STAR SERVICES GROUP INC, 10-K, 2000-03-30

STAR SERVICES GROUP INC
10-K, 2000-03-30
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

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

COMMISSION FILE NUMBER 0-28779

STAR SERVICES GROUP, INC.
(Exact name of registrant as specified in its charter)
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<TABLE>
<S> <C> <C>
FLORIDA 4953 65-0893224
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification No.)

STAR SERVICES GROUP, INC.
2075 NORTH POWERLINE ROAD
POMPANO BEACH, FLORIDA 33069
(954) 974-3800
(Address and Telephone Number
of Principal Executive Offices and Principal Place of Business)
</TABLE>

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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD AND THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] OR NO [ ]

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]

THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF
THE REGISTRANT AT MARCH 27, 2000, WAS APPROXIMATELY $16,572,550. THE AGGREGATE
MARKET VALUE WAS COMPUTED BY USING THE CLOSING PRICE OF THE COMMON STOCK AS OF
THAT DATE.

THE NUMBER OF SHARES OF COMMON STOCK, $0.01 PAR VALUE, OF THE REGISTRANT
OUTSTANDING AT MARCH 27, 2000, WAS 8,159,260.

DOCUMENTS INCORPORATED BY REFERENCE
(only to the extent set forth in the part indicated)

Part III, Items 10, 11, 12 and 13 are incorporated by reference to the
definitive proxy statement for Registrant's Annual Meeting of Shareholders to be
held on May 12, 2000, to be filed pursuant of Regulation 14A.
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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 12
Item 3. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13

PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 15
Item 6. Selected Financial Data..................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 16
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 21
Item 8. Financial Statements and Supplementary Data................. 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 37

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

PART IV
Item 14. Financial Statement Schedules, Exhibits, and Reports on Form
8-K......................................................... 37
</TABLE>
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PART I

ITEM 1. BUSINESS

GENERAL

Star Services Group, Inc. (herein after referred to as "Star" or the
"Company") is an integrated solid waste services company providing services in
south and central Florida. We intend to expand our operations into other areas
of the eastern United States. We currently provide solid waste collection,
transfer, disposal and recycling services in the Greater Miami, Fort Lauderdale
and Palm Beach markets. We currently own and operate one company that collects
solid waste and two material recovery facilities ("MRFs"). As of December 31,
1999, we were providing service to more than 1,500 commercial and industrial
customers in Florida.

Star Services was formed in February 1999, to build a leading solid waste
service company in Florida and the eastern United States. We have targeted these
markets because we believe that they have strong projected economic or
population growth rates. Additionally, our senior management team has extensive
experience in acquiring, integrating and operating solid waste services
businesses in the eastern United States.

The Company was incorporated under the laws of the State of Florida in
April 1989 under the name Bailey & Baron, Inc. for the purpose of seeking viable
businesses or enterprises with which to enter into a business combination. The
Company had no material operations until June 1999, when Star Services, was
merged (the "Merger") into the Company and the Company changed its name to Star
Services Group, Inc. The Company was the surviving corporation in the merger.
The Board of Directors and management of Star Services became the Board of
Directors and management of the surviving corporation.

Star Services had been formed in February 1999 as a holding company to
facilitate the consolidation of the operations of five companies which were
under common control, but which had operated independently. The Company acquired
100% of the capital stock of these predecessor companies in February 1999 in
exchange for 5,000,000 shares of Star Services' common stock and they become
wholly-owned subsidiaries of Star Services.

Star Services and its predecessor corporations had revenues for the years
ended December 31, 1999 and 1998 of approximately $12.9 million and $3.5
million, respectively.

The five predecessor companies are:

- Delta Recycling Corp. ("Delta Recycling")

- Delta Transfer Corp. ("Delta Transfer")

- Eastern Recycling, Inc. ("ERI")

- Delta Resources Corp. ("Resources")

- Delrock Management Corp. ("Delrock")

In addition the following subsidiaries were incorporated at the time of, or
subsequent to, the formation of Star Services.

- Delta Waste Corp. ("Delta Waste")

- Delta Site Development Corp. ("Site")

- Delta Tall Pines Corp. ("Tall Pines")

These companies specialize in the collection, recycling and disposal of
construction and demolition materials and also provide other solid waste
collection, recycling and waste industry services. In addition, ERI has entered
into an agreement giving it the exclusive right to excavate, dredge, mine and
remove sand products from a portion of a lake in Pompano Beach, Florida. ERI has
not yet performed any dredging operations pursuant to this agreement. Delrock
owns certain real estate used in conjunction with the Company's operations. In
April 1999, Star Services formed an additional wholly-owned subsidiary, Delta
Tall Pines Corp., to operate a MRF in Palm Beach County. See "Certain
Transactions."

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In May 1999, Delta Resources entered into an option to purchase a C&D
landfill in Marion County, Florida for $1.8 million. Consummation of the
transaction is subject to satisfaction of certain conditions by the seller.

Star Services Group, Inc.'s executive offices are located at 2075 N.
Powerline Road, Pompano Beach, Florida 33069, telephone no. (954) 974-3800.

OPERATIONS

GENERAL

The following table reflects the Company's operating revenues for each of 2
years ended 1998 and 1999 and the period from date of inception, August 26, 1997
through December 31, 1997 for each of the Company's principal lines of business.

<TABLE>
<CAPTION>
AUGUST 26,
1997
(INCEPTION)
YEAR ENDED DECEMBER 31 THROUGH
------------------------- DECEMBER 31,
1999 1998 1997
----------- ---------- ------------
<S> <C> <C> <C>
Waste Services
Commercial Waste Services.......................... $ 297,060 $ 6,910 $ 0
Industrial Waste Services.......................... 6,132,235 1,313,913 235,596
Other Waste Services............................... 24,008 7,000 0
----------- ---------- --------
Total Waste Services............................ 6,453,303 1,327,823 235,596
MRFs................................................. 5,793,445 2,215,028 0
Management Services.................................. 20,258 0 0
Landfill............................................. 647,289 0 0
----------- ---------- --------
Operating Revenue.................................... $12,914,295 $3,542,851 $235,596
=========== ========== ========
</TABLE>

SERVICES

COMMERCIAL, INDUSTRIAL AND RESIDENTIAL WASTE SERVICES

Star Services currently serves more than 1,500 commercial, industrial and
residential customers.

We provide commercial and industrial services under service agreements with
terms ranging from one month to five years. We determine fees under these
agreements based upon factors such as collection frequency, level of service,
route density, the type, volume and weight of the waste collected, type of
equipment and containers furnished, the distance to the disposal or processing
facility, the cost of disposal or processing and prices charged by competitors
in our markets for similar service. Collection of larger volumes associated with
commercial and industrial waste streams generally helps improve our operating
efficiencies, and consolidation of these volumes allows us to negotiate more
favorable disposal prices. Our commercial and industrial customers use portable
containers for storage, enabling us to service many customers with fewer
collection vehicles. Commercial and industrial collection vehicles normally
require one operator. We provide containers of between one and fifty cubic yards
to our customers.

We intend to provide residential waste services under contracts with
homeowners' associations, apartment owners or mobile home park operators, or on
a subscription basis with individual households. We base residential contract
fees primarily on route density, the frequency and level of service, the
distance to the disposal or processing facility, the cost of disposal or
processing and prices charged by our competitors in that market for similar
services.

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TRANSFER STATION SERVICES AND MRFS

Star Services has an active program to acquire, develop, own and operate
transfer stations in markets sufficiently close to our existing operations to
afford operating efficiencies. Star Services believes it can achieve operating
efficiencies by:

- owning the landfills to which solid wastes, including C&D debris, are
delivered;

- hauling such wastes to Company-owned C&D MRFs;

- separating the materials delivered to the MRFs into usable components;
and

- shipping these components to end-users.

Because Star Services is involved in each phase of operations, it believes that
efficiencies in management and infrastructure are achieved.

We operate two C&D MRFs in Broward County, Florida and one C&D MRF in Palm
Beach County, Florida where we receive, separate and transfer material received
from our own vehicles and other contractors. Both of these facilities have
permits which allow us to separate the material received and sell any useful
products such as wood, paper, metal and plastic. We believe that the MRFs
benefit Star Services by:

- concentrating the waste stream from a wider area, increasing the volume
of disposal at landfills that we operate and giving us greater leverage
in negotiating more favorable disposal rates at other landfills;

- improving utilization of collection personnel and equipment; and

- building relationships with municipalities and private operators that
deliver waste, which can lead to additional growth opportunities.

LANDFILLS

Star Services seeks to identify solid waste and C&D landfill acquisition
candidates to achieve vertical integration in markets where the economic and
regulatory environment makes such acquisitions attractive. We believe that in
some markets acquiring landfills provides opportunities to vertically integrate
our collection, transfer and disposal operations while improving operating
margins. We evaluate landfill candidates by determining, among other things, the
amount of waste that could be diverted to the landfill in question, whether
access to the landfill is economically feasible from Star Services' existing
market areas either directly or through transfer stations, the expected life of
the landfill, the potential for expanding the landfill and current disposal
costs compared to the cost of acquiring the landfill. Where the acquisition of a
landfill is not attractive, we pursue disposal contracts with facilities which
are typically municipally controlled.

INDUSTRY OVERVIEW

The solid waste services industry has undergone significant consolidation
and integration since 1990. We believe that the following factors are primarily
responsible for the consolidation and integration of the waste services
industry:

- Increased Impact of Regulations. Stringent industry regulations, such as
the Subtitle D regulations, have caused operating and capital costs to
rise and have accelerated consolidation and acquisition activities in the
solid waste collection and disposal industry. Many smaller industry
participants have found these costs difficult to bear and have decided to
either close their operations or sell them to larger operators. In
addition, Subtitle D requires more stringent engineering of solid waste
landfills, and mandates liner systems, leachate collection, treatment and
monitoring systems and gas collection and monitoring systems. These
ongoing costs are combined with increased financial reserve requirements
for solid waste landfill operators relating to closure and post-closure
monitoring. As a result, the number of solid waste landfills is declining
while the average size is increasing.

- Increased Integration of Collection and Disposal Operations. In certain
markets, competitive pressures are forcing operators to become more
efficient by establishing an integrated network of solid waste

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collection operations and transfer stations through which they secure
solid waste streams for disposal. Operators have adopted a variety of
disposal strategies, including owning landfills, establishing strategic
relationships to secure access to landfills and capturing significant
waste stream volumes to gain leverage in negotiating lower landfill fees
and securing long-term, most-favored-pricing contracts with high capacity
landfills.

- Pursuit of Economies of Scale. Larger operators achieve economies of
scale by vertically integrating their operations or by spreading their
facility, asset and management infrastructure over larger volumes. Larger
solid waste collection and disposal companies have become more
cost-effective and competitive through control of a larger waste stream
and by gaining access to significant financial resources to make
acquisitions.

Despite the ongoing consolidation, the solid waste services industry
remains primarily regional in nature and highly fragmented. Based on published
industry sources, approximately 27% of the total revenues of the U.S. solid
waste industry is accounted for by more than 5,000 private, predominantly small
collection and disposal businesses, approximately 41% by publicly traded solid
waste companies and approximately 32% by municipal governments that provide
collection and disposal services. We expect the current consolidation trends in
the solid waste industry to continue, because many independent landfill and
collection operators lack the capital resources, management skills and technical
expertise necessary to comply with stringent environmental and other
governmental regulations and to compete with larger, more efficient integrated
operators. In addition, many independent operators may wish to sell their
businesses to achieve liquidity in their personal finances or as part of their
estate planning. We believe that the fragmented nature of the industry offers
significant consolidation and growth opportunities, including Florida and the
Eastern United States, for companies with disciplined acquisition programs,
decentralized operating strategies and access to financial resources.

STRATEGY

Our objective is to build a leading integrated solid waste services company
in Florida and other areas of the Eastern United States with high population
growth due to rapid residential and commercial development. We plan to
accomplish this using a combination of strategic acquisitions and the opening of
new operating centers in selected markets.

GROWTH STRATEGY

- Expansion Through Acquisitions. We intend to expand the scope of our
operations by acquiring solid waste operations in new markets and in
existing or adjacent markets that are combined with or "tuck in" to
existing operations.

We intend to expand into some new geographic regions by entering these
markets through acquisitions. We intend to use an initial acquisition in
a new market as an operating base. Then we intend to seek to strengthen
the acquired operation's presence in that market by providing additional
services, adding new customers and making "tuck-in" acquisitions. We next
intend to seek to broaden our regional presence by adding additional
operations in markets adjacent to the new location. We are currently
examining opportunities in central and western Florida.

- New Operating Centers. In selected markets where we cannot find a
suitable acquisition candidate, we intend to start a new operating
company by using relationships developed with customers in our existing
markets and a sales force focusing on building new client relationships.
In these markets we will start with roll-off trucks servicing
construction and demolition sites and will seek to permit transfer
stations to recycle material received from these sites and ship any
residue to landfills we intend to acquire in the future.

- Internal Growth. To generate continued internal growth, we will focus on
increasing market penetration in our current and adjacent markets,
soliciting new commercial, industrial, and residential customers in
markets where customers may elect whether or not to receive waste
collection services, marketing upgraded or additional services to
existing customers and, where appropriate, raising prices. As

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customers are added in existing markets, our revenue per truck increases,
which generally increases our collection efficiencies and profitability.

OPERATING STRATEGY

- Decentralized Operations. We intend to manage our operations on a
decentralized basis. This places decision-making authority close to the
customer, enabling us to identify customers' needs quickly and to address
those needs in a cost-effective manner. We believe that decentralization
provides a low-overhead, highly efficient operational structure that
allows us to expand into geographically contiguous markets. We believe
that this structure will give us a strategic competitive advantage, and
make us an attractive buyer to many potential acquisition candidates.
Star Services' management believes that the owners of the types of
businesses it will seek to acquire often will desire to work for the
Company after the acquisition. The Company foresees hiring many of these
local managers. The Company believes that this policy will benefit the
Company by providing a source of managers knowledgeable in the solid
waste industry to assist with the integration of the acquired business.
The Company also believes that granting an immediate equity interest to
these managers will maximize their efforts on the Company's behalf.

We currently deliver our services from four operating locations serving
Dade, Palm Beach, Broward and Brevard Counties, Florida. Each operating
location has a location manager, with autonomous service and
decision-making authority for that location and is responsible for
maintaining service quality, promoting safety in the operations,
implementing marketing programs, and overseeing day-to-day operations,
including contract administration. Location managers also help identify
acquisition candidates and are responsible for integrating them into our
operations and obtaining the permits and other governmental approvals
required for us to operate the acquired business.

ACQUISITION PROGRAM

Star Services currently services the greater Miami, Fort Lauderdale and
Palm Beach markets from its locations in Pompano Beach and Palm Beach Counties.
We will focus our acquisition program on markets in Florida and the Eastern
parts of the U.S. that generally exhibit the characteristics listed below:

- A potential revenue base of at least $15 million, usually in areas with
a population of 100,000 or more;

- A fragmented market with additional available acquisition candidates;

- The opportunity to acquire a significant market share;

- Strong projected economic or population growth rates;

- The availability of adequate disposal capacity through acquisition or
agreements with third parties; and

- A relatively predictable regulatory environment.

We believe that our experienced management and decentralized operating
strategy make us an attractive buyer to certain solid waste collection and
disposal acquisition candidates. We have developed a set of financial,
geographic and management criteria which we will use to evaluate specific
acquisition candidates. The factors that we will consider in evaluating an
acquisition candidate include:

- The candidate's historical and projected financial performance;

- The return on capital invested in a candidate, its margins and capital
requirements and its impact on our earnings;

- The experience and reputation of the candidate's management and customer
service providers, their relationships with local communities and their
willingness to continue as employees of Star Services;

- Whether the geographic location of the candidate will enhance or expand
our market area or ability to attract other acquisition candidates;

- Whether the acquisition will increase our market share or help protect
our existing customer base;

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- Any potential synergies that may be gained by combining the candidate
with our existing operations; and

- The liabilities of the candidate.

Before completing an acquisition, we plan to perform extensive
environmental, operational, engineering, legal, human resources and financial
due diligence. Our management evaluates and approves all acquisitions. We will
seek to integrate each acquired business promptly in order to minimize
disruption to the ongoing operations of both Star Services and the acquired
business.

ROYAL OAK RANCH CONSTRUCTION AND DEMOLITION DEBRIS LANDFILL

Through January 2000, we operated the Royal Oak Ranch Construction and
Demolition Debris Landfill in Brevard County, Florida under an operating
agreement. The Royal Oak Landfill consists of 42 total acres of which 36.4 acres
were permitted for disposal of C&D material. As of that date, the Royal Oak
Landfill had approximately 2.4 million cubic yards of unused permitted capacity
remaining, with approximately 1.5 million cubic yards available for expansion.
By the terms of the operating contract, the Royal Oak Landfill is allowed to
accept up to 106,425 cubic yards per calendar quarter. We have an option to
purchase this landfill for $0.6 million.

FORWARD LOOKING STATEMENTS

Effective January 2000, the landfill operations of Delta Resources Corp.
have been suspended indefinitely as a result of a court determination that the
property does not have proper zoning. See Item 3 -- Legal Proceedings. The
Company presently intends to appeal this decision. The Company believes that the
operation of the landfill is not significant to Star's financial results and,
consequently, it may choose to drop the appeal. The Company believes that the
lack of proper zoning obviates the requirement that lease payments be made.

DREDGE AND FILL PERMITS

All of our current facilities are located next to areas which have dredge
and fill permits. These permits allow us to extract sand and fill the area
created with certain specified inert materials including concrete and ceramic
and clay tiles. Customers are charged a fee for the material they dispose of in
these areas. When the land is completely filled to grade it then can be sold for
development. To date, no such sales have occurred and none are expected to occur
in the near future.

SALES AND MARKETING

We have four sales and marketing personnel operating from our executive
offices in Pompano Beach, Florida. These personnel solicit customers in our
market area with emphasis on contractors and developers. We concentrate on
providing services to these customers during the construction phase of their
construction projects and then providing solid waste collection services to them
once the project is completed. We also use our sales force to expand our
presence into areas adjacent to our existing market areas.

COMPETITION

The solid waste services industry is highly competitive and fragmented and
requires substantial labor and capital resources. The industry presently
includes three large national waste companies: Allied Waste Industries, Inc.,
Republic Services, Inc., and Waste Management, Inc. In addition, Star Services
may compete with regional companies. Casella Waste Systems, Inc., Superior
Services, Inc., Waste Connections Inc. and Waste Industries, Inc. are public
regional companies with annual revenues in excess of $100 million. Certain of
the markets in which Star Services competes or intends to compete are served by
one or more large, national solid waste companies, as well as by numerous
privately-held regional and local solid waste companies of varying sizes and
resources, some of which have accumulated substantial goodwill in their markets.
We also compete with operators of alternative disposal facilities, including
incinerators, and with counties, municipalities, and solid waste districts that
maintain their own waste collection and disposal operations. Public sector
operations may

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have financial advantages over Star Services because of their access to user
fees and similar charges, tax revenues and tax-exempt financing.

We compete for collection, transfer and disposal volume based primarily on
the price and quality of our services. From time to time, competitors may reduce
the price of their services in an effort to expand their market shares or
service areas or to win competitively bid municipal contracts. These practices
may cause Star Services to reduce the price of our services or, if we elect not
to do so, to lose business. We provide our services under service contracts with
terms ranging from one month to five years with commercial, residential and
industrial customers.

Intense competition exists not only for collection, transfer and disposal
volume, but also for acquisition candidates. We generally compete for
acquisition candidates with publicly owned regional and large national waste
management companies.

EMPLOYEES

At December 31, 1999 the Company had approximately 130 full-time employees,
of which approximately 18 were employed in clerical, administrative, and sales
positions, 13 in management, and the balance in collection, disposal, transfer
station and other operations. Management considers its employee relations to be
excellent.

REGULATION

INTRODUCTION

Star Services' landfill and non-landfill operations, including waste
transportation, transfer stations, vehicle maintenance shops and fueling
facilities, are all subject to extensive and evolving federal, state and local
environmental laws and regulations, the enforcement of which has become
increasingly stringent in recent years. The environmental regulations affecting
Star Services are administered by the EPA and other federal, state and local
environmental, zoning, health and safety agencies. Star Services is currently in
substantial compliance with applicable federal, state and local environmental
laws, permits, orders and regulations. We do not currently anticipate any
material environmental costs necessary to bring our operations into compliance
(although there can be no assurance in this regard). We anticipate that
regulation, legislation and regulatory enforcement actions related to the solid
waste services industry will continue to increase. We attempt to anticipate
future regulatory requirements and to plan in advance as necessary to comply
with them.

The principal federal, state and local statutes and regulations that apply
to our operations are described below. All of the federal statutes described
below contain provisions that authorize, under certain circumstances, lawsuits
by private citizens to enforce the provisions of the statutes. In addition to a
penalty award by the United States, some of those statutes authorize an award of
attorneys' fees to parties that successfully bring such an action. Enforcement
actions under these statutes may include both civil and criminal penalties, as
well as injunctive relief in some instances.

THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976 ("RCRA")

RCRA regulates the generation, treatment, storage, handling, transportation
and disposal of solid waste and requires states to develop programs to ensure
the safe disposal of solid waste. RCRA divides solid waste into two groups,
hazardous and nonhazardous. Wastes are generally classified as hazardous if they
either (i) are specifically included on a list of hazardous wastes, or (ii)
exhibit certain characteristics defined as hazardous. Household wastes are
specifically designated as nonhazardous. Wastes classified as hazardous under
RCRA are subject to much stricter regulation than wastes classified as
nonhazardous, and businesses that deal with hazardous waste are subject to
regulatory obligations in addition to those imposed on handlers of nonhazardous
waste.

The EPA regulations issued under Subtitle C of RCRA impose a comprehensive
"cradle to grave" system for tracking the generation, transportation, treatment,
storage and disposal of hazardous wastes. The Subtitle C Regulations impose
obligations on generators, transporters and disposers of hazardous wastes and
require permits
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that are costly to obtain and maintain for sites where such material is treated,
stored or disposed of. Subtitle C requirements include detailed operating,
inspection, training and emergency preparedness and response standards, as well
as requirements for manifesting, record keeping and reporting, corrective
action, facility closure, post-closure and financial responsibility. Most states
have promulgated regulations modeled on some or all of the Subtitle C provisions
issued by the EPA. Some state regulations impose different, additional and more
stringent obligations, and may regulate certain materials as hazardous wastes
that are not so regulated under the federal Subtitle C Regulations. From the
date of inception through December 31, 1999, Star Services did not, to our
knowledge, transport hazardous wastes under circumstances that would subject
Star Services to hazardous waste regulations under RCRA. Some of our ancillary
operations (e.g., vehicle maintenance operations) may generate hazardous wastes.
Star Services manages these wastes in substantial compliance with applicable
laws.

In October 1991, the EPA adopted the Subtitle D Regulations governing solid
waste landfills. The Subtitle D Regulations, which generally became effective in
October 1993, include location restrictions, facility design standards,
operating criteria, closure and post-closure requirements, financial assurance
requirements, groundwater monitoring requirements, groundwater remediation
standards and corrective action requirements. In addition, the Subtitle D
Regulations require that new landfill sites meet more stringent liner design
criteria (typically, composite soil and synthetic liners or two or more
synthetic liners) intended to keep leachate out of groundwater and have
extensive collection systems to carry away leachate for treatment prior to
disposal. Groundwater monitoring wells must also be installed at virtually all
landfills to monitor groundwater quality and, indirectly, the effectiveness of
the leachate collection system. The Subtitle D Regulations also require, where
certain regulatory thresholds are exceeded, that facility owners or operators
control emissions of methane gas generated at landfills in a manner intended to
protect human health and the environment. Each state is required to revise its
landfill regulations to meet these requirements or such requirements will be
automatically imposed by the EPA on landfill owners and operators in that state.
Each state is also required to adopt and implement a permit program or other
appropriate system to ensure that landfills in the state comply with the
Subtitle D Regulations. Florida and other states in which we may operate in the
future have adopted regulations or programs as stringent as, or more stringent
than, the Subtitle D Regulations.

RCRA also regulates underground storage of petroleum and other regulated
materials. RCRA requires registration, compliance with technical standards for
tanks, release detection and reporting, and corrective action, among other
things. Certain of Star Services' facilities and operations are subject to these
requirements.

THE FEDERAL WATER POLLUTION CONTROL ACT OF 1972, AS AMENDED (THE "CLEAN WATER
ACT")

The Clean Water Act regulates the discharge of pollutants from a variety of
sources, including solid waste disposal sites and transfer stations, into waters
of the United States. If run-off from our transfer stations or run-off or
collected leachate from Star Services' owned or operated landfills is discharged
into streams, rivers or other surface waters, the Clean Water Act would require
Star Services to apply for and obtain a discharge permit, conduct sampling and
monitoring and, under certain circumstances, reduce the quantity of pollutants
in such discharge. Also, virtually all landfills are required to comply with the
EPA's storm water regulations issued in November 1990, which are designed to
prevent contaminated landfill storm water runoff from flowing into surface
waters. We believe that our facilities comply in all material respects with the
Clean Water Act requirements. Florida and other states in which we may operate
in the future have been delegated authority to implement the Clean Water Act
permitting requirements, and some of these states have adopted regulations that
are more stringent than the federal requirements. For example, states often
require permits for discharges to ground water as well as surface water.

THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT OF
1980 ("CERCLA")

CERCLA established a regulatory and remedial program intended to provide
for the investigation and cleanup of facilities where or from which a release of
any hazardous substance into the environment has occurred or is threatened.
CERCLA's primary mechanism for remedying such problems is to impose strict joint
and several liability for cleanup of facilities on current owners and operators
of the site, former owners and operators of the site at the time of the disposal
of the hazardous substances, any person who arranges for the transportation,
disposal or treatment of the hazardous substances, and the transporters who
select the disposal and treatment
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facilities. CERCLA also imposes liability for the cost of evaluating and
remedying any damage to natural resources. The costs of CERCLA investigation and
cleanup can be very substantial. Liability under CERCLA does not depend on the
existence or disposal of "hazardous waste" as defined by RCRA; it can also be
based on the existence of even very small amounts of the more than 700
"hazardous substances" listed by the EPA, many of which can be found in
household waste. In addition, the definition of "hazardous substances" in CERCLA
incorporates substances designated as hazardous or toxic under the federal Clean
Water Act, Clear Air Act and Toxic Substances Control Act. If Star Services were
found to be a responsible party for a CERCLA cleanup, the enforcing agency could
hold Star Services, or any other generator, transporter or the owner or operator
of the contaminated facility, responsible for all investigative and remedial
costs, even if others were also liable. CERCLA also authorizes the imposition of
a lien in favor of the United States on all real property subject to, or
affected by, a remedial action for all costs for which a party is liable. CERCLA
gives a responsible party the right to bring a contribution action against other
responsible parties for their allocable shares of investigative and remedial
costs. Star Services' ability to obtain reimbursement from others for their
allocable shares of such costs would be limited by our ability to find other
responsible parties and prove the extent of their responsibility and by the
financial resources of such other parties. Various state laws also impose
liability for investigation, cleanup and other damages associated with hazardous
substance releases.

THE CLEAN AIR ACT

The Clean Air Act generally, through state implementation of federal
requirements, regulates emissions of air pollutants from certain landfills based
on factors such as the date of the landfill construction and tons per year of
emissions of regulated pollutants. Larger landfills and landfills located in
areas where the ambient air does not meet certain requirements of the Clean Air
Act may be subject to even more extensive air pollution controls and emission
limitations. In addition, the EPA has issued standards regulating the disposal
of asbestos-containing materials. Air permits to construct may be required for
gas collection and flaring systems, and operating permits may be required,
depending on the potential air emissions. State air regulatory programs may
implement the federal requirements but may impose additional restrictions. For
example, some state air programs uniquely regulate odor and the emission of
toxic air pollutants.

THE OCCUPATIONAL SAFETY AND HEALTH ACT OF 1970 (THE "OSH ACT")

The OSH Act is administered by the Occupational Safety and Health
Administration ("OSHA"), and in many states by state agencies whose programs
have been approved by OSHA. The OSH Act establishes employer responsibilities
for worker health and safety, including the obligation to maintain a workplace
free of recognized hazards likely to cause death or serious injury, to comply
with adopted worker protection standards, to maintain certain records, to
provide workers with required disclosures and to implement certain health and
safety training programs. Various OSHA standards may apply to Star Services'
operations, including standards concerning notices of hazards, safety in
excavation and demolition work, the handling of asbestos and asbestos-containing
materials, and worker training and emergency response programs.

FLOW CONTROL/INTERSTATE WASTE RESTRICTIONS

Certain permits and approvals, as well as certain state and local
regulations, may limit a landfill or transfer station to accepting waste that
originates from specified geographic areas, restrict the importation of
out-of-state waste or wastes originating outside the local jurisdiction or
otherwise discriminate against non-local waste. These restrictions, generally
known as flow control restrictions, are controversial, and some courts have held
that some flow control schemes violate constitutional limits on state or local
regulation of interstate commerce. From time to time, federal legislation is
proposed that would allow some local flow control restrictions. Although no such
federal legislation has been enacted to date, if such federal legislation should
be enacted in the future, Florida and other states in which Star Services may
operate landfills in the future could limit or prohibit the importation of
out-of-state waste or direct that wastes be handled at specified facilities.
Such state actions could adversely affect Star Services' landfills. These
restrictions could also result in higher disposal costs for our collection
operations. If we were unable to pass such higher costs through to our
customers, our business, financial condition and operating results could be
adversely affected.

10
<PAGE> 12

Certain state and local jurisdictions may also seek to enforce flow control
restrictions through local legislation or contractually. In certain cases, we
may elect not to challenge such restrictions. These restrictions could reduce
the volume of waste going to landfills in certain areas, which may adversely
affect our ability to operate our landfills at their full capacity and/or reduce
the prices that we can charge for landfill disposal services. These restrictions
may also result in higher disposal costs for our collection operations. If we
were unable to pass such higher costs through to our customers, Star Services'
business, financial condition and operating results could be adversely affected.

STATE AND LOCAL REGULATION

Florida and states in which Star Services may operate in the future have
laws and regulations governing the generation, storage, treatment, handling,
transportation and disposal of solid waste, occupational safety and health,
water and air pollution and, in most cases, the siting, design, operation,
maintenance, closure and post-closure maintenance of landfills and transfer
stations. State and local permits and approval for these operations may be
required and may be subject to periodic renewal, modification or revocation by
the issuing agencies. In addition, many states have adopted statutes comparable
to, and in some cases more stringent than, CERCLA. These statutes impose
requirements for investigation and cleanup of contaminated sites and liability
for costs and damages associated with such sites, and some provide for the
imposition of liens on property owned by responsible parties. Furthermore, many
municipalities also have ordinances, local laws and regulations affecting Star
Services' operations. These include zoning and health measures that limit solid
waste management activities to specified sites or activities, flow control
provisions that direct or restrict the delivery of solid wastes to specific
facilities, laws that grant the right to establish franchises for collection
services and then put such franchises out for bid, and bans or other
restrictions on the movement of solid wastes into a municipality.

Permits or other land use approvals with respect to a landfill, as well as
state or local laws and regulations, may specify the quantity of waste that may
be accepted at the landfill during a given time period, and/or specify the types
of waste that may be accepted at the landfill. Once an operating permit for a
landfill is obtained, it must generally be renewed periodically.

There has been an increasing trend at the state and local level to mandate
and encourage waste reduction at the source, waste recycling, and to prohibit or
restrict the disposal of certain types of solid wastes, such as yard wastes,
leaves and tires, in landfills. The enactment of regulations reducing the volume
and types of wastes available for transport to and disposal in landfills could
prevent Star Services from operating our current and future facilities at their
full capacity.

Some state and local authorities enforce certain federal laws in addition
to state and local laws and regulations. For example, in some states, RCRA, the
OSH Act, parts of the Clean Air Act and parts of the Clean Water Act are
enforced by local or state authorities instead of by the EPA, and in some states
those laws are enforced jointly by state or local and federal authorities.

PUBLIC UTILITY REGULATION

In many states, public authorities regulate the rates that landfill
operators may charge. The adoption of rate regulation or the reduction of
current rates in states in which Star Services may own or operate landfills
could adversely affect our business, financial condition and operating results.

RISK MANAGEMENT, INSURANCE AND PERFORMANCE BONDS

Star Services maintains environmental and other risk management programs
appropriate for our business. Our environmental risk management program includes
evaluating existing facilities and potential acquisitions for environmental law
compliance. We do not presently expect environmental compliance costs to
increase above current levels, but we cannot predict whether future acquisitions
will cause such costs to increase. Operating practices at all Star Services'
operations emphasize minimizing the possibility of environmental contamination
and litigation. We believe that our facilities comply in all material respects
with applicable federal and state regulations.

11
<PAGE> 13

We carry a broad range of insurance, which our management considers
adequate to protect our assets and operations. The coverage includes general
liability, comprehensive property damage, workers' compensation and other
coverage customary in the industry. These policies exclude coverage for damages
associated with environmental conditions except for certain specified types of
environmental damage, such as that caused by release of hazardous materials
resulting from explosions. Because of the limited availability and high cost of
environmental impairment liability insurance, and in light of our limited
landfill operations, we have not obtained such coverage. If Star Services were
to incur liability for environmental cleanups, corrective action or damage, our
financial condition could be materially and adversely affected. We will continue
to investigate the possibility of obtaining environmental impairment liability
insurance, particularly if we acquire or operate landfills other than the Royal
Oak landfill. We believe that most other landfill operators do not carry such
insurance.

Municipal solid waste collection contracts may require performance bonds or
other means of financial assurance to secure contractual performance. Certain
environmental regulations also require demonstrated financial assurance to meet
closure and post-closure requirements for landfills. We have not experienced
difficulty in obtaining performance bonds or letters of credit for our current
operations. At December 31, 1999, we had provided customers and various
regulatory authorities with surety bonds and letters of credit in the aggregate
amount of approximately $0.7 million to secure our obligations. If we were
unable to obtain surety bonds or letters of credit in sufficient amounts or at
acceptable rates, we could be precluded from entering into additional municipal
solid waste collection contracts or obtaining additional landfill operating
permits.

This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") concerning the Company's
operations, economic performance and financial conditions, including, in
particular, the likelihood of the Company's success in developing and bringing
to market the products which it currently has under development. These
statements are based upon a number of assumptions and estimates which are
inherently subject to significant uncertainties, and contingencies, many of
which are beyond the control of the Company and reflect future business
decisions which are subject to change. Some of these assumptions inevitably will
not materialize, and unanticipated events will occur which will affect the
Company's results. Consequently, actual results will vary from the statements
contained herein and such variance may be material. Prospective investors should
not place undue reliance on this information.

ITEM 2. PROPERTIES

As of December 31, 1999,

- We owned and operated four collection operations located in Broward
County, Miami-Dade County, Collier County, and Brevard County, Florida

- We leased and operated three MRFs, two of which are located in Broward
County and one of which is located in Palm Beach County. In March 2000,
one of the MRFs located in Broward County was closed in order to
consolidate operations

- We operated one C&D landfill in Brevard County. This facility was
subsequently closed. Please refer to Item 3 -- Legal Proceedings for
further detail.

- We operated two dredge and fill facilities both of which are located in
Broward County

We lease various offices and facilities, including our corporate offices in
Pompano Beach, Florida. The real estate owned by Star Services is not subject to
material encumbrances. We own various equipment, including waste collection and
transportation vehicles, related support vehicles, containers, and heavy
equipment used in our operations. We believe that our existing facilities and
equipment are generally adequate for our current operations. However, we expect
to make additional investments in property and equipment for expansion and
replacement of assets and in connection with future acquisitions.

12
<PAGE> 14

ITEM 3. LEGAL PROCEEDINGS

Star Services is a party to various legal proceedings in the ordinary
course of business and as a result of the extensive governmental regulation of
the solid waste industry. Management does not believe that these proceedings
either individually or in the aggregate, are likely to have a material adverse
effect on our business, financial condition, operating results or cash flows.

In January 2000, the Company was notified that a temporary injunction had
been issued ordering that its Royal Oak Construction and Demolition Debris
Landfill in Brevard County, Florida be closed. The injunction was based on local
zoning laws. Additionally, two employees of its subsidiary Delta Resources,
Charles Green and Susan Johnson, were arrested and charged with illegal dumping.
Mr. Green is the Secretary of the Company. The County has subsequently closed
the facility and the Company is currently appealing that ruling.

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

No matters were submitted to a vote of the stockholders of the Company
during the fourth quarter of 1999.

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information concerning Star
Services' executive officers and directors as of December 31, 1999:

<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Jack R. Casagrande................... 55 Chairman of the Board, Chief Executive Officer and
Director
Patrick F. Marzano................... 52 President and Director
Richard Loss......................... 37 Chief Financial Officer
Phillip Foreman...................... 39 Chief Operating Officer and Director
Thomas R. Roberts.................... 50 Vice President, Environmental Compliance and
Director
Charles D. Green..................... 64 Secretary
Angelo Marzano....................... 25 Treasurer and Assistant Secretary
Frank P. Marzano..................... 27 Director
Rick Casagrande...................... 50 Director
Samuel G. Weiss...................... 51 Director
</TABLE>

Jack R. Casagrande has been the Chairman, Chief Executive Officer and a
director of the Company since inception. In 1971, Mr. Casagrande founded
Industrial Waste Services, Inc. ("IWS") in Miami-Dade County, Florida and, by
1984, the company had grown to be the largest waste hauling operation in the
county and the second largest in the State of Florida. In 1984, IWS was
purchased by Attwoods, plc and Mr. Casagrande became head of U.S. operations.
During his tenure its revenues grew from $24,000,000 in 1984 to over
$300,000,000 by the end of 1993. Attwoods had become the fourth largest waste
services company in the United States prior to its acquisition by
Browning-Ferris Industries ("BFI") in December 1994. Since that time, Mr.
Casagrande has served as a business consultant to, and a director of, several
private companies. Jack R. Casagrande is the brother of Rick Casagrande.

Patrick F. Marzano is the founder, President and a director of the Company.
Mr. Marzano graduated from St. John's University in Queens, New York in 1969
with a Bachelors of Science degree in Accounting. From 1969 to 1971, Mr. Marzano
worked as a staff accountant at Price Waterhouse in New York City. In 1971, Mr.
Marzano left Price Waterhouse and started his own accounting firm. Mr. Marzano
has been a certified public accountant and a partner in Geller, Marzano &
Company CPA's PC for the last twenty seven (27) years. He also has been involved
as a CEO and partner/shareholder for over twenty (20) years in several waste
companies in New York and Florida. Patrick F. Marzano is the uncle of Angelo
Marzano and the father of Frank P. Marzano.

Rich Loss became the Chief Financial Officer of the Company in July 1999.
From 1996 until May of 1999, Mr. Loss served as the CFO of Atlas Environmental,
Inc. From 1991 to 1996 Mr. Loss was the Controller of Opus Media Group Inc. Mr.
Loss is a certified public accountant in the state of Florida and began his
career as a CPA with Ernst & Young.

13
<PAGE> 15

Phillip Foreman has been the Chief Operating Officer and a Director of the
Company since July 1999. From 1988 until 1993 Mr. Foreman served as the Regional
Manager for Attwoods Florida operations and then became the CEO for Attwoods
U.S. solid waste operations. As a result of the acquisition by BFI, Mr. Foreman
became the Divisional Vice President for BFI's Florida Gulf Atlantic Division,
where he oversaw operations generating $230,000,000 in annual revenues. In 1996
Mr. Foreman left BFI and has since acted as a consultant to a number of entities
in the waste industry including a consolidation group in New Jersey, and most
recently he served as the Director of Operations for Atlas Environmental, Inc.

Thomas R. Roberts has been Vice President, Acquisitions, Compliance and
Governmental Affairs and a director of the Company since 1998. From 1995 to
1998, Mr. Roberts served as Vice President of Atlas Environmental, Inc.,
including the company's 11 solely owned facilities. Mr. Roberts is the President
of the Florida Recyclers Coalition, Inc. and serves as an instructor for the
University of Florida Center for Training, Research and Education for
Environmental Occupations (TREEO Center), co-sponsored by State of Florida
Department of Environmental Protection and the Florida Sunshine Chapter of the
Solid Waste Association of North America (SWANA). Mr. Roberts received the
"Distinguished Service Award 1998" from SWANA for his coordination of Florida's
C&D Operators Training Course. Mr. Roberts has served and serves on several
Florida Department of Environmental Protection and local counties' C&D-related
Task Forces and Technical Advisory Councils. Mr. Roberts has appeared as speaker
on C&D topics at the International WasteExpo, Florida Environmental Expo,
Recycle Florida Today, FDEP's Future of Recycling Advisory Group, Florida's
Organic Recyclers Association, and FDEP's C&D Landfill Task Force.

Charles D. Green, Secretary of the Company since inception, graduated from
Fort Lauderdale High School in 1956. He served two years in the United States
Army as a maintenance specialist for heavy equipment. In 1997, he formed
American Refuse, Inc., a waste hauling company, and in 1986 he and a partner
started Southeastern Reclamation, Inc., a recycling and hauling company. Mr.
Green is currently a Vice President of Delta Recycling Corp. and Eastern
Recycling. Mr. Green was charged with illegal dumping in connection with the
temporary injunction closing the Royal Oak Construction and Demolition Landfill
(See Item 3 -- Legal Proceedings).

Angelo Marzano, Treasurer and Assistant Secretary of the Company since
inception, graduated from Pennsylvania State University in 1997, with a Bachelor
of Science Degree in Business Logistics. Throughout his college education, he
maintained a position in several waste companies. Upon graduation, Mr. Marzano
began working at Delta Recycling Corp. Mr. Marzano is responsible for developing
the internal controls and procedures for Delta Recycling Corp. Mr. Marzano is
certified as a construction and demolition landfill and materials recovery
facility operator. Angelo Marzano is the nephew of Patrick Marzano and the
cousin of Frank P. Marzano.

Frank P. Marzano, a director of the Company since inception, graduated from
Pennsylvania State University in 1994 with a Bachelor of Science degree in
Accounting. Mr. Marzano is a Certified Public Accountant and worked at KPMG Peat
Marwick in New York City until 1996. In 1996, Mr. Marzano joined Geller, Marzano
& Company CPAs PC in Port Washington, New York. While working at Geller Marzano,
Mr. Marzano received his Masters in Taxation from Long Island University in
January 1998. Mr. Marzano is managing partner of Geller Marzano. Frank P.
Marzano is the son of Patrick Marzano and the cousin of Angelo Marzano.

Rick Casagrande, a director of the Company since inception, graduated from
Christ The King High School in Middle Village, New York in 1967. In 1971 he was
one of the co-founders of Industrial Waste Services in Miami-Dade County,
Florida. He has held various executive positions in several solid waste
management companies including American Transfer Services, Inc. He is currently
President of Total Care of Long Island. Rick Casagrande is the brother of Jack
R. Casagrande.

Samuel G. Weiss, a director of the Company since its inception, is an
attorney admitted to practice in the State of New York since 1974. He is
currently a member of the firm of Weiss & Federici, LLP., which has an office
located at 30 Main Street, Port Washington, New York 11050. Prior to becoming a
member of Weiss & Federici, LLP in 1999, Mr. Weiss was a private practitioner in
Port Washington, New York, since 1988. Mr. Weiss received his BA Degree from New
York University in 1971. Mr. Weiss received his Juris Doctor from

14
<PAGE> 16

New York University in 1974 and his LLM in taxation from New York University in
1977. Mr. Weiss is General Counsel and a Director of Strategic Capital
Resources, Inc.

COMMITTEES OF THE BOARD

The Board of Directors has established an Executive Committee, an Audit
Committee and a Compensation Committee. A majority of the members of the
Executive Committee are, and both members of each of the Audit and Compensation
Committees are, independent directors who are not employees of Star Services or
one of our subsidiaries.

COMPENSATION OF DIRECTORS

Directors who are officers or employees of Star Services do not currently
receive any compensation for attending meetings of the Board of Directors. Each
independent director receives a fee of $1,500 for attending each Board meeting
and each committee meeting (unless held on the same day as the full Board
meeting), in addition to reimbursement of reasonable expenses.

PART II

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

The Company's common stock has been traded on the Bulletin Board of the
Over The Counter under the symbol "SSVC" since December 15, 1999. The following
table sets forth the range of the high and low per share sales prices for the
common stock. The prices below may reflect interday trading prices and may
include intradealer prices without retail mark up, mark down, or commission and
may not reflect annual transactions.

<TABLE>
<CAPTION>
1999 HIGH LOW
- ---- ----- -----
<S> <C> <C>
Fourth Quarter.............................................. $8.25 $5.00
</TABLE>

At March 27, 2000 the closing sales price was $5.00 per share and there
were approximately 170 shareholders of record of the Company's common stock.

The Company has never paid cash dividends on its Common Stock and has no
present intention to pay cash dividends. It is the Company's intention to retain
any earnings to finance the expansion of its business.

ITEM 6. SELECTED FINANCIAL DATA

The following tables present selected historical, supplemental and pro
forma consolidated statements of operations and balance sheet data of Star
Services and the companies it acquired for the periods indicated. Before being
acquired by Star Services, these companies operated as separate businesses.

15
<PAGE> 17

The following selected financial data as of and for the periods ended
December 31, 1997, 1998 and 1999 are derived from the Company's audited
financial statements. The financial data below should be read in conjunction
with the Company's financial statements and related notes contained elsewhere in
this report and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

<TABLE>
<CAPTION>
AUGUST 26, 1997
(INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH
------------------------- DECEMBER 31,
1999 1998 1997
----------- ---------- ---------------
<S> <C> <C> <C>
Statement of Operations Data:
Revenues............................................ $12,914,295 $3,542,851 $ 235,596
----------- ---------- ----------
Expenses:
Direct costs...................................... 10,128,535 2,449,085 129,029
Selling and administrative........................ 2,390,203 935,723 63,181
Stock-based compensation.......................... 295,693 0 0
Depreciation and amortization..................... 471,085 177,362 12,081
----------- ---------- ----------
13,285,516 3,562,170 204,291
----------- ---------- ----------
Income (loss) from operations....................... (371,221) (19,319) 31,305
Interest income..................................... 73,294 0 0
Interest expense.................................... (259,219) (70,423) (1,613)
----------- ---------- ----------
Income (loss) before income taxes................... (557,146) (89,742) 29,692
Income tax benefit.................................. 195,001 0 0
----------- ---------- ----------
Net income (loss)................................... $ (362,145) $ (89,742) $ 29,692
=========== ========== ==========
Earnings (loss) per share........................... $(0.05) $(0.02) $0.01
=========== ========== ==========
Weighted average shares outstanding................. 7,012,500 5,000,000 5,000,000
=========== ========== ==========
Historical income (loss) before income taxes........ $ (557,146) $ (89,742) $ 29,692
Pro forma income tax (expense) benefit.............. 195,001 27,000 (9,000)
----------- ---------- ----------
Pro forma net income (loss)......................... $ (362,145) $ (62,742) $ 20,692
=========== ========== ==========
Proforma earnings (loss) per share.................. $(0.05) $(0.01) $0.00
=========== ========== ==========
Historical weighted average shares outstanding...... 7,012,500 5,000,000 5,000,000
=========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1999 1998 1997
----------- ---------- ---------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash.............................................. $ 1,476,406 $ 49,149 $ 115,033
Current assets.................................... 3,812,799 751,525 198,133
Current liabilities............................... 2,997,125 1,224,615 47,834
Working capital (deficit)......................... 815,674 (473,090) 150,299
Total assets...................................... 10,949,544 2,979,664 588,755
Long-term debt, net of current portion............ 3,094,221 1,316,899 220,229
Shareholders' equity.............................. 4,858,198 438,150 320,692
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

Star Services is a regional, integrated solid waste services company that
presently provides solid waste collection, transfer, disposal and recycling
services in south and central Florida.

16
<PAGE> 18

The Company's primary objective is to become one of the leading companies
in the environmental service industry in the eastern United States. The Company
intends to implement an aggressive program of internal growth and acquisitions
aimed at expanding the Company's existing market share and acquiring a number of
additional, established operating entities.

Star Services intends to grow through both acquisitions and internal
growth. We expect a substantial part of our future growth to come from acquiring
additional solid waste collection, transfer and disposal businesses. Additional
acquisitions could continue to affect period-to-period comparisons of our
operating results. We also expect to invest in collection vehicles and
equipment, maintenance of existing equipment, and management information
systems, which should supply the infrastructure to support our growth. We expect
to fund future acquisitions through cash from operations, borrowings, the
issuance of debt or equity and/or seller financing. We do not presently have any
credit facility for acquisitions or any commitment for one.

The Company operates in several segments of the environmental services
industry: collection, recycling and disposal of construction and demolition
debris, land clearing, yard waste debris, and source separated recyclable
materials. Star Services' operations are carried out by Delta Recycling Corp.,
which was incorporated in Florida on August 26, 1997, Delrock Management Corp.,
which was incorporated in Florida on May 29, 1998, Delta Transfer Corp., which
was incorporated in Florida on August 26, 1998, Eastern Recycling, Inc., which
was incorporated in Florida on June 11, 1997, Delta Resources, which was
incorporated in Florida on January 29, 1999, Delta Waste Corp., which was
incorporated in Florida in January 1999 and Delta Tall Pines Corp., which was
incorporated in Florida in April 1999.

Star Services operates MRFs which are licensed and regulated by the State
of Florida Department of Environmental Protection and various county agencies.
As MRFs, these facilities accept assorted loads of debris consisting of
construction and demolition debris, land clearing, yard waste and source
separated materials primarily from customers in the construction and demolition
industry. The incoming loads are processed using an semi-automated sorting
system to separate recyclables from the waste stream. Additional loads are also
supplied directly by the Company through its hauling operations. The reclaimed
recyclables are shipped to end user markets for re-use. Star Services owns real
estate used in conjunction with certain of its operations and also maintains a
dredge and fill permit and operates a C&D debris landfill in Titusville,
Florida. Each of the above-described operations is performed by one or more of
Star Services' subsidiaries.

C&D debris enters the Company's facilities from its own roll-off collection
operation (consisting of over 500 containers in Palm Beach, Miami-Dade and
Broward Counties) and from other waste haulers. After the material is inspected
at the entrance inspection station and gate house, as required by regulations of
the Florida Department of Environmental Protection ("FDEP") and operational
safety plans, the material is unloaded on the tipping floor. The material is
then sorted to remove appropriately designated recycling materials, which are
then placed in containers for storage or shipment to markets. The remaining
material is then processed or disposed of in landfills or other facilities.

Land clearing, yard waste and wood are processed in tub grinders or impact
grinders to produce wood chips or mulch which is marketed as boiler fuel or
cover material. Large concrete, rocks and other inert material are sent to
designated tipping areas for future processing and/or disposed of in our
adjoining permitted lakefill operations. The remaining material, consisting of
dirt, fines, paper, plastics, metals, glass, drywall, broken concrete blocks,
bricks, lumber, wood and the like, is stockpiled for removal or processed
through additional screening and picking. The system first screens out fines
which are stockpiled for landfill cover material, with the remaining material
manually sorted to segregate recyclable material such as wood, plastic, glass,
ferrous and non-ferrous metals, corrugated cardboard, paper, roofing and
aggregate. The MRFs currently recycle approximately 70% to 90% of all waste that
they receive.

17
<PAGE> 19

RESULTS OF OPERATIONS

The following table presents, for the periods indicated, the various
consolidated line items as a percentage of gross revenues.

<TABLE>
<CAPTION>
AUGUST 26,
1997
(INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH
------------------------ DECEMBER 31,
1999 1998 1997
---------- ---------- ------------
<S> <C> <C> <C>
Statement of Operations Data:
Revenues.................................................. 100.00% 100.00% 100.00%
------- ------- -------
Expenses:
Direct costs............................................ 78.43% 69.13% 54.76%
Selling and administrative.............................. 18.51% 26.41% 26.82%
Stock-based compensation................................ 2.29% 0.00% 0.00%
Depreciation and amortization........................... 3.64% 5.01% 5.13%
------- ------- -------
102.87% 100.55% 86.71%
------- ------- -------
Income (loss) from operations............................. (2.87%) (0.55%) 13.29%
Interest income........................................... 0.57% 0.00% 0.00%
Interest expense.......................................... (2.01%) (1.98%) (0.69%)
------- ------- -------
Income (loss) before income taxes......................... (4.31%) (2.53%) 12.60%
Income tax benefit........................................ (1.51%) 0.00% 0.00%
------- ------- -------
Net income (loss)......................................... (2.80%) (2.53%) 12.60%
======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
AUGUST 26,
1997
(INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH
------------------------ DECEMBER 31,
1999 1998 1997
---------- ---------- ------------
<S> <C> <C> <C>
Waste Services
Commercial Waste Services............................... 2.30% 0.19% 0.00%
Industrial Waste Services............................... 47.48% 37.09% 100.00%
Other Waste Services.................................... 0.19% 0.20% 0.00%
------- ------- -------
Total Waste Services............................ 49.97% 37.48% 100.00%
MRFs...................................................... 44.86% 62.52% 0.00%
Management Services....................................... 0.16% 0.00% 0.00%
Landfills................................................. 5.01% 0.00% 0.00%
------- ------- -------
Operating Revenue......................................... 100.00% 100.00% 100.00%
======= ======= =======
</TABLE>

COMPARISON OF 1999 OPERATIONS TO 1998 OPERATIONS

REVENUES

Total revenues increased to $12,914,295 in 1999 from $3,542,851 in 1998.
The increase of $9,371,444 was primarily attributable to increased volumes in
industrial waste services and MRFs. The industrial waste services revenues
increased due to the expansion of our rolloff operations into Naples and
Titusville and the increased revenues generated from our rolloff operation in
Pompano. The MRFs revenues increased due to the start up of Delta Tall Pines in
June and for the 12 months of revenues generated from Delta Transfer Corp. as
opposed to 3 months in 1998.

18
<PAGE> 20

DIRECT COSTS

Total direct costs increased to $10,128,535 in 1999 from $2,449,085 in
1998. The increase of $7,679,450 was principally due to increased volume, the
costs of operations of newly formed Delta Transfer Corp., increased disposal
costs and the cost of operations of the hauling operations of Delta Recycling
Corp. Direct costs as a percentage of revenues increased to 78.43% in 1999 from
69.13% in 1998. The percentage increase was primarily due to costs associated
with building and maintaining the Company's infrastructure, including equipment
leasing, maintenance and depreciation cost, as well as fixed rental costs for
operating facilities which have capacities well beyond volumes presently
utilized.

SELLING AND ADMINISTRATIVE

Selling and administrative expenses increased to $2,390,203 in 1999 from
935,723 in 1998. The increase of $1,454,480 was due to the increase in
administrative overhead required to manage the Company's growth. The largest
increases came in the areas of administrative salaries, professional fees,
occupancy costs and travel. As a percentage of revenues, selling and
administrative expenses decreased to 18.51% in 1999 as compared to 26.41% in
1998.

STOCK-BASED COMPENSATION

During February 1999, the Company issued 759,000 options to employees of
the Company. The options vest over a four-year period. Stock-based compensation
represents the portion of the total compensation expense to be recognized over
the vesting period, which is attributable to the 12 month period ended December
31, 1999. There was no stock-based compensation prior to 1999.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense increased to $471,085 in 1999 from
$177,362 in 1998. The increase was the result of the purchase of over $4,000,000
of property and equipment during 1999 and amortization of costs in excess of net
assets acquired in business combinations.

INTEREST INCOME AND EXPENSE

Interest expense increased to $259,219 in 1999 from $70,423 in 1998. The
increased interest expense of $188,796 was a result of higher debt levels
resulting from the purchase of additional property and equipment. Interest
income was earned in 1999 on excess cash balances available as a result of
proceeds from the Company's private placement.

COMPARISON OF 1998 OPERATIONS TO 1997 OPERATIONS

REVENUES

Total revenues increased to $3,542,851 in 1998 from $235,596 in 1997
($706,788 annualized). Based on the annualized 1997 revenues, this was an
increase of $2,836,063 or 401%. This increase was primarily attributable to
increased volumes, the commencement of operations by Delta Transfer Corp., price
increases as a result of increased disposal fees, and the commencement of
construction and demolition hauling and disposal operations by Delta Recycling
Corp.

DIRECT COSTS

Total direct costs increased to $2,449,085 in 1998 from $129,029 in 1997
($387,087 annualized). Based on annualized 1997 direct costs, this represented
an increase of $2,061,998 or 533%. The increase was principally due to increased
volume, the costs of operations of newly formed Delta Transfer Corp., increased
disposal costs and the cost of operations of the hauling operations of Delta
Recycling Corp. Direct costs as a percentage of revenues increased to 69.1% from
54.8% in 1997. The percentage increase was primarily due to costs associated
with building and maintaining the Company's infrastructure, including equipment
leasing, maintenance and

19
<PAGE> 21

depreciation cost, as well as fixed rental costs for operating facilities which
have capacities well beyond volumes presently utilized.

SELLING AND ADMINISTRATIVE

Selling and administrative expenses increased to $935,723 in 1998 from
$63,181 in 1997. Based on annualized 1997 expenses of $189,543, this represented
an increase of $746,180 or 394%. The increase was due to the increase in
administrative overhead required to manage the Company's growth. The largest
increases came in the areas of administrative salaries, professional fees,
occupancy costs and travel. As a percentage of revenues, selling and
administrative expenses was virtually unchanged at 26.4% in 1998 as compared to
26.8% in 1997.

DEPRECIATION AND AMORTIZATION

Depreciation expense increased to $177,362 in 1998 from $12,081 in 1997.
Based on annualized 1997 depreciation of $36,243, this represented an increase
of $141,119 or 389%. The increase in depreciation expense was the result of the
purchase of approximately $2,000,000 of property and equipment during 1998.

INTEREST EXPENSE

Interest expense increased to $70,423 in 1998 from $1,613 in 1997. Based on
annualized 1997 interest expense of $4,839, this represented an increase of
$65,584 or 1,355%. The increased interest expense was a result of higher debt
levels resulting from the purchase of additional property and equipment and from
debt incurred in connection with the subsidiary companies' acquisition of
treasury stock.

CONTRACTS

Our revenues consist mainly of fees we charge customers for construction
and demolition debris transfer, disposal and recycling services. A large part of
our collection revenue comes from providing service to industrial, residential
and commercial customers. These services are provided under contracts that
generally last from one month to five years. The contracts provide a relatively
stable source of revenue for Star Services.

We typically determine the prices for our solid waste services by the
collection frequency and level of service, route density, volume, weight and
type of waste collected, type of equipment and containers furnished, the
distance to the disposal or processing facility, the cost of disposal or
processing, and prices charged by competitors for similar services.

EXPENSES

Direct costs include labor, fuel, equipment maintenance and tipping fees
paid to third party disposal facilities, workers' compensation and vehicle
insurance, the cost of materials we purchase for recycling, third party
transportation expense, district and state taxes and permits, engineering and
legal services.

Selling, general and administrative ("SG&A") expense includes management,
clerical and administrative compensation and overhead costs associated with our
marketing and sales force, professional services and community relations
expenses.

Depreciation and amortization expense includes depreciation of fixed assets
over their estimated useful life using the straight line method and amortization
of goodwill and other intangible assets using the straight line method.

Star Services intends to capitalize some expenditures related to pending
acquisitions or development projects, such as legal and engineering expenses. We
intend to expense indirect acquisition costs, such as executive and corporate
overhead, public relations and other corporate services. We charge against net
income any unamortized capitalized expenditures and advances (net of any portion
that we believe we may recover, through sale or otherwise) that relate to any
operation that is permanently shut down and any pending acquisition or landfill
development project that is not completed. We routinely evaluate all capitalized
costs, and expense those related to projects that we believe are not likely to
succeed.

20
<PAGE> 22

We will have material financial obligations relating to closure costs of
any disposal facilities we may own or operate in the future. In such case, Star
Services will accrue for those obligations, based on engineering estimates of
consumption of permitted landfill airspace over the useful life of any such
landfill.

LIQUIDITY AND CAPITAL RESOURCES

The Company operates in an industry that requires a high level of capital
investment. The Company's capital requirements primarily stem from its working
capital needs for its ongoing operations, capital expenditures for new trucks
and equipment and business acquisitions. The Company's strategy is to meet these
capital needs first from internally generated funds and secondly from various
financing sources available to the Company, including the incurrence of debt,
and the issuance of its common stock. Currently the Company has no credit
facilities in place and plans on securing additional capital in the near future.

As of December 31, 1999, the Company had a working capital surplus of
$825,674 (a ratio of current assets to current liabilities of 1.28:1) and a cash
balance of $1,476,406 which compares to a working capital deficit of $473,090 (a
current ratio of 0.62:1) and a cash balance of $49,149 as of December 31, 1998.
The working capital at December 31, 1999, was impacted by an increase in
deferred income taxes of $195,001 as compared to the prior year balance and the
private placement of $4,000,000.

For the year ended December 31, 1999, net cash provided by operating
activities was $190,228 as compared to cash used in operating activities of
$225,163 in 1998. Net cash provided by financing activities was $1,616,148 in
1999 as compared to $728,861 in 1998. In 1999, cash generated from operating and
financing activities was primarily used to acquire businesses and equipment.

For the year ended December 31, 1999 there were no cash dividends paid.

The Company expects to generate sufficient cash flow from its operations in
2000 to cover its anticipated working capital needs and moderate capital
expenditures and acquisitions. If the Company's cash flow from operations during
2000 is less than currently expected or if the Company decides to make
substantial acquisitions, or if the Company's capital requirements increase,
either due to strategic decisions or otherwise, the Company may elect to incur
future indebtedness or issue equity securities to cover any additional capital
needs. However, there can be no assurance that the Company will be successful in
obtaining additional capital on acceptable terms through such debt incurrances
or issuances of additional equity securities.

INFLATION

Inflation has not significantly affected our operations. Consistent with
industry practice, many of our contracts allow us to pass through certain costs
to our customers, including increases in landfill tipping fees and, in some
cases, fuel costs. Therefore, we believe that we should be able to increase
prices to offset many cost increases that result from inflation. However,
competitive pressures may require us to absorb at least part of these cost
increases, particularly during periods of high inflation.

SEASONALITY

Seasonality has not had a material effect on our operations and is not
expected to have a material effect in the future.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company is exposed to market risks, primarily related to changes in
U.S. interest rates and, to a lesser extent, recyclable prices. The Company does
not engage in financial transactions for trading and speculative purposes.

Commodity Risk On Resale of Recyclables. We provide recycling services.
The sale prices of and demand for recyclable waste products, particularly
wastepaper, are frequently volatile and may affect our operating results.

21
<PAGE> 23

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

STAR SERVICES GROUP, INC.
AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ 23
Consolidated balance sheets as of December 31, 1999 and
1998...................................................... 24
Consolidated statements of operations for the years ended
December 31, 1999 and 1998 and for the period August 26,
1997 (inception) through December 31, 1997................ 25
Consolidated statements of shareholders' equity for the
years ended December 31, 1999 and 1998 and for the period
August 26, 1997 (inception) through December 31, 1997..... 26
Consolidated statements of cash flows for the years ended
December 31, 1999 and 1998 and for the period August 26,
1997 (inception) through December 31, 1997................ 27
Notes to consolidated financial statements.................. 28
</TABLE>

22
<PAGE> 24

INDEPENDENT AUDITORS' REPORT

The Shareholders
STAR SERVICES GROUP, INC. AND SUBSIDIARIES
Pompano Beach, Florida

We have audited the accompanying consolidated balance sheets of Star
Services Group, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the years ended December 31, 1999 and 1998 and for the period August
26, 1997 (inception) through December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Star Services
Group, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results
of their consolidated operations and cash flows for the years ended December 31,
1999 and 1998 and for the period August 26, 1997 (inception) through December
31, 1997, in conformity with generally accepted accounting principles.

HORTON & COMPANY, L.L.C.

Wayne, New Jersey
March 22, 2000

23
<PAGE> 25

STAR SERVICES GROUP, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents...................................... $ 1,476,406 $ 49,149
Accounts receivable, net of allowances of $119,322 in 1999
and $2,000 in 1998..................................... 1,978,243 579,042
Prepaid expenses.......................................... 163,149 123,334
Deferred income taxes..................................... 195,001 --
----------- ----------
Total current assets.............................. 3,812,799 751,525
----------- ----------
Property and equipment, at cost:
Machinery and equipment................................... 6,164,321 2,351,784
Office furniture and equipment............................ 84,320 33,507
Structures and improvements............................... 887,364 32,291
----------- ----------
7,136,005 2,417,582
Less accumulated depreciation............................. 647,427 189,443
----------- ----------
Net property and equipment........................ 6,488,578 2,228,139
----------- ----------
Other assets:
Cost in excess of net assets acquired..................... 534,864 --
Deferred charges.......................................... 113,303 --
----------- ----------
Total other assets................................ 648,167 --
----------- ----------
Total assets...................................... $10,949,544 $2,979,664
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 1,174,060 $ 365,265
Notes payable-related parties............................. -- 388,125
Accounts payable.......................................... 1,260,328 291,302
Accrued expenses.......................................... 562,737 30,923
Loans from shareholders................................... -- 149,000
----------- ----------
Total current liabilities......................... 2,997,125 1,224,615
----------- ----------
Long-term debt, net of current portion...................... 3,094,221 1,316,899
----------- ----------
Shareholders' equity:
Common stock, $.01 par value,
30,000,000 shares authorized,
5,000,000 shares issued and outstanding in 1998
8,100,000 shares issued and outstanding in 1999........ 81,000 50,000
Additional paid-in capital................................ 5,199,393 448,200
Accumulated deficit....................................... (422,195) (60,050)
----------- ----------
Total shareholders' equity........................ 4,858,198 438,150
----------- ----------
Total liabilities and shareholders' equity........ $10,949,544 $2,979,664
=========== ==========
</TABLE>

See notes to consolidated financial statements
24
<PAGE> 26

STAR SERVICES GROUP, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
AUGUST 26, 1997
(INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH
------------------------- DECEMBER 31,
1999 1998 1997
----------- ---------- ---------------
<S> <C> <C> <C>
Revenues............................................ $12,914,295 $3,542,851 $ 235,596
----------- ---------- ----------
Expenses:
Direct costs...................................... 10,128,535 2,449,085 129,029
Selling and administrative........................ 2,390,203 935,723 63,181
Stock-based compensation.......................... 295,693 -- --
Depreciation and amortization..................... 471,085 177,362 12,081
----------- ---------- ----------
13,285,516 3,562,170 204,291
----------- ---------- ----------
Income (loss) from operations....................... (371,221) (19,319) 31,305
Interest income..................................... 73,294 -- --
Interest expense.................................... (259,219) (70,423) (1,613)
----------- ---------- ----------
Income (loss) before income taxes................... (557,146) (89,742) 29,692
Income tax benefit.................................. 195,001 -- --
----------- ---------- ----------
Net income (loss)................................... $ (362,145) $ (89,742) $ 29,692
=========== ========== ==========
Earnings (loss) per share........................... $ (0.05) $ (0.02) $ 0.01
=========== ========== ==========
Weighted average shares outstanding................. 7,012,500 5,000,000 5,000,000
=========== ========== ==========

UNAUDITED PRO FORMA INCOME TAX, NET INCOME (LOSS) AND EARNINGS (LOSS) PER SHARE INFORMATION:

Historical income (loss) before income taxes........ $ (557,146) $ (89,742) $ 29,692
Pro forma income tax (expense) benefit.............. 195,001 27,000 (9,000)
----------- ---------- ----------
Pro forma net income (loss)......................... $ (362,145) $ (62,742) $ 20,692
=========== ========== ==========
Pro forma earnings (loss) per share................. $ (0.05) $ (0.01) $ 0.00
=========== ========== ==========
Historical weighted average shares outstanding...... 7,012,500 5,000,000 5,000,000
=========== ========== ==========
</TABLE>

See notes to consolidated financial statements

25
<PAGE> 27

STAR SERVICES GROUP, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1999 AND 1998, AND FOR THE PERIOD
AUGUST 26, 1997 (INCEPTION) THROUGH DECEMBER 31, 1997

<TABLE>
<CAPTION>
COMMON STOCK RETAINED
---------------------- ADDITIONAL EARNINGS
ISSUED PAID-IN (ACCUMULATED
SHARES PAR VALUE CAPITAL DEFICIT)
--------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Balance at inception, as restated for
recapitalization........................... 5,000,000 $50,000 $ 241,000 $ --
Net income................................... -- -- -- 29,692
--------- ------- ---------- ---------
Balance at December 31, 1997................. 5,000,000 50,000 241,000 29,692
Net capital contributed...................... -- -- 207,200 --
Net loss..................................... -- -- -- (89,742)
--------- ------- ---------- ---------
Balance at December 31, 1998................. 5,000,000 50,000 448,200 (60,050)
Issuance of common stock and capital
contributions.............................. 2,000,000 20,000 3,969,000 --
Shares issued in reverse acquisition business
combination................................ 1,000,000 10,000 -- --
Shares issued in purchase business
combination................................ 100,000 1,000 486,500 --
Stock-based compensation..................... -- -- 295,693 --
Net loss..................................... -- -- -- (362,145)
--------- ------- ---------- ---------
Balance at December 31, 1999................. 8,100,000 $81,000 $5,199,393 $(422,195)
========= ======= ========== =========
</TABLE>

See notes to consolidated financial statements

26
<PAGE> 28

STAR SERVICES GROUP, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
AUGUST 26,
1997
(INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH
------------------------ DECEMBER 31,
1999 1998 1997
----------- --------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $ (362,145) $ (89,742) $ 29,692
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization.................... 471,085 177,362 12,081
Stock-based compensation......................... 295,693 -- --
Changes in operating assets and liabilities, net
of effects from business combination:
Increase in accounts receivable................ (1,175,343) (503,218) (75,824)
Increase in prepaid expenses................... (39,815) (116,058) (7,276)
Increase in deferred income tax asset.......... (195,001) -- --
Increase in deposits and other assets.......... (55,070) -- --
Increase in accounts payable................... 719,010 280,524 10,778
Increase in accrued expenses................... 531,814 25,969 4,954
----------- --------- ---------
Net cash provided by (used in) operating
activities................................ 190,228 (225,163) (25,595)
----------- --------- ---------
Cash flows from investing activities:
Capital expenditures................................ (302,586) (569,582) (158,501)
Deferred charges.................................... (76,533) -- --
----------- --------- ---------
Net cash used in investing activities....... (379,119) (569,582) (158,501)
----------- --------- ---------
Cash flows from financing activities:
Proceeds from (repayment of) shareholder loans...... (537,125) 527,125 10,000
Principal payments under loan agreements............ (1,845,727) (142,424) (1,871)
Net proceeds from issuance of common stock and
capital contributions............................ 3,999,000 344,160 291,000
----------- --------- ---------
Net cash provided by financing activities... 1,616,148 728,861 299,129
----------- --------- ---------
Net increase (decrease) in cash and equivalents....... 1,427,257 (65,884) 115,033
Cash and equivalents, beginning of period............. 49,149 115,033 --
----------- --------- ---------
Cash and equivalents, end of period................... $ 1,476,406 $ 49,149 $ 115,033
=========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest expense paid................................. $ 259,219 $ 70,423 $ 1,613
=========== ========= =========
</TABLE>

See notes to consolidated financial statements

27
<PAGE> 29

STAR SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1999 AND 1998

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of Star Services Group,
Inc. and subsidiaries (hereinafter "Star" or the "Company") is presented to
assist in understanding the consolidated financial statements. The financial
statements and notes are representations of the management of Star Services
Group, Inc. and subsidiaries which is responsible for their integrity and
objectivity. These accounting policies conform to generally accepted accounting
principles and have been consistently applied in the preparation of the
financial statements.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Star Services
Group, Inc. ("Star") and of its wholly-owned subsidiaries, Delta Recycling Corp.
("Recycling"), Delta Transfer Corp. ("Transfer"), Delrock Management Corp.
("Delrock"), Eastern Recycling, Inc. ("Eastern") and Delta Resources Corp.
("Resources"). Recycling, Transfer, Delrock, Eastern and Resources are
collectively referred to as the "Subsidiaries". Significant intercompany
accounts and transactions have been eliminated. On February 4, 1999, Star
acquired 100% of the issued and outstanding capital stock of Recycling,
Transfer, Delrock, Eastern and Resources, thereby making them wholly-owned
subsidiaries of Star. Prior to that date, and throughout the years ended
December 31, 1998 and 1997, the ownership and voting percentage of each of the
Subsidiaries were identical. The ownership and voting percentage of Star
Services subsequent to the acquisitions of the Subsidiaries is also identical to
that of the Subsidiaries prior to the acquisitions. Because of the identical
ownership of Star Services and the Subsidiaries, the acquisitions have been
accounted for as a recapitalization, similar to a pooling of interests, because
the transaction was not substantive. The capital structure for all periods has
been retroactively restated to give effect to the business combination and the
capital structure of Star Services.

Effective June 22, 1999, Star Services effected a business combination with
Bailey & Baron, Inc., a publicly-held shell corporation. Under the terms of the
agreement, the shell corporation, which had 1,000,000 common shares outstanding,
issued 7,000,000 unregistered shares of its common stock in exchange for all of
the outstanding common stock of Star Services. As a result of the transaction,
the shareholders of Star Services received stock representing approximately 88%
of the public shell corporation, thereby effecting a change in control of the
public entity.

Such business combination has been accounted for as a reverse acquisition.
Under the accounting rules for a reverse acquisition, Star Services is
considered the acquiring entity. As a result, historical financial information
for periods prior to the date of the transaction is that of Star Services.
However, the capital structure for all periods presented has been restated to
reflect the capital structure of Bailey & Baron, Inc. as the legal acquirer.
Goodwill was not recorded in the merger since the transaction was equivalent to
the issuance of stock by Star Services for the net monetary assets of the public
shell corporation.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.

HISTORY AND BUSINESS ACTIVITY

Star Services Group, Inc. was incorporated in the State of Florida on
February 3, 1999. Its corporate offices and operations are located in Pompano
Beach, Florida. The Company operates in several segments of the

28
<PAGE> 30

environmental services industry: collection, recycling and disposal of
construction and demolition debris, land clearing, yard waste debris, and source
separated recyclable materials. The Company's operations are carried out by
Delta Recycling Corp. which was incorporated in the State of Florida on August
26, 1997, Delrock Management Corp. which was incorporated in the State of
Florida on May 29, 1998, Delta Transfer Corp. which was incorporated in the
State of Florida on August 26, 1998, Eastern Recycling, Inc. which was
incorporated in the State of Florida on June 11, 1997, Delta Resources Corp.
which was incorporated in the State of Florida on January 29, 1999, Delta Tall
Pines Corp., which was incorporated April 23, 1999, Delta Waste Corp., which was
incorporated January 28, 1999 and Delta Site Development Corp., which was
incorporated August 2, 1999. Operations commenced with the incorporation of
Delta Recycling Corp. on August 26, 1997.

Delta Recycling Corp., Delta Transfer Corp. and Delta Tall Pines Corp.
operate material resource recovery facilities ("MRF"), which are environmentally
licensed and regulated by the State of Florida Department of Environmental
Protection and various local regulatory authorities. As a MRF, these facilities
accept assorted loads of debris consisting of construction and demolition
debris, land clearing, and yard waste and source separated materials primarily
from customers in the construction and demolition debris industry. The incoming
loads are processed using a semi-automated sorting system to separate
recyclables from the waste stream. Additional loads are also supplied by Delta
Recycling Corp. through its hauling operations. The reclaimed recyclables are
shipped to end user markets for re-use. Delta Recycling Corp. also operates a
solid waste disposal service to collect and transport materials for the industry
segment. Delrock Management Corp. owns real estate used in conjunction with the
Company's operations. Eastern Recycling, Inc. has been inactive throughout 1997
and 1998. Delta Resources Corp. commenced operations in February 1999 as the
operator of a construction and demolition debris landfill in Titusville,
Florida. The operations of Delta Resources Corp. were suspended in January 2000
(Note 6). Delta Site Development Corp. commenced operations during 1999 and
provides site development services, such as site clearing and grading, for major
residential home builders. Delta Waste Corp. commenced operations during 1999 as
a lessor of portable toilets under short-term operating leases.

CONCENTRATION OF CREDIT RISK

Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and equivalents and of
accounts receivable. The Company's policies do not require collateral to support
accounts receivable. However, because of the diversity and credit worthiness of
individual accounts which comprise the total balance, management does not
believe that the Company is subject to any significant credit risk.

The Company routinely maintains cash balances with one bank under limits
insured by the Federal Deposit Insurance Corporation ("FDIC"). At December 31,
1999, the Company's cash balance with this bank was $235,476 in excess of the
FDIC insured limit. The Company also maintains cash in a money market account
with a brokerage firm in excess of the $1 million limit insured by the
Securities Investor Protection Corporation ("SIPC"). At December 31, 1999, the
Company's balance in this money market account was $343,415 in excess of the
SIPC insured limit. The Company has not experienced any losses in such accounts
and believes they are not exposed to any significant credit risk on cash.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's receivables and payables are current and on normal terms and,
accordingly, are believed by management to approximate fair value. Management
also believes that notes payable, long-term debt and capital lease obligations
approximate fair value when current interest rates for similar debt securities
are applied.

29
<PAGE> 31

PROPERTY AND EQUIPMENT

Property and equipment are carried at cost. Depreciation is provided on the
straight-line method over the following estimated useful lives:

<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Machinery and equipment..................................... 5-10
Office furniture and equipment.............................. 5
Structures and improvements................................. 5-39
</TABLE>

Maintenance, repairs and renewals which neither materially add to the value
of the equipment nor appreciably prolong its life are charged to expense as
incurred. Gains or losses on dispositions of equipment are included in income.

COST IN EXCESS OF NET ASSETS ACQUIRED

Cost in excess of net assets acquired is net of accumulated amortization of
$13,000 at December 31, 1999. Such costs are being amortized on the
straight-line method over a ten-year period. For the year ended December 31,
1999, amortization expense was $13,000.

DEFERRED CHARGES

Deferred charges consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred acquisition costs.................................. $ 58,233 $ --
Deposits and other.......................................... 55,070 --
-------- --------
$113,303 $ --
======== ========
</TABLE>

Deferred acquisition costs are capitalized as a component of total
acquisition costs upon successful consummation of a planned acquisition. Such
costs are expensed if it is determined that a proposed acquisition is unlikely
to occur.

REVENUE RECOGNITION

The Company recognizes revenue upon receipt and acceptance of waste
materials at its material recovery facilities and landfills, upon collection of
waste materials for its waste disposal operations, and when services are
provided for its site development and portable toilet leasing operations.

ENVIRONMENTAL COSTS

It is our policy and a requirement of the Florida Administrative Code for
all environmental solid waste permits to establish and maintain financial
assurance for closure and post closure. This financial assurance must be
approved by the Florida Department of Environmental Protection. The financial
assurance mechanism must include funds for removing all stockpiles and provide
for site closure. Because the Company does not presently own any landfill sites,
there have been no accruals required for closure or post-closure costs.

CASH AND EQUIVALENTS

For purposes of the consolidated statements of cash flows, the Company
considers all highly-liquid debt instruments purchased with an original maturity
date of three months or less to be cash equivalents.

30
<PAGE> 32

SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES

The Company financed equipment purchases as follows:

<TABLE>
<CAPTION>
AUGUST 26,
1997
(INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH
-------------------------- DECEMBER 31,
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
Property and equipment purchased..................... $ 4,718,423 $ 2,014,879 $ 402,703
Long-term debt financing............................. (3,932,259) (1,445,297) (244,202)
----------- ----------- ----------
Capital expenditures................................. $ 786,164 $ 569,582 $ 158,501
=========== =========== ==========
</TABLE>

During 1998, the Company received capital contributions and its
subsidiaries purchased treasury stock as follows:

<TABLE>
<S> <C>
Capital contributions....................................... $ 411,000
Expenditures for treasury stock of subsidiaries............. (66,840)
---------
Net proceeds from capital contributions..................... 344,160
Debt issued to purchase treasury stock of subsidiaries...... (136,960)
---------
Net capital contributed..................................... $ 207,200
=========
</TABLE>

During 1999, the Company issued common stock and notes to effect business
combinations, as follows:

<TABLE>
<S> <C>
Value of business combinations.............................. $ 597,500
Value of common stock issued................................ (497,500)
Note issued................................................. (100,000)
---------
Cash expenditures for business combinations................. $ --
=========
</TABLE>

PRO FORMA INFORMATION (UNAUDITED)

The statements of operations present pro forma information (unaudited) of
income tax expense which would have been recorded had Star's subsidiaries been
taxable corporations based on the tax laws in effect during the period and the
resultant pro forma effect on net income (loss) and earnings (loss) per share.
The comparative information presented for the year ended December 31, 1999, is
actual.

2. BUSINESS COMBINATION

Effective October 1, 1999, the Delta Site Development Corp. acquired the
business, and substantially all of the assets and liabilities, of Mario's
Equipment Rental, Inc. ("Mario's") in exchange for 100,000 shares of Star's
common stock valued at $487,500 and a $100,000 note. As a result, the Company
commenced operations of providing site development services, such as site
clearing and grading. The share issuance has been recorded at the bid price of
the Company's common stock for two days before and after September 21, 1999, the
date the agreement was entered into. The value of the consideration given in
excess of the fair value of the net equity of Mario's has been recorded as
goodwill which is being amortized over a 10-year period.

31
<PAGE> 33

The following unaudited information has been prepared on a pro forma basis
as if the business of Mario's had been acquired as of the beginning of the year
ended December 31, 1999:

<TABLE>
<S> <C>
Revenues.................................................... $13,816,711
===========
Net loss.................................................... $ (360,440)
===========
Loss per share.............................................. $ (0.05)
===========
Weighted average common shares.............................. $ 7,087,500
===========
</TABLE>

The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the operating results that would have
occurred had the Mario's acquisition been consummated as of the beginning of the
period presented, nor are they necessarily indicative of future operating
results.

3. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Notes payable to various financial institutions in monthly
installments totalling $109,408 in 1999 and $33,469 in
1998, including interest ranging from 5.9% to 11.4%. The
notes mature in April 2001 through November 2007. The
notes are secured by machinery and equipment.............. $3,949,543 $1,211,517
Mortgage payable to an individual in monthly installments of
$4,614 in 1999 and $5,455 in 1998, including interest at
8%, through August 2003................................... 251,629 337,387
Notes payable to individuals in monthly installments
totalling $3,639, including interest at 7%. The notes
mature in September 2001 through November 2003 and are
personally guaranteed by the Company's majority
shareholders.............................................. 67,109 133,260
---------- ----------
4,268,281 1,682,164
Less current portion........................................ 1,174,060 365,265
---------- ----------
$3,094,221 $1,316,899
========== ==========
</TABLE>

As of December 31, 1999, maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
2000...................................................... $1,174,060
2001...................................................... 1,078,048
2002...................................................... 875,767
2003...................................................... 738,539
2004...................................................... 353,403
Thereafter................................................ 48,464
----------
$4,268,281
==========
</TABLE>

4. RELATED PARTY TRANSACTIONS

MANAGEMENT AGREEMENT

Effective November 1999, Star entered into an agreement to provide
operational and administrative management services to J.R. Capital Corp., ("J.R.
Capital") a related party corporation. J.R. Capital, which is owned by the
chairman of Star, owns and operates several material recovery facilities in
Florida. The agreement is for a five-year period ending October 2004. Under the
terms of the agreement, Star is to provide administrative

32
<PAGE> 34

and managerial functions, maintain books and records, and provide other services
to J.R. Capital. In addition, Star has agreed to permit J.R. Capital to dispose
of waste at a rate equal to the lesser of the fair market value, or the same
rate which Star charges on an internal basis. In return, Star receives an annual
management fee of $1,537,293, receivable in monthly installments of $128,108.
The full provisions of the agreement were deferred by the parties until January
1, 2000. As a result, for the year ended December 31, 1999, related party
management fee income totalled $20,258.

In addition, Star and J.R. Capital allow each other to utilize any of each
other's facilities for a price equal to 90% of the fair market value for such
services charged to non-affiliate third parties. The agreement may be terminated
by J.R. Capital upon 30 days written notice and by Star upon 90 days written
notice.

RELATED PARTY ACCOUNTS

During 1999, Star derived $290,425 of revenue for disposal fees and
trucking services provided to J.R. Capital. During 1999, Star incurred
$1,035,548 of costs for disposal fees at J.R. Capital's material recovery
facilities.

At December 31, 1999, accounts payable includes net payables to J.R.
Capital of $538,014 and accounts receivable includes net receivables from J.R.
Capital of $38,160. Such payables and receivables are satisfied in the ordinary
course of business.

During 1999 and 1998, Star paid accounting fees to a firm, which is owned,
in part, by one of Star's significant shareholders. Such fees totalled $13,400
and $12,000 for the years ended December 31, 1999 and 1998, respectively.

The Company also leases one of its facilities from a related party. See
Note 6.

NOTES PAYABLE -- RELATED PARTIES

Notes payable -- related parties represent uncollateralized, non-interest
bearing loans made to the Company by related parties. The notes are payable on
demand. All such notes were paid during 1999.

LOANS FROM SHAREHOLDERS

Loans from shareholders represent uncollateralized, non-interest bearing
advances to the Company, payable on demand. All such loans were repaid during
1999.

5. SHAREHOLDERS' EQUITY

COMMON STOCK

As described in Note 1, on February 4, 1999, Star Services Group, Inc.
issued 5,000,000 shares of common stock to acquire all of the issued and
outstanding shares of the Subsidiaries. Prior to that date, and throughout 1998
and 1997, the ownership and voting percentage of the Subsidiaries was identical.
The ownership and voting percentage of Star Services subsequent to the
acquisitions was also identical to that of the Subsidiaries prior to the
acquisitions. As a result, the business combination has been accounted for as a
recapitalization, similar to a pooling of interests. The capital structure for
all periods has been retroactively restated to give effect to the business
combination and the capital structure of Star Services.

PREFERRED STOCK

The Company's articles of incorporation provide that the Company may
authorize the issuance of up to 5,000,000 shares of preferred stock. The
preferred stock may be issued in series from time to time with such
designations, rights, preferences and limitations as the Company's Board of
Directors may determine by resolution.

33
<PAGE> 35

PRIVATE PLACEMENT

During 1999, Star completed a private placement under which it sold
2,000,000 shares of its $.01 par value common stock at a purchase price of $2
per share. The Company received net proceeds of $3,950,000.

STOCK OPTION PLAN

The 1999 Stock Option Plan was adopted by the Board of Directors effective
as of February 3, 1999. The plan is intended to provide employees, consultants
and directors with additional incentives by increasing their proprietary
interests in the Company. Under the plan, Star may grant options with respect to
2,000,000 shares of the Company's common stock. Concurrent with the effective
date of the plan, the Company's board granted options to purchase 759,000 shares
of common stock at an exercise price of $0.30 per share. All such options vest
over a four-year schedule and are exercisable no later than 10 years after the
grant date.

The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25) and related
interpretations in accounting for its employee stock options. Under APB 25, the
Company is recording stock-based compensation based on the difference between
the $2.00 per share estimated fair market value of the Company's stock on the
date of the grant and the $0.30 per share exercise price. Such compensation is
being recorded over the four-year vesting period of the options. The Company has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (Statement 123).

A summary of stock-based compensation is as follows:

<TABLE>
<S> <C>
Total compensation to be recognized......................... $1,290,300
Compensation recognized during the year ended December 31,
1999................................................... 295,693
----------
Deferred compensation at December 31, 1999................ $ 994,607
==========
</TABLE>

6. COMMITMENTS AND CONTINGENCIES

LEASE AGREEMENTS

From inception through October 1998, the Company maintained its offices on
the site of the 50-acre material recovery facility described in the following
paragraph. During November 1998 through January 1999, the Company leased its
offices on a month-to-month basis. Effective February 1, 1999, the Company
entered into an operating lease for its office facilities. Such lease was
revised effective October 1999. The lease is for a three-year period ending
September 2002 at an annual rental of $39,448, with an option to extend the
lease for an additional three years.

Through March 2000, the Company leased approximately 50 acres of land under
an operating lease on which it operates one of its material recovery facilities
at a monthly rental of $8,333. Effective March 2000, the Company entered into an
agreement to terminate this lease, with the goal of reducing costs by
consolidating its operations at another of its facilities located nearby. The
Company made a one-time payment of approximately $40,000 in connection with the
termination of this lease.

The Company also leases approximately 30 acres on which it operates a
material recovery facility at a monthly rental of $20,000 under an operating
lease which expires August 2000. The lease also provides for the option to
purchase the facility for $4,000,000. During March 2000, the Company exercised
its option to purchase the facility. See Note 8.

Effective February 15, 1999, Delta Resources Corp. entered into an
operating lease for approximately 90 acres of land which include a 48-acre
construction and demolition landfill in Titusville, Florida. Under the terms of
the 18-month agreement, the monthly rental is $4,000 for the first four months
and $8,000 per month thereafter. During the term of the lease, the Company is to
pursue certain environmental permits, wetland issues and zoning. In the event
that the Company exercises its option to purchase the property (as described
below), $4,000 of each $8,000 payment made shall be applied against the $600,000
purchase price. If the aforementioned

34
<PAGE> 36

permits and licenses have not been received, the Company has the option to renew
the term of the lease for an additional 18-month period. Rent during the renewal
period shall not be applied to the purchase price.

Effective January 2000, the landfill operations of Delta Resources Corp.
have been suspended indefinitely as a result of a court determination that the
property does not have proper zoning. The Company presently intends to appeal
this decision. The Company believes that the operation of the landfill is not
significant to Star's financial results and, consequently, it may choose to drop
the appeal. The Company believes that the lack of proper zoning obviates the
requirement that lease payments be made.

Effective June 1999, Delta Tall Pines Corp. entered into an operating lease
agreement with a related party for a material recovery facility in Palm Beach
County, Florida. The lessor is a corporation which is owned by two of Star's
principal shareholders and officers. The lease is for a 74-month term ending
July 2005, at a monthly rental of $21,200. In addition, the Company is
responsible for all real estate taxes and operating costs. Rent paid to the
related party totalled $148,400 for the year ended December 31, 1999.

Rent expense under the above office and facilities leases totalled $614,698
and $154,610 for the years ended December 31, 1999 and 1998, respectively.

During 1998, the Company commenced leasing four of its trucks from a
financing corporation under operating leases, which expire in various months of
2003. The Company has the option to purchase the trucks and trailers for the
fair market value at the expiration of the lease term. The Company also leases a
variety of office equipment under operating leases which expire through 2004.
Lease expense under these operating leases for the years ended December 31, 1999
and 1998 was approximately $107,000 and $47,000, respectively.

MINERAL EXTRACTION AGREEMENT

Eastern Recycling, Inc. entered into a mineral extraction agreement, dated
October 10, 1997, and amended May 26, 1998, whereby Eastern Recycling, Inc. has
the exclusive right to excavate, dredge, mine and remove all sand products in
and from an 18.2 acre lake area located in Pompano Beach, Florida.

The parties in the contract, through Eastern Recycling, Inc., will conduct
the mining production and sale of screened mason sand, its by-products, lawn
sand, stabilizer and fill for sale to third parties.

The agreement includes the lease of approximately 6.5 acres of land
adjoining the lake area. Under the terms of the agreement, the Company is
obligated to pay a royalty of 15% of gross sales price for all minerals and
materials extracted, or $.50 per ton, whichever is greater. Such royalty
payments shall not be less than $2,500 per month. Such payments commenced in
July 1998.

Royalty and rent payments under the mineral extraction agreement totalled
$30,000 and $15,000 for the years ended December 31, 1999 and 1998,
respectively.

FUTURE MINIMUM PAYMENTS

The minimum future payments under the above lease and mineral extraction
agreements are as follows:

<TABLE>
<CAPTION>
YEAR ENDING OPERATING MINERAL
DECEMBER 31, FACILITIES EQUIPMENT EXTRACTION
- ------------ ---------- --------- ----------
<S> <C> <C> <C>
2000.................................................... $ 361,665 $107,563 $ 30,000
2001.................................................... 293,966 105,162 30,000
2002.................................................... 285,182 101,880 30,000
2003.................................................... 254,400 41,802 30,000
2004.................................................... 254,400 2,259 30,000
Thereafter.............................................. 148,400 -- 90,000
---------- -------- --------
$1,598,013 $358,666 $240,000
========== ======== ========
</TABLE>

35
<PAGE> 37

GOVERNMENT REGULATION

Substantially all of the Company's operations are subject to federal, state
and local regulations relating to the disposition of environmentally-sensitive
waste. Compliance with these provisions has not had, nor does the Company expect
such compliance to have, any material effect upon the capital expenditures, net
income, financial condition or competitive position of the Company. Management
believes that its current practices and procedures for the control and
disposition of such wastes comply with applicable federal, state and local
requirements.

ACQUISITION AGREEMENT

During February 1999, the Company entered into an agreement to acquire the
operations of a landfill operation in Titusville, Florida. In connection
therewith, the Company entered into an operating lease for the landfill, as
described above. In addition, the Company entered into an option to purchase the
landfill, including licenses and permits and a noncompete agreement with the
owner, for $600,000. Such option expires July 31, 2000, but may be renewed for
an additional year if the operating lease agreement is renewed. In the event
that the option to purchase is exercised, consideration shall include a $500,000
mortgage payable every other month over a ten-year period in installments of
$11,577 including interest at 7%. In addition, if the purchase option is
exercised, the Company will enter into a consulting agreement with the owner of
the landfill to provide consulting services to the Company for a three-year
period in exchange for a prepaid consulting fee of $100,000.

7. INCOME TAXES

During 1998 and 1997, the Subsidiaries elected to be treated as S
Corporations under the provisions of the Internal Revenue Code and similar
provisions of state tax laws. As S Corporations, the net income or loss of the
Subsidiaries was reportable by the shareholders who were responsible for any
income taxes thereon. Therefore, no provision for taxes on income has been
included in the 1998 or 1997 financial statements. Star's acquisition of the
Subsidiaries in 1999 automatically terminated their S Corporation elections.
Therefore, a provision for income tax benefit has been recognized for the year
ended December 31, 1999, at the statutory U.S. income tax rate of 35%. There are
no material differences in the basis of assets and liabilities for income tax
and financial reporting purposes.

Deferred income taxes are recognized for temporary differences between
financial statement and income tax bases of assets and liabilities for which
income tax effects will be realized in future years. Valuation allowances, if
any, are provided when the expected realization of deferred tax assets does not
meet a "more likely than not" criterion.

Deferred tax benefits of $195,001 were recognized for the year ended
December 31, 1999, as a result of the Company's net operating loss of
approximately $557,000. Such loss is available to be carried forward through the
year 2019 to offset future years' taxable income. Although realization is not
assured, management believes that it is more likely than not that all of the
deferred tax asset will be realized. The deferred tax asset has been classified
as current based on the expected reversal date of the temporary difference.

8. SUBSEQUENT EVENTS

During March 2000, the Company exercised its purchase option and closed on
the acquisition of the material recovery facility, which it had previously
leased. The purchase price for the property was $4,000,000 which was paid as
follows: $500,000 at closing and the remainder in two purchase promissory notes:
one at $2,500,000 and the second at $1,000,000 each with interest at the rate of
8%. The promissory notes are for a term of 30 years and call for payments of
$18,344 and $7,338 per month, respectively.

During March 2000, the Company acquired substantially all of the assets of
a corporation, which operates a roll-off container business in Dade County,
Florida. The business was acquired for $960,400, of which $660,400 was paid in
cash and $300,000 was paid in 59,260 shares of the Company's common stock. Such
shares are to be held in escrow until the final purchase price is determined.
The total purchase price is subject to adjustment based on revenues to be
generated in the month of August 2000.

36
<PAGE> 38

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

None.

PART III

Certain information required by Part III is omitted from this Report in
that the registrant will file a definitive proxy statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this Report, and certain information included therein
is incorporated herein by reference. Only those sections of the Proxy Statement
which specifically address the items set forth herein are incorporated by
reference. Such incorporation does not include the Compensation Committee Report
or the Performance Graph included in the Proxy Statement.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item 10 will be contained in the Company's
definitive proxy materials to be filed with the Securities and Exchange
Commission and is incorporated in this Annual Report on Form 10-K by this
reference.

The information concerning the Company's executive officers required by
this Item is incorporated by reference herein to the section in Part I, Item 4,
entitled "Executive Officers and Directors."

The information regarding compliance with Section 16 of the Securities and
Exchange Act of 1934 is to be set forth in the Proxy Statement and is hereby
incorporated by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item 11 will be contained in the Company's
definitive proxy materials to be filed with the Securities and Exchange
Commission and is incorporated in this Annual Report on Form 10-K by this
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item 12 will be contained in the Company's
definitive proxy materials to be filed with the Securities and Exchange
Commission and is incorporated in this Annual Report on Form 10-K by this
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item 13 will be contained in the Company's
definitive proxy materials to be filed with the Securities and Exchange
Commission and is incorporated in this Annual Report on Form 10-K by this
reference.

PART IV

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

a. 1. Financial Statements:

Reference is made to the index set forth in "ITEM 8, FINANCIAL
STATEMENTS and SUPPLEMENTARY DATA" of this Annual Report on Form
10-K.

37
<PAGE> 39

2. Financial Statement Schedules:

The following financial statement schedules of Star Services Group,
Inc. for the calendar years ended December 31, 1999, 1998 and 1997
are filed as part of this Report and should be read in conjunction
with the Consolidated Financial Statements of Star Services Group,
Inc.

<TABLE>
<CAPTION>
SCHEDULE PAGE
-------- ----
<C> <S> <C>
II Valuation and Qualifying Accounts........................... S-1
</TABLE>

Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set
forth therein is included in the Consolidated Financial Statements or
Notes thereto.

3. Exhibits

The Exhibit listed on the accompanying Index to Exhibit immediately
following the financial statement schedules are filed as part of, or
incorporated by reference into, this Report.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27 Financial Data Schedule
</TABLE>

b. Reports on Form 8-K

No reports on Form 8-K were filed during the last quarter of the period
covered by this report.

38
<PAGE> 40

SIGNATURES

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

STAR SERVICES, INC.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JACK R. CASAGRANDE Chairman of the Board and Chief March 30, 2000
- --------------------------------------------- Executive Officer (Principal Executive
Jack R. Casagrande Officer)

/s/ PATRICK F. MARZANO President and Director March 30, 2000
- ---------------------------------------------
Patrick F. Marzano

/s/ RICHARD LOSS Chief Financial Officer (Principal March 30, 2000
- --------------------------------------------- Financial and Accounting Officer)
Richard Loss

/s/ PHILLIP FOREMAN Chief Operating Officer and Director March 30, 2000
- ---------------------------------------------
Phillip Foreman

/s/ THOMAS R. ROBERTS Vice President, Environmental March 30, 2000
- --------------------------------------------- Compliance and Director
Thomas R. Roberts

/s/ FRANK P. MARZANO Director March 30, 2000
- ---------------------------------------------
Frank P. Marzano

/s/ RICK CASAGRANDE Director March 30, 2000
- ---------------------------------------------
Rick Casagrande

/s/ SAMUEL G. WEISS Director March 30, 2000
- ---------------------------------------------
Samuel G. Weiss
</TABLE>

39
<PAGE> 41

INDEPENDENT AUDITORS' REPORT
ON OTHER FINANCIAL INFORMATION

The Shareholders
Star Services Group, Inc.

The audited consolidated financial statements of the Company and our report
thereon are presented in the preceding section of this report. The financial
information in schedule II -- Valuation and Qualifying Accounts on Page S-1 is
presented for purposes of additional analysis and is not a required part of the
financial statements of the Company. Such information has been subjected to the
auditing procedures applied in our audit of the financial statements and, in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.

HORTON & COMPANY, L.L.C.

Wayne, New Jersey
March 22, 2000

40
<PAGE> 42

STAR SERVICES GROUP, INC

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COST AND TO OTHER AT END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
PERIOD AUGUST 26, 1997 (INCEPTION) THROUGH
DECEMBER 31, 1997
Allowance for doubtful accounts (deducted
from accounts receivable)................ $ -- $ -- $ -- $ -- $ --
------ ------- ----- ------ -------
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts (deducted
from accounts receivable)................ $ -- $ 2,000 $ -- $ -- $ 2,000
------ ------- ----- ------ -------
YEAR ENDED DECEMBER 31, 1999
Allowance for doubtful accounts (deducted
from accounts receivable)................ $2,000 $85,380 $ -- $2,000 $85,380
------ ------- ----- ------ -------
</TABLE>

S-1

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,476,406
<SECURITIES> 0
<RECEIVABLES> 2,063,623
<ALLOWANCES> 85,380
<INVENTORY> 0
<CURRENT-ASSETS> 3,812,799
<PP&E> 7,136,005
<DEPRECIATION> 647,427
<TOTAL-ASSETS> 10,949,544
<CURRENT-LIABILITIES> 2,997,125
<BONDS> 0
0
0
<COMMON> 81,000
<OTHER-SE> 5,199,393
<TOTAL-LIABILITY-AND-EQUITY> 4,858,198
<SALES> 0
<TOTAL-REVENUES> 12,914,295
<CGS> 0
<TOTAL-COSTS> 10,128,535
<OTHER-EXPENSES> 2,685,896
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 259,219
<INCOME-PRETAX> (557,146)
<INCOME-TAX> 195,001
<INCOME-CONTINUING> (362,145)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (362,145)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)

</TABLE>