3CI COMPLETE COMPLIANCE CORP - 10-K Annual Report

Back to GetFilings.com

FORM 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

----------

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

For the fiscal year ended September 30, 2002

OR

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

(No Fee Required)

For the transition period from to
----------------- -----------------

Commission file number 1-11097

3CI COMPLETE COMPLIANCE CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 76-0351992
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1517 W. North Carrier Parkway, #104
Grand Prairie, TX 75050
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (972) 375-0006

----------

Securities Registered Pursuant to Section 12(b) of the Act:None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share
--------------------------------------
(Title of class)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. YES [X] NO [ ]

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

The aggregate market value of the Voting Stock held by non-affiliates of the
registrant as reported on the OTC Bulletin Board on January 14, 2002 was
approximately $814,868 computed on the basis of the closing sale price that day.
The number of shares of Common Stock outstanding as of the close of business on
January 14, 2003 was 9,739,611.

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

3CI COMPLETE COMPLIANCE CORPORATION

TABLE OF CONTENTS *
ANNUAL REPORT ON FORM 10-K

----------

----------

* This Table of Contents is inserted for convenience of reference only and is
not a part of this Report as filed.

2

PART I

ITEM 1. BUSINESS

GENERAL.

3CI Complete Compliance Corporation ("3CI" or the "Company") was
incorporated in Delaware in 1991. The Company is engaged in the business of
medical waste management services. It services customers in a number of states
in and contiguous to the south and southeastern United States, including
Alabama, Arkansas, Georgia, Florida, Louisiana, Mississippi, Oklahoma,
Tennessee, and Texas. The Company's customers include regional medical centers,
major hospitals, clinics, medical and dental offices, veterinarians,
pharmaceutical companies, retirement homes, medical testing laboratories and
other medical waste generators. Services to customers include collection,
transportation, bar code identification and treatment by third parties. The
Company also provides training to customers on compliance with regulations, use
of containers, documentation and tracking.

"Medical waste" or "biomedical waste," as used herein, is broadly
defined to mean any liquid or solid waste generated in the diagnosis, treatment
or immunization of human beings or animals or in related research, that may
result in an infectious disease. State and federal regulations tend to focus on
regulated and infectious medical waste, which includes pathological wastes,
including tissues, organs and body parts; blood and the products or components
of blood; "sharps," including needles, scalpels, pipettes and other medical
instruments; waste from surgery or autopsy; dialysis wastes, including
contaminated disposable equipment and supplies; cultures and stocks of
infectious agents, including cultures from medical and pathological
laboratories; and various other biological wastes and discarded materials
contaminated with or exposed to blood, excretion and secretions from human
beings or animals. Also included are pharmaceutical wastes. Except as discussed
below, "Medical waste" or "biomedical waste" as used herein, does not include
"hazardous waste," as such term is commonly defined under state and federal
regulations.

The Company believes the key to success in the medical waste management
business is to provide customers a total solution to their medical waste
compliance and disposal needs at competitive prices. To achieve and sustain a
competitive advantage in the medical waste disposal industry, the Company
provides the products and services described below to its customers.

MEDICAL WASTE CONTAINERS

The Company's policy is to accept medical waste from customers only if
it is packaged in containers provided or approved by the Company. The Company
furnishes its customers with multiple containers, reusable plastic carts,
plastic reusable and rigid cardboard containers for disposal of medical waste
products. These containers are clearly marked with the "biohazard" symbol to
draw attention to their contents and are lined with specialized plastic bags and
sealed to minimize potential contact with the medical waste products by health
care workers and medical waste handlers. The Company also furnishes its
customers with rigid reusable plastic containers clearly marked as biohazardous
and designed to contain certain types of medical waste, such as hypodermic
needles, scalpels and other so-called "sharps". Each container is specifically
designed for the type of waste it will hold and meets or exceeds governmental
specifications as to construction and strength. The Company believes that its
emphasis on proper containerization results in safer medical waste disposal and
minimizes potential hazards or liabilities to the Company and its customers.

The Company also provides reusable plastic containers for certain
customers. The Company believes the use of reusable containers has the potential
to lower costs to the Company. The rigid, plastic containers generally are
larger than the disposable boxes and can therefore hold greater volumes of
waste.

3

TRANSPORTATION

An important element of the Company's business strategy is to maximize
the efficiency with which it collects and transports regulated medical waste.
Therefore, the Company operates a specially equipped fleet of trucks, tractors
and trailers (dry and refrigerated) to provide strict control of transportation
services for the acceptance and transportation of containerized medical waste.
Drivers are trained in Department of Transportation ("DOT") procedures for the
transportation of medical waste. The Company has in place contingency plans to
respond immediately to any type of spill, leakage or other emergency that may
occur during transportation and provides emergency services to customers upon
request.

DOCUMENTATION AND REPORTING

The bar code label affixed to each of the Company's medical waste
containers is used in conjunction with computers, laser scanners and digital
scales to document the handling, treatment, disposal and weighing of the
customer's medical waste stream. Bar coded containers allow proper documentation
and tracking of waste materials and meet all applicable local, state and federal
regulations concerning packaging and labeling of medical waste materials. The
Company provides its customers on a regular basis with medical waste destruction
reports that document the acceptance, transportation, treatment and third party
verification of their medical waste disposal. The Company's detailed
documentation provides information on all waste it accepts including the
individual container bar code number, point of origin, date and time of pick up,
date and time of treatment, weight at time of treatment and certificate of
destruction.

DISPOSAL

The Company utilizes permitted treatment facilities throughout its
operating territory. There is ample capacity available in the area and the
Company attempts to optimize its cost structure by utilizing treatment sources
nearest its customer base. These facilities include incinerators and autoclaves.
The Company formerly operated two incinerators and a Chem-clave(TM) unit in
Springhill, Louisiana. In December 2001 the decision was made to permanently
idle this equipment in order to avoid significant capital costs to upgrade and
maintain the equipment to comply with more restrictive EPA requirements and to
reduce overall treatment costs. In addition the Company holds a treatment permit
at a leased location in Birmingham, Alabama where the Company formerly operated
an incinerator and a microwave unit which were also permanently idled in
December 2001. The Company continues to track and record the movement of medical
waste through all phases of its handling and treatment, in compliance with
governmental regulations.

The Company enters into medical waste disposal agreements with
customers for the collection of their medical waste according to a schedule
agreed upon between the parties. The Company accepts medical waste that has been
packaged by customers in containers provided by the Company and provides
transportation to treatment facilities. The Company uses a bar code technology
to track and record the movement of medical waste through all phases of its
handling in compliance with applicable governmental regulations.

SAFETY TRAINING AND CONSULTATION

The Company designs specialized on-site training systems for the
identification, segregation, handling and containerizing of waste products.
These systems are designed to assist customers in reducing their waste disposal
costs while maintaining regulatory compliance and to reduce potential exposure
to the Company's employees. The Company instructs health care workers in the
most efficient methods of handling, recording and documenting their waste
streams in compliance with local, state and federal regulations. The Company
will, on request, review a customer's internal waste collection and

4

control system or assist the customer in developing an internal system to
provide for the efficient management of medical waste within the customer's
facility from its creation to the point of its acceptance by the Company.

CUSTOMERS

The Company's health care customer base is diverse, with about 8,500
accounts in Texas, Louisiana, Mississippi, Alabama, Arkansas, Florida, Georgia,
and Tennessee, including regional medical centers, major hospitals, specialty
clinics, individual medical and dental practitioners, dialysis centers,
veterinary clinics, nursing homes and assisted care residences, among others.
The Company is not dependent upon a single customer or a few customers, and no
individual customer generates three percent or more of the Company's revenues.

SALES AND MARKETING

The Company divides its market into two categories within each
geographic region: the hospital market and the professional market. The hospital
market consists principally of medical centers, major hospitals, major teaching
institutions involved in medicine and research and major medical complexes. The
professional market consists principally of physician and dental offices,
laboratories, nursing and convalescent homes, medical and veterinarians'
offices, and clinics and mortuaries.

The Company uses a multi-part strategy to increase its presence and
customer base in a particular geographical market. First, Company
representatives meet personally with a prospective customer to detail the
Company's services and to negotiate a disposal agreement that reflects the
prospective customer's service needs. Second, the Company seeks endorsements or
referral relationships with hospitals and professional associations in the
market areas. The Company seeks to achieve a mix of both hospital and
professional accounts which maximizes its resources in each given market area.

The Company's sales strategy includes sales personnel in each region to
maximize the Company's presence. The Company also utilizes a telemarketing
program to produce new customer leads as well as ensure customer satisfaction
and loyalty. Customer satisfaction is also achieved by the Company's
representatives participation in medical waste audits and proper packaging
in-services.

The Company produces an OSHA Compliance Manual which assists the
customers with compliance of OSHA regulations. A quarterly newsletter is also
provided to customers to update changes and developments related to federal
regulations as well as addressing questions that may effect their facilities.

COMPETITION

The market for regulated medical waste collection and processing
services is highly competitive and requires substantial labor and capital
resources. The Company experiences intense competition from national, regional
and local waste disposal (i.e., collection) companies as well as national,
regional and local companies providing integrated medical waste services (i.e.,
collection and processing). These companies compete directly with the Company
for business from medical waste generators located in the Company's regional
markets. In addition, the Company faces competition from businesses and other
organizations that are attempting to commercialize alternate treatment
technologies collectively to member groups of regulated medical waste
generators. The Company's majority shareholder, Waste Systems, Inc. ("WSI") is
owned by Stericycle, Inc. ("Stericycle"), which also operates in some of the
Company's operating markets.

5

INSURANCE COVERAGE

The medical waste disposal industry involves potentially significant
risks of statutory, contractual, tort and common law liability. The Company
carries a range of insurance coverage, including a comprehensive general
liability policy in the amount of $1,000,000 with a combined single limit for
bodily injury and property damage, and a $5,000,000 excess umbrella liability
policy. The Company also carries $1,000,000 per occurrence of transportation
liability insurance coverage, which includes coverage for environmental damage
caused by waste spillage or other forms of pollution occurring during
transportation. The Company believes that the types of insurance it carries and
amounts of coverage are sufficient to protect the Company against the covered
liabilities. There can be no assurance, however, the Company's insurance will be
adequate under all circumstances or that the Company will be able to maintain
its current insurance at existing levels and prices.

EMPLOYEES

As of January 14, , 2003, the Company had approximately 122 full-time
and two part-time employees. Two of the employees are employed in executive
capacities; the remaining are in transportation operations, sales positions and
administrative and clerical capacities. None of the Company's employees are
subject to collective bargaining agreements.

GOVERNMENTAL REGULATIONS

GENERAL. All aspects of the Company's business are heavily regulated.
The Company's collection, hauling, processing and disposal activities are
governed by numerous federal, state and local agencies and authorities under
laws, rules and ordinances relating to the definition, generation, segregation,
handling and packaging of medical waste. In addition, facility citing,
construction, operations, occupational training, safety, air, water and
incineration ash characteristics and disposal are regulated under different but
related laws, rules and ordinances. The Company believes it has all required
permits and is in compliance with the various laws and regulations to which it
is subject.

The Company's activities are subject to federal laws and regulations
relating to public health and the environment. In addition to those federal
environmental and public health related laws that apply generally to the
Company's activities, there are a number of federal laws and regulations that
directly pertain to the handling, transport and processing of medical waste. The
most pertinent of these federal environmental and public health laws are
discussed below.

TREATMENT FACILITIES. In December 2001, the decision was made to idle
the Company's treatment facilities and to contract the treatment of medical
waste to a third party. The Company intends to maintain treatment permits at its
existing locations. These efforts typically involve the expenditure of
substantial resources without any assurance of success. Such permits may
include: (i) air quality permits relating to the emissions from treatment
facilities, (ii) solid waste permits relating to storage, receipt and treatment
of medical waste, the storage and disposal of residues from the treatment
facilities, and ancillary air pollution control equipment relative to
incinerators, (iii) waste-water discharge permits, (iv) storm water discharge
permits, (v) site permits, such as zoning or special use permits, relating to
the appropriateness of sites for a waste processing facility under applicable
zoning regulations, (vi) building permits and (vii) occupancy permits. Air
quality permits and site permits, and in some cases solid waste permits, can be
difficult to obtain, and may take a year or longer to be issued.

Companies in the medical waste disposal industry often face resistance
to various permit applications from local and regional organizations, citizens
groups and residents because of the nature of the waste and the perceived threat
to air quality and public health caused by waste processing. The Company often
must conduct a public relations campaign, with an emphasis on education, to
overcome local opposition, which often is highly political and emotional.
Furthermore, once granted, permits often are subject to continuing review and
may be challenged either in court or otherwise even after construction or
operations have commenced. Accordingly, the Company's operations could be
subject to

6

suspension or termination even after substantial funds have been expended in
reliance upon state or local regulatory approvals.

Operating permits generally incorporate performance standards. The
failure to comply with such standards could subject the Company to the
suspension or revocation of its permits or financial penalties for failure to
comply with permit requirements The Company believes that it is in compliance
will all such standards.

TRANSFER STATIONS. Transfer of medical waste, generally from a small
local pick-up vehicle to a large transport trailer, is necessary to consolidate
and transport waste in an economical fashion to regional processing centers.
Most states permit such transfer operations under their solid waste regulatory
authority or their department of health. After receiving local approvals, such
as necessary zoning or special use permits, application may be made to the
appropriate state solid waste authority.

STATE TRANSPORT PERMITS. Transportation permits currently are required
in a number of states. Some states require permits only if waste is picked up in
that state, while others require permits to transport waste through the state.
These permits generally include driver safety and training, waste packaging,
labeling and tracking requirements. The Company currently holds all necessary
hauling permits in each state in which it conducts operations. There can be no
assurance that any of the Company's current permits will be renewed or that, if
the Company is able to identify and secure additional locations for treatment or
other waste processing facilities or transfer stations, all necessary permits
will be obtained, or that if such permits are granted that they will be granted
in a timely manner or under conditions that will be acceptable to the Company.

THE OCCUPATIONAL SAFETY AND HEALTH ACT ("OSHA"). OSHA gives the federal
government the authority to regulate the management of infectious medical waste.
Liability may be imposed under the general duty clause found in Section 654 of
OSHA. This section requires employers to provide a place of employment that is
free from recognized and preventable hazards that are likely to cause serious
physical harm to employees. The regulations promulgated under OSHA require
employers to give notice to employees regarding the presence of hazardous
chemicals and to train employees in the use of such substances. This may be
found to apply in the case of chemicals that could be present in infectious
medical waste.

OSHA contains rules regarding exposure to blood born pathogens, which
increase the cost of providing medical waste management services. These rules
impose, among other things, engineering and work practice controls, use of
personal protective clothing and equipment, training, medical surveillance,
labeling and record keeping requirements with respect to occupational exposure
to blood and other potentially infectious materials.

THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976 ("RCRA"). RCRA
establishes a regulatory program administered by the Environmental Protection
Agency ("EPA") covering the generation, storage, transportation, treatment and
disposal of hazardous waste. RCRA defines "hazardous waste" as any solid waste,
or combination of solid waste, which because of quantity, concentration,
physical, chemical, or infectious characteristics may:

(a) cause, or significantly contribute to, an increase in
mortality or an increase in serious irreversible or
incapacitating reversible illness; or

(b) poses a substantial present or potential hazard to human
health or the environment when improperly treated, stored,
transported or disposed of, or otherwise managed.

Although this general statutory definition of hazardous waste may
provide the EPA with the authority to regulate at least certain infectious
medical wastes as hazardous wastes, the EPA has not

7

chosen to do so. To date, infectious medical wastes have not been listed by the
EPA as hazardous waste, nor has being infectious been designated by the EPA as
one of the characteristics of a hazardous waste. Thus, infectious medical
wastes, which do not otherwise qualify as hazardous wastes, currently are not
subject to regulation under RCRA as hazardous wastes.

Although the EPA has not chosen to regulate infectious wastes as
hazardous wastes, it has developed and issued informal guidance outlining
practical approaches to infectious waste management. Moreover, although RCRA
does not comprehensively address the area of medical waste, certain wastes
common to the medical field currently are listed as hazardous wastes and,
therefore, certain medical wastes may be subject to the requirements of RCRA.
With respect to those solid wastes, that are deemed hazardous, RCRA contains
extensive regulatory requirements pertaining to reporting to the EPA, record
keeping, labeling, the use of containers, the furnishing of information to
persons handling the hazardous wastes and the tracking of hazardous wastes from
the point of generation to the point of disposal involving, among other things,
the use of transportation manifests.

Finally, facility ash may constitute hazardous waste depending upon the
composition and characteristics of the waste ash generated by the incineration
technology employed. If so, the ash would be subject to the hazardous waste
transportation, disposal and other hazardous waste management requirements of
RCRA discussed above. However, beginning in December 2001, as the Company is no
longer incinerating medical waste or handling ash, it would not be subject to
these requirements.

U.S. DEPARTMENT OF TRANSPORTATION. The Company's medical waste
transportation activities are subject to federal regulation by the DOT pursuant
to the Hazardous Waste Materials Transportation Act of 1994. The DOT regulations
contain packaging and labeling requirements, which are imposed on different
waste categories, depending on the perceived hazards of each category. The
regulations impose the most stringent requirements on packages containing over
four liters gross volume of "etiologic agents", which are defined as "viable
microorganism(s) or (their) toxin(s), which cause or may cause human disease,"
and are limited to certain agents listed in the Hazardous Materials Regulations.
These standards are intended to prevent the release of such agents into the
environment. The DOT requirements are intended to supplement etiologic waste
regulations promulgated by the Public Health Service of the U.S. Department of
Health and Human Services.

A significant portion of the waste the Company handles is "Regulated
Medical Waste", which as defined in the DOT Regulations, includes cultures and
stocks, pathological waste, human blood and any blood products, sharps, animal
waste, isolation waste, and unused sharps. These wastes are considered to be of
medium danger. To meet the packaging standards, packages containing these wastes
must be rigid, leak resistant and impervious to moisture, of sufficient strength
to prevent tearing or bursting while under normal conditions of use and
handling, sealed to prevent leakage during transport, puncture resistant for
sharps and sharps with residual fluids, and break resistant and tightly sealed
for fluids in quantities greater than 20 cubic centimeters. The DOT regulations
also prescribe labeling standards for all infectious and regulated waste and
testing protocols for manufacturers and suppliers of packaging.

In addition, the Company generally is subject to regulation by the DOT
and may be subject to regulation by the Interstate Commerce Commission pursuant
to a number of other statutes and bodies of regulation, some of which
specifically pertain to the transport of medical waste and which address, among
other things, vehicle operating procedures and the training of persons to
operate commercial vehicles carrying hazardous materials.

CERCLA. Federal regulations are included in the Comprehensive
Environmental Response, Compensation and Liability Act, as amended by the
Super-fund Amendments and Reauthorization Act of 1986 ("CERCLA"), which in
general imposes strict liability in the event of a release or threatened release
of hazardous substances from a facility. Certain medical wastes may be
categorized as hazardous substances under CERCLA.

8

FEDERAL CLEAN AIR ACT. The Federal Clean Air Act and related
regulations may apply to the air emissions from the Company's incineration
facilities. The Clean Air Act establishes, among other things, comprehensive air
permitting and enforcement programs. These regulatory programs are based on
several types of air quality standards: national air quality standards, national
emissions standards for hazardous air pollutants, new source performance
standards, technology-based standards and acid disposition requirements. The
Company is required to design, construct and operate its facilities in
accordance with the Federal Clean Air Act and obtain all permits and approvals
required therein. Beginning in December 2001, as the Company was no longer
operating medical waste treatment facilities, so it is not currently subject to
the Federal Clean Air Act as it would apply to such facilities.

FEDERAL CLEAN WATER ACT. Water discharges from the disposal processes,
if any, and storm water discharges may be regulated under the Federal Clean
Water Act and implementing regulations. Pursuant to the Federal Clean Water Act,
the EPA has promulgated extensive effluent and water quality standards as well
as permitting requirements for industrial discharges of water. The Company is
required to design, construct and operate its facilities in accordance with the
Federal Clean Water Act and obtain all permits and approvals required therein.
As the Company is not currently operating medical waste treatment facilities, it
is not subject to the Federal Clean Water Act as it would apply to such
facilities.

THE FOOD AND DRUG ADMINISTRATION ("FDA"). The Company is subject to
regulation by the FDA and the corresponding agencies of the states and foreign
countries in which the Company sells its products. Such regulation, among other
things, relates to the testing, marketing, export and manufacture of medical
devices. The FDA considers sharps containers to be "medical devices", as defined
under the Federal Food, Drug, and Cosmetic Act. Most sharps containers,
according to the FDA, are class II accessories to sharps devices.

STATE REGULATION

The states in which the Company operates generally have complex
regulatory frameworks governing, among other issues, the storage, treatment,
labeling, transport and disposal of medical waste. The Company's vehicles,
packaging, facilities and operating procedures are subject to detailed and
comprehensive regulation on the state level. All facilities are required to
provide monitoring equipment. State regulatory authorities may inspect Company
operations on a regular basis and assess fines and penalties or may halt
operations for failures by the Company to follow specific regulations. In
addition, the failure of state regulatory agencies to issue required permits or
renewals, or any delays by such agencies, could have a material adverse impact
on the Company's operations.

ITEM 2. PROPERTIES

The Company's principal executive offices are located in approximately
3,200 square feet of office space in Grand Prairie, Texas which is held under a
lease expiring in June 2003, under which the Company paid approximately $39,600
during fiscal 2002. The Company relocated its offices from Shreveport, Louisiana
in June 2002.

9

The Company believes that its facilities are adequate for its current
and foreseeable needs.

ITEM 3. LEGAL PROCEEDINGS

On July 16, 2002 a suit was filed in the First Judicial District Court
in Shreveport, Louisiana against Stericycle, Inc. and certain of 3CI' s
directors, which alleged minority shareholder oppression, breach of fiduciary
duty and unjust enrichment. While the Company is not party to the lawsuit, we
have contacted our insurance carrier and hired counsel to assist the Company in
this litigation. The defendants in the case have denied the allegations and
intend to defend the case vigorously.

The Company is subject to certain other litigation and claims arising in
the ordinary course of business. Management believes the amounts ultimately
payable, if any, as a result of such claims and assessments will not have a
materially adverse effect on the Company's financial position, results of
operations or net cash flows.

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

No matter was submitted to a vote of the Company's stockholders during
the fourth quarter of the fiscal year ended September 30, 2002.

10

PART II

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

The Company's Common Stock is traded over-the-counter on the OTC
Bulletin Board under the symbol "TCCC." The following table provides the high
and low bid quotations for the OTC Bulletin for each of the quarterly periods
indicated for the fiscal years ended September 30, 2002 and 2001. These
quotations indicated the inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions.

As of January 14, 2003, the approximate number of owners of record of
the Company's Common Stock was 425, and the closing sale price of the Common
Stock on January 14, 2003 was $0.32.

The Company declared, but did not pay, preferred stock dividends of
$637,623 and $907,387 during the fiscal years ended September 30, 2002 and 2001
respectively. The Company has never paid dividends on its Common Stock.

11

ITEM 6. SELECTED FINANCIAL DATA

The following information is derived from the Company's audited
financial statements. This data should be read in conjunction with the financial
statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
Report.

(a) Refer to Note 4 to the audited financial statements for further discussion

- ----------

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

OVERVIEW

On December 19, 2001, the Company made the decision to close all of its
treatment facilities which consisted of two incinerators and a Chem-clave(TM)
unit in Springhill, Louisiana, and an incinerator and a microwave unit located
in Birmingham, Alabama. These facilities were temporarily idled during the
fourth quarter of 2001 while management evaluated whether to incur significant
capital costs to

12

upgrade and maintain the equipment to comply with more restrictive EPA
requirements. Subsequently, on December 19, 2001, the decision was made to close
the internal facilities and seek out less expensive treatment fees at external
sources. Management, after considering the necessary upgrades to the existing
facilities as well as the treatment capacity available at other sources,
determined that this equipment had no remaining value. As a result, the
treatment related assets were written down to their fair value of zero. The
write down of fixed assets totaled $2,631,885 and is reflected on a separate
line on the statement of operations for the fiscal year ended September 30, 2001
and is also reflected in the decrease in fixed assets and total assets.

The Company has substantial indebtedness owed to WSI. This indebtedness
currently consists of a note in the principal amount of $3,890,635. In 1997 and
1998, through a series of transactions described below, certain additional debt
that the Company owed to WSI previously was converted into 7,000,000 shares of
the Company's Series B Convertible Preferred Stock, par value $.01 per share
(the "Series B Preferred Stock") and 750,000 shares of the Company's Series C
Convertible Preferred Stock, par value $.01 per share (the "Series C Preferred
Stock"). The Series B Preferred Stock and Series C Preferred Stock have
substantially identical terms. See "--Liquidity and Capital Resources."

YEAR ENDED SEPTEMBER 30, 2002 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 2001

REVENUES decreased by $2,992,873, or 15.9%, to $15,825,284 during the
fiscal year ended September 30, 2002, from $18,818,157 for the fiscal year ended
September 30, 2001. This decrease is primarily related to a reduction in the
volume of waste handled. The reduction in volume was attributable to the
Company's efforts to focus on small quantity generators which provide higher
margins at lower volumes while reducing the focus on less profitable larger
quantity generators.

COST OF SERVICES BEFORE DEPRECIATION AND AMORTIZATION AND FIXED ASSET
WRITE-DOWN decreased $2,548,209 or 20.0%, to $10,204,857 during the year ended
September 30, 2002, compared to $12,753,066 for fiscal 2001. The decrease was
primarily attributable to a decrease in the volume of waste handled, lower
treatment and transportation costs. For the year ended 2002 gross margin before
depreciation and amortization and fixed asset write-down increased to 35.5%
compared to 32.2% of revenue for the fiscal year ended 2001.

DEPRECIATION AND AMORTIZATION expense decreased $893,435 or 55.9% to
$703,794 for fiscal year ended 2002, from $1,597,229 for fiscal 2001. In the
fourth quarter of fiscal 2001, the Company wrote-down its waste treatment
equipment to its fair market value of zero based upon the decision to cease
processing waste internally. The write-down of $2,631,885 is reflected as a
separate line in the statement of operations for the fiscal year ended September
30, 2001.

SELLING, GENERAL AND ADMINISTRATIVE expenses increased $318,598 or
11.9% to $2,992,753 or 18.9% of revenue during the fiscal year ended September
30, 2002 from $2,674,155, or 14.2% of revenue during the year ended September
30, 2001. This increase is primarily the result of decreased revenue as well as
an increase in bad debt expense. In June 2002 the Company relocated its offices
from Shreveport, Louisiana to Grand Prairie, Texas. The employee turnover due to
the move created a delay in billing and collection of accounts receivable which
led to the increase to the bad debt reserve. Bad debt expense totaled $396,634
in fiscal 2002 compared to $125,021 in fiscal 2001.

INTEREST EXPENSE decreased by $418,607, or 47.3%, to $466,842 during
the fiscal year ended September 30, 2002, as compared to $885,449 in the fiscal
year ended September 30, 2001. This decrease was primarily due to reduced debt
and a decrease in the interest rate for the WSI promissory note, which is
variable and tied to the prime interest rate.

OTHER INCOME AND EXPENSE increased by $61,938 or 37.5% to $227,211
during the fiscal year ended September 30, 2002, from $165,273 for the fiscal
year ended September 30, 2001. The increase was due to an increase in payments
made under a profit sharing agreement.

13

YEAR ENDED SEPTEMBER 30, 2001 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 2000

REVENUES increased by $1,601,379, or 9.3%, to $18,818,157 during the
fiscal year ended September 30, 2001, from $17,216,778 for the fiscal year ended
September 30, 2000. This increase is primarily due to an increase in pricing
necessary to cover higher operating costs.

COST OF SERVICES BEFORE DEPRECIATION AND AMORTIZATION AND FIXED ASSET
WRITE-DOWN increased $675,626 or 5.6%, to $12,753,066 during the year ended
September 30, 2001, compared to $12,077,440 for fiscal 2000. The increase was
primarily attributable to higher fuel costs and higher internal treatment costs
including equipment maintenance and higher transportation costs incurred in
routing waste to external sites while facilities were not operational. Cost of
services before depreciation and amortization and fixed asset write down as a
percentage of revenues decreased to 67.8% during 2001 from 70.1% during 2000
primarily due to increased revenue. For the year ended 2001 gross margin before
depreciation and amortization and fixed asset write-down increased to 32.2%
compared to 29.9% of revenue for the fiscal year ended 2000.

DEPRECIATION AND AMORTIZATION expense decreased $107,033 or 6.3% to
$1,597,229 for fiscal year ended 2001, from $1,704,262 for fiscal 2000. This
decrease was related to certain assets becoming fully depreciated. In the fourth
quarter of fiscal 2001, the Company wrote-down its waste treatment equipment to
its fair market value of zero based upon the decision to cease processing waste
internally. The write-down of $2,631,885 is reflected as a separate line in the
statement of operations for the fiscal year ended September 30, 2001.

SELLING, GENERAL AND ADMINISTRATIVE expenses decreased $185,237 or 6.5%
to $2,674,155 or 14.2% of revenue during the fiscal year ended September 30,
2001 from $2,859,392, or 16.6% of revenue during the year ended September 30,
2000. This decrease is primarily the result of increased revenue as well as
reductions in salaries and various other administrative expenses.

INTEREST EXPENSE decreased by $136,401, or 13.3%, to $885,449 during
the fiscal year ended September 30, 2001, as compared to $1,021,850 in the
fiscal year ended September 30, 2000. This decrease was primarily due to lower
commitment fees and a decrease in the interest rate for the WSI promissory note,
which is variable and tied to the prime interest rate.

OTHER INCOME AND EXPENSE increased by $24,883 to $165,273 during the
fiscal year ended September 30, 2001, from $140,390 for the fiscal year ended
September 30, 2000. The increase was due to an increase in payments made under a
profit sharing agreement.

LIQUIDITY AND CAPITAL RESOURCES

During fiscal 2002, 2001, and 2000, the Company invested approximately
$70,144, $159,831, $410,885, respectively, for transportation, machinery and
equipment at its treatment and transportation locations, as well as computer
equipment and software.

The Company has historically financed its working capital needs,
capital expenditures, and acquisitions using advances from WSI, its majority
shareholder, internally generated funds, and borrowings from third parties. The
Company's indebtedness currently consists of amounts owed to WSI (which are
described below), and a portion of the Company's insurance premiums that are
financed over the course of each fiscal year.

On October 1, 1998, WSI and the Company amended and restated a
revolving promissory note (the note) which was originally due September 30,
2000. As of June 30, 2000, the Company notified WSI that it anticipated it would
fail to meet a net income requirement under the note for the quarter ended June
30, 2000. The note was renegotiated and extended at that time and the default
was waived.

14

Since that time the note has been extended either quarterly or semi-annually
under interest rate terms ranging from prime plus 1.0% to prime plus 3.5% not to
exceed 13%. In connection with the note extension on August 1, 2000, 3CI issued
warrants to WSI for the purchase of up to 351,836 shares of 3CI common stock at
an exercise price of $0.20 per share. These warrants expired on September 20,
2002. When the Note was extended on October 1, 2000, 3CI issued warrants to WSI
for the purchase of up to 541,286 shares of 3CI common stock at an exercise
price of $.10 per share which were exercised on December 19, 2002. In each of
these cases the values of the warrants were included in the statement of
operations for the respective periods as interest expense.

An agreement effective October 1, 2001 extended the note's maturity to
July 1, 2002. The terms of this extension included a reduction of the interest
rate to the prime rate plus 1.0% and called for a principal payment of $200,000
at renewal and an additional $200,000 principal payment in June 2002. The
agreement also required the Company to achieve minimum levels of EBITDA for each
of the six-month periods ended March 31, 2002 and June 30, 2002. This level was
not achieved for the six months ended March 31, 2002 requiring the Company to
record an additional $120,404 in interest expense.

The note was renegotiated pursuant to an agreement dated May 23, 2002
by which the maturity was extended to October 1, 2003. The terms of this
extension included an interest rate equal to the prime rate, currently 4.25%,
plus 1.0% and called for a principal payment of $700,000 at renewal and
additional monthly payments of $100,000 to be applied to accrued interest and
principal. The agreement also required the Company to achieve a minimum level of
EBITDA for the six-month period ended June 30, 2002 and for each trailing six
month period thereafter until maturity. This level was achieved for the six
months ended June 30, 2002 and September 30, 2002.

At September 30, 2002 the Company had a net working capital deficit of
$191,764 compared to a net working capital deficit of $3,938,161 at September
30, 2001. This increase of $3,746,397 was due to the overall reduction in debt
and the classification of a portion of the note payable to the majority
shareholder to long term debt.

Net cash provided by operating activities was $2,374,051 for the year
ended September 30, 2002, compared to $1,116,881 for the year ended September
30, 2001. This increase reflects the Company's increase in income from
operations. Net cash provided by operations was $1,116,881, during the year
ended September 30, 2001, compared to net cash provided by operations of
$1,429,540 during the year ended September 30, 2000. This decrease reflected the
Company's increase in accounts receivable and decrease in accounts payable
during the fiscal year ended 2001.

Net cash used in investing activities for the year ended September 30,
2002, was $430 compared to $87,015 for the fiscal year ended September 30, 2001.
This decrease primarily reflects a decrease in capital expenditures. Net cash
used in investing activities for the year ended September 30, 2001, was $87,015
compared to net cash used in investing activities of $358,434 for the fiscal
year ended September 30, 2000. The decrease was the result of reduced capital
spending during the year ended September 30, 2001.

Net cash used in financing activities was $2,184,464 in the fiscal year
ended 2002 compared to $881,492 in the fiscal year ended 2001. This increase
reflected the Company's efforts to reduce affiliated and un-affiliated debt
during the year. The Company utilized cash provided by improved cash flows to
repay over $2,000,000 in debt during the year. Cash used in investing activities
totaled $881,492 for the fiscal year ended 2001 compared to $746,304 during the
year ended September 30, 2000. The difference was related to increased payments
of the note to its majority shareholder and other debt.

Earnings before interest, taxes, depreciation and amortization (EBITDA)
totaled $2,400,463 for the fiscal year ended September 30, 2002, which reflected
a decrease of $825,200 from the corresponding period for 2001, which totaled
$3,225,663. This decrease was primarily due to reduced

15

revenue in fiscal 2002. EBITDA increased $1,086,107 in fiscal 2001 to $3,225,663
from $2,139,556 in fiscal 2000. This increase was due to the Company's increased
profitability from operations in fiscal 2001.

The Company considers EBITDA to be a widely accepted financial
indicator of a company's ability to service debt, fund capital expenditures, and
expand its business. In addition, the note payable to the majority shareholder
includes a debt covenant based on the Company's six month rolling EBITDA.

CRITICAL ACCOUNTING POLICIES

The Company's financial statements are based on the selection and
application of significant accounting policies, which require management to make
significant estimates and assumptions. The Company believes that the following
are several of the more critical accounting policies that currently effect the
presentation of the Company's financial condition and results of operations.

Allowance for Doubtful Accounts

The Company's allowance for doubtful accounts reflects reserves for customer
receivables to reduce the accounts receivable balance to amounts expected to be
collected. Management uses significant judgment in estimating uncollectible
amounts. In estimating uncollectible amounts, management considers factors such
as current overall economic conditions, industry-specific economic conditions,
historical customer performance, and anticipated customer performance. While
management believes the Company's processes effectively address its exposure for
doubtful accounts, changes in the factors considered may require adjustment to
the allowance for doubtful accounts recorded by the Company.

Self Insurance

The Company is self-insured for certain losses related to employee
health care benefits. Stop loss-coverage with a third party insurer is used to
limit the Company's exposure. The recorded liability, $60,196 and $136,575 at
September 30, 2002 and 2001, represents an estimate of the ultimate cost of
claims incurred as of the balance sheet date. The estimated liability is not
discounted and is established based upon analysis of historical data and is
reviewed by management to ensure that the liability is appropriate. While the
Company believes these estimates are reasonable based on the information
currently available, if actual trends, including the severity or frequency of
claims or fluctuations in premiums, differ from estimates, the financial results
could be impacted.

ITEM 7A. QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

The Company's exposure to market risk includes the possibility of
rising interest rates in connection with the Company's credit facility with WSI,
its majority shareholder, thereby increasing its debt service obligation, which
could adversely effect the Company's cash flows. The interest rate for the note
is variable and tied to the prime rate not to exceed 13%. An increase in the
prime rate of 1% would have the effect of increasing interest expense by
approximately $38,906 over 12 months.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and financial statement schedule listed in
Item 14(a)(1) and 14(a)(2) are annexed to this report as a separate section.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE - NONE

16

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

During the fiscal year ended September 30, 2002 the Board of Directors
held four meetings. Each of the current Directors who then were in office
attended at least 75% of the meetings of the Board of Directors and each
committee thereof on which such Director served, with the exception of Jack
Schuler, who was in attendance at 25% of the meetings. The Board of Directors
has an Audit Committee and a Compensation Committee.

AUDIT COMMITTEE - The Audit Committee met four times during the fiscal
year and is currently composed of three members, Messers ten Brink, Schoonmaker,
and Waller. All members of the Audit Committee, with the exception of Mr. ten
Brink, are independent in accordance with the existing requirements of the
Securities Exchange Commission. The functions of the Audit Committee include
meeting with the Company's independent auditors annually to review financial
results, audited financial statements, internal financial controls and
procedures and audit plans and recommendations. The Audit Committee also
recommends the selection, retention or termination of the Company's independent
auditors, approves services provided by the independent public accountants
before providing such services, and evaluates the possible effect the
performance of such services will have on the accountants' independence. The
Board of Directors adopted a written charter for the Audit Committee effective
October 23, 2000.

COMPENSATION COMMITTEE - The Compensation Committee met once during the
fiscal year ended September 30, 2001, and is currently composed of Messrs.
Schoonmaker, Waller and Tomasello. The Compensation Committee recommends to the
Board of Directors the compensation for the Company's executive officers;
administers and makes awards under the Company's compensation plans; and
monitors and makes recommendations with respect to the Company's various
employee benefit plans.

The following table sets forth certain information as of January 14,
2003, with respect to the Directors and executive officers of the Company. All
Directors hold office until the next annual meeting of stockholders of the
Company, and until their successors are duly elected and qualified.

(1) Serves on the Company's compensation committee

(2) Serves on the Company's audit committee

There are no arrangements or understandings with respect to the
selection of officers and directors and there are no family relationships
between any of such persons. Messrs. Jack Schuler, Mark Miller, Frank J.M. ten
Brink and Anthony Tomasello are senior officers of Stericycle, which is the
Company's majority shareholder.

The following is a summary of the business background and experience of
each of the persons named above:

17

JACK W. SCHULER has served as a Director of the Company since October
1998. Mr. Schuler has served as Chairman of the Board of Directors of
Stericycle, Inc. since January 1990. From January 1987 to August 1989,
Mr. Schuler served as President and Chief Operating Officer of Abbott
Laboratories, a diversified health care company, where he served as a
director from April 1985 to August 1989. Mr. Schuler serves as a
director of Chiron Corporation, Medtronic, Inc. and Ventana Medical
Systems, Inc. He is a co-founder of Crabtree Partners LLC, a private
investment firm in Lake Forest, Illinois, which was formed in June
1995. Mr. Schuler received a B.S. degree in mechanical engineering from
Tufts University and a M.B.A. degree from the Stanford University
Graduate School of Business Administration.

OTLEY L. SMITH III has served as President and a Director of the
Company since June 2000. From 1998 until 2000, he served as a
consultant to businesses in the medical waste industry. In 1986 he
founded Med-Compliance Services, Inc. and served as President until
1998. In 1995, he founded Technology 2100, Inc. and managed the
development of a new medical waste treatment technology that was
approved for use by the U.S. EPA (FIFRA) and several states. For the
past ten years Mr. Smith has served as an industry representative in
public sector initiatives to standardize medical waste management
regulations in several southwestern states.

JAMES A. COLE - James A. Cole has served as Chief Financial Officer
since October, 2002. From 1990 through 2002 he served as President and
Founder of Hidden Oaks Ventures, an investment and consulting company.
Prior to that he served in various management positions including
President, Chief Financial Officer and Chief Executive Officer for
various companies including Stevens International, Diddle Graphics,
Datahand Systems, Tri-Steel Structures and Applebee's International.
Mr. Cole has degrees in Finance and Accounting as well as an MBA from
Indiana University and is a C.P.A.

MARK C. MILLER has served as a Director of the Company since October
1998. Mr. Miller has served as Stericycle's President and Chief
Executive Officer and a Director since May 1992. From May 1989 until he
joined Stericycle, Mr. Miller served as Vice President for Pacific Asia
and Africa in the International Division of Abbott Laboratories, which
he joined in 1976 and where he held a number of management and
marketing positions. He is a Director of Affiliated Research Centers,
Inc., which provides clinical research for pharmaceutical companies,
and is a Director of Lake Forest Hospital. Mr. Miller received a B.S.
degree in computer science from Purdue University.

FRANK J.M. TEN BRINK has served as a Director since October 1998. Mr.
Ten Brink has served as Stericycle's Vice President, Finance and Chief
Financial Officer since June 1997. From 1991 until 1996, he served as
Chief Financial Officer of Hexacomb Corporation, and from 1996 until
joining Stericycle, he served as Chief Financial Officer of Telular
Corporation. Prior to 1991, Mr. ten Brink held various financial
management positions with Interlake Corporation and Continental Bank of
Illinois. He received a B.B.A. degree in international business and an
M.B.A. degree in finance from the University of Oregon.

ANTHONY J. TOMASELLO has served as a Director since October 1998. Mr.
Tomasello has served as Stericycle's Executive Vice President and Chief
Technical Officer since January 1999 and previously had served as Vice
President, Operations, since August 1990. For eight years prior to
joining Stericycle, Mr. Tomasello was President and Chief Operating
Officer of Pi Enterprises and Orbital Systems, companies providing
process and automation services. Mr. Tomasello received a B.S. degree
in mechanical engineering from the University of Pittsburgh.

DAVID J. SCHOONMAKER has served as a Director since February 1998. Mr.
Schoonmaker has served as President and Chief Executive Officer of
RxThermal, Inc., a company that permits, designs, builds, and operates
medical waste treatment facilities, since 1989. Mr. Schoonmaker is
President of New York Environmental Services Corp, Health Care Waste
Services, and BMWNC,

18

Inc. Mr. Schoonmaker received a B.S. degree in chemistry from the
University of California and an M.B.A. from California State College.

ROBERT M. WALLER has served as a Director since April 1999. Mr. Waller
is currently Executive Vice President of Medline Industries, Inc. He
has served in that capacity since 2001. From 2000 to 2001 Mr. Waller
served as Chief Operating Officer of Urbanfetch.com. From 1994 to 2001
Mr. Waller served as President of RMW Logistics. From 1992 until 1994
Mr. Waller served as Chief Operating Officer of DSC Logistics. Mr.
Waller received a B.S. degree in business administration from
Northwestern University and a M.B.A from Lake Forest Graduate School of
Management.

DIRECTOR COMPENSATION

During the fiscal year ended September 30, 2002, Directors who are
officers or employees of the Company or associated with WSI received no
additional compensation for their services as members of the Board of Directors.
Directors who are not officers or employees currently receive $2,000 for each
meeting attended in person, $500 for each telephonic meeting, and $500 for each
committee meeting of the Board of Directors and were awarded options to purchase
shares of Common Stock.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Directors, executive officers, and persons who own more than 10% of a
registered class of its equity securities to file reports of ownership and
reports of changes in ownership of such equity securities with the Securities
and Exchange Commission (the "SEC"). Directors, executive officers and greater
than 10% stockholders are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file.

To the Company's knowledge, based solely on a review of the copies of
such forms furnished to the Company and written representations that no other
reports were required, the Company believes that all of its Directors, executive
officers and greater than 10% stockholders complied with all Section 16(a)
filing requirements.

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth information with respect to the cash
compensation awarded to, earned by or paid to the Company's executive officers
for the fiscal years ended September 30, 2000, September 30, 2001 and September
30, 2002 who received bonus and salary, which exceeded $100,000 in any of the
years ended 2000, 2001 and 2002.

19

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

(1) On June 8, 2000 Charles Crochet, resigned. Otley L. Smith was appointed as
the Company's President on June 8, 2000. The salary for 2000 represents a
partial year.

(2) On June 8, 2000 Mr. Smith received an option to purchase 75,000 shares of
common stock at $0.33 per share of which 25,000 vested after one year with
the remaining 50,000 shares vesting evenly over the next two years.

2002 OPTION EXERCISES AND YEAR-END OPTION VALUES

The following table provides certain information regarding unexercised
options to purchase shares of Common Stock granted by the Company to the named
executives during the fiscal year ended September 30, 2002. No executives
exercised any Common Stock options during fiscal 2002.

- ----------

(1) The exercise price per share exceeded the closing price of a share of
Common Stock on September 30, 2002, and accordingly, none of Mr. Smith's
stock options were in the money at fiscal year end.

EMPLOYMENT AGREEMENTS

Mr. Smith serves as the Company's President pursuant to a letter
agreement signed June 6, 2000. The agreement specifies Mr. Smith's salary to be
$125,000 annually. This agreement also calls for an option to purchase 75,000
shares of the Company's common stock at $0.33 per share of which 25,000 shares
vested after one year and the remainder of which vests evenly over the second
and third year after issuance. Also, as an additional incentive, Mr. Smith is
eligible for an annual bonus of up to $40,000 based on the Company achieving
certain goals related to earnings and cash flow. Mr Smith received $20,000 under
this agreement during the fiscal year.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Board of Directors of the Company has a compensation committee
which recommends to the board of directors the compensation for executive
officers, administers and makes awards under our compensation plans, and
monitors and makes recommendations with respect to our various employee benefits
plans. During the fiscal year 2002, the following persons served on the
compensation committee and participated in the deliberations concerning
executive officer compensation: Anthony J. Tomasello, David Schoonmaker and
Robert Waller. None of these persons serve on the compensation committee of any
other company.

20

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of January 14, 2003 the number of
shares of Common Stock beneficially owned by each (i) director (ii) executive
officer, (iii) 5% beneficial owners and (iv) all Directors 5% beneficial owners
and executive officers of the Company as a group. Except as noted below, each
holder has sole voting and investment power with respect to all shares of common
stock listed as owned by such person.

- ----------

(1) Includes all shares of Common Stock with respect to which each Director
directly, through any contract, arrangement, understanding, relationship or
otherwise, has or shares the power to vote or direct voting of such shares
or to dispose or direct the disposition of such shares. Including shares
that may be purchased under stock options within 60 days.

(2) A Schedule 13D dated May 1, 2002 reflects that WSI is the beneficial owner
of 5,104,448 shares of common stock. Such Schedule 13D reflects that
Stericycle, Inc owns 100% of WSI. Assumes the conversion of 7,750,000
shares of preferred stock owned by WSI into 7,750,000 shares of common
stock and includes 541,286 shares which WSI acquired via the exercise of
warrants on December 19, 2002. Additionally, a schedule 13D filed May 1,
2002 reflects that Stericycle, Inc. owns 932,770 shares. Including these
shares held directly by Stericycle, Inc., and those held through WSI, and
assuming conversion of preferred stock, Stericycle, Inc. owns 81.9%.
Without assumed conversion of preferred shares Stericycle directly and
through WSI owns 67.5%.

(3) Includes 57,740 shares issuable upon the exercise of vested options.

(4) Includes 80,000 shares issuable upon the exercise of vested options.

(5) Includes 50,000 shares issuable upon the exercise of vested options

21

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On September 30, 1998, Stericycle acquired 100% of the stock of WSI for
$10 million (the "Transaction"). As a result of the Transaction, WSI became a
wholly owned subsidiary of Stericycle. As of December 19, 2002, WSI owns 58.0%
or 5,645,734 shares of the Company's Common Stock and 100% of the Company's
outstanding preferred stock, consisting of 7,000,000 shares of Series B
preferred stock and 750,000 shares of Series C preferred stock . The Preferred
Stock is convertible into 7,750,000 shares of Common Stock, which if converted,
would increase WSI's ownership percentage to 76.6%. Together the shares owned
directly by Stericycle and indirectly through WSI including the assumed
conversion of the preferred shares total 14,328,504 or 81.9%.

As of September 30, 2002 the Company owed $3,890,635 to WSI under a
certain amended and restated promissory note which is more fully described in
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations Liquidity and Capital Resources."

In June 1999, the Company established a master lease agreement in the
amount of $3,000,000 with LaSalle National Leasing Corporation. Of the total,
$2,000,000 is to be utilized for the leasing of transportation equipment of
which $82,312 and $179,569 had been utilized at September 30, 2002 and 2001
respectively, and $1,000,000 for the financing of equipment, none of which was
being utilized at September 30, 2002 and $398,851 of which been utilized at
September 30, 2001. This agreement is guaranteed by Stericycle, Inc. which owns
100% of WSI.

The Company is insured under Stericycle's Umbrella Insurance policy.
The Company accrued $15,761, $16,067, and $10,025 for this coverage in the
fiscal years ended September 30, 2002, 2001 and 2000 respectively which is
included in sales general and administrative expenses.

The Company outsources the treatment of its medical waste to treatment
facilities in Terrell, Texas; Conroe, Texas; Memphis, Tennessee; Beaver Dam,
Kentucky; Reserve, Louisiana and Lake City, Georgia which are owned by
Stericycle, the parent of WSI, its majority shareholder. The treatment fees are
paid currently in accordance with 30-day terms. In addition, Stericycle treated
waste at the 3CI treatment facilities in Springhill, Louisiana and Birmingham,
Alabama during the year during the fiscal years ended September 30, 2001 and
2000. Treatment fees charged by Stericycle totaled $2,598,399, $1,144,378 and
$177,085 at the various facilities for the fiscal years ended September 30,
2002, 2001 and 2000, respectively, which are included in Costs of Services for
the respective years. Stericycle incurred $102,965 in treatment fees at 3CI
facilities during fiscal 2001 and $45,395 in 2000 which is included in Revenues
for the respective years. Commencing in 2002, Stericycle also provides long-haul
transportation services during the year for the Company. Transportation fees for
these services totaled $912,642 for the year ended September 30, 2002 and are
included in Costs of Services for that year. In February 1999, the Company
entered into a 36 month operating lease agreement with Stericycle Inc., to lease
medical waste containers. The rental expense recorded for the year ended
September 30, 2002, was $20,255, and $24,300 for each of the fiscal years 2001,
and 2000.

The Company parks trucks and trailers at Stericycle transportation
depots at Reserve, Louisiana and Memphis, Tennessee. Stericycle did not charge
the Company for such use of these facilities. Also during the year, the Company
utilized Stericycle personnel for tax preparation and analysis and was provided
with internal audit services from a firm utilized by Stericycle. Stericycle did
not charge the Company for these services.

On May 1, 2002 Stericycle, Inc., the Company's majority shareholder,
completed a transaction in which they purchased from James H. Shepherd, James
Michael Shepherd and Richard T. McElhannon (the "sellers") certain
profit-sharing rights, put rights, and other rights of the sellers under a
settlement agreement entered into with the company in January 1996. The purchase
included interest in all security agreements, mortgages and other instruments
securing the Company's various obligations to the sellers under the settlement
agreement, and 932,770 shares of the Company's common stock owned by the
sellers. During the fiscal year ended September 30, 2002 the Company paid
$138,000 to Stericycle under the profit sharing terms of this agreement.

ITEM 14. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our filings under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the periods specified in the rules and forms of the Securities and
Exchange Commission. This information is accumulated and communicated to our
management,

22

including our principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosures. Our
management, including our principal executive officer and our principal
accounting officer, recognizes that any set of controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives.

Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures within 90 days of the
filing date of this report. Based on this evaluation, our principal executive
officer and principal financial officer concluded that our disclosure controls
and procedures are effective in alerting them on a timely basis to material
information required to be disclosed in our periodic filings.

There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of the
evaluation referenced in the foregoing paragraph.

23

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:

1. Financial Statements

The audited financial statements and reports as detailed in the Index
to Financial Statements and Schedules for the year ended September 30, 2002, the
year ended September 30, 2001 and the year ended September 30, 2000, required in
response to Item 8 of Form 10-K are annexed to this report as a separate
section.

2. Financial Statement Schedule

The financial statement schedule for the year ended September 30, 2002,
the year ended September 30, 2001, and the year ended September 30, 2000,
required by Item 8 of Form 10-K, is annexed to this report as a separate
section.

(b) REPORTS ON FORM 8-K FILED IN THE FOURTH QUARTER OF 2001:

None

(c) EXHIBITS - THE RESPONSE TO THIS PORTION OF ITEM 14 IS SUBMITTED AS A
SEPARATE SECTION OF THIS REPORT.

EXHIBITS

24

3.8. Certificate of Designations of 3CI's Series C Preferred Stock
without par value (incorporated by reference to Exhibit 3.8 of
3CI's registration statement on Form S-1 (No. 333-48499),
filed March 24, 1998).

4.1 Amended and Restated Secured Promissory Note dated October 1,
1998, in the principal amount of $5,487,307.13 between 3CI and
Waste Systems, Inc. (incorporated by reference to Exhibit 4.4
of 3CI's report on Form 10-K filed January 12, 1999).

4.2 Loan Agreement and Note Amendment dated December 18, 1998, by
3CI and Waste Systems, Inc. (incorporated by reference to
Exhibit 4.5 of 3CI's report on Form 10-K filed January 12,
1999).

4.3 Letter Agreement and Note Amendment dated August 10, 2000 by
3CI and Waste Systems, Inc. (Incorporated by reference to
Exhibit 4.3 of 3CI's annual report on form 10-K filed December
28, 2000)

4.4 Letter Agreement and Note Amendment dated December 20, 2000 by
3CI and Waste Systems, Inc. (Incorporated by reference to
Exhibit 4.4 of 3CI's annual report on form 10-K filed December
28, 2000)

4.5 Letter Agreement and Note Amendment dated March 5, 2001 by 3CI
and Waste Systems, Inc.

4.6 Letter Agreement and Note Amendment dated June 26, 2001 by 3CI
and Waste Systems, Inc.

4.7 Letter Agreement and Note Amendment dated December 20, 2001 by
3CI and Waste Systems, Inc.

4.8* Letter Agreement and Note Amendment dated May 23, 2002 by 3CI
and Waste Systems, Inc.

10.1 1992 Stock Option Plan of 3CI (incorporated by reference to
Exhibit 10(m) of 3CI's registration statement on Form S-1 (No.
33-45632) effective April 14, 1992).

10.2 Settlement Agreement dated January 1996 between James
Shepherd, Michael Shepherd and Richard T. McElhannon as
Releassors, and the Company, Georg Rethmann, Dr. Herrmann
Niehues, Jurgen Thomas, Charles Crochet and Waste Systems,
Inc., as Releasees (incorporated by reference to Exhibit 10.23
of 3CI's report on Form 10-K filed January 14, 1997).

10.3 Exchange Agreement between 3CI and Waste Systems, Inc. dated
as of June 24, 1997 (incorporated by reference to Exhibit
10.12 of 3CI's registration statement on Form S-1 (No.
333-48499), filed March 24, 1998).

10.4 Stock Purchase and Note Modification Agreement between 3CI and
Waste Systems, Inc. dated as of February 19, 1998
(incorporated by reference to Exhibit 10.13 of 3CI's
registration statement on Form S-1 (No. 333-48499), filed
March 24, 1998).

10.5 Agreement dated September 30, 1998 among 3CI, Waste Systems,
Inc. and Stericycle, Inc. regarding Section 203 of the
Delaware General Corporation Law (incorporated by reference to
Exhibit 10.14 of 3CI's report on Form 10-K filed January 12,
1999).

10.6 Form of Indemnification Agreement dated August 26, 1998
entered into between 3CI and David Schoonmaker, (incorporated
by reference to Exhibit 10.15 of 3CI's report on Form 10-K
filed January 12, 1999).

10.7 Form of Indemnification Agreement dated June 3, 1999 entered
into between 3CI and Robert Waller (incorporated by reference
to Exhibit 10.11 of 3CI's report on Form 10-K filed January
12, 2000).

10.9 LaSalle National Leasing master lease agreement dated June 18,
1999 between LaSalle National Leasing as lessor and the
Company as lessee (incorporated by reference to Exhibit 10.12
of 3CI's report on Form 10-K filed January 12, 2000).

99.1* Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith

25

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, thereto duly authorized.

3CI COMPLETE COMPLIANCE CORPORATION
(Company)

January 14, 2003 /s/ Otley L. Smith III
----------------------
Otley L. Smith III
President (Principal Executive Officer)

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

26

CERTIFICATIONS

I, Otley L. Smith III, the President of 3CI Complete Compliance Corporation (the
"Company"), certify that:

1 I have reviewed this annual report on Form 10-K of the Company;

2 Based on my knowledge, this annual report does not contain any untrue
statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3 Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this annual report;

4 The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 13d-14) for the Company and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within these
entities, particularly during the period in which this annual report
is being prepared;

b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures as of a date
within 90 days prior to the filing date of this annual report (the
"Evaluation Date");

5 The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee
of the Company's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weakness in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and

6 The Company's other certifying officer and I have indicated in this annual
report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.

Date: January 14, 2003 /s/ Otley L. Smith III
----------------------
Otely L. Smith III

27

CERTIFICATIONS

I, James A. Cole, the Chief Financial Officer of 3CI Complete Compliance
Corporation (the "Company"), certify that:

1 I have reviewed this annual report on Form 10-K of the Company;

2 Based on my knowledge, this annual report does not contain any untrue
statement of material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3 Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this annual report;

4 The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 13d-14) for the Company and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within these
entities, particularly during the period in which this annual report
is being prepared;

b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures as of a date
within 90 days prior to the filing date of this annual report (the
"Evaluation Date");

5 The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee
of the Company's board of directors (or persons performing the equivalent
functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weakness in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and

6 The Company's other certifying officer and I have indicated in this annual
report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.

Date: January 14, 2003 /s/ James A. Cole
-----------------
James A. Cole
Chief Financial Officer

28

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

All other Schedules are omitted because they are not required, are not
applicable or the required information is presented elsewhere herein.

29

REPORT OF INDEPENDENT AUDITORS

To The Stockholders and Board Directors of
3CI Complete Compliance Corporation:

We have audited the accompanying consolidated balance sheets of 3CI Complete
Compliance Corporation as of September 30, 2002 and 2001 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended September 30, 2002. Our audits also
included the financial statement schedule listed in the Index at item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of 3CI Complete
Compliance Corporation as of September 30, 2002 and 2001 and the consolidated
results of its operations and cash flows for each of the three years in the
period ended September 30, 2002, in conformity accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

As discussed in Note 2 to the consolidated financial statements effective on
October 1, 2001, the Company changed its method of accounting for goodwill to
conform with statement of Financial Accounting Standards 142, Goodwill and Other
Intangible Assets.

ERNST & YOUNG LLP

Chicago, Illinois
January 9, 2003

30

3CI COMPLETE COMPLIANCE CORPORATION
BALANCE SHEETS

The accompanying notes are an integral part of these financial statements.

31

3CI COMPLETE COMPLIANCE CORPORATION
STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these financial statements.

32

3CI COMPLETE COMPLIANCE CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

The accompanying notes are an integral part of these financial statements.

33

3CI COMPLETE COMPLIANCE CORPORATION
STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these financial statements.

34

3CI COMPLETE COMPLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF BUSINESS

ORGANIZATION AND BASIS OF PRESENTATION

3CI Complete Compliance Corporation (the Company or 3CI), a Delaware
Corporation, is engaged in the collection, transportation, treatment and
disposal of biomedical waste in the south and southeastern United States.

Effective October 1, 1998, after approval by the then properly
constituted 3CI Board of Directors, Stericycle Inc., a Delaware corporation
("Stericycle") acquired 100% of the common stock of Waste Systems, Inc. ("WSI")
for $10 million. As a result of the Transaction, WSI became a wholly-owned
subsidiary of Stericycle. Stericycle directly and indirectly through WSI owns
67.5% or 6,578,504 shares of the outstanding common stock and 100% of the
outstanding preferred stock of the Company.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH EQUIVALENTS

Cash equivalents primarily represents highly liquid investments with a
maturity of three months or less when purchased.

INVENTORIES

Inventories, consisting of containers and supplies, are stated at the
lower of cost (first-in, first-out method) or market.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Depreciation and
amortization, which includes the depreciation of assets recorded under capital
leases, are computed using the straight-line method over the estimated useful
lives of the assets. Expenditures for major renewals and betterments are
capitalized; expenditures for repairs and maintenance are charged to expense as
incurred.

INTANGIBLE ASSETS

Effective October 1, 2001, the Company adopted Statement of Financial
Accounting Standards 142 "Goodwill and Other Intangible Assets" (SFAS 142),
which resulted in the discontinuance of the amortization of goodwill. Under SFAS
142, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized, but will be subject to at least annual impairment tests.

Other intangible assets will continue to be amortized over their useful lives.
The Company has completed its transitional and goodwill impairment evaluation
and determined that its goodwill was not impaired. Amortization expense for
goodwill was $25,000 for the years ended September 30, 2001 and 2000. The
Company's goodwill was $262,243 at September 30, 2002 and 2001.

The Company's other intangible assets at September 30, 2002 and 2001 were
$32,000 and $56,000, respectively. Amortization expense for other intangible
assets was $24,000 for each of the years ending

35

September 30, 2002 and 2001. The remaining $32,000 of other intangible assets
will be amortized as follows:

As required by SFAS 142, the results for the prior years have not been restated.
A reconciliation of the net loss as if SFAS 142 had been adopted is presented
below for the fiscal years ended September 30, 2001 and 2000.

There would be no change to the 2001 or 2000 reported basic loss per share or
diluted loss per share as a result of the discontinuance of amortization of
goodwill.

REVENUE RECOGNITION

The Company generally recognizes revenue when the treatment of the
regulated medical waste is completed on-site or the waste is processed by a
third party.

INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Deferred tax
liabilities and assets are determined based on the differences between the
financial statement and tax base of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.

FINANCIAL INSTRUMENTS

The Company's primary financial instruments are accounts receivable,
notes payable, and accounts payable. The fair values of these financial
instruments were not materially different from their carrying values. Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist principally of accounts receivable. Credit risk is minimized as a
result of the large size of the Company's customer base. No single customer
represents greater than 3% of total accounts receivable. The Company performs
ongoing credit evaluation of its customers and maintains allowances for
potential credit losses. These losses, when incurred, have been within the range
of management's expectations.

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 amounts reported in the financial statements and
accompanying notes. Actual results could vary from the estimates that were used.

36

STOCK COMPENSATION

As permitted by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123), the Company uses the
intrinsic value method to account for stock options as set forth in Accounting
Principals Board No. 25, Accounting for Stock Issued to Employees (APB 25).

NOTE 3 - DIVESTITURES

In February 2001, the Company transferred to Stericycle, through WSI
approximately 70 customer accounts located in the Houston, Texas area in
exchange for a reduction in interest due under the Amended Promissory Note of
approximately $67,816. The accounts represented approximately $200,000 in annual
revenue during the fiscal year ended September 30, 2000. The Company recognized
a gain for $67,816 which is included in the Consolidated Statement of Operations
as other income (expense).

NOTE 4 - PROPERTY, PLANT EQUIPMENT

Property, plant and equipment consists of the following at September
30:

Depreciation expense charged to operations was $679,794, $1,548,229,
and $1,580,710 for the years ending September 30, 2002, 2001, and 2000,
respectively.

On December 19, 2001, the Company made the decision to permanently
close all of its treatment facilities which consisted of two incinerators and a
chem-clave unit in Springhill, Louisiana and an incinerator and a microwave unit
in Birmingham, Alabama. These facilities were temporarily idled during the
fourth quarter of 2001 while management evaluated whether to incur significant
capital costs to upgrade and maintain the equipment to comply with more
restrictive EPA requirements. Subsequently, in December 2001, the decision was
made to close the internal facilities and seek out less expensive treatment fees
at external sources. Management, after considering the upgrades necessary for
the existing facilities as well as the treatment capacity at other sources,
determined that this equipment had no remaining value. As a result, the
treatment related assets were written down to their fair value of zero and in
September 2001 the Company took a charge for the write-down of certain treatment
related assets which totaled $2,631,885. Total gross costs for this equipment
was $6,047,225 with related accumulated depreciation of $3,415,340.

NOTE 5 - NET INCOME (LOSS) PER SHARE

The following table sets forth the computation of net income (loss) per
common share:

37

For additional information regarding outstanding employee stock options
and outstanding warrants, see note 9.

Preferred stock, stock options and warrants to purchase shares of
common stock outstanding during fiscal years ended September 30, 2001 and 2000,
were not included in the computation of diluted earnings per share because the
effect would be antidilutive. Stock options were not included in the September
30, 2002 computation as they were antidilutive since the exercise prices ranging
from $0.59 to $1.50 were greater than the average price of the common stock.
Preferred shares were not included because the effect would be antidilutive.

NOTE 6 - NOTES PAYABLE

Notes payable consists of the following at September 30:

NOTE 7 - LONG TERM DEBT

Long-term debt - unaffiliated lenders consists of the following at
September 30, 2001:

Notes payable for purchased vehicles and equipment held
as collateral, due in monthly installments, including
interest, at rates ranging from 8.0% to 13.8%,
maturing through 2004 $ 304,589

Obligations under capital leases 398,850
------------
Total debt 703,439
Less-current portion (369,023)
------------
Long-term portion $ 334,416
============

Note payable to majority shareholder consists of the following at
September 30:

38

2002 2001
------------ ------------

Revolving note payable to WSI, bearing $ 3,890,636 $ 5,229,379
interest at the prime rate plus 1.0%
per annum not to exceed 13%,
Less - Current potion 1,002,433 --
------------ ------------
Long-term portion $ 2,888,202 $ 5,229,379
============ ============

The Company has historically financed its working capital needs,
capital expenditures, and acquisitions using advances from WSI, its majority
shareholder, internally generated funds, and borrowings from third parties. The
Company's indebtedness currently consists of amounts owed to WSI (which are
described below), and a portion of the Company's insurance premiums that are
financed over the course of each fiscal year.

On October 1, 1998, WSI and the Company amended and restated a
revolving promissory note (the Note) which was originally due September 30,
2000. As of June 30, 2000, the Company notified WSI that it anticipated it would
fail to meet a net income requirement under the Note for the quarter ended June
30, 2000. The Note was renegotiated and extended at that time and the default
was waived. Since that time the Note has been extended either quarterly or
semi-annually under terms ranging from prime plus 1.0% to prime plus 3.5% not to
exceed 13%. In connection with the note extension on August 1, 2000, 3CI issued
warrants to WSI for the purchase of up to 351,836 shares of 3CI common stock at
an exercise price of $0.20 per share which expired on September 20, 2002. When
the Note was extended on October 1, 2000, 3CI issued warrants to WSI for the
purchase of up to 541,286 shares of 3CI common stock at an exercise price of
$.10 per share which were to have expired on December 20, 2002. Stericycle
exercised these warrants on December 19, 2002. In each of these cases the values
of the warrants were included in the statement of operations for the respective
periods as interest expense.

An agreement effective October 1, 2001 extended the note's maturity to
July 1, 2002. The terms of this extension included a reduction of the interest
rate to the prime rate, plus 1.0% and called for a principal payment of $200,000
at renewal and an additional $200,000 principal payment in June 2002. The
agreement also required the Company to achieve minimum levels of EBITDA for each
of the six-month periods ended March 31, 2002 and June 30, 2002. This level was
not achieved for the six months ended March 31, 2002 requiring the Company to
record an additional $120,404 in interest expense.

The note was renegotiated pursuant to an agreement dated May 23, 2002
by which the note was extended to October 1, 2003. The terms of this extension
included an interest rate equal to the prime rate, currently 4.25%, plus 1.0%
and called for principal payment of $700,000 at renewal and additional monthly
payments of $100,000 to be applied to accrued interest and principal. The
agreement also required the Company to achieve a minimum level of EBITDA for the
six-month period ended June 30, 2002 and for each trailing six month period
thereafter until maturity. This level was achieved for the six months ended June
30, 2002 and September 30, 2002.

Total interest expense was $466,842, $885,449, and $1,021,850, for the
years ended September 30, 2002, 2001 and 2000, respectively.

NOTE 8 - INCOME TAXES

The Company's deferred tax liabilities and assets as of September 30,
are as follows:

39

During the year ended September 30, 2002, the Company utilized
approximately $1,817,300 of its net operating loss carryforward to offset
current year taxable income.

At September 30, 2002, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $17,700,000, which will begin
expiring in 2009. The Company also had state net operating losses at September
30, 2002. Based on Internal Revenue Code Section 382 relating to changes in
ownership of the Company, utilization of the net operating loss carryforwards is
subject to an annual limitation of $995,000 for net operating losses created
prior to September 30, 1998. All net operating losses created after September
30, 1998 are not subject to any limitations and are available to be used for 20
years after they are produced. As such, the deferred tax asset and the related
valuation allowance for net operating loss carryforwards were reduced during the
current year to account for the portion of the net operating loss carryforwards
the Company will not be able to utilize. For financial reporting purposes, the
entire amount of net deferred tax assets has been offset by a valuation
allowance due to uncertainty regarding realization as an asset.

NOTE 9 - STOCK OPTIONS AND WARRANTS

In 1992, the Company's Board of Directors and shareholders approved a
stock option plan (the Plan), which provides for the granting of 500,000 shares
of common stock in the form of stock options to employees, officers and
directors. The purpose of the Plan is to provide additional incentives to
officers and employees of the Company who are primarily responsible for the
management and growth of the Company. Each option granted pursuant to the Plan
shall be designated at the time of grant as either an "incentive stock option"
or as a "non-qualified stock option".

During fiscal 2002 the Company issued 100,000 options at exercise
prices ranging from $0.20 to $0.28 per share which vest evenly over a three year
period. During fiscal 2001 the Company did not issue any stock options. During
the fiscal year ended 2000 the Company issued 75,000 options at $0.33 of which
25,000 shares vested after one year with the remaining shares vesting evenly
over the next two years.

As of September 30, 2002, the Company had outstanding 305,000 option
shares with exercise prices ranging from $.20 to $1.50.

40

A summary of stock option information follows:

Utilizing the intrinsic value method of APB 25, the Company recognized $12,186,
$15,888, and $47,088, of compensation expense related to stock options during
the years ended September 30, 2002, 2001 and 2000 respectively. The following
table illustrates the Company's net income (loss) on a pro forma basis as if
stock options had been accounted for under the fair value method recommended by
SFAS 123.

The fair value of stock options used to compute pro forma net loss is
the estimated present value at the grant date using the Black Sholes
option-pricing model with the following assumptions: dividend yield of 0%;
risk-free interest rates of approximately 3% in 2002 and 5% in 2001 and 2000;
and an expected volitility of 0.92 in 2002 and 0.97 in 2000; and a
weighted-average expected option life of five years.

NOTE 10 - RELATED PARTY TRANSACTION

On September 30, 1998, Stericycle acquired 100% of the stock of WSI for
$10 million (the "Transaction"). As a result of the Transaction, WSI became a
wholly owned subsidiary of Stericycle. As of December 19, 2002, WSI owns 58.0%
or 5,645,734 shares of the Company's Common Stock and 100% of the Company's
outstanding preferred stock, consisting of 7,000,000 shares of Series B
preferred stock and 750,000 shares of Series C preferred stock . The Preferred
Stock is convertible into 7,750,000 shares of Common Stock, which if converted,
would increase WSI's ownership percentage to 76.6%. Together the shares owned
directly by Stericycle and indirectly through WSI including the assumed
conversion of the preferred shares total 14,328,504 or 81.9%.

As of September 30, 2002 the Company owed $3,890,635 to WSI under a
certain amended and restated promissory note which is more fully described in
"Management's Discussion and Analysis of Financial Conditions and Results of
OperationsLiquidity and Capital Resources" and in Note 7.

In June 1999, the Company established a master lease agreement in the
amount of $3,000,000 with LaSalle National Leasing Corporation. Of the total,
$2,000,000 is to be utilized for the leasing of transportation equipment of
which $82,312 and $179,569 had been utilized at September 30, 2002 and 2001
respectively, and $1,000,000 for the financing of equipment, none of which was
being utilized at September 30, 2002 and $398,851 of which been utilized at
September 30, 2001. This agreement is guaranteed by Stericycle, Inc. which owns
100% of WSI.

The Company is insured under Stericycle's Umbrella Insurance policy.
The Company accrued $15,761, $16,067, and $10,025 for this coverage in the
fiscal years ended September 30, 2002, 2001 and 2000 respectively which is
included in sales general and administrative expenses.

41

The Company outsources the treatment of its medical waste to treatment
facilities in Terrell, Texas; Conroe, Texas; Memphis, Tennessee; Beaver Dam,
Kentucky; Reserve Louisiana and Lake City; Georgia which are owned by
Stericycle, the parent of WSI, its majority shareholder. The treatment fees are
paid currently in accordance with 30-day terms. In addition, Stericycle treated
waste at the 3CI treatment facilities in Springhill, Louisiana and Birmingham;
Alabama during the year during the fiscal years ended September 30, 2001 and
2000. Treatment fees charged by Stericycle totaled $2,598,399, $1,144,378 and
$177,085 at the various facilities for the fiscal years ended September 30,
2002, 2001 and 2000, respectively, which are included in Costs of Services for
the respective years. Stericycle incurred $102,965 in treatment fees at 3CI
facilities during fiscal 2001 and $45,395 in 2000 which is included in Revenues
for the respective years. Commencing in 2002, Stericycle also provides long-haul
transportation services during the year for the Company. Transportation fees for
these services totaled $912,642 for the year ended September 30, 2002 and are
included in Costs of Services for that year. In February 1999, the Company
entered into a 36 month operating lease agreement with Stericycle Inc., to lease
medical waste containers. The rental expense recorded for the years ended
September 30, 2002, was $20,255, and $24,300 for each of the fiscal year 2001,
and 2000.

The Company parks trucks and trailers at Stericycle transportation
depots at Reserve, Louisiana and Memphis, Tennessee. Stericycle did not charge
the Company for such use of these facilities. Also during the year, the Company
utilized Stericycle personnel for tax preparation and analysis and was provided
with internal audit services from a firm utilized by Stericycle. Stericycle did
not charge the Company for these services.

On May 1, 2002 Stericycle, Inc., the Company's majority shareholder,
completed a transaction in which they purchased from James H. Shepherd, James
Michael Shepherd and Richard T. McElhannon (the "sellers") certain
profit-sharing rights, put rights, and other rights of the sellers under a
settlement agreement entered into with the company in January 1996. The purchase
included interest in all security agreements, mortgages and other instruments
securing the Company's various obligations to the sellers under the settlement
agreement, and 932,770 shares of the Company's common stock owned by the
sellers. During the fiscal year ended September 30, 2002 the Company paid
$138,000 to Stericycle under the profit sharing terms of this agreement.

NOTE - 11 PREFERRED STOCK

In June 1997, WSI converted $7,000,000 of their promissory note with
3CI Complete Compliance Corporation to preferred stock. The Company issued
1,000,000 shares of Series A cumulative convertible preferred stock, with no par
value, at $7.00 per share or $7,000,000, to WSI, the Company's majority
shareholder. The Series A preferred shares were not entitled to receive any
fixed dividends but were entitled to receive such cash dividends as may have
been declared from time to time by the Board of Directors. The Series A
Preferred Stock holders were entitled to receive, if declared by the
Corporation's Board of Directors, cumulative dividends from the second
anniversary of the original issuance date, at the rate of $0.5775 per share per
annum. Had such dividends been declared by the Board of Directors, they would
have been cumulative from the second anniversary of the original issuance date
of the Series A Preferred Stock. Accruals of dividends do not bear interest. No
such dividends were declared.

In February 1998, Waste Systems, Inc., exchanged the 1,000,000 shares
of the Series A Preferred Stock for 7,000,000 shares of Series B cumulative
convertible preferred stock, with a par value $.01. The Series B preferred stock
holders are entitled to receive, if declared by the Corporation's Board of
Directors, out of the assets of the Corporation legally available for such
payment, cumulative dividends from the second anniversary of the original
issuance date, at the rate of $0.0825 per share per annum. These dividends if
declared will be payable quarterly on the 15th day of July, October, January and
April of each year, commencing with a payment on July 15, 1999. Such dividends
shall be cumulative from the second anniversary of the original issuance date of
the Series B preferred stock. Accruals of dividends shall not bear interest. For
so long as any shares of Series B preferred stock are outstanding, the
Corporation shall not purchase or redeem any shares of its par value $.01 common
stock, ("Common Stock") or declare or pay any dividend on its Common Stock
without the written consent of the holders of a majority interest in the Series
B preferred stock.

42

The shares of Series B preferred stock may be redeemed at any time on
or after the second anniversary of the original issuance date, at the option of
the Company, in whole or in part, at a per share redemption price equal to $1.00
plus accrued dividends if any. In the case of redemption of only a part of the
Series B Preferred stock the shares to be redeemed shall be selected by lot.

Subject to certain adjustments, the series B preferred stock shall be
convertible at the option of the record holder thereof, at any time after the
second anniversary of the original issuance thereof, in whole, or from time to
time in part, in the manner provided, into common stock. The Series B preferred
stock may be converted at any time on or after the second anniversary of the
original issuance thereof, in whole but not in part, into full shares of common
stock of the Corporation with a market price of $7,000,000 based on a conversion
rate determined by (i) dividing $7,000,000 by the market price of the common
stock on the date of the conversion, (ii) plus an amount of cash determined by
subtracting the quotient calculated in (i) and subtracting from $7,000,000;
provided however, that at the option of the holder, the holder may convert the
Series B preferred stock into solely that number of shares of common stock
determined as provided in (i), and forego obtaining the additional common stock
issuable as calculated in (ii), subject to such adjustments, if any, of the
conversion rate and the securities or other property issuable upon such
conversion. Any shares of the Series B preferred stock which have not been
converted as of April 6, 2003 will automatically be converted to shares of
common stock subject to the above conversion formulas.

During February 1998, the Company and WSI converted an additional
$750,000 of debt under the 1995 Note, into 750,000 shares of Series C
Convertible preferred stock which have cumulative dividends, with a par value
$.01. The Series C preferred stock holders are entitled to receive, when, and if
declared by the Corporation's Board of Directors cumulative dividends from the
second anniversary of the original issuance date, at the rate of $0.0825 per
share per annum, payable quarterly on the 15th day of July, October, January and
April of each year, commencing with a payment on July 15, 1999, of dividends
accrued from the second anniversary of the original issuance date of the Series
C preferred stock. For so long as any shares of Series C preferred stock shall
be outstanding, without the written consent of the holders of a majority in
interest of the series C preferred stock, the Corporation shall not (i) purchase
or redeem any shares of its par value $.01 common stock, or declare or pay any
dividend on its Common Stock.

The shares of Series C preferred stock may be redeemed at any time on
or after the second anniversary of the original issuance date of the Series C
preferred stock, at the option of the Company in whole or, from time to time in
part, in any such case at a per share redemption price equal to $1.00, plus
accrued dividends, if any.

Subject to certain adjustments, the Series C preferred stock shall be
convertible at the option of the record holder thereof, at any time after the
second anniversary of the original issuance thereof, in whole, or from time to
time in part, in the manner provided, into common stock. The Series C preferred
stock may be converted at any time on or after the second anniversary of the
original issuance thereof, in whole but not in part, in to full shares of Common
Stock of the Corporation with a market price of $750,000 based on a conversion
rate determined by (i) dividing $750,000 by the market price of the common stock
on the date of the conversion, (ii) plus an amount of cash determined by
subtracting the quotient calculated in (i) and subtracting from $750,000;
provided however, that at the option of the holder, the holder may convert the
Series C preferred stock into solely that number of shares of common stock
determined as provided in (i), and forego obtaining the additional common stock
issuable as calculated in (ii), subject to such adjustments, if any, of the
conversion rate and the securities or other property issuable upon such
conversion. Any shares of the series C preferred stock which has not been
converted as of April 6, 2003 will automatically be converted subject to the
above conversion formulas.

The Board of Directors declared dividends on the series B and C
preferred shares totaling $637,623, $907,387, and 497,550 for each of the years
ended September 30, 2002, 2001 and 2000 respectively. Each of the resolutions
for the dividends called for payment in cash from funds legally

43

available for the payment of dividends, as and when the Board of Directors may
direct by further resolution. None of the dividends have been paid. There were
no undeclared dividends as of September 30, 2002.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

On July 16, 2002 a suit was filed in the First Judicial District Court
in Shreveport, Louisiana against Stericycle, Inc. and certain of 3CI' s
directors which alleged minority shareholder oppression, breach of fiduciary
duty and unjust enrichment. While the Company is not party to the lawsuit, we
have contacted our insurance carrier and hired counsel to assist the Company in
this litigation. The defendants in the case have denied the allegations and
intend to defend the case vigorously.

The Company is subject to certain other litigation and claims arising
in the ordinary course of business. In the opinion of management of the Company,
the amounts ultimately payable, if any, as a result of such claims and
assessments will not have materially adverse effect on the Company's financial
position, result of operations or net cash flows.

The Company operates within the regulated medical waste disposal
industry, which is subject to intense governmental regulation at the federal,
state and local levels. The Company believes it is currently in compliance in
all material respects with all applicable laws and regulations governing the
medical waste disposal business. However, continuing expenditures may be
required in order for the Company to remain in compliance with existing and
changing regulations. Furthermore, because the medical waste disposal industry
is predicated upon the existence of strict governmental regulation, any material
relaxation of regulatory requirements governing medical waste disposal or of
their enforcement could result in a reduced demand for the Company's services
and have a material adverse effect on the Company's revenues and financial
condition. The scope and duration of existing and future regulations affecting
the medical waste disposal industry cannot be anticipated and are subject to
changing political and economic pressures.

NOTE 13 - LEASE COMMITMENT

At September 30, 2002, the Company had certain noncancelable leases,
principally for office space and equipment, with various expiration dates.
Future minimum rentals under these leases for the following fiscal years are as
follows:

2003 $ 340,256
2004 341,121
2005 194,223
2006 91,238
2007 and thereafter 67,961
------------
$ 1,394,616
============

Total rent expense for the fiscal years ended September 30, 2002, 2001,
and 2000 totaled $288,571, $263,632 and $252,158 respectively.

NOTE 14 - EMPLOYEE BENEFIT PLAN

Under a plan approved by the Board of Directors in 2000, the Company
has a 401(k) defined contribution retirement plan covering substantially all
employees of the Company. Each participant may elect to defer a portion of his
or her compensation subject to certain limitations. The Company has the right to
make a discretionary contribution under the plan agreement. The Company has not
made any contribution in 2002, 2001 or 2000.

44

3CI COMPLETE COMP.LIANCE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS

Schedule II
================================================================================

45

EXHIBIT INDEX

3.8. Certificate of Designations of 3CI's Series C Preferred Stock
without par value (incorporated by reference to Exhibit 3.8 of
3CI's registration statement on Form S-1 (No. 333-48499),
filed March 24, 1998).

4.1 Amended and Restated Secured Promissory Note dated October 1,
1998, in the principal amount of $5,487,307.13 between 3CI and
Waste Systems, Inc. (incorporated by reference to Exhibit 4.4
of 3CI's report on Form 10-K filed January 12, 1999).

4.2 Loan Agreement and Note Amendment dated December 18, 1998, by
3CI and Waste Systems, Inc. (incorporated by reference to
Exhibit 4.5 of 3CI's report on Form 10-K filed January 12,
1999).

4.3 Letter Agreement and Note Amendment dated August 10, 2000 by
3CI and Waste Systems, Inc. (Incorporated by reference to
Exhibit 4.3 of 3CI's annual report on form 10-K filed December
28, 2000)

4.4 Letter Agreement and Note Amendment dated December 20, 2000 by
3CI and Waste Systems, Inc. (Incorporated by reference to
Exhibit 4.4 of 3CI's annual report on form 10-K filed December
28, 2000)

4.5 Letter Agreement and Note Amendment dated March 5, 2001 by 3CI
and Waste Systems, Inc.

4.6 Letter Agreement and Note Amendment dated June 26, 2001 by 3CI
and Waste Systems, Inc.

4.7 Letter Agreement and Note Amendment dated December 20, 2001 by
3CI and Waste Systems, Inc.

4.8* Letter Agreement and Note Amendment dated May 23, 2002 by 3CI
and Waste Systems, Inc.

10.1 1992 Stock Option Plan of 3CI (incorporated by reference to
Exhibit 10(m) of 3CI's registration statement on Form S-1 (No.
33-45632) effective April 14, 1992).

10.2 Settlement Agreement dated January 1996 between James
Shepherd, Michael Shepherd and Richard T. McElhannon as
Releassors, and the Company, Georg Rethmann, Dr. Herrmann
Niehues, Jurgen Thomas, Charles Crochet and Waste Systems,
Inc., as Releasees (incorporated by reference to Exhibit 10.23
of 3CI's report on Form 10-K filed January 14, 1997).

10.3 Exchange Agreement between 3CI and Waste Systems, Inc. dated
as of June 24, 1997 (incorporated by reference to Exhibit
10.12 of 3CI's registration statement on Form S-1 (No.
333-48499), filed March 24, 1998).

10.4 Stock Purchase and Note Modification Agreement between 3CI and
Waste Systems, Inc. dated as of February 19, 1998
(incorporated by reference to Exhibit 10.13 of 3CI's
registration statement on Form S-1 (No. 333-48499), filed
March 24, 1998).

10.5 Agreement dated September 30, 1998 among 3CI, Waste Systems,
Inc. and Stericycle, Inc. regarding Section 203 of the
Delaware General Corporation Law (incorporated by reference to
Exhibit 10.14 of 3CI's report on Form 10-K filed January 12,
1999).

10.6 Form of Indemnification Agreement dated August 26, 1998
entered into between 3CI and David Schoonmaker, (incorporated
by reference to Exhibit 10.15 of 3CI's report on Form 10-K
filed January 12, 1999).

10.7 Form of Indemnification Agreement dated June 3, 1999 entered
into between 3CI and Robert Waller (incorporated by reference
to Exhibit 10.11 of 3CI's report on Form 10-K filed January
12, 2000).

10.9 LaSalle National Leasing master lease agreement dated June 18,
1999 between LaSalle National Leasing as lessor and the
Company as lessee (incorporated by reference to Exhibit 10.12
of 3CI's report on Form 10-K filed January 12, 2000).

99.1* Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith