The Company recognized significant increases in both sales and operating income for 1998 compared to 1997. Sales increased 85% for 1998 to $45,705,000 from $24,739,000 in 1997. Of the $20,966,000 increase in consolidated revenues, approximately $11,489,000 was attributable to acquisitions completed after June 30, 1997, $4,555,000 to the start up of dredging operations in 1998, $1,803,000 to the start up of the CBC facility July 1, 1998 and the remaining $3,119,000 to internal growth.

Consolidated operating income increased by $1,758,000 to $1,437,000 for 1998 compared to a loss of $321,000 in 1997. The increase in operating income was primarily due to businesses acquired in 1998, the entrance into the beneficial reuse of dredge material market in the second quarter of 1998 and improved Plastic Lumber plant utilization.

Plastic Lumber Division sales increased by $7,590,000 or 93% to $15,720,000 in 1998 compared to $8,130,000 in 1997. Sales by the original plastic lumber companies and companies acquired before January 31, 1997 increased $1,759,000 to $9,889,000 for 1998 from $8,130,000 for 1997. This 22% increase in "same plant" sales is attributable to establishing a network of "stocking" distributors and selling to the mass merchant market in 1998. The remaining $5,831,000 of the increase in Plastic Lumber sales was due to the 1998 acquisitions of CPL, CMI and the assets of Trimax and the July 1, 1997 acquisition of EPC.

Environmental Recycling Division sales for 1998 were $29,985,000, an increase of $13,376,000 or 81% over the $16,609,000 for 1997. The acquisitions of WCI, GHE and Geocore, Inc., which the Company acquired after November of 1997, contributed approximately $5,658,000 or 42% of the total increase. The recently constructed CBC facility, which began treating contaminated soils bio-organically in June 1998, added sales of $1,803,000 or 14% of the increase. The entrance of CTI and the Company's Joint Venture into the beneficial reuse of dredge material market during the second quarter of 1998 generated $4,555,000 or 34% of the increase. The remaining $1,360,000 or 10% of the sales increase came from internal growth due to the vertical integration of newly acquired companies.

Consolidated gross profit increased $5,726,000 or 115% to $10,686,000 for 1998 compared to $4,960,000 in 1997. The gross profit as a percent of revenue improved by 3.4 percentage points from 20.0% in 1997 to 23.4% in 1998. The increase was attributed to acquisitions in both business segments subsequent to June 30, 1997 and to the start up of dredging operations in 1998. Business units in both Divisions continued to eliminate and consolidate duplicative operating expenses during 1998, however, 1998 results include certain non- recurring expenses associated with the unit combinations.

Plastic Lumber Division acquisitions in 1998 accounted for $1,670,000 or 52% of the $3,211,000 increase in Plastic Lumber Division gross profit in 1998. Approximately $618,000 or 19% of the increase in gross profit came from including a full year for EPC compared with only 6 months of EPC operations included in 1997. The remaining $923,000 or 29% of the increase came from the original Plastic Lumber operations and expanded plant capacity at these facilities.

Environmental Recycling Division acquisitions after November 30, 1997 accounted for $1,248,000 or 50% of the $2,515,000 increase in gross profit in 1998 over 1997. The opening of the CBC facility in late June 1998 contributed $1,049,000 of gross profit and the new dredging operations contributed $648,000 to gross profit for 1998. The soil remediation and environmental construction service companies' gross profit was $428,000 lower in 1998 due to delays in the commencement dates of certain contracts in the $10 million backlog of environmental construction service contracts.

Cost of sales (including depreciation) as a percent of Plastic Lumber sales improved significantly from 81% in 1997 to 75% in 1998. Profitability improved at all of the Lumber plants as a result of implementing manufacturing efficiencies in the Tennessee flow mold facility and tripling the capacity of the Wisconsin facility. The Plastic Lumber Division expects continued improvement in gross profit margins in 1999 from several sources: the Eaglebrook acquisition in January 1999: the national distribution network for residential products; the anticipated "BOCA certification" of the CareFree decking product ("BOCA certification" provides automatic approval by local building inspectors); the expansion into industrial products; the addition of patented structural lumber to the product offerings; and the further development of railroad ties.

Environmental Recycling Division cost of sales (including depreciation and amortization of site development costs) increased as a percent of sales from 75% in 1997 to 78% in 1998. The higher gross margins from Environmental Recycling Division acquisitions was more than offset by the lower gross profit margins on environmental construction contracts. The Environmental Recycling Division expects to improve gross profit levels in environmental construction services and an even greater gross margin contribution from a full year's operations from the CBC facility in 1999.

Consolidated SG&A expenses increased $3,616,000 or 72% to $8,616,000 for 1998 from $5,000,000 in 1997. However, as a percentage of consolidated sales, SG&A expenses improved from 20% for 1997 to 19% in 1998. Efficiencies in the Environmental Recycling Division only partially offset Plastic Lumber costs incurred to establish a national sales distribution network. Corporate administrative expenses improved to 2.9% of sales in 1998 from 5.8% in 1997 despite making several acquisitions in 1998.

Plastic Lumber SG&A expenses increased $2,597,000 or 156% in 1998 compared to $1,661,000 in 1997. Acquisitions made since the beginning of 1997 accounted for $605,000 or 23% of the Plastic Lumber increase. Plastic Lumber SG&A as a percent of sales increased from 20% in 1997 to 27% in 1998. The Plastic Lumber Division incurred significant expenses developing and maintaining a national sales distribution network and a centralized customer service center. These expenses included adding a Vice President of Sales, regional sales and product line managers as well as personnel for customer service. The Plastic Lumber Division also incurred significant trade show and travel expenses to increase the Company's sales coverage and to integrate acquired manufacturing operations with existing manufacturing plants. The Plastic Lumber Division also continued to invest in research and engineering to commercialize the structural lumber and railroad tie product lines.

Environmental Recycling Division SG&A expenses improved from 11.4% of related revenue in 1997 to 10.1% in 1998, despite making several acquisitions and starting up the dredging operations.

Interest expense increased $918,000 to $1,225,000 in 1998 over the $307,000 in 1997. The increase is the result of increased borrowings from the bank lines of credit for working capital and to finance acquisitions, the start up of dredging operations and additional Plastic Lumber plant capacity. It also includes debt service assumed from businesses acquired during 1997 and 1998 and $272,000 of amortization of deferred financing costs of increasing the line of credit at PNC Bank in December of 1997 and obtaining the new credit agreement with a division of Southern Pacific Bank in October 1998.

Total notes payable and capital leases increased by $13,125,000 or 253% from $5,179,000 at December 31, 1997 to $18,304,000 at December 31, 1998. Excluding the $272,000 amortization of deferred financing costs, interest expense increased by $646,000 or 210%. Interest expense did not increase in the same proportion as the debt increase because a disproportionate share of the total debt increase came in the second half of 1998.

Depreciation expense increased $990,000 or 190% in 1998 compared to 1997 reflecting the significant increase in plant and equipment from both acquisitions and continued capital investments. Amortization expense increased $347,000 in 1998 over 1997 due to goodwill from the numerous acquisitions completed in the second half of 1997 and first half of 1998 and from CTI's dredge site development costs.

Cash and cash equivalents totaled $901,970 at December 31, 1998 a decrease of $268,150 from the $1,170,120 at December 31, 1997. Cash used in operating activities was $6,251,592. The significant increase in revenues during the second half of 1998 resulted in a significant increase in accounts receivable and Plastic Lumber inventories. The Company used its revolving credit agreements to finance the increase in accounts receivable and inventories and to pay down accounts payable and accrued expenses of acquired companies.

Cash used in investing activities was primarily for capital expenditures. The Environmental Recycling Division made capital expenditures in 1998 for property, plant and equipment totaling $4,385,000 including $2,503,000 for the Carteret Biocycle facility, $689,000 for dredge material handling and mixing equipment, $550,000 for environmental construction service equipment and $586,000 to improve its Delaware soil remediation plant and soil handling equipment. The Plastic Lumber Division made machinery and equipment purchases totaling $2,831,000 primarily to expand capacity at the Maryland Wisconsin, Indiana and Tennessee manufacturing facilities, to provide recycled plastic washing facilities in its Massachusetts plant and to establish structural lumber and railroad tie production lines in its Tennessee facility. The Company also used a total of $3,885,197 to acquire companies with plant & equipment valued at $6,387,000. The Company used its credit agreements to fund $2,045,000 of permitting and development of the dredge soil reclamation site and $1,230,000 of working capital needed to start up the dredging operations of both Consolidated Technologies and the Joint Venture.

Cash provided by financing activities totaled $19,153,471, including $8,724,972 of net additional bank and equipment financings, $3,956,000 of net proceeds from the issuance of 5% convertible subordinated debentures (see Note 6 to Consolidated Financial Statements) and $6,472,499 net proceeds from equity financings. In addition, the Company assumed $2,774,105 of debt owed by 7 acquired companies and incurred $954,952 of additional debt to make the acquisitions.

Proceeds from new bank and capital lease equipment borrowings totaled $16,134,000 including $13,499,000 under the new credit facility with a division of Southern Pacific Bank ("SPB"). The $672,000 of costs paid out to obtain the SPB credit agreement is being amortized over the agreement's 5 year term. The proceeds of the SPB loans were used to pay off $8,300,000 outstanding under the PNC Bank revolving credit agreement and approximately $770,000 of various equipment loans. During the first ten months of 1998 the Company had borrowed an additional $7,270,000 under its revolving credit agreement with PNC Bank.

During 1998 the Company also borrowed $778,000 from an equipment leasing company, $736,000 from an insurance premium financing company, $550,000 from a state of Pennsylvania development commission and $571,000 from various equipment financing companies at favorable interest rates. Repayments of various non-affiliated notes payable, capital leases and credit agreements totaled $12,160,112, including $8,300,000 to PNC Bank, $2,060,000 on other loans outstanding at December 31, 1997, $552,000 on the new bridge and term loans with SPB, $362,000 on the Premium finance loan and $710,000 on debt assumed in acquisitions. The Company also paid back the entire $1,956,810 it owed to affiliates at December 31, 1997.

Equity financings in 1998 included $2,291,000 of proceeds from the exercise of Series A warrants and $4,431,420 from a Private Placement of 211,020 shares of Series B Preferred Stock for $21 per share. The Series B Preferred Stock has a cumulative 10% stock dividend and each preferred share is convertible into seven common shares. (See Note 7 to the consolidated financial statements.) The Company incurred expenses totaling $483,788 to register the common stock underlying the warrants and the Series B convertible preferred stock.

In January 1998, the Company obtained a $4,000,000 increase in its line of credit from PNC Bank to $5,500,000 with repayment originally due on June 30, 1999. The line was secured by certain assets of the Company and the personal guarantees of members of the Stout Partnership (See Certain Transactions). In the second and third quarters of 1998 the PNC line was increased to $8,400,000 and the term was extended to September 30, 1999. As of October 9, 1998, the Company had borrowed a total of $8,300,000 against the PNC line of credit when it was paid off with proceeds from the SPB credit facility.

In October 1998 the Company completed negotiations on a $30 million credit facility with a division of Southern Pacific Bank (See Note 5 to the consolidated financial statements). In October 1998 the Company used this line to payoff the aforementioned PNC Bank line and $690,000 of notes payable secured by equipment at six subsidiary locations. In addition the Company drew down a $2,000,000 bridge loan payable over 18 months. On March 1, 1999 the $1,440,000 balance on the bridge loan was converted into a real estate loan with payments of $6,000 per month and a balloon payment due October 10, 2003. On December 31, 1998 the Company executed a $490,000 term loan with SDPB to repay certain loans owed by S&W Waste, Inc. As of December 31, 1998 the Company had loans totaling $12,946,683 outstanding under the SPB agreement.

The additional unused portion of the SPB line will be used to expand existing operations, increase working capital and to finance acquisitions. An additional $175,000 of financing cost is due on June 9, 1999 to make the full $30 million available to borrow against eligible assets pursuant to the terms of the SPB agreement.

The Company will require additional working capital for the environmental recycling operations, especially for the dredging opportunities being pursued by the Company. Although, there are no material commitments in place currently for capital expenditures, the Company also anticipates requiring additional working capital to expand and upgrade its plastic lumber manufacturing facilities as sales levels increase and as the structural lumber and railroad tie products begin to take hold within their markets. The Company also anticipates using working capital to fund research and development costs with respect to its new products.

On January 7, 1999, the Company executed a contract to acquire all of the stock of Brass Investment Co. ("Brass"), which owns all the stock of Soil Remediation of Philadelphia ("SRP") and Allied Waste, Inc. ("AWI"). The Company signed a Management Contract taking over all responsibility for day to day management and financial control of SRP and AWI on January 7, 1999. Unaudited sales of SRP and AWI, prior to intercompany eliminations, for the year ended December 31, 1998 were $14,922,000 with unaudited operating income of $2,025,000. The Company purchased Brass for cash plus 1,000,000 shares of restricted common stock plus granted 1,500,000 warrants to Louis Paolino, Jr. to purchase common stock of the Company. The real estate and accounts receivable of Brass will secure loans to fund the cash portion of the purchase price.

On January 28, 1999 the Company acquired 100% of the stock of Eaglebrook Plastics, Inc. and Eaglebrook Products, Inc. ("Eaglebrook") located in Chicago, Illinois. The Company purchased Eaglebrook for cash plus 1,668,025 shares of restricted common stock, $4,000,000 of convertible secured debentures and 150,000 options to purchase Company stock. The unaudited sales of Eaglebrook were $22,145,000 before $1,706,000 of intercompany eliminations and the unaudited combined operating income was $1,325,000 for the year ended December 31, 1998.

On January 27, 1999 the Company issued an additional $2,500,000 of Convertible Subordinated debentures to the same debenture holders with substantially the same terms as the $4,000,000 issued on December 22, 1998 (See Notes 6 and 13 to the Financial Statements). The proceeds were used in the purchase of Eaglebrook.

On February 2, 1999 the Stout Partnership made a $5,000,000 unsecured loan to the Company. The loan bears interest at 10% and matures in 18 months. The proceeds were used in the purchase of Eaglebrook. The Stout Partnership borrowed the $5,000,000 from PNC Bank and the individual partners have personally guaranteed the loan.

In January 1999 the Company borrowed $1,500,000 from a company owned by one of the directors and his family. The loan bears interest at 1% over prime and matures in 12 months. The proceeds were used in the Eaglebrook acquisition.

In June 1998 SFAS 133 was issued by the Financial Accounting Standards Board establishing accounting and reporting standards for derivative instruments and hedging activities. The Company does not have any derivative instruments or use any hedging activities. Accordingly, adoption of this standard will not affect the company's financial position or results of operations.

Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the Year 2000 (the "Year 2000 Issue"). The accounting software used by the Company is Year 2000 compliant (meaning it recognizes dates in the Year 2000 and beyond) at most subsidiary operations. The Company anticipates upgrading the accounting software in those remaining subsidiaries in mid 1999. The Company does not anticipate a material financial impact as a result of the Year 2000 Issue nor does it anticipate any material financial expenditure to remedy the Year 2000 date change within its own software. In fact, the Company expenditures to date on investigating and remedying Year 2000 issues has been insignificant.

The Company is nearly complete in the process of conducting an internal audit of its computer systems and software to determine what issues, if any, exist. Upon completion of its internal audit, the Company will evaluate the full scope of issues, related costs, and available remedies to insure the Company's systems continue to meet its internal needs. Anticipated costs for system and software modifications will be expensed as incurred. The Company is also in the process of conducting an internal audit of its non-information technology systems (e.g. manufacturing equipment embedded computer systems) to determine what, if any, issues may exist in those systems.

However, the Company has no control over Year 2000 compliance by the customers and vendors of the Company. If the Company's customers and vendors are not in Year 2000 compliance, this could provide a material adverse financial impact to the Company. The Company has made inquiry to all of its major customers and suppliers in an attempt to assess the Year 2000 readiness of its major customers and suppliers. The results of this inquiry have not revealed any issues that the Company believes can have a material adverse effect on the financial condition of the Company.

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