10-K 1 g68223e10-k.txt STAR SERVICES GROUP, INC. FORM 10-K 12-31-2000 1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-28779

STAR SERVICES GROUP, INC. (Exact name of registrant as specified in its charter) --------------------- 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) --------------------- 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 APRIL 13, 2001 WAS APPROXIMATELY $14,370,028. 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 FEBRUARY 26, 2001 WAS 12,136,745. 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 June 14, 2001, to be filed pursuant of Regulation 14A. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS

i 3 PART I ITEM 1. BUSINESS GENERAL Star Services Group, Inc. is an integrated solid waste services company that provides solid waste collection, transfer, disposal and recycling services in the greater Miami, Fort Lauderdale and Palm Beach areas of Florida. We intend to expand our operations into other areas of the eastern United States. We currently own and/or operate, two lakefill operations, three companies that collect solid waste, four material recovery facilities ("MRFs") and one construction and demolition debris transfer station ("C&D Station). As of December 31, 2000, we were providing service to more than 3,400 commercial and industrial customers in Florida. Star Services intends to become a leading solid waste service company in Florida and in additional selected markets, particularly along the eastern seaboard and in the southeastern 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 a number of markets in these areas. COMPANY HISTORY Bailey & Baron was incorporated under the laws of the State of Florida in April 1989 for the purpose of seeking viable businesses or enterprises with which to enter into a business combination. Bailey & Baron had no material operations until June 1999, when Star Services Group, Inc., was merged into Bailey & Baron and Bailey & Baron changed its name to Star Services Group, Inc. Bailey & Baron, now renamed Star Services Group, Inc., 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 was formed in February 1999 as a holding company to facilitate the consolidation of the operations of six companies which were under common control, but which had operated independently. 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. Star Services acquired these predecessor companies in exchange for 5,000,000 shares of Star Services' common stock. These predecessor corporations had revenues for the years ended December 31, 1999 and 1998 of approximately $12.9 million and $3.5 million, respectively. The six predecessor companies are: - Delta Recycling Corp. - Delta Transfer Corp. - Eastern Recycling, Inc. - Delta Resources Corp. - Delrock Management Corp. - Delta Waste Corp. 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." In July 1999, Star Services formed Delta Site Development Corp. as a wholly-owned subsidiary to acquire the assets of Mario's Equipment Sales, Inc. and to provide site development services. In October 2000 we formed Delta Dade Recycling Corp. as a wholly-owned subsidiary to own and operate the assets acquired from the Peerless Big Apple companies 4 RECENT DEVELOPMENTS During March 2000, Star Services acquired substantially all of the assets of Allied Rolloff Holdings, Inc., 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 by delivery of 59,260 shares of our common stock. In June 1999, Delta Waste entered into an agreement to purchase seven solid waste collection routes and associated equipment from Waste Management, Inc. for $5.2 million. In March 2000, our agreement with Waste Management, Inc. was terminated by mutual consent of the parties. Star Services acquired all of the assets and liabilities of Mario's Equipment Sales, Inc., on October 1, 1999. Mario's is in the business of construction site development. Star Services believes that this new area of business will generate additional waste hauling work from developers. The purchase price was paid by delivery of 100,000 shares of Star Services' common stock. In February 2000, Star Services acquired substantially all of the assets of Classic Recycling & Construction, Inc., a company engaged in the rolloff container business. The assets were acquired for $260,000. The purchase price was paid $100,000 at closing, $80,000 by delivery of our one year promissory note and $80,000 by delivery of 22,069 shares of Star Services common stock. In March 2000, Star Services exercised a purchase option and acquired approximately 28 acres of real property located in Broward County, Florida, including the MRF operated on the property. Prior to the acquisition, we had leased the property from the unrelated third party seller. The $4,000,000 purchase price was paid $500,000 in cash at closing, with the balance paid by delivery of two promissory notes, one in the amount of $2,500,000 and the other in the amount of $1,000,000. Both notes bear interest at the rate of 8% per annum and are payable in monthly installments of $18,344 and $7,338, respectively, over 30 years. In November 2000, Star Services was extended a $4,000,000 credit facility by Sun Trusts Bank, Inc. The credit facility is comprised of a $2,000,000 line of credit with a maturity date of April 30, 2002, and a five year term loan in the amount of $2,000,000. Interest on the outstanding principal balance is payable at the rate of prime plus 1/2% or 2.75% over the Libor rate of interest, at the option of Star Services. In December 2000, Star Services acquired substantially all of the assets of Peerless Big Apple, Inc. and certain of its affiliates. With operations in Miami-Dade County, Florida, the Peerless Big Apple companies collect, haul and recycle construction and demolition debris, and operate a construction and demolition debris transfer station. The purchase price of $7,530,850.50 was paid (a) $630,850.50 by delivery of our four year promissory note, (b) $5,000,000 by our agreement to issue 1,600,000 shares of our common stock, and (c) by our assumption of $1,900,000 of liabilities of the Peerless Big Apple companies (the payment of $1,000,000 of which is secured by our pledge of 500,000 shares of common stock). The 1,600,000 shares of Star Services' common stock could be subject to rescission rights by the Peerless Big Apple companies. Rescission of the purchase would decrease our earnings which could result in a decline of the market price of our common stock. The purchase occurred while this prospectus was not current. As a result, the purchase may have violated Section 5 of the Securities Act and might be required to be integrated into this registration. If the issuance of the shares in connection with the asset purchase was required to be registered under the Securities Act, for a period of one year following the sale the Peerless Big Apple companies would be entitled to rescind the sale as a result of the inclusion of these shares in the purchase price prior to the prospectus being current. If rescission were to occur, Star Services might be required to pay the purchase price for the assets, aggregating approximately $7,530,000 in cash, or, alternatively, might be required to return the assets to the former owner. The Peerless Big Apple companies have signed an agreement waiving any rescission rights in connection with the sale, but its waiver might not be enforceable. We believe that the likelihood that Peerless will seek to enforce its possible rescission rights is remote. On November 22, 2000, Star Services sold an aggregate of 1,800,000 shares of common stock to four accredited investors, for a purchase price of $4,500,000, or $2.50 per share. The purchase price was paid by delivery of the investors' full recourse installment promissory notes. The shares purchased are being held in escrow, and will be released, pro-rata, to the extent of installment payments under the promissory notes. Note payments are scheduled to commence May 1, 2001. 2 5 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 3 years ended 2000, 1999 and 1998 for each of the Company's principal lines of business.

SERVICES Commercial, Industrial and Residential Waste Services Star Services currently serves more than 3,400 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. In June 1999, Delta Waste Corp., a subsidiary of Star Services, entered into an agreement to purchase certain solid waste collection routes and related equipment from Waste Management, Inc. In March 2000, the agreement was terminated by mutual consent of the parties. We provide or 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. 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; 3 6 - 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 one C&D MRFs in Broward County, Florida and one C&D MRF in Palm Beach County, Florida and two C&D MRFs and one C&D Transfer Station in Miami-Dade County, Florida. At these facilities we receive, separate and transfer material received from our own vehicles and other contractors. All three 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 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. 4 7 - 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 Our growth strategy is as follows: - Initially, we plan to acquire solid waste companies in selected markets; we intend to establish a market presence in certain target markets and expand our existing markets - In target markets where suitable acquisition candidates are not available, we plan to start new operating companies; these new companies will seek to capitalize on existing relationships with our customers in existing markets and a sales force dedicated to building new client relationships. - Once we are established in a market, we will implement our operating strategy, which focuses on generating internal growth through exceptional service. - We will attempt to obtain contracts and exclusive arrangements with local or regional governmental agencies. - We plan to be involved in many levels of solid waste disposal in each of our markets. For example, we may seek to acquire or operate a transfer station, landfill, MRF or lakefill operation in order to become involved in many different aspects of the solid waste services industry in those markets. - 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. 5 8 - 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 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 Broward, Miami-Dade 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 6 9 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; - 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. The Royal Oak Landfill consists of 42 total acres of which 36.4 acres were permitted for disposal of C&D material. Effective January 2000, the landfill operations of Delta Resources Corp. were suspended following a final court determination that the property does not have proper zoning (See Item 3 -- Legal Proceedings). We are currently negotiating a final settlement with the Florida Department of Environmental Protection with respect to terms of the facility's closure. LAKEFILL OPERATIONS AND PERMITS Two of our current facilities are located next to areas which are subject fill permits. These permits allow us to fill the area with certain specified inert materials including concrete and ceramic and clay tiles. Customers are generally 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 eight sales and marketing personnel operating from our offices in Broward and Miami-Dade Counties, Florida, each of whom solicits customers in our market areas. 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, 7 10 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 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 As of December 31, 2000, we employed approximately 356 full-time employees, including approximately 30 professionals or managers, approximately 262 employees involved in collection, transfer, disposal and recycling operations, and approximately 64 sales, clerical, data processing or other administrative employees. We are not aware of any organizational efforts among our employees and believe that our relations with our employees are good. REGULATION Introduction Star Services' 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 8 11 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 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. 9 12 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 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 10 13 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. 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. 11 14 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. 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, 2000, - We owned and operated two collection operations, one of which is located in Broward County, and the other in Miami-Dade County; - We owned and/or operated four MRFs, one of which is located in Broward County, and two of which are located in Miami-Dade County, and one in Palm Beach County; - We operated one C&D transfer station in Miami-Dade County; and - We operated two C&D MRFs in Palm Beach County, one in Broward County, one in Miami-Dade County and one in Collier County. 12 15 We lease various offices and facilities, including our corporate offices in Pompano Beach, Florida. We also own approximately 35 acres of property at our facility in Broward County, Florida, subject to encumbrances more fully described in the financial statements included elsewhere in this prospectus. 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. 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. On October 31, 2000, our appeal of a January 13, 2000 lower court injunction was denied, as a result of which a permanent injunction was issued preventing Star Services from operating the Royal Oak Construction and Demolition Debris Landfill in Brevard County. The injunction was based on violations of local zoning laws. Additionally, two employees of Star Services' subsidiary Delta Resources, Charles Green and Susan Johnson, were arrested and charged with illegal dumping. Mr. Green is a former Secretary of the Company. Star Services is currently negotiating with the Florida Department of Environmental Protection the terms under which the facility will be closed. In connection therewith, Charles Greene pleaded nolo contendre, was adjudged guilty of one misdemeanor count of violating of Florida's litter law and one misdemeanor count of the unlawful discharge of oil, was sentenced to two years' of self probation and was prohibited from operating a landfill in Brevard County, Florida. Susan Johnson was sentenced to six months self probation following a withheld adjudication on one misdemeanor count of violating Florida's litter law. 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, 2000:

Jack R. Casagrande has been the Chairman, Chief Executive Officer and a director of Star Services 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 13 16 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 Star Services. 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 and Michael C. Marzano. Phillip Foreman has been the Chief Operating Officer and a Director of Star Services 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 private consultant to a number of entities in the waste industry including a consolidation group in New Jersey. From October 1998 until July 1999, 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 Star Services 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. Michael C. Marzano, has served as Treasurer of Star Services since December 2000, and from June 1999 until December 2000, he served as its controller. Mr. Marzano graduated from the Pennsylvania State University in June 1996. From October 1996 until December 1997, Mr. Marzano served in the audit department of Grant Thornton, CPAs. From December 1997 until June 1999, he was employed by Geller, Marzano and Company CPAs in Port Washington, New York. Mr. Marzano is the son of Patrick F. Marzano and the brother of Frank P. Marzano and the cousin of Angelo Marzano. 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 and Michael C. 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 14 17 managing partner of Geller Marzano. Frank P. Marzano is the son of Patrick Marzano, the brother of Michael C. 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 also held various executive positions in several solid waste management companies. From 1994 until September 1997, he served as a Vice President of American Transfer, Inc., a refuse recycling company that was sold to Allied Waste in September 1997. Follwing that sale, Mr. Casagrande sought new employment and in January 1998, he became president. 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, a cleaning and janitorial services company. He continues to serve as president of that Company. 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 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 since November 27, 1999. BOARD AND COMMITTEE ACTIVITY; STRUCTURE AND COMPENSATION During fiscal year 2000, the Board of Directors had four meetings. The directors attended all of the meetings of the Board of Directors. Star Services' operations are managed under the supervision of the Board of Directors, which has the ultimate responsibility for the establishment and implementation of our general operating philosophy, objectives, goals and policies. The Board of Directors has established three standing committees: the Executive Committee, the Compensation Committee and the Audit Committee. The Executive Committee is charged with making major management decisions and recommending policy directions to the Board of Directors as a whole. The Executive Committee is currently composed of Jack Casagrande, Phillip Foreman and Patrick F. Marzano. The Compensation Committee is charged with recommending to the Board the compensation for our executives and administering the stock option and benefit plans. The Compensation Committee is currently composed of Patrick F. Marzano, Jack Casagrande, Rick Casagrande and Samuel Weiss. The Audit Committee is charged with recommending to the Board the appointment of independent auditors, as well as discussing and reviewing, with the independent auditors, the scope of the annual audit and results thereof. The Audit Committee is currently composed of Patrick F. Marzano, Rick Casagrande and Samuel Weiss. We are in the process of reconstituting the Audit Committee in order to meet American Stock Exchange requirements for independent audit committee members. COMPENSATION OF DIRECTORS Directors who are officers or employees 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 of the full Board meeting), in addition to reimbursement of reasonable expenses. 15 18 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Star Services' Common Stock began trading on the Nasdaq OTC bulletin board under the symbol "SSVC" effective July 7, 1999. Prior to that date, Bailey & Baron's Common Stock traded on the Nasdaq OTC bulletin board under the symbol "BYAB". As Bailey & Baron had no operations, assets or liabilities prior to its merger with Star Services, information regarding trading information prior to July 7, 1999 is not presented. The following table presents quarterly information on the price range of the Company's Common Stock. This information indicates the high and low bid quotations reported by the Nasdaq OTC bulletin board.

On April 13, 2001, the last sale price reported on the Nasdaq over the counter bulletin board for the Common Stock was $1.95. As of the date of this filing there are 12,136,745 issued and outstanding shares of our common stock. The Securities and Exchange Commission has adopted regulations which generally define a "penny stock" to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Depending on market fluctuations, our common stock could be considered to be a "penny stock". A penny stock is subject to rules that impose additional sales practice requirements on broker/dealers who sell these securities to persons other than established customers and accredited investors. For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of these securities. In addition he must receive the purchaser's written consent to the transaction prior to the purchase. He must also provide certain written disclosures to the purchaser. Consequently, the "penny stock" rules may restrict the ability of broker/dealers to sell our securities, and may negatively affect the ability of holders of shares of our common stock to resell them. 16 19 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. The following selected financial data as of and for the years ended December 31, 1998, 1999 and 2000 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."

UNAUDITED PRO FORMA INCOME TAX, NET INCOME (LOSS) AND EARNINGS (LOSS) PER SHARE INFORMATION Historical income (loss) before income taxes.............. (675,852) (557,146) (89,742) Pro forma income tax (expense) benefit.................... 236,548 195,001 27,000 --------- ------------ --------- Pro forma net income (loss)............................... (439,304) (362,145) (62,742) ========= ============ ========= Proforma earnings (loss) per share........................ (0.05) (0.05) (0.01) ========= ============ ========= Historical weighted average shares outstanding............ 8,386,409 7,012,500 5,000,000 ========= ============ =========

17 20 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. 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 areas 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, Delta Site Development which was incorporated August 2, 1999, and Delta Dade Recycling Corp., which was incorporated October 20, 2000. 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 1,800 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. 18 21 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"). As a result, the Company commenced operations of providing site development services, such as site clearing and grading. RESULTS OF OPERATIONS The following table presents, for the periods indicated, the various consolidated line items as a percentage of gross revenues:

COMPARISON OF 2000 OPERATIONS TO 1999 OPERATIONS Revenues Total revenues increased to $24,030,882 in 2000 from $12,914,295 in 1999. The increase of $11,116,587 was primarily attributable to increased volumes in industrial waste services and MRF's. The industrial waste services revenues increased due to the expansion of our hauling operations in Broward, Palm Beach and the acquisition of 2 Hauling operations in Dade County. The MRF's revenues increased due to the start up of Delta Tall Pines in June of 1999 and for the 12 months generated from Delta Transfer Corp. as opposed to 3 months in 1999. In addition the MRF revenue increased due to the acquisition of the Peerless group in 2000, which has 3 MRF's in Dade County. The industrial waste services revenue increased to $11,085,063 in 2000 19 22 from $6,132,235 in 1999. The MRF's revenue increased to $10,451,697 in 2000 from $5,793,445 in 1999. Approximately $4,804,244 of the total $4,952,828 increase increase in industrial waste services revenues was related to increase in volumes and $148,584 was related to an increase in prices. The MRF's revenue increase of $4,658,252 was related to increased volumes. Direct Costs Total direct costs increased to $17,096,395 in 2000 from $10,128,535 in 1999. The increase of $6,967,860 was due to the increased volume and disposal costs of industrial waste services and MRF's and principally due to the inclusion, in 2000 of direct costs from businesses acquired in 1999. Direct costs as a percentage of revenues decreased to 71.14% in 2000 from 78.43% in 1999. The percentage decrease is attributable to acquisitions that were completed in 2000 that were integrated into our existing operations. The industrial waste services direct costs increased to $8,432,041 from $4,679,890 in 1999. The MRF's direct cost increased to $7,675,282 from $4,873,810 in 1999. Selling and Administrative Selling and administrative expenses increased to $4,710,868 in 2000 from $2,390,203 in 1999. The increase of $2,320,665 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 for 2000 increased to 19.60% from 18.51% in 1999. 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, 2000 and 11 months in 1999. Depreciation and Amortization Depreciation and amortization expense increased to $1,232,502 in 2000 from $471,085 in 1999. The increase was the result of the purchase of over $11,000,000 of property and equipment and amortization of costs in excess of net assets acquired in business combinations. Interest Income and Expense Interest income decreased to $24,205 in 2000 from $73,294 in 1999. Interest expense increased to $734,279 in 2000 from $259,219 in 1999. The increased interest expense of $475,060 was a result of higher debt levels resulting from the purchase of additional property and equipment. Interest income was earned on excess cash balances available as a result of proceeds from the Company's private placement. 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. 20 23 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. 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. 21 24 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. 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 $815,674 (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 2001 to cover its anticipated working capital needs and moderate capital expenditures and acquisitions. If the Company's cash flow from operations during 2001 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. 22 25 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. 23 26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA STAR SERVICES GROUP, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

24 27 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, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity, and cash flows for the years ended December 31, 2000, 1999 and 1998. 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, 2000 and 1999, and the results of their consolidated operations and cash flows for the years ended December 31, 2000, 1999 and 1998, in conformity with generally accepted accounting principles HORTON & COMPANY, L.L.C. Wayne, New Jersey February 28, 2001 25 28 STAR SERVICES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements 26 29 STAR SERVICES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS

See notes to consolidated financial statements 27 30 STAR SERVICES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

See notes to consolidated financial statements 28 31 STAR SERVICES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to consolidated financial statements 29 32 STAR SERVICES GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 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"), Delta Resources Corp. ("Resources"), Delta Tall Pines Corp. ("Tall Pines"), Delta Site Development Corp. ("Site"), Delta Waste Corp. ("Waste"), and Delta Dade Recycling Corp. ("Dade"). Recycling, Transfer, Delrock, Eastern and Resources are collectively referred to as the "Predecessors". 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 Predecessors were identical. The ownership and voting percentage of Star Services subsequent to the acquisitions of the Predecessors is also identical to that of the Predecessors prior to the acquisitions. Because of the identical ownership of Star Services and the Predecessors, 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. 30 33 STAR SERVICES GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 services commercial customers throughout Southeastern Florida. The Company operates in several areas of the 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 and Delta Dade Recycling Corp., which was incorporated October 20, 2000. 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. ended 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. Delta Dade Recycling Corp. commenced operations in October 2000, first as the operator, then as the owner of a MRF, two transfer stations and a waste collection business. 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, 2000, the Company's cash balance with this bank was $419,433 in excess of the FDIC insured limit. 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. 31 34 STAR SERVICES GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment are carried at cost. Depreciation is provided on the straight-line method over the following estimated useful lives:

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 $99,502 and $13,000 at December 31, 2000 and 1999, respectively. Such costs are being amortized on the straight-line method over a ten-year period. For the years ended December 31, 2000, 1999 and 1998, amortization expense was $86,502, $13,000 and $0, respectively. RECLASSIFICATIONS Certain reclassifications have been made to the 1999 financial statements in order to confirm to the 2000 presentation. DEFERRED CHARGES Deferred charges are recorded at cost and consist of the following:

Restrictive covenants, permits and the operation agreement are amortized on the straight-line method over their estimated useful lives as follows: 5 years.............................................. Restrictive covenants 20 years............................................. Operation agreement 5 years.............................................. Permits

Restrictive covenants are net of accumulated amortization of $9,777 at December 31, 2000. Amortization of the development agreement will begin upon commencement of providing services to a real estate development project. 32 35 STAR SERVICES GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES The Company financed equipment purchases as follows:

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

During 2000 and 1999, the Company issued common stock and notes to effect business combinations, as follows:

33 36 STAR SERVICES GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During 2000, the Company issued 1,800,000 shares of common stock in exchange for notes totaling $4,500,000. 2. BUSINESS COMBINATIONS MARIO'S EQUIPMENT RENTAL 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. 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: Revenues.................................................... $13,816,711 =========== Net loss.................................................... $ (360,440) =========== Loss per share.............................................. $ (0.05) =========== Weighted average common shares.............................. $ 7,087,500 ===========

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. CLASSIC RECYCLING & CONSTRUCTION, INC. In February 2000, Star Services acquired substantially all of the assets of Classic Recycling & Construction, Inc., a company engaged in the roll-off container business. The assets were acquired for $260,000. The purchase price was paid $100,000 at closing, $80,000 by delivery of a one year promissory note and $80,000 by delivery of 26,235 shares of Star Services common stock. ALLIED ROLL-OFF HOLDINGS, INC. During March 2000, Star Services acquired substantially all of the assets of Allied Roll-off Holdings, Inc., which operated 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 by delivery of 59,260 shares of the Company's common stock. PEERLESS BIG APPLE, INC. In December 2000, Star acquired substantially all of the assets of Peerless Big Apple, Inc. and certain of its affiliates. With operations in Miami-Dade County, Florida, the Peerless companies collect, haul and recycle construction and demolition debris, and operate a construction and demolition debris transfer station. The purchase price of $7,530,850 was paid (a) $630,850 by delivery of a four year promissory note, (b) $5,000,000 by the Company's agreement to issue 1,600,000 shares of common stock, and (c) by assumption of $1,900,000 of liabilities of the Peerless companies (the payment of $1,000,000 of which is secured by the pledge of 500,000 shares of common stock). However, the 1,600,000 shares of Star's common stock could be subject to rescission rights by the Peerless Big Apple companies. The purchase occurred while Star's registration statement was not current. As a result, the purchase may have violated Section 5 of the Securities 34 37 STAR SERVICES GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Act. If the issuance of the shares in connection with the transaction was required to be registered under the Securities Act the Peerless Big Apple companies would be entitled to rescind the transaction for a period of one year as a result of the inclusion of these shares in the purchase price prior to the registration statement being current. If rescission were to occur, Star might be required to pay the purchase price for the assets, aggregating approximately $7,530,000, in cash or other consideration, or, alternatively, might be required to return the assets to the former owner. The Peerless Big Apple companies have signed an agreement waiving any rescission rights in connection with the sale, but its waiver might not be enforceable. The Company believes that the likelihood that the Peerless Big Apple companies will seek to enforce its possible rescission rights is remote. OPERATING AND MANAGEMENT AGREEMENT In connection with the Peerless acquisition agreements, the Company entered into an Operating and Management Agreement on October 24, 2000, whereby Star agreed to operate the facilities and businesses of Peerless until the acquisition was consummated. Under the terms of the agreement, Star received all revenues and paid all expenses from the operation of the facilities and business from the date of the agreement (October 24, 2000) until the date the acquisition was consummated (December 26, 2000). The acquisition of the Peerless companies was recorded concurrent with the commencement of the operating and management agreement because effective control of the Peerless companies was transferred to Star. For all of the above acquisitions, the share issuances were recorded based on the bid price of the Company's common stock at the time the agreements were entered into. The value of the consideration given in excess of the fair value of the net assets acquired is being amortized over a 10-year period. The following unaudited information has been prepared on a pro forma basis as if the businesses of Classic, Allied and Peerless had been acquired as of the beginning of the year ended December 31, 2000: Revenues.................................................... $31,683,400 =========== Net loss.................................................... $ (932,475) =========== Loss per share.............................................. $ (0.09) =========== Weighted average common shares.............................. $10,001,766 ===========

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 Classic, Allied and Peerless acquisitions been consummated as of the beginning of the period presented, nor are they necessarily indicative of future operating results. 35 38 STAR SERVICES GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. LONG-TERM DEBT Long-term debt consists of the following:

As of December 31, 2000, maturities of long-term debt are as follows:

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 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 years ended 36 39 STAR SERVICES GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2000 and 1999, related party management fee income totalled $1,537,293 and $20,258, respectively. 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 Star derived $2,269,826 and $290,425 of revenue for disposal fees and trucking services provided to J.R. Capital in 2000 and 1999, respectively. Star incurred $2,857,487 and $1,035,548 of costs for disposal fees at J.R. Capital's material recovery facilities in 2000 and 1999, respectively. Accounts payable includes net payables to J.R. Capital of $10,452 and $499,854 for the years ended December 31, 2000 and 1999, respectively. Such payables are satisfied in the ordinary course of business. During 2000, 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 $59,865, $13,400 and $12,000 for the years ended December 31, 2000, 1999 and 1998, respectively. The Company also leases one of its facilities from a related party. See Note 6. LOANS FROM RELATED PARTIESS Loans from related parties represent uncollateralized advances made to the Company by shareholders and officers. Interest only is payable in monthly installments at rates ranging from 2% above the prime rate to 12%. The notes mature in October 2003 through February 2004. 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. PRIVATE PLACEMENTS 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. During November 2000, the Company entered into agreements with four companies to issue a total of 1,800,000 shares of the Company's common stock for $2.50 per share. The consideration paid was in the form 37 40 STAR SERVICES GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of notes totaling $4,500,000. The notes are payable in principal installments, plus accrued interest at 8%, as follows:

The unpaid balance of the notes represents a subscription receivable, which is presented as a reduction of shareholders' equity. 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: ~~Total compensation to be recognized......................... $1,290,300~~

Compensation recognized during the year ended: December 31, 1999........................................... (295,693) December 31, 2000........................................... (322,572) ---------- Deferred compensation at December 31, 2000.................. $ 672,035 ==========

During 2000, the Company's Board of Directors granted options to purchase 217,400 shares of common stock at an exercise price of $3.75 per share. All such options vest over a four-year schedule and are exercisable no later than 10 years after the grant date. Because the exercise price was greater than the market value of the Company's stock on the date of the grant, there was no compensation cost associated with the grant. 38 41 STAR SERVICES GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following is a summary of stock option transactions during the years ended December 31, 2000 and 1999:

6. COMMITMENTS AND CONTINGENCIES CREDIT FACILITY In November 2000, Star was extended a $4,000,000 credit facility by a bank. The credit facility is comprised of a $2,000,000 line of credit with a maturity date of April 30, 2002, and a five-year term loan in the amount of $2,000,000. Interest on the outstanding principal balance is payable at the rate of prime plus 1/2% or 2.75% over the Libor rate of interest, at the option of the Company. At December 31, 2000, the Company had $30,000 outstanding on the line of credit (Note 3). 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 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. 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 39 42 STAR SERVICES GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) costs. Rent paid to the related party totalled $254,400 and $148,400 for the years ended December 31, 2000 and 1999, respectively. In connection with the acquisition of the Peerless companies described in Note 2, the Company assumed two operating leases for transfer station facilities. One lease is for a four-year period ending December 2004, at a monthly rental of $9,000. The second lease is for a five-year period ending February 2005, at a monthly rental of $3,000. Rent expense under the above office and facilities leases totalled $413,182, $614,698 and $154,610 for the years ended December 31, 2000, 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, 2000, 1999 and 1998 was approximately $107,000, $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 totaled $30,000, $30,000 and $15,000 for the years ended December 31, 2000, 1999 and 1998, respectively. FUTURE MINIMUM PAYMENTS The minimum future payments under the above lease and mineral extraction agreements are as follows:

OPERATION AND DEVELOPMENT AGREEMENTS In connection with the Peerless transaction described in Note 2, the Company acquired an operation agreement and a development agreement. The operation agreement provides for Star to operate a material recovery facility. Under the terms of the agreement, Star records the revenue and incurs the expenses of operating the facility. Star is obligated to pay the owner 10% of the revenue generated from up to 450 cubic 40 43 STAR SERVICES GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) yards of waste received at the facility per day and 6% of the revenue generated from receipt of in excess of 450 cubic yards of waste per day. The development agreement provides Star with the exclusive right to provide pre- and post-development waste services for a specified real estate development project planned by the former owners of the Peerless companies. The agreement is in effect unless terminated by Peerless upon 30 days written notice for any material breath of the agreement or for failure to perform the services. 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. 7. INCOME TAXES During 1998, 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 financial statements. Star's acquisition of the Predecessors in 1999 automatically terminated their S Corporation elections. Therefore, a provision for income tax benefit has been recognized for the years ended December 31, 2000 and 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. The following schedule presents pro forma information (unaudited) of income tax expense which would have been recorded had Star's Predecessors been taxable corporations based on the tax laws in effect during the year ended December 31, 1998 and the resultant pro forma effect on net loss and loss per share. Historical income (loss) before income taxes................ $ (89,742) Pro forma income tax benefit................................ 27,000 ---------- Pro forma net loss.......................................... $ (62,742) ========== Pro forma loss per share.................................... $ (0.01) ========== Historical weighted average shares outstanding.............. 5,000,000 ==========

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 $236,548 and $195,001 were recognized for the years ended December 31, 2000 and 1999, respectively, as a result of the Company's net operating losses of approximately $675,000 in 2000 and $557,000 in 1999. Such losses are available to be carried forward through the years 2020 and 2019, respectively, 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. As of December 31, 2000 and 1999, $143,850 and $195,001 of the deferred tax assets have been classified as current based on the expected reversal date of the temporary difference. The non-current portion of the deferred tax asset is included in deferred charges. 41 44 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. 42 45 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. 2. FINANCIAL STATEMENT SCHEDULES: The following financial statement schedules of Star Services Group, Inc. for the calendar years ended December 31, 2000, 1999, and 1998 are filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of Star Services Group, Inc.

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 None 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. 43 46 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 GROUP, INC.

44 47 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 statement of the Company. Such information has been subjected to the auditing procedures applied in our audit of the financial statements and, in our opnion, is fairly stated in all material aspects in relation to the financial statements taken as a whole. HORTON & COMPANY, L.L.C. Wayne, New Jersey February 28, 2001 45 48 STAR SERVICES GROUP, INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

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STAR SERVICES GROUP INC 10-K