<PAGE>

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

                       SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C.


                                  FORM 10-Q/A


<Table>
<C>               <S>
      [X]         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                  THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
                                               OR
      [ ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                  THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</Table>

                        COMMISSION FILE NUMBER 000-23855

                           U.S. PLASTIC LUMBER CORP.
                        (Name of issuer in its charter)

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

<Table>
<S>                                                             <C>
           NEVADA                                                   87-0404343
(State or other jurisdiction                                     (I.R.S. Employer
      of incorporation                                            Identification
      or organization)                                                 No.)

</Table>

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

          2300 W. GLADES ROAD, SUITE 440 W, BOCA RATON, FLORIDA 33431
                                 (561) 394-3511
   (Address and telephone number of principal executive offices and place of
                                   business)

     Check here whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X]     No [ ]

     The number of shares outstanding of the registrant's common stock as of
July 31, 2001 is 38,232,392 shares.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES

                                   FORM 10-Q

                                     INDEX

<Table>
<Caption>
                                                              PAGE
                                                              ----
<S>                                                           <C>
PART I.  UNAUDITED FINANCIAL INFORMATION
Item 1.  Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 2001
  and December 31, 2000.....................................    2
Condensed Consolidated Statements of Operations for the
  Three Months Ended June 30, 2001 and 2000.................    3
Condensed Consolidated Statements of Operations for the Six
  Months Ended June 30, 2001 and 2000.......................    4
Condensed Consolidated Statements of Cash Flows for the Six
  Months Ended June 30, 2001 and 2000.......................    5
Notes to Condensed Consolidated Financial Statements........    6
Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations................   13

PART II.  OTHER INFORMATION
Item 1.  Legal Proceedings..................................   18
Item 2.  Changes in Securities and Use of Proceeds..........   18
Item 3.  Defaults Upon Senior Securities....................   18
Item 4.  Submission of Matters to a Vote of Security
  Holders...................................................   18
Item 5.  Other Information..................................   18
Item 6.  Exhibits and Reports on Form 8-K...................   19

SIGNATURES..................................................   20
</Table>

                                        i
<PAGE>

                           FORWARD LOOKING STATEMENTS

     When used in this Form 10-Q, the words or phrases "will likely result",
"are expected to", "will continue", "is anticipated", "estimate", "projected",
"intends to" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties,
including but not limited to economic conditions, risks associated with our
senior credit facility and our lack of liquidity, changes in laws or
regulations, exposure on providing extended warranties on products, access to
capital, demand for products and services of the Company, dilution, expertise,
newly developing technologies, loss of permits, conflicts of interest in related
party transactions, regulatory matters, environmental liability, the occurrence
of events not covered by insurance, a substantial increase in interest rates,
protection of technology, lack of industry standards, raw material commodity
pricing, increases in energy costs, the ability to receive bid awards, the
inability to implement our growth strategy, operating hazards, seasonality,
inability to retain key employees, the effects of competition, and the ability
of the Company to obtain additional financing. Such factors, which are discussed
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the notes to condensed consolidated financial statements, could
affect the Company's financial performance and could cause the Company's actual
results for future periods to differ materially from any opinions or statements
expressed with undue reliance on any such forward-looking statements, which
speak only as of the date made. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."


                                       ii
<PAGE>
                   U. S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                     At June 30, 2001 and December 31, 2000
                                   (Unaudited)



<TABLE>
<CAPTION>

                                                                                                   2001                  2000
                                                                                              -------------         -------------
<S>                                                                                           <C>                   <C>
                                         ASSETS

CURRENT ASSETS

     Cash and cash equivalents                                                                $     528,352         $   2,211,082
     Accounts receivable, net of allowance for doubtful accounts of $1,616,946 and               45,950,836            43,763,378
           $2,375,479, respectively
     Inventories                                                                                  7,719,704             9,723,390
     Prepaid expenses and other assets                                                            2,668,435             2,542,126
                                                                                              -------------         -------------

          Total current assets                                                                   56,867,327            58,239,976

Property, plant and equipment (net)                                                              98,742,313           100,544,939
Acquired intangibles (net)                                                                       36,351,908            37,033,919
Other assets                                                                                      7,683,178             4,592,125
                                                                                              -------------         -------------

          Total assets                                                                        $ 199,644,726         $ 200,410,959
                                                                                              =============         =============

          LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Accounts payable                                                                         $  30,223,348         $  27,958,413
     Notes and capital leases payable, current portion                                           14,312,130            11,535,698
     Accrued expenses                                                                             5,685,132             4,390,344
     Restructuring accrual                                                                          672,859             1,149,431
     Other liabilities                                                                            2,379,869             2,240,721
                                                                                              -------------         -------------

          Total current liabilities                                                              53,273,338            47,274,607

Notes and capital leases payable, net of current portion                                         47,371,211            54,613,509
Deferred income taxes and other liabilities                                                       1,197,180               571,382
Minority interest                                                                                   195,671               196,383
Convertible subordinated debentures, net of unamortized discount                                  9,164,994             7,255,213
Convertible subordinated debentures - affiliates, net of unamortized discount                     4,889,842             4,757,657
                                                                                              -------------         -------------

          Total liabilities                                                                     116,092,236           114,668,751
                                                                                              -------------         -------------

STOCKHOLDERS' EQUITY
     Convertible preferred stock, par value $.001; authorized 5,000,000 shares;
           Series "D" 15%, issued and outstanding 1,187,285                                           1,187                 1,187
           Series "E" 10%, issued and outstanding 1,714,285 and 1,142,857 respectively                1,715                 1,143
     Common stock par value $.0001, authorized 100,000,000 shares;
          issued and outstanding 37,245,011 and 34,836,594 shares, respectively                       3,725                 3,484
     Additional paid-in capital                                                                 101,582,052            97,195,416
     Accumulated deficit                                                                        (17,270,662)          (11,459,022)
     Accumulated other comprehensive loss:
          Fair value of interest rate swap derivative designated as a cash flow hedge              (765,527)                   --
                                                                                              -------------         -------------

          Total stockholders' equity                                                             83,552,490            85,742,208
                                                                                              -------------         -------------

          Total liabilities and stockholders' equity                                          $ 199,644,726         $ 200,410,959
                                                                                              =============         =============
</TABLE>



See accompanying notes to condensed consolidated financial statements.


                                       2
<PAGE>

                  U. S. PLASTIC LUMBER CORP. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                   THREE MONTHS ENDED JUNE 30, 2001 AND 2000
                                  (UNAUDITED)


<Table>
<Caption>
                                                                 2001          2000
                                                              -----------   -----------
<S>                                                           <C>           <C>
Sales, net..................................................  $50,750,327   $44,260,376
  Cost of goods sold........................................   41,953,992    34,629,943
                                                              -----------   -----------
     Gross profit...........................................    8,796,335     9,630,433
  Selling, general and administrative expenses..............    6,060,302     5,718,718
                                                              -----------   -----------
     Operating income.......................................    2,736,033     3,911,715
  Interest and other income.................................      122,466       117,965
  Interest expense..........................................    2,787,657     1,250,186
                                                              -----------   -----------
     Earnings before extraordinary item and income taxes....       70,842     2,779,494
  Income tax provision......................................           --     1,043,865
                                                              -----------   -----------
     Earnings before extraordinary item.....................       70,842     1,735,629
  Extraordinary loss on early extinguishment of debt, net of
     taxes of $599,514......................................           --       939,675
                                                              -----------   -----------
     Net earnings...........................................       70,842       795,954
  Preferred stock dividend earned...........................     (230,540)           --
                                                              -----------   -----------
     Net (loss) earnings attributable to common
      stockholders..........................................  $  (159,698)  $   795,954
                                                              ===========   ===========
  Net (loss) earnings per common share -- Basic:
     (Loss) earnings before extraordinary item..............  $     (0.00)  $      0.05
     Loss on early extinguishment of debt...................           --         (0.03)
                                                              -----------   -----------
     Net (loss) earnings per common share...................  $     (0.00)  $      0.02
                                                              ===========   ===========
  Net (loss) earnings per common share -- Diluted:
     (Loss) earnings before extraordinary item..............  $     (0.00)  $      0.05
     Loss on early extinguishment of debt...................           --         (0.03)
                                                              -----------   -----------
     Net (loss) earnings per common share...................  $     (0.00)  $      0.02
                                                              ===========   ===========
  Weighted average common shares outstanding:
     Basic..................................................   35,403,171    34,403,488
     Diluted................................................   35,403,171    35,095,655
</Table>


See accompanying notes to condensed unaudited consolidated financial statements.

                                        3
<PAGE>

                  U. S. PLASTIC LUMBER CORP. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    SIX MONTHS ENDED JUNE 30, 2001 AND 2000
                                  (UNAUDITED)


<Table>
<Caption>
                                                                 2001          2000
                                                              -----------   -----------
<S>                                                           <C>           <C>
Sales, net..................................................  $89,386,694   $74,664,437
  Cost of goods sold........................................   77,808,522    59,516,656
                                                              -----------   -----------
     Gross profit...........................................   11,578,172    15,147,781
  Selling, general and administrative expenses..............   11,775,267    11,031,877
  Restructuring charge......................................      182,007            --
                                                              -----------   -----------
     Operating (loss) income................................     (379,102)    4,115,904
  Interest and other income.................................      140,307       121,817
  Interest expense..........................................    5,372,311     2,538,232
                                                              -----------   -----------
     (Loss) earnings before extraordinary item and
       income taxes.........................................   (5,611,106)    1,699,489
  Income tax (benefit) provision............................     (710,244)      633,463
                                                              -----------   -----------
     (Loss) earnings before extraordinary item..............   (4,900,862)    1,066,026
  Extraordinary loss on early extinguishment of debt, net of
     taxes of $599,514......................................           --       939,675
                                                              -----------   -----------
     Net (loss) earnings....................................   (4,900,862)      126,351
  Preferred stock dividend earned...........................     (910,778)           --
                                                              -----------   -----------
     Net (loss) earnings attributable to common
      stockholders..........................................  $(5,811,640)  $   126,351
                                                              ===========   ===========
  Net (loss) earnings per common share -- Basic:
     (Loss) earnings before extraordinary item..............  $     (0.17)  $      0.03
     Loss on early extinguishment of debt...................           --         (0.03)
                                                              -----------   -----------
     Net (loss) earnings per common share...................  $     (0.17)  $      0.00
                                                              ===========   ===========
  Net (loss) earnings per common share -- Diluted::
     (Loss) earnings before extraordinary item..............  $     (0.17)  $      0.03
     Loss on early extinguishment of debt...................           --         (0.03)
                                                              -----------   -----------
     Net (loss) earnings per common share...................  $     (0.17)  $      0.00
                                                              ===========   ===========
  Weighted average common shares outstanding:
     Basic..................................................   35,160,320    33,772,863
     Diluted................................................   35,160,320    34,992,873
</Table>


See accompanying notes to condensed unaudited consolidated financial statements.

                                        4
<PAGE>

                  U. S. PLASTIC LUMBER CORP. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                    SIX MONTHS ENDED JUNE 30, 2001 AND 2000
                                  (UNAUDITED)


<Table>
<Caption>
                                                                  2001           2000
                                                              ------------   ------------
<S>                                                           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (Loss) Earnings.......................................  $ (4,900,862)  $    126,351
                                                              ------------   ------------
  Adjustments to reconcile net cash provided by (used in)
    operating activities:
    Depreciation............................................     3,223,646      2,236,427
    Amortization............................................     1,015,883      1,002,663
    Loss on early extinguishment of debt....................            --      1,539,189
    Deferred income tax benefit.............................      (710,244)            --
    Amortization of deferred financing and debenture
     discount cost..........................................  1,091,889...        225,574
    Restructuring charges...................................       182,007             --
    Beneficial conversion feature of convertible
     subordinated debentures................................       280,000        270,946
    Loss on sale of property, plant & equipment.............        26,249             --
  Changes in operating assets and liabilities, net of
    acquisitions:
    Accounts receivable.....................................    (2,187,457)    (6,783,165)
    Inventories.............................................     2,003,686     (2,618,990)
    Prepaid expenses and other current assets...............       186,843     (1,590,929)
    Other assets............................................    (3,276,215)      (398,031)
    Accounts payable........................................     2,264,935       (450,867)
    Other liabilities.......................................      (448,970)    (1,103,384)
    Accrued expenses........................................       552,168     (1,427,618)
                                                              ------------   ------------
         Net cash used in operating activities..............      (696,442)    (8,971,834)
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures for property, plant and equipment....    (1,572,579)   (17,369,385)
  Cash paid for acquisitions, net of cash received..........            --        (62,297)
  Proceeds from the sale of property, plant and equipment...        94,725        512,957
                                                              ------------   ------------
         Net cash used in investing activities..............    (1,477,854)   (16,918,725)
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from exercise of warrants and options, net of
    costs...................................................         2,231        617,215
  Proceeds from the sale of common stock, net of issuance
    costs...................................................         5,750             --
  Proceeds from the sale of preferred stock, net of issuance
    costs...................................................       999,451             --
  Proceeds from sale of convertible subordinated debentures,
    net of issuance costs...................................     3,950,000      7,500,000
  Advances from (repayment to) affiliates, net..............            --     (1,000,000)
  Proceeds from notes and capital leases payable............     1,200,000     47,936,350
  Payments of notes and capital leases payable..............    (5,665,866)   (30,313,041)
                                                              ------------   ------------
    Net cash provided by financing activities...............       491,566     24,740,524
                                                              ------------   ------------
Net change in cash and cash equivalents.....................    (1,682,730)    (1,150,035)
Cash and cash equivalents, beginning of period..............     2,211,082      1,807,588
                                                              ------------   ------------
Cash and cash equivalents, end of period....................  $    528,352   $    657,553
                                                              ============   ============
Supplemental disclosure of cash flow information: Cash paid
  during the period for:
  Interest..................................................  $  4,158,156   $  2,216,597
  Income taxes..............................................  $      5,060   $     47,426
Capitalized interest........................................  $         --   $  1,184,318
Number of shares issued during the period for non-cash
  transactions:
  Acquisitions and Clean Earth merger.......................         8,075        832,140
  Compensation -- employees and directors...................         4,400          5,434
  Litigation settlements....................................        45,000         11,666
  Conversion of debentures..................................     2,134,742      1,693,085
  Commitment Fee............................................       200,000             --
</Table>


See accompanying notes to condensed unaudited consolidated financial statements.

                                        5

<PAGE>

                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.  NATURE OF OPERATIONS AND BASIS OF PRESENTATION

NATURE OF OPERATIONS

     U.S. Plastic Lumber Corp. and its subsidiaries (collectively the "Company")
are engaged in the manufacturing of recycled plastic lumber and other products
and environmental remediation services, including recycling of soils that have
been exposed to hydrocarbons and the beneficial reuse of dredge materials. The
Company's plastic lumber customers are located throughout the United States,
although some customers are international. The Company's environmental
remediation, dredge and soil recycling customers are located primarily in the
Northeastern United States.

BASIS OF PRESENTATION

     The Company's condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and the regulations of the Securities and Exchange
Commission (SEC) for quarterly reporting. The interim condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-K as filed with the SEC for the year ended December 31, 2000.
Management acknowledges its responsibility for the preparation of the
accompanying interim condensed consolidated financial statements which reflect
all adjustments considered necessary, in the opinion of management, for a fair
statement of the results of interim periods presented. The results of operations
for the interim periods are not necessarily indicative of the results of
operations for the entire year. Where appropriate, certain amounts have been
reclassified to conform with the 2001 presentation.

2.  LIQUIDITY AND CAPITAL RESOURCES

     The Company's liquidity and ability to meet its financial obligations will
be dependent on, among other things, the Company's ability to maintain
compliance with its debt covenants, raise additional capital through the
issuance of equity or equity equivalents as defined by its Senior Credit
Facility, sell certain assets or obtain additional forms of debt.

     The Company is highly leveraged and during 2000 and the six months ended
June 30, 2001, the Company suffered significant losses from operations,
primarily resulting from the expenses incurred in its plastic lumber division
related to the expansion and start up of certain manufacturing facilities, the
inefficiencies in the production of certain products, increases in raw material
costs and interest expense. The Company's accumulated deficit totaled
approximately $17,271,000 as of June 30, 2001.

     Since its inception, the Company has financed its operations through a
number of stock and debt issuances. During 2000 and the first six months of
2001, the Company's primary sources of working capital have been the net
proceeds from sales of the Company's convertible preferred stock, proceeds from
its Senior Credit Facility, the issuance of convertible subordinated debentures
and direct sales of the Company's products and services to its customers. As of
December 31, 2000, the Company was not in compliance with certain covenant
requirements of its Senior Credit Facility and its Master Credit Facility. The
Company received waivers for these covenant violations as of December 31, 2000
and entered into amendments to the Senior Credit Facility and Master Credit
Facility. (See note 4.) As of June 30, 2001, the Company was in compliance with
the covenant requirements of the Senior Credit Facility and Master Credit
Facility.

     The Company's material financial commitments relate principally to its
working capital requirements and obligations to make term loan payments on its
Senior Credit Facility of $2,500,000 per quarter after June 30, 2001, as
compared to $1,250,000 per quarter through June 30, 2001, interest payments on
the Senior Credit Facility of approximately $297,000 per month, lease payments
pursuant to certain real property and equipment leases of approximately $224,000
per month, installment payments for manufacturing equipment of approximately
$240,000 per month, interest payments on the Company's Convertible Subordinated
Debentures of

                                        6

<PAGE>
                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

approximately $391,000 quarterly, and dividends on the Company's Series D and
Series E Convertible Preferred Stock of approximately $231,000 quarterly.

     In addition, the Company will be required to refinance or repay its Senior
Credit Facility on or before July 2, 2002. As of June 30, 2001, the outstanding
balance on this Senior Credit Facility is $39,800,000. The Company currently
does not have the financial resources to retire these debt obligations in 2002
and the Company will need to obtain new debt or equity capital or sell certain
assets to meet this requirement.


     The terms of the Senior Credit Facility also require the Company to raise
$6,500,000 of equity or equity equivalents by February 28, 2002. During February
and March 2001, the Company raised $1 million through the issuance of its Series
"E" Convertible Preferred Stock. (see note 3.) In June 2001, the Company raised
$4 million through the issuance of a subordinated convertible debenture, (see
note 5.) due July 1, 2002. Additionally, on July 3, 2001, the Company raised $1
million through the issuance of 952,381 shares of common stock. This private
placement transaction was not registered under the Act in reliance upon the
exemption from registration in Section 4(2) of the Act, as transaction not
involving any public offering. The offering was completed without any general or
public solicitation to a very limited number of entities who have strong
knowledge and experience in business and financial matters. Their knowledge and
experience enabled them to evaluate the risks and merits of the investment. In
aggregate, the Company has raised $6 million of the required $6.5 million
required by the Senior Credit Facility. The Company believes that it will be
able to raise the remaining equity or equity equivalents by February 2002 in
order to remain in compliance with its debt covenants, but may also need to
raise additional capital by selling certain assets or obtaining additional
sources of debt.


     Certain of the Company's debt instruments contain covenants establishing
certain financial covenants and operating restrictions. The Company's failure to
comply with any covenant or material obligation contained in these debt
agreements or any of the Company's other debt agreements, absent a waiver from
the lenders, would result in an event of default which could accelerate debt
repayment terms under the debt agreements. Due to various cross-default
provisions contained within certain of the Company's credit agreements, an event
of default under certain of the senior debt agreements could accelerate debt
repayment terms under certain other credit agreements, all of which would have a
material adverse affect on the Company's liquidity and capital resources and
could impair its ability to continue as a going concern.

     Capital requirements relating to the implementation of the Company's
business plan have been and will continue to be significant. The Company
believes that its ability to generate cash from operations is dependent upon,
among other things, increased demand for its products and services and the
successful development of direct marketing, expanded manufacturing capabilities
and product distribution capabilities. There can be no assurance that the
Company will have sufficient capital resources to permit the Company to continue
implementation of its business plan.

     In November of 2000, the Company retained Bank of America Securities
("BAS") to explore and evaluate strategic alternatives for the Company which
could include the possible sale of the Company's environmental recycling
division, Clean Earth Inc. ("CEI"). No agreement has been reached with any of
the prospective buyers and there can be no assurances that an agreement will be
reached. Proceeds from the sale of CEI, if it occurs, would be used to first pay
down the Company's Senior Credit Facility. Any excess proceeds would be applied
to certain other debt and provide working capital.

     While there can be no assurances, the Company believes its cash flows from
operations, the sale of certain assets, and/or the raising of additional capital
will satisfy its liquidity requirements through June 30, 2002. The Company is
seeking additional sources of financing to supplement its cash flow
requirements, however, there can be no assurance that any additional financing
will be available to the Company on acceptable terms, or at all. If the Company
does not comply with the covenants contained within its debt

                                        7

<PAGE>
                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

agreements, or if adequate funds are not available to finance its operations and
retire its debt obligations as they become due, the Company may be required to
significantly curtail its operations and the Company's ability to continue as a
going concern would be impaired.

3.  CAPITAL STOCK

SERIES E CONVERTIBLE PREFERRED STOCK

     During February 2001 and March 2001, the Company issued a total 571,429
shares of its Series "E" Preferred Stock to the Stout Partnership in exchange
for a payment to the Company of $500,000 on each of the aforesaid dates. The
stock pays a monthly cash dividend at an annual rate of 10%. Each share of
Series E Preferred Stock is convertible into one share of the Company's common
stock at the option of the holder at any time after December 31, 2001, subject
to certain rights of the Company. The Company at its sole option can redeem the
Preferred Stock at 110% of the initial purchase price in cash prior to December
31, 2001. In addition, if the common stock of the Company is trading at an
average closing price of $1.75 per share or higher for 20 consecutive trading
days at any time prior to March 1, 2002, the Company has the right, subject to
certain other conditions, to require conversion of the Series E Preferred Stock
into common stock. Otherwise, the Series E Preferred Stock automatically
converts into common stock on March 1, 2002.

FUSION CAPITAL FUND II


     On December 7, 2000, the Company entered into a common stock purchase
agreement with Fusion Capital Fund II, LLC pursuant to which Fusion Capital
agreed to purchase up to $6.0 million of the Company's common stock subject to
increase, at the Company's discretion, by an additional $6.0 million, subject to
certain conditions. The $6.0 million of common stock purchasable under the first
tranche of the common stock purchase agreement is to be purchased over a
twelve-month period, subject to a 6 month extension or earlier termination at
the Company's discretion. The selling price of the shares will be equal to the
lesser of (1) $15.00 or (2) a price based upon the future market price of the
common stock without any fixed discount to the market price. Pursuant to the
terms of the agreement with Fusion Capital, the Company may not sell shares to
Fusion Capital until such time as the Securities and Exchange Commission
declares a registration statement effective which registers for resale the
shares Fusion Capital has agreed to purchase. As of June 30, 2001, the Company
has not filed a registration statement with the Securities and Exchange
Commission.


     On March 2, 2001 under the terms of the common stock purchase agreement,
Fusion Capital Fund II, LLC was issued 200,000 shares of the Company's common
stock as a commitment fee. Unless an event of default occurs, these shares must
be held by Fusion Capital until the common stock purchase agreement has been
terminated.

4.  NOTES AND CAPITAL LEASES PAYABLE

     On March 15, 2001, the Company entered into a Waiver and Second Amendment
to the Senior Credit Facility ("Waiver and Second Amendment") with its senior
lenders, Bank of America, LaSalle National Bank and Union Planters Bank, in
which they agreed to waive past defaults on its senior credit facility and the
Waiver and First Amendment. The Waiver and Second Amendment required that the
Company maintain its financial condition and operating profit within certain
defined parameters including ratios involving earnings before interest, taxes,
depreciation and amortization and interest expense. In addition, the Waiver and
Second Amendment contains a provision which requires the Senior Credit Facility
be refinanced or paid in full by April 2002.

     On March 30, 2001, the Company entered into an Amendment of the Master
Credit Facility with GE Capital to waive the tangible net worth covenant for the
4th Quarter 2000 and amended the covenant for each

                                        8
<PAGE>
                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

quarter in 2001. Additionally, the Company has agreed to accelerate a portion of
its principal payments. At June 30, 2001, the Company was in compliance with the
tangible net worth covenant.

     On July 13, 2001, the Company entered into a Waiver and Third Amendment to
the Senior Credit Facility ("Waiver and Third Amendment") with its senior
lenders, the primary terms of which were as follows: (i) to extend the required
due date to refinance the Senior Credit Facility until July 1, 2002, (ii) extend
terms relative to the Company's borrowing base as defined in the Amendment and,
(iii) provide for mandatory prepayment when certain outstanding claims of the
Company are collected. The Company is in compliance with its covenants of the
Senior Credit Facility at June 30, 2001.

5.  CONVERTIBLE SUBORDINATED DEBENTURES

     On February 20, 2001, the Company received a Put Notice from the Halifax
Fund, L.P. ("Halifax") relative to the 5% Convertible Subordinated Debentures
issued on February 5, 2000 in the amount of $7,500,000 due February 5, 2005 (the
"Fiscal 2000 Debentures"). Pursuant to the Put Notice, the Company had the
option to either (a) repurchase the outstanding principal amount plus all
accrued, unpaid interest for a cash price equal to 110% thereof, or (b) have the
Minimum Floating Conversion Price permanently re-set to zero. Prior to the Put
Notice, the Minimum Floating Conversion Price was $8.25 per share; however,
since the stock price of the Company's common stock had traded for less than
$8.25 per share for ten consecutive trading days ending February 16, 2001,
Halifax Fund L.P. had this right of re-set or buy-out. The Company did not elect
to option therefore the Minimum Floating Conversion Price has permanently re-set
to zero. The effects of re-setting the Minimum Floating Conversion Price to zero
is that upon conversion of the Fiscal 2000 Debentures into common stock the
price at which the common stock of the Company will be issued to Halifax shall
be equal to the lowest trading price of the common stock on the principal
trading market for such common stock (which is currently the NASDAQ National
Market) during the four (4) trading days prior to but not including the holder's
conversion date. The right of the debenture holder to convert the debenture to
common stock is limited in that the holder may not convert the debenture if
upon such conversion the holder will become a beneficial owner of more than
9.9% of the total issued and outstanding shares of the Company's common stock.
If the holder elects to convert and the entire debenture cannot be converted
due to this limitation, the Company must settle in cash that portion of the
debenture which cannot be converted to stock when the debenture matures in
February of 2005, at 110% of the sum of the outstanding balance of the
debenture that is in excess of the limitation and accrued but unpaid interest
and default payments.

     In May 2001, $191,000 of the previously issued convertible subordinated
debentures and $1,000 of unpaid interest were converted into 189,800 shares of
common stock at an average conversion price of $1.02 per share. On June 22, 2001
an additional $2,000,000 of the previously issued convertible subordinated
debentures and $23,000 of unpaid interest were converted into 1,944,942 shares
of common stock at a conversion price of $1.04 per share. Unamortized debenture
issuance costs and debt discounts of $12,475 and $120,558 respectively were
charged to additional paid-in-capital. As a result of the above conversions, the
Company recorded an additional beneficial conversion feature benefit granted to
the holder of approximately $280,000, which was charged to interest expense
during the quarter ended June 30, 2001. As of June 30, 2001, approximately $5.4
million is outstanding on the convertible subordinated debentures.


     On June 15, 2001, the Company issued a convertible subordinated debenture
due July 1, 2002 in the principal amount of $4.0 million (the "Fiscal 2001
Debenture") and a warrant to purchase 250,000 shares of its common stock, at an
initial purchase price of $2.00 per share, (the "Warrant") to Halifax. Halifax
paid the Company $4.0 million for these securities. The principal amount of the
Fiscal 2001 Debenture bears interest at a rate of 18% per year through August
14, 2001.



     The Company has the option at any time and, upon five business days notice,
to repurchase all or any part of the Fiscal 2001 Debenture. After August 15,
2001, if the Company has not repurchased the Fiscal 2001 Debenture, or has not
consummated a sale/leaseback of certain of its assets under the terms described
in the Debenture Purchase Agreement, Halifax may convert the principal amount
plus accrued interest and any default payments on the Fiscal 2001 Debenture into
shares of the Company's common stock. The conversion price of the common stock
under the Fiscal 2001 Debenture is a price per share equal to the average of the
lowest trading prices of the common stock on the principal trading market for
the common stock during any three trading days during the twenty-two trading
days immediately prior to the conversion date. If the Fiscal 2001 Debenture is
not repurchased by August 14, 2001 or the sale/leaseback is not completed, the
Company

                                        9
<PAGE>
                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

is required to: (i) issue to Halifax for no consideration another Warrant to
purchase 250,000 shares of its common stock at a purchase price per share equal
to 120% of the closing market price of such stock on August 15, 2001 and, (ii)
increase the coupon rate from 18% to 25%. On August 15, 2001, the Company will
recognize a beneficial conversion feature if the sale/leaseback is not
completed.

     As part of the financing, the Company also granted a subordinate lien on
all its assets to Halifax through a Security Agreement. The lien not only
secures the Company's obligations under the Fiscal 2001 Debenture, but it also
secures the Company's obligations under the Fiscal 2000 Debenture due February
5, 2005 and the $1.0 million stated value of the Company's Series D Convertible
Preferred Stock previously sold to Halifax.

     On August 9, 2001, the Company and Halifax agreed to amend the Fiscal 2001
Debenture to change the due date from May 31, 2002 to July 1, 2002.

6.  RESTRUCTURING CHARGE

     In the fourth quarter of 2000, the Company committed to a plan to
restructure and to consolidate some of its smaller plants within the plastic
lumber division. As a result, the Company recorded a charge of $3,417,000 in the
fourth quarter of 2000 for equipment impairment and lease termination costs in
connection with the restructuring. As of December 31, 2000, the Company has
accrued $1,098,000 in connection with the lease termination costs and
anticipates making lease termination payments throughout 2001 as it completes
its restructuring plan. During the six months ended June 30, 2001, the Company
paid approximately $515,000 in lease termination payments and charged this
amount against the accrual. As of June 30, 2001, the Company has approximately
$583,023 remaining in its restructuring accrual for lease termination payments.

     During 2000 and early 2001, the Company eliminated approximately 300
employees as part of this restructuring plan. The severance component of the
restructuring plan was communicated to the employees in early January 2001. As a
result, the Company recorded a charge of approximately $182,000 during the three
months ended March 31, 2001 in connection with severance. Approximately $89,836
of this charge remains unpaid and accrued as of June 30, 2001.

7.  DERIVATIVES

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an Amendment of SFAS 133". SFAS No.
133 and SFAS No. 138 standardize the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts. Under the
standards, entities are required to carry all derivative instruments on the
balance sheet at fair value. The accounting for changes in the fair value (i.e.,
gains or losses) of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and, if so, on the
reason for holding it. If certain conditions are met, entities may elect to
designate a derivative instrument as a hedge of exposures to changes in fair
values, cash flows, or foreign currencies. If the hedged exposure is a fair
value exposure, the gain or loss on the derivative instrument is recognized in
earnings in the period of change, together with the offsetting loss or gain on
the hedged item attributable to the risk being hedged. If the hedged exposure is
a cash flow exposure, the effective portion of the gain or loss on the
derivative instrument is reported initially as a component of other
comprehensive income (outside earnings), and subsequently reclassified into
earnings when the forecasted transaction affects earnings. Any amounts excluded
from the assessment of hedge effectiveness, as well as the ineffective portion
of the gain or loss are reported in earnings immediately. If the derivative
instrument is not designated as a hedge, the gain or loss is recognized in
earnings in the period of change.


     As part of its overall interest rate risk management activities, the
Company utilizes interest rate related derivatives to manage its exposure to
various types of interest rate risks. The Company does not speculate using
derivative instruments.

     The Company's risk management policies emphasize the management of interest
rate risk within acceptable guidelines. The Company's objective in maintaining
these policies is to limit volatility arising from changes in interest rates.
Risks to be managed are primarily cash flow risks. Utilization of derivative
financial instruments provides a valuable tool to assist in the management of
these risks.

     The Company is potentially exposed to interest rate cash flow risk due to
loans under its Senior Credit Facility whose interest payments are based on
floating rate indices. The Company continually monitors changes in these
exposures and their impact on its risk management activities. The Company has
entered into interest rate swap agreements under which the Company pays a fixed
rate of interest and receives a floating rate of interest over the term of the
interest rate swap agreement without the exchange of the underlying notional
amounts. These agreements allow the Company to offset the variability of
floating rate loan interest with the variable interest payments due on the
interest rate swaps. The Company assesses the effectiveness of these hedges by
comparing the timing, frequency, and magnitude of changes in its interest rate
to that of the interest rate referenced in the swap agreements, and no portion
of the hedging instruments' gain or loss is excluded from the assessment of
hedge effectiveness.

     Under SFAS No. 133 and SFAS No. 138, changes in the fair value of interest
rate swaps designated as hedges of the variability of cash flows associated with
floating rate debt are reported in other comprehensive income. These amounts are
subsequently reclassified into interest income as a yield adjustment of the
hedged loans.

     The Company adopted SFAS No. 133 and SFAS No. 138 on January 1, 2001. In
accordance with the transition provisions of SFAS No. 133, the Company recorded
a net-of-tax cumulative-effect loss of $453,615 in accumulated other
comprehensive income to recognize at fair value an interest-rate swap derivative
that is designated as a cash-flow hedging instruments. As of June 30, 2001, the
net-of-tax fair value of these derivatives carried as a component of other
comprehensive income was $765,527.

     During the six months ended June 30, 2001, no gain or loss was
recognized as a result of the ineffectiveness of the cash flow hedging
instruments. In addition, the cash flow hedge was assumed to be 100% effective
over the next twelve months, thus the Company does not anticipate reclassifying
into earnings any gains or losses currently within Accumulated Other
Comprehensive Income.

     During the six months ended June 30, 2001, no gains or losses were
recognized into earnings as a result of the discontinuance of the cash flow
hedge. However, the interest rate swap agreements expire in March of 2003, and
the Senior Credit Facility is required to be refinanced or repaid in July of
2002. At that time, the cash flow hedge will be discontinued. The Company
cannot determine at this time the amount of gains or losses that will be
recognized into earnings as a result of the discontinuance of the hedge.

8.  COMPREHENSIVE INCOME

     Accumulated other comprehensive loss consists of changes in the fair value
of the Company's interest rate swap derivatives (see Note 7).


<TABLE>
<S>                                              <C>
Balance at December 31, 2000                           --

Transition adjustment for interest rate
swap derivative designated as a cash flow
hedge                                            (453,615)

Change in fair value of interest rate
swap derivative                                  (311,912)

Balance at June 30, 2001                         (765,527)
</TABLE>



9.  RECENT ACCOUNTING PRONOUNCEMENTS

     In September 2000, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 140, "Accounting for Transfer and Servicing of Financial Assets and
Extinguishment of Liabilities (A replacement of SFAS No. 125)". SFAS No. 140
provides guidance on accounting for (1) securitization transactions involving
financial assets; (2) sales of financial assets (including loan participations);
(3) factoring transactions; (4) wash sales; (5) servicing assets and
liabilities; (6) collateralized borrowing arrangements; (7) securities lending
transactions; (8) repurchase agreements; and (9) extinguishment of liabilities.
The provisions of SFAS No. 140 became effective for transactions entered into
after March 31, 2001. The adoption of SFAS No. 140 did not have a significant
impact on the consolidated financial statements.

     In July 2001, the FASB issued Statement No. 141, Business Combinations
("SFAS No. 141"), and Statement No. 142, Goodwill and Other Intangible Assets
("SFAS No. 142"). SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001 as well as
all purchase method business combinations completed after June 30, 2001. SFAS
No. 141 also specifies criteria intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill, noting that any purchase price allocable to an assembled workforce may
not be accounted for separately. SFAS No. 142 will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. SFAS No. 142 will also require that intangible
assets with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for

                                        10
<PAGE>
                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

impairment in accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

     The Company is required to adopt the provisions of SFAS No. 141 immediately
and SFAS No. 142 effective January 1, 2002. Goodwill and intangible assets
acquired in business combinations completed before July 1, 2001 will continue to
be amortized prior to the adoption of SFAS No. 142.

     SFAS No. 141 will require upon adoption of SFAS No. 142 that the Company
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in SFAS No. 141 for recognition apart
from goodwill. Upon adoption of SFAS No. 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of SFAS No. 142 within the first interim
period. Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle in the
first interim period.

     In connection with the transitional goodwill impairment evaluation, SFAS
No. 142 will require the Company to perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption. To accomplish
this, the Company must identify its reporting units and determine the carrying
value of each reporting unit by assigning the assets and liabilities, including
the existing goodwill and intangible assets, to those reporting units as of the
date of adoption. The Company will then have up to six months from the date of
adoption to determine the fair value of each reporting unit and compare it to
the reporting unit's carrying amount. To the extent a reporting unit's carrying
amount exceeds its fair value, an indication exists that the reporting unit's
goodwill may be impaired and the Company must perform the second step of the
transitional impairment test. In the second step, the Company must compare the
implied fair value to all of its assets (recognized and unrecognized) and
liabilities in a manner similar to a purchase price allocation in accordance
with SFAS No. 141, to its carrying amount, both of which would be measured as of
the date of adoption. Any transitional impairment loss will be recognized as the
cumulative effect of a change in accounting principle in the Company's statement
of operations.

     As of the date of adoption, the Company expects to have unamortized
goodwill in the amount of approximately $26,043,000, which will be subject to
the transition provisions of SFAS No. 141 and 142. Amortization expense related
to goodwill was approximately $1,088,000 and $655,000 for the year ended
December 31, 2000 and six months ended June 30, 2001, respectively.

     Because of the extensive effort needed to comply with adopting Statements
141 and 142, it is not practicable to reasonably estimate the impact of adopting
these Statements on the Company's financial statements at the date of this
report, including whether any transitional impairment losses will be required to
be recognized as the cumulative effect of a change in accounting principle.

     Also, in July the FASB issued Statement No. 143 ("SFAS No. 143"),
Accounting for Asset Retirement Obligations ("SFAS No. 143"). That standard
requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. When the liability
is initially recorded, the entity will capitalize a cost by increasing the
carrying amount of the related long-lived asset. Over time, the liability is
accreted to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded amount of
incurs a gain or loss upon settlement. The standard is effective for fiscal
years beginning after June 15, 2002, with earlier adoption permitted.

     Due to the extensive effort needed to comply with adopting SFAS No. 143, it
is not practicable to reasonably estimate the impact of adopting this statement
as of the date of this report.
                                        11
<PAGE>
                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10.  SEGMENT REPORTING

     The Company has two reportable operating segments. The Plastic lumber
division manufactures structural and non-structural plastic lumber and a variety
of accessory products such as park and site amenities. The Environmental
recycling division provides environmental recycling services including
environmental construction services, upland disposal of dredge materials,
beneficial re-use of industrial wastes and on-site recycling services. In the
first quarter of 2001 the Plastic lumber division recorded a $182,000
restructuring charge related to severance. The operating results of the two
segments excluding the aforementioned restructuring charge are as follows (in
thousands):


<Table>
<Caption>
                                                    FOR THE THREE MONTHS    FOR THE SIX MONTHS
                                                       ENDED JUNE 30,         ENDED JUNE 30,
                                                    ---------------------   -------------------
                                                      2001        2000        2001       2000
                                                    ---------   ---------   --------   --------
<S>                                                 <C>         <C>         <C>        <C>
Sales:
  Environmental recycling.........................   $34,197     $21,130    $57,178    $34,893
  Plastic lumber..................................    16,553      23,130     32,209     39,771
                                                     -------     -------    -------    -------
          Total...................................   $50,750     $44,260    $89,387    $74,664
                                                     =======     =======    =======    =======
Operating Income (Loss):
  Environmental recycling.........................   $ 3,742     $ 2,910    $ 3,463    $ 2,611
  Plastic lumber..................................       (70)      1,709     (2,020)     2,898
  Corporate.......................................      (936)       (707)    (1,640)    (1,393)
                                                     -------     -------    -------    -------
          Total...................................   $ 2,736     $ 3,912    $  (197)   $ 4,116
                                                     =======     =======    =======    =======
Depreciation and Amortization:
  Environmental recycling.........................   $   902     $   798    $ 1,835    $ 1,463
  Plastic lumber..................................     1,119         760      2,191      1,465
  Corporate.......................................       106         110        214        224
                                                     -------     -------    -------    -------
          Total...................................   $ 2,127     $ 1,668    $ 4,240    $ 3,152
                                                     =======     =======    =======    =======
Expenditures for Long-Lived Assets:
  Environmental recycling.........................   $   321     $ 1,178    $ 1,110    $ 4,134
  Plastic lumber..................................       427       1,591        592     15,173
  Corporate.......................................         9          --          9          3
                                                     -------     -------    -------    -------
          Total...................................   $   757     $ 2,769    $ 1,711    $19,310
                                                     =======     =======    =======    =======
</Table>

     The identifiable assets of the respective segments is set forth below (in
thousands):

<Table>
<Caption>
                                                              JUNE 30,   DECEMBER 31,
                                                                2001         2000
                                                              --------   ------------
<S>                                                           <C>        <C>
Identifiable assets:
  Environmental recycling...................................  $ 94,291     $ 92,784
  Plastic lumber............................................    99,584      103,222
  Corporate.................................................     5,770        4,405
                                                              --------     --------
          Total.............................................  $199,645     $200,411
                                                              ========     ========
</Table>



                                        12
<PAGE>

                   U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

     Cash and cash equivalents totaled $528,000 at June 30, 2001, a decrease of
$1,683,000 from the $2,211,000 at December 31, 2000. Cash used in operating
activities amounted to $696,000 for the first six months of 2001 while cash used
in operating activities for the comparable period in 2000 amounted to
$8,972,000. The change is primarily due to lower receivable and inventory
balances partially offset by increased payables and lower earnings in the 2001
period and the effect of the debt extinguishment in 2000.

     Cash used in investing activities was $1,478,000 in the first six months of
2001, a decrease of $15,441,000 from the prior year. The decrease is primarily
due to the completion of the major capital expansion in the Plastic lumber
division during 2000.

     Cash provided by financing activities totaled $492,000, including
$3,950,000 in net proceeds from the sale of an 18% convertible debenture (see
Note 5 to the Condensed Consolidated Financial Statements), $999,000 in net
proceeds from the issuance of convertible preferred stock (see Note 3 to the
Condensed Consolidated Financial Statements), and $1,200,000 in additional
borrowings under existing credit agreements, offset by $5,666,000 of principal
payments on existing notes and capital leases payable including the quarterly
payment of $1,250,000 on the Senior Credit Facility term loan.

     At June 30, 2001, the Company had net working capital of $3,594,000
including cash and cash equivalents totaling $528,000, compared to net working
capital of $14,633,000 including cash and cash equivalents of $658,000 at June
30, 2000. The reduction is primarily due to higher amounts in accounts payable
and accrued expenses and an increase in current portion of long-term debt at
June 30, 2001.

     Capital expenditures in the first six months of 2001 amounted to
$1,573,000, a decrease of $15,797,000 over the same period in 2000. The decrease
is primarily due to the completion of the Plastic lumber division's major
capital expansion during 2000. Capital expenditures in 2001 of $980,000 were
primarily to expand capacity at the Environmental recycling division. In the
first six months of 2001 the Plastic lumber division incurred $592,000 of
capital expenditures for equipment.

     The Company's liquidity and ability to meet its financial obligations will
be dependent on, among other things, the Company's ability to maintain
compliance with its debt covenants, raise additional capital through the
issuance of equity or equity equivalents as defined by its Senior Credit
Facility, sell certain assets or obtain additional forms of debt.

     The Company is highly leveraged and during 2000 and the six months ended
June 30, 2001, the Company suffered significant losses from operations,
primarily resulting from the expenses incurred in its plastic lumber division
related to the expansion and start up of certain manufacturing facilities, the
inefficiencies in the production of certain products, increases in raw material
costs and interest expense. The Company's accumulated deficit totaled
approximately $17,271,000 as of June 30, 2001.

     Since its inception, the Company has financed its operations through a
number of stock and debt issuances. During 2000 and the first six months of
2001, the Company's primary sources of working capital have been the net
proceeds from sales of the Company's convertible preferred stock, proceeds from
its Senior Credit Facility, the issuance of convertible subordinated debentures
and direct sales of the Company's products and services to its customers. As of
December 31, 2000, the Company was not in compliance with certain covenant
requirements of its Senior Credit Facility and its Master Credit Facility. The
Company received waivers for these covenant violations as of December 31, 2000
and entered into amendments to the Senior Credit Facility and Master Credit
Facility. (See note 4.) As of June 30, 2001, the Company was in compliance with
the covenant requirements of the Senior Credit Facility and Master Credit
Facility.

     The Company's material financial commitments relate principally to its
working capital requirements and obligations to make term loan payments on its
Senior Credit Facility of $2,500,000 per quarter after June 30,

                                        13
<PAGE>

2001, as compared to $1,250,000 per quarter through June 30, 2001, monthly
interest payments on the Senior Credit Facility of approximately $297,000 per
quarter, lease payments pursuant to certain real property and equipment leases
of approximately $224,000 per month, installment payments for manufacturing
equipment of approximately $244,000 per month, interest payments on the
Company's Convertible Subordinated Debentures of approximately $391,000
quarterly, and dividends on the Company's Series D and Series E Convertible
Preferred Stock of approximately $231,000 quarterly.

     In addition, the Company will be required to refinance or repay its Senior
Credit Facility on or before July 2, 2002. As of June 30, 2001, the outstanding
balance on this Senior Credit Facility is $39,800,000. The Company currently
does not have the financial resources to retire these debt obligations in 2002
and the Company will need to obtain new debt or equity capital or sell certain
assets to meet this requirement.

     The terms of the Senior Credit Facility also require the Company to raise
$6,500,000 of equity or equity equivalents by February 28, 2002. During February
and March 2001, the Company raised $1 million through the issuance of its Series
"E" Convertible Preferred Stock. (see note 3.) In June 2001, the Company raised
$4 million through the issuance of a subordinated convertible debenture, (see
note 5.) due July 1, 2002. Additionally, on July 3, 2001, the Company raised $1
million through the issuance of 952,381 shares of common stock. This private
placement transaction was not registered under the Act in reliance upon the
exemption from registration in Section 4(2) of the Act, as transaction not
involving any public offering. The offering made was completed without any
general or public solicitation to a very limited number of entities who have
strong knowledge and experience in business and financial matters. Their
knowledge and experience enabled them to evaluate the risks and merits of the
investment. In aggregate, the Company has raised $6 million of the required $6.5
million required by the Senior Credit Facility. The Company believes that it
will be able to raise the remaining equity or equity equivalents by February
2002 in order to remain in compliance with its debt covenants, but may also need
to raise additional capital by selling certain assets or obtaining additional
sources of debt.

     Certain of the Company's debt instruments contain covenants establishing
certain financial covenants and operating restrictions. The Company's failure to
comply with any covenant or material obligation contained in these debt
agreements or any of the Company's other debt agreements, absent a waiver from
the lenders, would result in an event of default which could accelerate debt
repayment terms under the debt agreements. Due to various cross-default
provisions contained within certain of the Company's credit agreements, an event
of default under certain of the senior debt agreements could accelerate debt
repayment terms under certain other credit agreements, all of which would have a
material adverse affect on the Company's liquidity and capital resources.

     Capital requirements relating to the implementation of the Company's
business plan have been and will continue to be significant. The Company
believes that its ability to generate cash from operations is dependent upon,
among other things, increased demand for its products and services and the
successful development of direct marketing, expanded manufacturing capabilities
and product distribution capabilities. There can be no assurance that the
Company will have sufficient capital resources to permit the Company to continue
implementation of its business plan.

     While there can be no assurances, the Company believes its cash flows from
operations, the sale of certain assets, and/or the raising of additional capital
will satisfy its liquidity requirements through June 30, 2002. The Company is
seeking additional sources of financing to supplement its cash flow
requirements, however, there can be no assurance that any additional financing
will be available to the Company on acceptable terms, or at all. If the Company
does not comply with the covenants contained within its debt agreements, or if
adequate funds are not available to finance its operations and retire its debt
obligations as they become due, the Company may be required to significantly
curtail its operations and the Company's ability to continue as a going concern
would be impaired.

     In November of 2000, the Company retained Bank of America Securities
("BAS") to explore and evaluate strategic alternatives for the Company which
could include the possible sale of the Company's environmental recycling
division, Clean Earth Inc. ("CEI"). The Company has held discussions with
prospective buyers who have expressed various levels of interest in CEI,
however, no agreement has been
                                        14
<PAGE>

reached with any of the buyers and there can be no assurances that an agreement
will be reached. Proceeds from the sale of CEI, if it occurs, would be used to
first pay down the Company's Senior Credit Facility. Any excess proceeds would
be applied to certain other debt and provide working capital.

INTERIM RESULTS OF OPERATIONS

  Comparison of the three months ended June 30, 2001 and 2000

     Net sales in the second quarter of 2001 were $50,750,000, an increase of
$6,490,000, or 15%, over the second quarter of 2000. Plastic lumber division
revenues decreased by 28% in the quarter to $16,553,000, as a result of the
Company's decision to exit the lower margin resin business and a decrease in
Smartdeck product revenue partially offset by an increase of 65% in the Carefree
product revenue. Environmental recycling division revenues increased by 62% to
$34,197,000 in the second quarter of 2001 due to the start up of several major
projects in both the dredging and construction services group as compared to the
same period in 2000.

     Gross profit in the second quarter 2001 decreased by $834,000, or 9%, as
compared with the second quarter of 2000. The decrease was primarily due to
lower revenue and higher material and direct labor costs in the Plastic lumber
division. Gross profit margin as a percent of revenues in the Plastic lumber
division decreased in the second quarter, from 20.6% in 2000 to 15.7% in 2001.
Gross profit at the Environmental recycling division increased by $1,349,000, or
27.8%, to $6,206,000 versus the same quarter in 2000. Gross profit as a percent
of revenue, decreased to 18.0% in 2001 from 23.0% in 2000, due primarily to
increased revenue in the dredging and construction services group that are
customarily lower margin revenues.

     Selling, general and administrative expenses ("SG&A) increased by $341,000
in the second quarter of 2001, primarily due to increases in support of the
higher revenues at the Environmental recycling division offset by cost
reductions in the Plastic lumber division. As a percentage of net sales, SG&A
decreased to 11.9% in the three months ended June 30, 2001 from 12.9% in the
three months ended June 30, 2000.

     The second quarter of 2001 produced operating income of $2,736,000 as
compared to operating income of $3,912,000 for the same quarter in 2000,
primarily due to the decline in gross profit. Operating income increased by
$832,000 at the Environmental recycling division and decreased by $1,779,000 at
the Plastic lumber division compared with the same quarter in 2000.

     Interest expense increased by $1,537,000 for the second quarter of 2001,
mainly due to higher debt levels and interest rates in 2001 as compared to 2000.

  Comparison of the six months ended June 30, 2001 and 2000

     Net sales for the first six months of 2001 were $89,387,000, an increase of
$14,723,000, or 20%, over the same period of 2000. Plastic lumber division
revenues decreased by 19% in the quarter to $32,209,000, as a result of the
Company's decision to exit the lower margin resin business and lower Smartdeck
product revenues. Environmental recycling division revenues increased by 64% to
$57,178,000 due to an increase in major projects in the dredging and
construction services group, as compared to the same period in 2000.

     Gross profit in the first six months of 2001 decreased by $3,570,000, or
24%, compared with the first six months of 2000. The decrease was primarily due
to lower revenue and higher material and direct labor costs at the Plastic
lumber division. Gross profit margin as a percent of revenues in the Plastic
lumber division decreased from 21.5% in the first six months of 2000 to 10.3% in
the first six months of 2001. Gross profit margin at the Environmental recycling
division decreased to 14.4% in 2001 from 18.9% in 2000 primarily due to the
increase in the lower margin project work. Gross profit at the Environmental
recycling division increased by $1,664,000, or 25.3%, due to the overall
increased revenue volume in the first six months of 2001.

     Selling, general and administrative expenses ("SG&A) increased by $743,000
in the first six months of 2001, primarily due to increases in support for the
higher revenue experienced at the Environmental recycling division. As a
percentage of net sales, SG&A decreased to 13.2% in 2001 from 14.8% in 2000
primarily due to increased sales and strict controls on SG&A expenses.

                                        15
<PAGE>

     The first six months of 2001 produced an operating loss of $379,000
compared to operating income of $4,116,000 for the same period in 2000,
primarily due to the decline in revenue and gross margins in the Plastic lumber
division. Operating income increased by $851,000 at the Environmental recycling
division which was offset by the decrease of $4,918,000 at the Plastic lumber
division, excluding the restructuring charge of $182,000.

     Interest expense increased by $2,834,000 for the first six months of 2001,
mainly due to higher debt levels and interest rates in 2001 as compared to the
first six months in 2000.

     As a result of the losses incurred in the first six months of 2001 the
Company recorded an income tax benefit of $710,000 compared to a tax provision
of $633,000 in the same period in 2000.

SEASONALITY

     The Company experiences a seasonal slow down during the winter months
because its environmental operations are located in the Northeast United States
where adverse weather and normal ground freezing can impact the Company's
performance. Additionally, sales of certain plastic lumber products slow
significantly in the winter months.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In September 2000, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 140, "Accounting for Transfer and Servicing of Financial Assets and
Extinguishment of Liabilities (A replacement of SFAS NO. 125)". SFAS No. 140
provides guidance on accounting for (1) securitization transactions involving
financial assets; (2) sales of financial assets (including loan participations);
(3) factoring transactions; (4) wash sales; (5) servicing assets and
liabilities; (6) collateralized borrowing arrangements; (7) securities lending
transactions; (8) repurchase agreements; and (9) extinguishment of liabilities.
The provisions of SFAS No. 140 became effective for transactions entered into
after March 31, 2001. The adoption of SFAS No. 140 did not have a significant
impact on the consolidated financial statements.

     In July 2001, the FASB issued Statement No. 141, Business Combinations
("SFAS No. 141"), and Statement No. 142, Goodwill and Other Intangible Assets
("SFAS No. 142"). SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001 as well as
all purchase method business combinations completed after June 30, 2001. SFAS
No. 141 also specifies criteria intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill, noting that any purchase price allocable to an assembled workforce may
not be accounted for separately. SFAS No. 142 will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. SFAS No. 142 will also require that intangible
assets with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of.

     The Company is required to adopt the provisions of SFAS No. 141 immediately
and SFAS No. 142 effective January 1, 2002. Goodwill and intangible assets
acquired in business combinations completed before July 1, 2001 will continue to
be amortized prior to the adoption of SFAS No. 142.

     SFAS No. 141 will require upon adoption of SFAS No. 142 that the Company
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in SFAS No. 141 for recognition apart
from goodwill. Upon adoption of SFAS No. 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of SFAS No. 142 within the first interim

                                        16
<PAGE>

period. Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle in the
first interim period.

     In connection with the transitional goodwill impairment evaluation, SFAS
No. 142 will require the Company to perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption. To accomplish
this, the Company must identify its reporting units and determine the carrying
value of each reporting unit by assigning the assets and liabilities, including
the existing goodwill and intangible assets, to those reporting units as of the
date of adoption. The Company will then have up to six months from the date of
adoption to determine the fair value of each reporting unit and compare it to
the reporting unit's carrying amount. To the extent a reporting unit's carrying
amount exceeds its fair value, an indication exists that the reporting unit's
goodwill may be impaired and the Company must perform the second step of the
transitional impairment test. In the second step, the Company must compare the
implied fair value to all of its assets (recognized and unrecognized) and
liabilities in a manner similar to a purchase price allocation in accordance
with SFAS No. 141, to its carrying amount, both of which would be measured as of
the date of adoption. This second step is required to be completed as soon as
possible, but no later than the end of the year of adoption. Any transitional
impairment loss will be recognized as the cumulative effect of a change in
accounting principle in the Company's statement of operations.

     As of the date of adoption, the Company expects to have unamortized
goodwill in the amount of approximately $26,043,000, which will be subject to
the transition provisions of SFAS No. 141 and 142. Amortization expense related
to goodwill was approximately $1,252,000 and $550,000 for the year ended
December 31, 2000 and six months ended June 30, 2001, respectively.

     Because of the extensive effort needed to comply with adopting Statements
141 and 142, it is not practicable to reasonably estimate the impact of adopting
these Statements on the Company's financial statements at the date of this
report, including whether any transitional impairment losses will be required to
be recognized as the cumulative effect of a change in accounting principle.

     Also, in July the FASB issued Statement No. 143 ("SFAS No. 143"),
Accounting for Asset Retirement Obligations ("SFAS No. 143"). That standard
requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. When the liability
is initially recorded, the entity will capitalize a cost by increasing the
carrying amount of the related long-lived asset. Over time, the liability is
accreted to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement. The standard is effective for fiscal
years beginning after June 15, 2002, with earlier adoption permitted. Due to the
extensive effort needed to comply with adopting SFAS No. 143, it is not
practicable to reasonably estimate the impact of adopting this statement as of
the date of this report.

                                        17
<PAGE>

                          PART II.   OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     From time to time, the Company is involved as plaintiff or defendant in
various legal proceedings arising in the normal course of its business. While
the ultimate outcome of these various legal proceedings cannot be predicted with
certainty, it is the opinion of management that the resolution of these legal
actions should not have a material effect on the Company's financial position,
results of operations or liquidity.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

     Issuances of Common Stock in private offerings during the three months
ended June 30, 2001 are listed in the following paragraphs.

     On April 20, 2001, the Company issued 8,075 shares of Common Stock to
certain shareholders in settlement of certain earnout agreements related to the
Company's merger with Clean Earth, Inc. in 1996. The Company received no
proceeds from this issuance. These transactions were not registered under the
Act in reliance on the exemption from registration in Section 4(2) of the Act,
as transactions not involving any public offering. This offering made was
completed without any general or public solicitation. In each case the offering
was made to a very limited number of shareholders of the Company. The
shareholders had strong knowledge and experience in business matters as well as
pre-existing relationship with the Company. The knowledge and experience of
these individuals enabled them to evaluate the risks and merits of the
investment.

     During the second quarter of 2001, the Company issued 2,134,742 shares of
Common Stock to Halifax as a result of the conversion of subordinated
convertible debentures into equity. See Note 5 of the Condensed Consolidated
Financial Statements for further information. The Company received no proceeds
from the conversion of the subordinated convertible debenture, although it had
previously received a total of $7,500,000 upon the closing of the private
placement for the debentures had been created. The resale of the Common Stock
issued pursuant to the conversion of debentures has been registered through the
filing of a Form S-3 that was deemed effective by the SEC on May 14, 1999. The
private placement transaction that preceded the conversion of the debentures was
not registered under the Act in reliance upon the exemption from registration in
Section 4(2) of the Act, as transactions not involving a public offering. This
offering made was completed without any general or public solicitation. In each
case the offering was made to a very limited number of shareholders of the
company. The shareholders had strong knowledge and experience in business
matters as well as pre-existing business relationships with the Company. The
knowledge and experience of shareholder enabled it to evaluate the risks and
merits of the investment.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES -- NONE.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -- NONE.

ITEM 5.  OTHER INFORMATION.

     In May 2001, the Company, through its subsidiary U.S. Plastic Lumber Ltd.
("USPL LTD"), expanded its existing relationship with Coors Brewing Company to
become the sole manufacturer of a "super slipsheet" for Coors, a specialty
product co-created by Coors and USPL LTD. The relationship is driven by an open
purchase order. In 2000 and 2001, Coors has been one of the largest customers of
specialty products from USPL LTD, and the Company anticipates that this expanded
relationship will maintain Coors as a large customer of USPL LTD over the next
several years.

     In June 2001, Clean Earth Inc. (CEI), a wholly owned subsidiary of the
Company, received $70 million in new contracts from various private sector
clients and government agencies. CEI, through the combined efforts of its
subsidiaries; Barbella Environmental Technology, Inc. (BET), Somerville, NJ;
Integrated Technical Services, Inc. (ITS), Winslow, NJ and Consolidated
Technologies, Inc. (CTI), Blue Bell, PA, have been selected for several
significant projects involving CEI's technologies and experience.

                                        18
<PAGE>

     BET has been selected for the closure and remediation of the Pennsylvania
Avenue Landfill Project in Brooklyn, New York. This $57.5 million project will
be performed for the New York City Department of Environmental Protection. The
project will require the transportation of approximately one million tons of
soils and other materials, primarily by barge, from a marine facility operated
by Consolidated Technologies, Inc. CTI will help manage the movement of
materials by barge to the site. The City is developing the site for recreational
purposes, and the company anticipates this contract will require two years to
complete.

     BET has also been awarded $2.5 million in private contracts for the
construction of a slurry wall on a large Brownfield Project and site work on a
Superfund project, both located in New Jersey. It is anticipated that this
contract will be completed in 2002.

     ITS has been awarded several waste disposal contracts worth approximately
$8.5 million. ITS will provide transportation and disposal services for the
non-hazardous soil on the Belray Project in Farmingdale, NJ; and transportation
and disposal of non-hazardous soils at Standard Tank located in Bayonne, NJ. ITS
will also provide remediation services for PSE&G, a major utility company, at
various sites in New Jersey, and remediation and construction services for PPG
Industries in Jersey City, NJ. ITS has also secured a Department of Energy
contract from Versar Inc., to recycle contaminated soil. These contracts will be
completed in late 2001 and early 2002.

     CTI has been awarded $2 million in new dredging contracts. The projects
involve the removal of contaminated sediment by dredging operations and
transportation of the dredged materials by barge to CTI's Dredged Material
Processing Facility located in Jersey City, NJ. The dredged material will be
processed at the Jersey City facility prior to its beneficial re-use as fill
material. The recycled fill material will be used for the reclamation of
strip-mines in Pennsylvania under an on-going beneficial re-use program with the
Pennsylvania Department of Environmental Protection. This contract is expected
to be completed in 2001.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

     (a) Exhibits


          10.1  Waiver and Third Amendment to Master Credit Agreement with Bank
                of America*

          10.2  Letter Agreement dated August 9, 2001 between the Halifax Fund
                L.P. and the Company amending the Maturity Date of the debenture
                dated June 15, 2001 from May 31, 2002 to July 1, 2002.*


     (b) Reports on Form 8-K dated June 15, 2001, to report (i) the 18%
subordinated convertible debenture with the Halifax Fund L.P., (ii) the capital
stock of the Company; and (iii) the amendment to the Common Stock Purchase
Agreement with Fusion Capital Fund II.



* Previously filed.
                                        19

<PAGE>

                                   SIGNATURES

     In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


<Table>
<S>              <C>

January 17, 2002    /s/ John W. Poling
----------------    -----------------------------------------------------
  Date              John W. Poling,
                    Chief Financial Officer
</Table>


                                        20
<PAGE>

                                 EXHIBIT INDEX

<Table>
<Caption>
                                                                    PAGE
                                                                    ----
<S>   <C>                                                           <C>
10.1  Waiver and Third Amendment to Senior Credit Agreement with
      Bank of America* ...........................................
10.2  Letter Agreement dated August 9, 20001 between the Halifax
      Fund L.P. and the Company amending the Maturity Date of the
      debenture dated June 15, 2001 from May 31, 2002 to July 1,
      2002* ......................................................
</Table>



*Previously filed.


                                        21