agreement,  dated as of June 1, 1994,  between the Industrial
              Development  Corporation  of Owyhee  County,  Idaho and Envirosafe
              Services of Idaho, Inc. relating to $8,500,000  Industrial Revenue
              Bonds,  Series 1994. (The Company agrees to furnish a copy of such
              agreement to the Commission upon request).

                                       45

<PAGE>

                               ENVIROSOURCE, INC.

    4.8*      Loan and Security  Agreement,  dated as of November 16, 1999,  the
              lenders  parties  thereto,  Bank  of  America,   N.A.,  as  Agent,
              International Mill Service, Inc. and IMS Alabama, Inc.

    10.1      Restated  Incentive  Stock Option Plan of the Company,  as amended
              (incorporated  herein by reference  to Exhibit A to the  Company's
              Registration  Statement on Form S-8,  filed January 17, 1989 (File
              No. 33-26633)).

    10.2      Stock Option Agreement,  dated March 18, 1992, between the Company
              and  Raymond P.  Caldiero  (incorporated  herein by  reference  to
              Exhibit 10.20 to the Company's  Annual Report on Form 10-K for the
              fiscal year ended December 31, 1992 (File No. 1-1363)).

    10.3      Stock Option Agreement,  dated March 18, 1992, between the Company
              and Jeffrey G. Miller (incorporated herein by reference to Exhibit
              10.21 to the  Company's  Annual Report on Form 10-K for the fiscal
              year ended December 31, 1992 (File No. 1-1363)).

    10.4      Amendment,  dated August 5, 1993,  to the Stock Option  Agreement,
              dated  March 18,  1992,  between the Company and Jeffrey G. Miller
              (incorporated   herein   by   reference   to   Exhibit   10.22  to
              Post-Effective  Amendment  No.  1 to  the  Company's  Registration
              Statement  on  Form  S-1,  filed  September  16,  1993  (File  No.
              33-46930)).

    10.5      Stock Option Agreement,  dated August 5, 1993, between the Company
              and Wallace B. Askins (incorporated herein by reference to Exhibit
              10.23  to   Post-Effective   Amendment  No.  1  to  the  Company's
              Registration Statement on Form S-1, filed September 16, 1993 (File
              No. 33-46930)).

    10.6      Envirosource,  Inc. 1993 Stock Option Plan (incorporated herein by
              reference  to Exhibit  10.21 to Amendment  No. 1 to the  Company's
              Registration  Statement on Form S-1, filed June 14, 1993 (File No.
              33-62050)).

    10.7      Envirosource, Inc. Stock Option Plan for Non-Affiliated Directors,
              dated as of January 1, 1995  (incorporated  herein by reference to
              Exhibit 10.14 to the Company's  Annual Report on Form 10-K for the
              fiscal year ended December 31, 1994 (File No. 1-1363)).

                                       46

<PAGE>

                               ENVIROSOURCE, INC.

    10.8      Supplemental  Executive Retirement Plan of the Company,  effective
              January 1, 1995 (incorporated herein by reference to Exhibit 10.19
              to the  Company's  Annual  Report on Form 10-K for the fiscal year
              ended December 31, 1994 (File No. 1-1363)).

    10.9      Envirosource,  Inc. 1999 Stock Option Plan (incorporated herein by
              reference to Appendix A to the  Company's  Proxy  Statement  filed
              April  30,  1999,  in  respect  of  its  1999  Annual  Meeting  of
              Stockholders (File No. 1-1363)).

    10.10     Employment  Agreement,  dated as of January 20, 1999,  between the
              Company and John T. DiLacqua  (incorporated herein by reference to
              Exhibit 10.19 to the Company's  Quarterly  Report on Form 10-Q for
              the fiscal quarter ended March 31, 1999 (File No. 1-1363)).

    10.11     Letter Agreement, dated February 15, 1999, between the Company and
              John C. Heenan  (incorporated herein by reference to Exhibit 10.21
              to the  Company's  Quarterly  Report on Form  10-Q for the  fiscal
              quarter ended March 31, 1999 (File No. 1-1363)).

    10.12     Letter  Agreement,  dated March 23, 1999,  between the Company and
              James C. Hull  (incorporated  herein by reference to Exhibit 10.22
              to the  Company's  Quarterly  Report on Form  10-Q for the  fiscal
              quarter ended March 31, 1999 (File No. 1-1363)).

    10.13*    Letter Agreement,  dated  July  30, 1999,  between the Company and
              James C. Hull.

    10.14*    Employment Agreement,  dated  as  of  January 3, 2000, between the
              Company and John P. Carroll.

    10.15*    Employment  Agreement,  dated as of January 3, 2000,  between  the
              Company and John C. Heenan.

    10.16*    Employment  Agreement,  dated as of January 3, 2000,  between  the
              Company and Leon Z. Heller.

    21.1*     Subsidiaries of the Company

    23.1*     Consent of Grant Thornton LLP

    23.2*     Consent of Ernst & Young LLP

              (b)      Reports on Form 8-K.
                       -------------------
              No   reports   on Form 8-K were filed  during  the  quarter  ended
December 31, 1999.

* Filed herewith.

                                       47

<PAGE>

                                 SIGNATURES


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

Dated:  March 29, 2000
                                                            ENVIROSOURCE, INC.


                                                        By: /s/ JOHN T. DILACQUA
                                                            --------------------
                                                            John T. DiLacqua
                                                            President and Chief
                                                            Executive Officer


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Company and in the capacities indicated on March 29, 2000.

Signature                                                     Title
---------                                                     -----

/s/ JOHN T. DILACQUA                         President, Chief Executive Officer
--------------------
John T. DiLacqua                             and Director (Principal Executive
                                             Officer)


/s/ JOHN C. HEENAN                           Senior Vice President and Chief
------------------
John C. Heenan                               Financial Officer (Principal
                                             Financial and Accounting Officer)


/s/ ROBERT N. GURNITZ                        Chairman of the Board of Directors
---------------------
Robert N. Gurnitz

<PAGE>

/s/ WALLACE B. ASKINS                        Director
---------------------
Wallace B. Askins


/s/ RAYMOND P. CALDIERO                      Director
-----------------------
Raymond P. Caldiero


/s/ JEFFREY G. MILLER                        Director
---------------------
Jeffrey G. Miller


/s/ JON D. RALPH                             Director
----------------
Jon D. Ralph


/s/ JOHN M. ROTH                             Director
----------------
John M. Roth


/s/ J. FREDERICK SIMMONS                     Director
------------------------
J. Frederick Simmons


/S/ RONALD P. SPOGLI                         Director
--------------------
Ronald P. Spogli


<PAGE>

                                  EXHIBIT INDEX


Number                             Description                          Page
------                             -----------                          ----

4.8         Loan and Security Agreement, dated as of November 16,      EXHIBIT 1
            1999, the lenders parties thereto, Bank of America, N.A.,
            as Agent, International Mill Service, Inc. and
            IMS Alabama, Inc.

10.13       Letter Agreement, dated July 30, 1999, between the         EXHIBIT 2
            Company and James C. Hull.

10.14       Employment Agreement, dated as of January 3, 2000,         EXHIBIT 3
                 between the Company and John P. Carroll.

10.15       Employment Agreement, dated as of January 3, 2000,         EXHIBIT 4
                   between the Company and John C. Heenan.

10.16       Employment Agreement, dated as of January 3, 2000,         EXHIBIT 5
                     between the Company and Leon Z. Heller.

21.1        Subsidiaries of the Company                                EXHIBIT 6

23.1        Consent of Grant Thornton LLP                              EXHIBIT 7

23.2        Consent of Ernst & Young LLP                               EXHIBIT 8