<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549
                                   FORM 10-K
(Mark One)
     [ X ]     Annual Report Pursuant to Section 13 or 15(d) of the Securities
               Exchange Act of 1934
              (Fee Required)
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
                                      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 0-14881
                                       
                             WASTE RECOVERY, INC.
            (Exact Name of Registrant as Specified in its Charter)

                  TEXAS                                 75-1833498
     (State or Other Jurisdiction of     (I.R.S. Employer Identification No.)
      Incorporation or Organization)

   309 S. PEARL EXPRESSWAY, DALLAS, TX                    75201
   (Address of Principal Executive Offices)             (Zip Code)

                                (214) 741-3865
             (Registrant's Telephone Number, Including Area Code)

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

         Securities Registered Pursuant to Section 12 (g) of the Act:
                     COMMON STOCK (NO PAR VALUE 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 requirements 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 ]

Number of shares of Registrant's Common Stock, no par value per share,
outstanding as of April 14, 1998:  17,494,323

The approximate aggregate market value of voting stock held by non-affiliates
of the Registrant (based on the average of the closing bid and asked price of
April 14, 1998) was $3,005,144.  For purposes of this computation, all
officers, directors and 10% beneficial owners are deemed to be affiliates.
Such determination should not be deemed an admission that such officers,
directors or 10% beneficial owners are in fact affiliates of the registrant.

                      DOCUMENTS INCORPORATED BY REFERENCE

Selected portions of the Registrant's Proxy Statement for 1998 Annual Meeting
of Shareholders, to be filed within 120 days of December 31, 1997, are
incorporated by reference in Part III, Items 10, 11, 12 and 13.


<PAGE>

RECENT EVENTS

On January 15, 1998, Waste Recovery, Inc. ("the Company") was in default on the
convertible subordinated notes as a result of nonpayment of interest due on
January 15, 1998.  The convertible subordinated notes were issued by the
Company in connection with the acquisition of U.S. Tire Recycling Partners,
L.P. in December 1996.

On January 27, 1998, the Company announced a default by its wholly-owned
subsidiary, Waste Recovery-Illinois, General Partnership ("WR-Illinois"), with
respect to debt service payments due February 1, 1998.

On March 21, 1998, WR-Illinois' Marseilles, Illinois facility was substantially
damaged by fire.  The facility is covered by replacement and business
interruption insurance.

On March 31, 1998, the Company was in default due to nonpayment of certain
promissory notes payable issued in connection with the acquisition of U.S. Tire
Recycling Partners, L.P.

For further discussion of these events, see Part I, Item 2, Properties, Part
II, Item 7, Management's Discussion and Analysis of Financial Condition and
Result's of Operations, and notes 2, 11, 13, 14, and 28 of the Company's
Consolidated Financial Statements included in Part II, Item 8 of this Form 10-
K.


                                    PART  I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Form 10-K under "Item 1. Business", "Item 3. Legal 
Proceedings", "Item 7. Management's Discussion and Analysis of Financial 
Condition and Results of Operations", and elsewhere in this Form 10-K 
constitute "forward-looking statements" within the meaning of the Private 
Securities Litigation Reform Act of 1995 (the "Reform Act").  Such 
forward-looking statements involve known and unknown risks, uncertainties, 
and other factors which may cause the actual results, performance or 
achievements of Waste Recovery, Inc. (the "Company" or "Registrant") to be 
materially different from any future results, performance or achievements 
expressed or implied by such forward-looking statements.  Such factors 
include, among others, the following:  general economic and business 
conditions; competition; success of operating initiatives; development and 
operating costs; adverse publicity; changes in business strategy or 
development plans; quality of management; availability, terms and deployment 
of capital; business abilities and judgment of personnel; availability of 
qualified personnel; labor and employee benefit costs; changes in, or failure 
to comply with, government regulations; and other factors referenced in this 
Form 10-K. 

                                       2

<PAGE>

ITEM 1.  BUSINESS 

Special Note:  Certain statements set forth below under this caption 
constitute "forward-looking statements" within the meaning of the Reform Act. 
 See "Special Note Regarding Forward-Looking Statements" for additional 
factors relating to such statements.

GENERAL

Waste Recovery, Inc. (the "Company" or "WRI") is a specialized service and
process company operating in the environmental services industry.  The Company
is involved in all aspects of scrap tire disposal and in conversion of scrap
tires, through a proprietary process, into a uniform, high quality, wire-free,
tire-derived fuel (TDF).

The Company believes it is the largest firm in the United States specializing
in disposal and recycling of scrap tires into a high quality fuel supplement.
Presently, the Company has TDF producing facilities operating in Portland,
Oregon; Houston, Texas; Atlanta, Georgia; Philadelphia, Pennsylvania;
Marseilles, Illinois (near Chicago); Dupo, Illinois (near St. Louis); and
Concord, North Carolina.

The Company was organized in 1982 to acquire the assets of two operations in
Portland, Oregon, one of which had been producing TDF since 1976.  The Houston
facility began producing TDF in 1986, and the Atlanta operation in 1988.  In
March 1995 the Company acquired Domino Salvage, Tire Division, Inc. ("Domino")
and after the addition of specific, proprietary processing equipment, Domino
began producing a quality TDF in late 1995.  The two Illinois facilities became
operational in late 1995 and were originally owned and operated by Waste
Recovery-Illinois (WR-Illinois), a general partnership of which the Company was
a partner.  In December of 1996, WR-Illinois became a wholly-owned subsidiary
upon the Company's acquisition of its partner's interest in the general
partnership (see Part II, Item 5, Purchase of Interest in WR-Illinois).  The
Concord facility was purchased by the Company in December of 1996 and conducts
business as U.S. Tire Recycling Partners, L.P.  The Concord facility operates a
scrap tire monofill and primarily markets processed material for civil
engineering purposes.

The Company has made investments in facilities and developed expertise in the
areas of tire collection and disposal.  The system is flexible in order to
serve as a disposal service for scrap tire sources ranging from current scrap
tire generators, such as tire dealers, all the way to large, sometimes long-
abandoned, scrap tire piles.  Scrap tire pick-up service must be regular and on
a time schedule sufficiently predictable in order to minimize the storage
requirements of the scrap tire generators and to provide continuity of supply
to TDF users.

The Company uses its tire shredding equipment and handling systems for the
production of a high grade TDF.   In addition to improving systems and
equipment, the Company has worked to make TDF more acceptable as a supplemental
fuel.  Generally, the permitting process required before a utility or other
industrial fuel user may start burning TDF depends on many factors, such as
location, fuel volumes and mix, the traditional fuels being supplemented, types
of burners, boilers and fuel handling systems.  The Company uses its experience
in the TDF supplement business to help customers obtain permits and to equip
their facilities to most efficiently use TDF as a fuel supplement.

                                       3
<PAGE>

Waste Recovery pursues an integrated approach to scrap tire disposal and
conversion of scrap tires into TDF and works to increase the total number of
TDF users in order to increase demand for the Company's TDF.  The Company has
not historically had a significant amount of backlog orders for TDF.

The Company's TDF competes against a different mix of traditional fuels and
electric power sources in various regions of the country.  In the Pacific
Northwest, industry is served by hydroelectric systems that provide electric
power at a low enough rate that fossil fuel burning co-generation power systems
are not justified at industrial plants.  Thus, the pulp and paper mills typical
of this region require fuel essentially for the production of heat and steam
for use in their manufacturing process.  Much of this fuel is provided from
their own "Hog Fuel," or wood waste from the logging, debarking and sawing
operations.  TDF is a well-suited supplement to this internally generated fuel,
especially during the winter and spring months when waste wood fuel is wet.

In the Southwest, TDF competes primarily with natural gas as a supplemental
fuel in steam generation facilities.  The Company's business in this region has
continued to grow as the price of natural gas has been stable.  Due to the
Baytown plant's location near marine transportation alternatives, the Company
has been able to develop TDF markets outside the State of Texas that this
facility can serve.

In December 1996, the Company concluded the acquisition of U.S. Tire Recycling
Partners, L.P. (U.S. Tire), a large collector and processor of scrap tires in
the Southeast, located in Concord, North Carolina (see Part II, Item 5,
Purchase of U.S. Tire Recycling Partners, L.P.).  U.S. Tire operates a scrap
tire monofill and also processes material for sale into recycled rubber
markets.  The pulp and paper industries in the Southeast typically require a
much greater proportion of on-site generated power because they generate much
more of their own electric power.  Since the bulk of this power is
traditionally coal-based,  TDF is well-suited as a competitive energy source in
the region, primarily due to the fact that TDF's handling and burning
characteristics are the most similar to coal.  The Company's Concord facility
should give the Company the opportunity to further expand in this market as the
facility's processing capabilities are increased and improved.

The two Illinois facilities are the first of the Company's plants that are
economically justified due solely to having traditional, coal burning electric
utilities as the primary recipients of the TDF plants' output.  Other
industrial boilers that utilize coal as a primary source of energy have also
begun to use TDF as a supplemental fuel in this region.

The Company completed its acquisition of the general partnership interest in WR-
Illinois held by Riverside Caloric Company (RCC), a wholly-owned subsidiary of
NIPSCO Industries, Inc., in December of 1996 (see Part II, Item 5, Purchase of
Interest in WR-Illinois).  WR-Illinois was a general partnership created to
construct and operate two TDF producing facilities in Illinois.  The
partnership was created after the Company obtained a contract to supply a large
Illinois electric utility with 60,000 tons of TDF per year.  WR-Illinois'
operations were consolidated beginning December 1, 1996 (see notes 1, 2 and 9
of the Consolidated Financial Statements of the Company and related Notes
included in Item 8).

                                       4

<PAGE>

OPERATIONS

The Company's seven scrap tire processing plants charged tip fees for the 
collection of more than 31 million scrap tires in 1997.  Approximately 70% of 
the casings were obtained through the Company's own collection network, which 
collects from retail stores or supplies collection trailers to major scrap 
tire generators, and through arrangements with tire manufacturers for factory 
rejects.  Many of these casings were delivered by independent operators.  The 
Company is not dependent on any single supplier for scrap tires.  No one 
independent collector or generator accounted for more than 5% of the casings 
processed by the Company during 1997.

Scrap tires collected by the Company for a fee are processed into various 
forms of tire-derived material, the bulk of which is sold as TDF.  In 
general, the TDF production process consists of conveying whole tires to a 
primary shredder which cuts them into thin strips.  These strips are 
processed into a chip form and then passed through a magnetic separator to 
remove most of the bead wire and steel belting.  The resulting product is a 
chip of rubber compound nominally less than two inches in any dimension and 
98% free of bead wire. Most of the processing equipment by which scrap tires 
are converted into TDF has been designed or extensively modified by the 
Company's own technical personnel.  The Company continually endeavors to 
improve its process economics and product quality.  During 1996, the Company 
installed wire recycling systems at its Baytown, Texas, Atlanta, Georgia, and 
Portland, Oregon facilities. These systems, designed and constructed by the 
Company, allow the facilities to operate waste-free, I.E., there is no waste 
residue from the manufacturing process, thus improving profit margins.  These 
systems were also included in both of the Company's Illinois facilities when 
they were constructed in 1995.

The Company has also developed proprietary metering devices for use by TDF 
customers to control the flow of TDF as a fuel supplement to maximize TDF 
utilization within each customer's particular requirements and the framework 
of existing environmental constraints.

   Approximate Annual Shredding Capacities (Based on 16 hrs./day, 252 days/yr.):



                                                  Approximate Utilization
                                                    Percentage in 1997
                                                    ------------------
Portland TDF Plant            5.5 Million PTE's              69%
Houston TDF Plant             7.5 Million PTE's              73%
Atlanta TDF Plant             7.5 Million PTE's              44%
Philadelphia TDF Plant        6.0 Million PTE's              52%
Dupo TDF Plant                7.5 Million PTE's              52%
Marseilles TDF Plant          7.5 Million PTE's              63%
Concord Plant                 6.5 Million PTE's             117%

   PTE's are Passenger Tire Equivalents

The Company's production capacity has increased to 48 million PTE's as of
December 31, 1997, from 45 million as of December 31, 1996 and 25 million as of
December 31, 1995.  This increase was obtained through the establishment of the
two new facilities in Illinois and the acquisition of the Philadelphia and
Concord facilities.  Although TDF sales represent a small portion of the
Company's revenues, they provide the primary outlet for the Company's processed
material that supports the Company's growth.  TDF sales accounted for 14%, 10%,
and 7% 

                                       5
                                       
<PAGE>

of total company revenues for 1997, 1996 and 1995, respectively, and wire 
sales were 3%, 2%, and 0% for 1997, 1996, and 1995, respectively, whereas 
tipping fees, hauling and other services accounted for 84%, 88%, and 93% of 
total Company revenues for 1997, 1996 and 1995, respectively.

SEASONALITY

Historically, the Company's TDF sales volume has been seasonal in the Pacific 
Northwest, with volumes diminishing between June and November of each year 
when the major customers in that region, pulp and paper mills, need less fuel 
supplementation than in the winter and spring months when their waste wood 
fuel is wet.  However, as the Company has expanded with facilities throughout 
the country, the impact of seasonal fluctuations in the Pacific Northwest 
region has diminished considerably compared to previous years.

The Company believes WR-Illinois' contract with Illinois Power Company for 
the sale of 60,000 tons per year of TDF which has a term through July 1, 
1999, as well as growing the Company's client base in the South and 
Southeast, should help to dampen seasonal fluctuations over the foreseeable 
future.  The Company has also began supplying TDF to additional utility and 
industrial customers in the Midwest, in an effort to further mitigate 
seasonal fluctuations of TDF sales.

SCRAP-TIRE MARKET

The Rubber Manufacturing Association (RMA) estimates that approximately 350 
million passenger tire equivalents (PTE's) (equivalent to approximately 255 
million tire units) were scrapped in 1997.

If all tires scrapped in a year were converted to TDF utilizing the Company's 
proprietary system, the potential output would be approximately 3.3 million 
tons - more than 20 times the Company's 1997 tonnage sales of TDF.  Even 
after allowing for the 15% of tires scrapped annually that are used in other 
applications, the scrap tire supply, in general, should not have a limiting 
effect on the Company's ability to continue its growth for the foreseeable 
future.   This calculation does not take into account the additional "raw 
material" represented by abandoned tire piles which further increases the 
potential TDF output.

Demand for TDF appears to be growing, especially in the utility industry 
based on the Company's experience with this type of customer over the last 
three years.  Certain of the benefits of TDF, such as high BTUs, low cost, 
and reduced sulfur emissions, have contributed to increased TDF utilization 
by electric power generating facilities.  Management believes there are 
continuing opportunities to increase demand for this fuel.  One example of 
this is the agreement with the Illinois Power Company.  Under the terms of 
the Company's contract, the Illinois Power Company will burn up to 7.5 
million reprocessed tires, or 60,000 tons of TDF, per year at its Baldwin 
Power Station (Baldwin). This figure, which constitutes about 60% of the 
tires annually discarded in Illinois, equates to only 2% of the energy needs 
at the Baldwin plant.  WR-Illinois has recently extended an agreement with 
Wisconsin Power and Light, further establishing itself in this growing market 
segment.  The agreement with Wisconsin Power & Light calls for the delivery 
of up to 24,000 tons of TDF over a thirteen month period beginning January 
1998.

                                       6

<PAGE>

GOVERNMENT REGULATION

The Company works within a network of government regulations and programs at 
both the scrap tire supply side and the TDF supply side of the business.  Due 
to the recognized fire and mosquito-borne health hazards associated with 
stockpiles of scrap tires and the desire to curtail additional growth of 
stockpiles, more restrictive regulation with respect to the disposal of 
current generation of scrap tires has been implemented at all levels of 
jurisdiction with increasing intensity in recent years.

In the past couple of years, legislation has had a significant effect on the 
Company's Houston operation.  The State of Texas had collected $2 for each 
new passenger tire and $3.50 for each new truck tire sold.  The proceeds fund 
the clean-up of abandoned tire piles, as well as the disposal of current 
scrap tire generation, and are the source of the $.85 per weighed tire unit 
(18.7 lbs.) paid to licensed and registered scrap tire processors.  The 
Company was one of the first processors registered in 1992, and has been the 
only processor in the state to recycle all of the scrap tires it received 
under the program.  The Company was under the State of Texas' allocation 
program until September 1995, at which time the allocation system was 
eliminated and now allows qualified processors to process tires on an 
unlimited basis.  However, the Company's ability to increase tire flow into 
its facility was restrained since this legislation allowed competitors to 
stockpile scrap tire material and continue to receive compensation from the 
State. The result was the creation of large piles of shredded tires across 
the State which approximated 90 million tires at December 31, 1997.  In 
efforts to curtail the growth of these shred piles, this legislation was 
amended as of January 1, 1996 to require end-use markets such as TDF markets, 
for example, for scrap tires collected.  Although the effective date of the 
requirement for end-use markets was January 1, 1996, the State allowed a 
"grace period" for scrap tire processors to continue operating without 
end-use markets.  This grace period ended December 31, 1996.  The Texas scrap 
tire program was abolished on December 31, 1997, thus ending the state 
supported subsidy for the disposal of scrap tires.  The Company now charges a 
disposal fee directly from scrap tire generation for the Company's disposal 
services in Texas as it does in other states.

The burning of TDF is subject to regulation by federal, state and local 
governmental agencies.  Generally, the Company and its customers must comply 
with established mandatory disposal regulations and safety guidelines.  TDF 
customers must comply with certain emissions and ash content standards and 
with the requirements of the U.S. Environmental Protection Agency and certain 
portions of the Clean Air Act.  It is anticipated that initial permit 
applications to burn TDF in new states will be thoroughly scrutinized by 
regulatory bodies for emissions standards and ash content compliance.  The 
Company has developed historical information from its current customer base, 
as well as from the numerous trial burns it has been associated with, which 
provides a potential advantage in working with customers in their contacts 
with regulatory agencies.

COMPETITION

The scrap tire disposal and recycling industry is highly fragmented. 
Participants include the divisions of a few large companies and many small 
operators who, for the most part, either stockpile tires or shred and 
landfill them.  One of the largest collectors and processors of scrap tires 
into fuel on the East Coast is Emanuel Tire Company in 

                                       7

<PAGE>

Baltimore, Maryland.  Archer Daniels Midland Company of Decatur, Illinois, 
one of the largest scrap tire processors in Illinois, processes tires it 
receives into supplemental fuel for its own use.

In the Southwest, the implementation of legislation in Texas in 1992 fostered 
the establishment of approximately 20 new tire processors.  Approximately 
four of these entities are still active and compete with the Company.

Browning Ferris Industries, Inc. ("BFI") entered the scrap tire processing 
business through the acquisition of Maust Tire Recyclers of Savage, Minnesota 
in 1991.  BFI, headquartered in Houston, Texas, is one of the largest waste 
disposers in the United States and operates tire processing facilities in the 
states of Minnesota and Georgia.  During 1997, BFI sold its operation to 
Greenman Technologies.  Greenman is primarily a producer of crumb rubber.

The Company's primary competition for the acquisition of scrap tire casings 
comes from the companies mentioned above, numerous individual collectors, and 
Lakin General.  Lakin is a large collector of scrap tires on a national 
level. Lakin's primary business is the "culling" out of usable casings from 
the scrap flow and selling them into secondary markets as used tires.  The 
Company, at some locations, is a recipient of scrap from Lakin.

The Company recognizes that its operations and expansions are and will be 
subject to competition from other companies, some of whom have substantially 
greater financial, marketing, research and development, and personnel 
resources than the Company.  However, the Company believes that it can 
compete on the basis of its expertise in the logistics of tire disposal and 
TDF production technology.  The Company's newly-constructed TDF plants 
endeavor to incorporate process equipment design modifications that improve 
operating efficiency as compared with the original Portland operation.  The 
Company believes that its processing costs and reliability are better than 
those achievable by competitors using commercially available tire processing 
equipment.

PATENTS AND PROPRIETARY PROTECTION

The Company owns the United States patents set forth in the following table:

<TABLE>
<CAPTION>

Patent No.                         Title/Description                           Issue Date
----------                         -----------------                           ----------
<S>           <C>                                                              <C>
4,374,573     Apparatus for Shredding Rubber Tires and Other Waste Materials    02/22/83
4,519,550     Material Guide and Clearer for Commuting Apparatus                05/28/85
4,560,112     Scrap Shredding Apparatus Having Clearing Rings and Method for 
              Sharpening Same                                                   12/24/85
4,714,201     Tire Processing Apparatus and Method                              12/22/87
4,750,437     Method for Disposal of Waste Materials by Incineration            06/14/88
4,804,031     Apparatus for Removing Tires From Wheels                          02/14/89
4,806,056     Modular Fuel Metering Apparatus and Method                        02/21/89

</TABLE>

The Company owns the Canadian patents (and pending applications) set forth in
the following table:

<TABLE>
<CAPTION>

Patent No.                         Title/Description                           Issue Date
----------                         -----------------                           ----------
<S>           <C>                                                              <C>
1,220,461     Scrap Shredding Apparatus Having Clearing Rings and Method for  
              Sharpening Same                                                   04/14/87
1,279,051     Tire Processing Apparatus and Method                              01/15/91

</TABLE>
                                       8

<PAGE>

The Company's service mark "Making Waste a Resource" was federally registered
with the U.S. Patent and Trademark Office on July 5, 1983.  The patents set
forth in the foregoing tables afford some protection in the areas in which the
Company intends to concentrate.  Management believes, however, that its know-
how and regular improvements to equipment and procedures are equally important
in the waste-to-energy business.

In 1988, pursuant to its industrial development bond financing for construction
of the Atlanta plant, the Company licensed its technology, including such
patents, to the indenture trustee.  In 1993, the Company licensed such
technology to the Illinois Partnership in connection with the construction of
the two facilities in Illinois.  The Company was in default at December 31,
1997 with respect to debt of these facilities.  See notes 2, 11, 13 and 28 of
the Consolidated Financial Statements of the Company beginning at page F-1 of
this Form 10-K.

EMPLOYEES

As of December 31, 1997, the Company had 336 full-time employees, of whom 274 
were in operations and the balance in administration, sales, planning and 
engineering.  None of the employees are covered by collective bargaining 
agreements, and the Company believes its relations with its employees are 
generally good.

                                 [End of Page]

                                       9

<PAGE>

EXECUTIVE OFFICERS OF THE COMPANY

All executives hereunder are elected annually in accordance with the by-laws 
and serve until their successors are elected and qualified.  There are no 
family relationships among any of the Company's executive officers.  For a 
more detailed description of the Company's executive officers, please see the 
information under the caption "Executive Officers of the Company" in the 
Company's Proxy Statement to be filed under Regulation 14A within 120 days 
after December 31, 1997.
<TABLE>
<CAPTION>
                                       
      Name                  Age                  Position Held With Registrant
      ----                  ---                  -----------------------------
<S>                         <C>                  <C>
MARTIN B. BERNSTEIN          63                  Chairman of the Board of Directors
THOMAS L. EARNSHAW           43                  Vice Chairman of the Board of Directors
DAVID G. GREENSTEIN          37                  President and Chief Executive Officer
ROBERT L. THELEN             58                  Executive Vice President - Engineering
MARK W. HOPE                 43                  Senior Vice President

</TABLE>

The positions and offices of the executive officers of the Registrant are as
follows:

MARTIN B. BERNSTEIN was elected Chairman of the Board of Directors of the
Company at the February 13, 1997 Board of Directors meeting.  Mr. Bernstein
joined the Board of the Company in December of 1996 in connection with the
Company's acquisition of U.S. Tire.

THOMAS L. EARNSHAW accepted the position of Vice Chairman on August 1, 1997.
He was elected President and Chief Executive Officer, as well as a Director, of
the Company at the March 1, 1990 Board of Directors meeting.  Mr. Earnshaw
joined the Company at its inception in 1982.  He was elected Vice President-
Operations in 1985 and Executive Vice President-Operations in 1987.  Effective
January 1, 1998, Mr. Earnshaw resigned as an employee of the Company and was
retained as a consultant on a yearly basis.

DAVID G. GREENSTEIN joined the Company in December of 1996 in connection with
the Company's acquisition of U.S. Tire.  He also serves as President of the
Company's U.S. Tire subsidiary.  Mr. Greenstein was appointed President and CEO
on August 1, 1997, and elected as a Director of the Company in December 1997.

ROBERT L. THELEN has been with the Company since 1982, and is one of the
Company's original founders.  He is responsible for the design and improvement
of plant equipment, plant construction, and technical assistance to customers.
He was elected Vice President-Engineering in 1989, a Director in 1990, and
Executive Vice President-Engineering in May, 1991.

MARK W. HOPE joined the Company at its inception in 1982.  He was Vice
President of the Company's Northwest Region prior to accepting his current
position.

                                       10

<PAGE>

ITEM 2.  PROPERTIES
The Company currently occupies the following properties:

<TABLE>
<CAPTION>
                                                         Sq. Footage of         Owned or Lease      Current
    Location and Description                                Building               Expiration      Monthly Rental
    ------------------------                             --------------         --------------    --------------
<S>                                                      <C>                    <C>               <C>

PORTLAND, OREGON:
   25,000 sq. ft. paved property with metal
     manufacturing building                                   1,000                 12/31/99           $872
   45,000 sq. ft. property with metal fabrication
     and maintenance building                                 4,800                 12/31/99         $3,200
   20,000 sq. ft. graveled lot                                    -                  5/31/99           $800
   Office and shop on 1.2 acres                               8,000                  7/31/99         $2,200
HOUSTON (HARRIS COUNTY), TEXAS:
   Production facility on 9 acres partially paved
     with metal building                                     13,800                    Owned              -
ATLANTA, GEORGIA:
   Production facility on 3 acres partially paved
     with metal building                                      4,800                 12/31/99         $2,785
PHILADELPHIA, PENNSYLVANIA
   4 acres of land holding processing facility                1,500                  2/28/05         $3,200
DALLAS, TEXAS:
   Office space                                               4,500                  2/28/00         $2,765
DUPO, ILLINOIS:
   Production facility on 10 acres partially 
     paved with metal building                               12,000                 11/30/14         $1,000
MARSEILLES, ILLINOIS:
   Production facility on 6.8 acres partially 
     paved with two metal buildings                           9,600                    Owned              -
CONCORD, NORTH CAROLINA:
   Production facility on 87 acres with office 
     and shop                                                 5,600                    Owned              -

</TABLE>

In Portland, Oregon the Company occupies a 1,500 square foot building and 400
square feet of office space on the second floor of the 4,800 square foot metal
fabrication building which serves as its administrative offices.  The
administrative offices of the Houston, Atlanta, Philadelphia, Dupo, Marseilles
and Concord facilities are in office trailers of approximately 600 square feet.
The Company's executive offices occupy approximately 4,500 square feet in
Dallas, Texas.  The Company believes that its facilities are adequate for its
immediate needs, and that it has the capacity to accommodate significant
additional volume at its tire shredding plants.

On March 21, 1998, the Company's Marseilles, Illinois facility was
substantially damaged by fire.  The facility is covered by replacement and
business interruption insurance; however, uninsured costs, if any, are unknown
and are not yet reasonably or practicably determinable.


ITEM 3.  LEGAL PROCEEDINGS

Special Note:  Certain statements set forth below under this caption constitute
"forward-looking statements" within the meaning of the Reform Act.  See
"Special Note Regarding Forward-Looking Statements" for additional factors
relating to such statements.


                                       11

<PAGE>

The Company is involved in routine litigation arising in the ordinary course of
business.  In the opinion of management, such matters would not have a material
adverse effect on the financial condition or the results of operations of the
Company.

The Company has received certain demand letters from noteholders regarding the
Company's default on the convertible subordinated notes.  Management is
currently assessing the impact of these demands on the Company.  For further
discussion, see Part II, Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, and notes 2, 14 and 28 of the
Company's Financial Statements included in Part II, Item 8 of this Form 10-K.


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

No matter was submitted to a vote of the Company shareholders during the fourth
quarter of 1996.



                                 [End of Page]


                                       12

<PAGE>
                                   PART  II

ITEM 5.  MARKET FOR REGISTRANT'S STOCK AND RELATED SECURITY HOLDER MATTERS

The Company's no par value Common Stock is presently being traded on the over-
the-counter market.

Trading commenced on July 17, 1986 and the Registrant's common shares were
quoted on the NASDAQ system until February 20, 1990 at which time the Common
Stock was delisted as a result of the Company's failure to meet applicable
capital and surplus requirements.  The following table sets forth the range of
bid and ask prices for the Registrant's Common Stock during the periods
indicated:

                             High                            Low
                             ----                            ---
Quarter Ended         Bid            Ask            Bid            Ask
-------------         ---            ---            ---            ---
  03/31/96          1 3/8         1 9/16              1         1 5/32
  06/30/96        1 13/16              2              1          1 1/4
  09/30/96          1 1/2         1 9/16         1 1/16          1 1/4
  12/31/96         2 5/16          2 3/8          1 1/2          1 5/8
  03/31/97          2 1/4          2 1/4          1 1/4         1 7/16
  06/30/97         1 9/16         1 9/16         1 5/32         1 9/32
  09/30/97         1 7/32         1 7/16          29/32            7/8
  12/31/97          15/16          15/16            1/2          19/32

(a)  The quotations set out above represent prices between dealers and do not
     include retail mark-up, mark-down or commissions and may not represent
     actual transactions.  Prior to termination by NASDAQ (February 20, 1990),
     such quotations were received from NASDAQ.  Quotations after such time are
     obtained from the National Quotation Bureau.

(b)  The approximate number of record holders (not including participants in
     securities position listings) of the Registrant's common shares as of
     April 13, 1998 was 600.

(c)  To date, the Registrant has not paid any dividends on its Common Stock.
     Future dividends, if any, will be paid in compliance with the Company's
     loan agreements.  The Company has outstanding 203,580 shares of its 7%
     cumulative preferred stock.  Prior to payment of a dividend on its Common
     Stock, all dividends accumulated on such preferred stock must be paid.
     The Company does not anticipate paying dividends on its Common Stock in
     the foreseeable future.


RIGHTS OFFERING

The Company distributed nontransferable subscription rights (the "Rights") to
subscribe for an aggregate of 3,238,857 shares of its Common Stock for an
offering price of $0.75 per share (the "Subscription Price") to the holders of
record of the Common Stock at the close of business on April 14, 1995 (the
"Record Date"), and to certain holders of the Company's convertible debentures,
provided that on or before June 7, 1995 (the "Conversion Date") such debenture
holders converted the debentures to Common Stock (collectively, the "Eligible

                                       13

<PAGE>

Shareholders").  The Eligible Shareholders received in this offering two 
Rights for each five shares of Common Stock held on the Record Date or the 
Conversion Date.  Each Right entitled the holder to subscribe for and 
purchase one share of Common Stock upon payment of the Subscription Price.  
Each Right also entitled the holder to subscribe for additional shares of 
Common Stock available in this offering that were not subscribed and paid for 
by other Eligible Stockholders under the basic subscription privilege.

At the conclusion of the Rights offering on June 26, 1995, the full amount of 
the subscription had been exercised;  3,238,857 shares of Common Stock were 
issued and $2.2 million in capital was raised for specific equipment 
improvements and working capital.  In conjunction with the offering, $265,000 
plus accrued interest of $17,951 of the convertible subordinated debentures 
were converted at the rate of $0.875 per share into 323,373 shares of Common 
Stock.

PURCHASE OF U.S. TIRE RECYCLING PARTNERS, L.P.

The Company issued 3,242,997 shares of unregistered Common Stock, $1,850,000 
of convertible subordinated notes, and promissory notes in the aggregate 
amount of $605,035 as consideration for the purchase of U.S. Tire Recycling 
Partners, L.P. ("U.S. Tire") in December 1996.  The Company also issued 
243,224 unregistered shares of Common Stock to a third party as compensation 
for services rendered as financial advisor to the Company in connection with 
the acquisition of U.S. Tire.  The convertible subordinated notes are 
convertible at $2.50 per share and have an interest rate of 5% per annum in 
1996 and 1997, 6% in 1998 and 7% in 1999 and 2000.  Interest is paid 
quarterly with principal payments beginning on March 31, 1999 in the amount 
of $500,000, and $450,000 on September 30, 1999, March 31, 2000 and September 
30, 2000.  Principal amounts are subject to reduction if certain cash flow 
tests are not met by the Company's U.S. Tire subsidiary.  See notes 2, 14 and 
28 of the Company's Consolidated Financial Statements beginning at page F-1 
of this Form 10-K regarding the default by the Company with respect to the 
debt issued in connection with the acquisition of U.S. Tire.

PURCHASE OF INTEREST IN WR-ILLINOIS

The Company issued 1,100,000 shares of unregistered Common Stock to acquire 
Riverside Caloric Company's (RCC) 55% interest in WR-Illinois in December of 
1996.  The Company formed the Partnership in 1993 with RCC (a wholly-owned 
subsidiary of NIPSCO Industries, Inc.) to build two production facilities in 
Illinois.  The Company owned 45% of the partnership prior to acquiring RCC's 
interest.

ISSUANCE OF COMMON STOCK AND WARRANTS

On December 24, 1996 and December 26, 1996, the Company sold 1,050,000 shares 
of unregistered Common Stock for $1.45 per share in a private placement.  In 
connection with issuing this stock, warrants to purchase a like amount were 
also sold for $0.05 per share.  This sale was made to qualifying individuals, 
of which one was Mr. 

                                       14

<PAGE>

Michael Dodge, a director of the Company.  Mr. Dodge purchased 300,000 shares 
of unregistered Common Stock for $1.45 per share and $0.05 per warrant.

1997 REGISTRATION STATEMENT

In the agreement to acquire U.S. Tire, the Company agreed to file a 
registration statement with the Securities and Exchange Commission (SEC) to 
register shares issued to the sellers of U.S. Tire after its 1996 Form 10-K 
had been filed.  The shares of Common Stock issued to NIPSCO and those sold 
in the December private placement were given the right to be included in this 
filing.

                                    [End of Page]


                                       15

<PAGE>

ITEM 6:  SELECTED CONSOLIDATED FINANCIAL DATA

The following selected financial data has been derived from the consolidated
financial statements and should be read in conjunction with and are qualified
by reference to "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in Item 7 and the Consolidated Financial
Statements and related Notes included in Item 8.

<TABLE>
<CAPTION>
                                                                          For the Years Ended December 31,
                                                         1993            1994           1995           1996           1997
                                                         ----            ----           ----           ----           ----
<S>                                                 <C>            <C>            <C>            <C>            <C>
OPERATING DATA
TDF sales                                           $  1,114,975    $ 1,104,691    $ 1,080,172    $ 1,589,405    $ 4,007,545
Wire sales                                                     -              -              -        397,701        801,283
Disposal and other revenues                            7,625,518     11,320,714     13,059,751     14,687,426     24,499,916
                                                    ------------    -----------    -----------    -----------    -----------
Total revenues                                         8,740,493     12,425,405     14,139,923     16,674,532     29,308,744

Operating expenses and
    depreciation                                       6,902,545      9,753,225     12,098,884     13,103,362     25,270,437
General and administrative
    expenses                                           1,660,449      2,099,579      2,568,094      3,171,418      5,677,265
                                                    ------------    -----------    -----------    -----------    -----------
Income from operations                                   177,499        572,601       (527,055)       399,752     (1,638,958)
Interest expense, net                                    352,835        378,761        457,202        375,093        823,443
Other (income) expense                                   (67,340)        10,567       (380,066)      (935,795)      (654,261)
Minority interest in income                               87,617              -              -              -              -
Loss in equity of Partnership                                  -         20,260        322,630        668,504              -
                                                    ------------    -----------    -----------    -----------    -----------
Income (loss) before income
    taxes and extraordinary items                       (195,613)       163,013       (926,821)       291,950     (1,808,140)
Income tax benefit (expense)                                   -        447,543              -         (8,850)      (517,204)
                                                    ------------    -----------    -----------    -----------    -----------
Net income (loss)                                   $   (195,613)   $   610,556    $  (926,821)   $   283,100    $(2,325,344)
                                                    ------------    -----------    -----------    -----------    -----------
                                                    ------------    -----------    -----------    -----------    -----------

Net income (loss) per share                         $       (.08)** $       .07**  $      (.12)** $       .01**  $      (.14)**
                                                    ------------    -----------    -----------    -----------    -----------
                                                    ------------    -----------    -----------    -----------    -----------
Net income (loss) per share -
    assuming dilution                               $       (.08)** $       .06**  $      (.12)** $       .01**  $      (.14)**
                                                    ------------    -----------    -----------    -----------    -----------
Weighted average number of
    common shares outstanding                          4,040,199      7,762,817      9,132,359     12,167,731     17,334,892
                                                    ------------    -----------    -----------    -----------    -----------

Weighted average number of
    common shares outstanding -
    assuming dilution                                  4,040,199      7,466,955      9,132,359     12,353,963     17,334,892
                                                    ------------    -----------    -----------    -----------    -----------
OTHER DATA
Earnings before interest, taxes,
    depreciation & amortization
    (EBITDA+)                                       $    899,619    $ 1,236,758     $  486,089    $ 1,861,493    $ 1,835,883
                                                    ------------    -----------    -----------    -----------    -----------
                                                    ------------    -----------    -----------    -----------    -----------
EBITDA as a percentage of
    revenues                                                  10%            10%             3%            11%             6%
                                                    ------------    -----------    -----------    -----------    -----------
Tons of TDF sold during
    the period ended (unaudited)                          62,156         62,564         72,961        102,929        168,263
                                                    ------------    -----------    -----------    -----------    -----------

BALANCE SHEET DATA
Total assets                                        $  5,876,105    $ 8,745,077    $10,732,399    $28,391,800    $24,995,408
Total long-term debt                                $  2,065,509*   $ 4,002,585    $ 4,409,249    $12,053,395    $10,528,587*
Total shareholders' equity (deficit)                $   (362,932)   $ 1,258,819    $ 2,899,006    $ 8,329,123    $ 6,421,256

</TABLE>


+    The Company believes that EBITDA is a useful common yardstick for measuring
     the capacity of companies to generate cash without reference to how they
     are capitalized, how they account for significant non-cash charges for
     depreciation and amortization associated with assets used in the business,
     the bulk of which are long-lived assets, or what their tax attributes may
     be.  Additionally, since EBITDA is a basic source of funds not only for
     growth but to service indebtedness, lenders in both the private and public
     debt markets use EBITDA as a significant determinant of borrowing
     capacity.

                                       16

<PAGE>

     *Includes long-term debt then classified as short-term debt as a result of
     the Company's noncompliance during such period with certain financial
     covenants in its debt agreements (see notes 10 and 13 of the Consolidated
     Financial Statements of the Company and the related Notes included in Item
     8).
     **Undeclared dividends on cumulative preferred stock of $142,502,
     $142,502, $142,506, $142,896, and $142,506 for the years ended December
     31, 1993, 1994, 1995, 1996, and 1997, respectively, have been added to net
     loss or subtracted from net income for purposes of computing net income
     (loss) per common share.

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

Special Note:  Certain statements set forth below under this caption constitute
"forward-looking statements" within the meaning of the Reform Act.  See
"Special Note Regarding Forward-Looking Statements" for additional factors
relating to such statements.

GENERAL COMMENTS

In 1997, the deterioration of the Company's profitability has had a significant
adverse effect on the Company's liquidity.  As a result of this liquidity
problem, the Company has defaulted on certain of its debt obligations.  For
further discussion of these items, see the "Liquidity and Capital Resources"
section of Part II, Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, and notes 2, 11, 13, 14 and 28 of the
Company's Consolidated Financial Statements included in Part II, Item 8 of this
Form 10-K.

The Company owns and operates tire processing facilities in Portland, Oregon,
Houston, Texas, Atlanta, Georgia, Philadelphia, Pennsylvania, Dupo, Illinois,
Marseilles, Illinois and Concord, North Carolina.  Late in 1994, construction
began on the Dupo and Marseilles tire processing facilities which were
completed and began operations in late 1995.  These plants were originally
owned by the Illinois Partnership, of which the Company owned a 45% interest
and was the managing partner until December of 1996 when the Company acquired
its partner's (NIPSCO) interest in the partnership in exchange for common stock
of the Company (see Part II, Item 5, Purchase of Interest in WR-Illinois).  In
1995, the Company acquired the tire division of Domino Salvage, Inc. which
operated a tire collection and shredding operation located in Conshohocken,
Pennsylvania, for consideration of cash and notes.  In the fourth quarter of
1996, the Company acquired U.S. Tire, L.P., located in Concord, North Carolina,
a company which collects tires, manufactures TDF and a leachate drainfill
material, and also operates its own tire monofill (see Part II, Item 5,
Purchase of U.S. Tire Recycling Partners, L.P.).  Both Domino and U.S. Tire are
operated as wholly owned subsidiaries of the Company.

Regional services are provided from the seven operating facilities mentioned
above.  Operations of these facilities include scrap tire collection, disposal,
and the recycling of tires into various products including tire-derived fuel
(TDF), drainfill or leachate collection material, a quarter-inch minus chip
used as a feedstock by the crumb rubber manufacturing industry, and scrap steel
produced from the wire content of the processed tires.  The Company generates
revenues from scrap tire disposal fees, hauling of scrap tires, sales of used
tires in the used tire market, and the sale of products described immediately
above.

                                       17

<PAGE>

During the past three years, the effects of inflation on the Company's
operations have been negligible.

In the last three years, the Company has experienced significant growth which
has resulted primarily from the acquisition of Domino, U.S. Tire, and the
purchase of NIPSCO's 55% ownership in the Illinois Partnership.  These
acquisitions have caused the Company's scrap tire processing capacity to
increase from 20 million PTE's in 1994 to 48 million at the end of 1997.
Accompanying this increase in capacity, the Company more than doubled all
measures of volume in the period of 1995 - 1997.  Set out below are selected
measures of volume for those periods which illustrate this statement.

<TABLE>
<CAPTION>

                                                         1997            1996           1995 
                                                         ----            ----           ----
<S>                                                 <C>            <C>            <C>
TDF Tons Sold                                            168,263        102,929         72,961
Passenger Tire Equivalents Received (Tons)               318,659        162,926        132,793
TDF Sales                                            $ 4,007,545    $ 1,589,405    $ 1,080,172
Wire Sales                                           $   801,283    $   397,701              -
Disposal and Hauling Fees                            $24,499,916    $14,687,426    $13,059,751

</TABLE>

Notwithstanding the volume increases illustrated above, the Company was
unsuccessful in increasing its levels of capacity utilization which totaled 62%
prior to the three acquisitions and 55% for the year 1997.  Additionally, while
operating margins were squeezed by low capacity utilization rates, the
necessity of increasing tire flow had the overall affect of lowering tipping
fee margins.

The Company began 1997 with the belief that these volume increases would
translate into significantly improved operating results as a result of
increased overall volume.  Actual results were disappointing primarily as a
result of the Company's inability to secure sufficient tire flow at certain of
its facilities, which has had the effect of causing the Company to operate at
levels of capacity utilization which are significantly below those budgeted by
the Company at the beginning of 1997.  Additionally, the Company has
experienced other problems at its Atlanta and Philadelphia facilities which
have led to weak operating results in those facilities as described below.  Set
out below is a matrix illustrating on a facility-by-facility basis, capacity
and volume measures for 1997 illustrating their relative importance.



                                 [End of Page]

                                       18

<PAGE>

                           WRI OPERATING FACILITIES
          SELECTED STATISTICAL SUMMARY OF 1997 CAPACITY AND ACTIVITY

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                San
                      Atlanta,   Portland,    Concord,    Marseilles,    Dupo,     Philadelphia,   Baytown,   Antonio,  Calaveras,
                         GA         OR           NC           IL          IL             PA           TX        TX**       CA**
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
<S>                   <C>        <C>          <C>         <C>           <C>        <C>             <C>        <C>       <C>   
Year Built/
Acquired               1988        1982         1996         1995        1995           1995         1986       1996        1997
----------------------------------------------------------------------------------------------------------------------------------
Wire System            Yes          Yes           No          Yes         Yes             No          Yes         NA          NA
----------------------------------------------------------------------------------------------------------------------------------
Processing
   Capacity
(millions PTEs)         7.5         5.5          6.5          7.5         7.5              6          7.5          2           2
----------------------------------------------------------------------------------------------------------------------------------
1997 Budget
(millions PTEs
  processed)            3.3         3.8          7.6          4.7         3.9            3.1          4.1        1.6         1.2
----------------------------------------------------------------------------------------------------------------------------------
1997 Capacity
   Utilization
   Percentage            44%         69%*        117%          63%         52%            52%          55%        80%         60%
----------------------------------------------------------------------------------------------------------------------------------
1997 Tons
   TDF Sold
(in thousands)         18.3        20.7          7.0         28.3        48.9           13.6         31.4         NA          NA
----------------------------------------------------------------------------------------------------------------------------------
1997 Tons
   Wire Sold
(in thousands)          3.6         3.1           NA          1.8         3.7             NA          7.4         NA          NA
----------------------------------------------------------------------------------------------------------------------------------
1997 Tons
   Landfilled
(in thousands)            0        11.3         5.8             0           0           10.0            0          0           0
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

*EXCLUDES WINLOCK REMOTE PROJECT OF 1.3 MILLION PTES IN 1997.
**VOLUME NOT INCLUDED IN PROCESSING CAPACITY.


DESCRIPTION OF OPERATIONS AT INDIVIDUAL FACILITIES

ILLINOIS FACILITIES (DUPO AND MARSEILLES)

During the fourth quarter of 1995, the Company began operations at two new 
facilities located in the State of Illinois which were built to serve the 
Chicago and St. Louis, Missouri scrap tire markets, respectively.  These 
facilities were originally scheduled to open in the early summer of 1995, 
which date was postponed until the fall of that year, as a result of bad 
weather and flooding in the Midwest region of the country which delayed 
completion of their construction.  This delayed entry date into the scrap 
tire markets served by these facilities hampered the Company's ability to 
build tire flow, and as a consequence both Illinois facilities suffered 
during their start-up phases from a lack of scrap tire flow.  While this 
problem diminished by mid-1996, increasing demand for scrap tires in the 
region has restricted the supply to these two facilities, resulting in 
inadequate overall operating levels.  During calendar 1997, the two 
facilities operated at 57% of capacity utilization, versus 60% which the 
Company believes is necessary for the facilities to break even.  Demand for 
TDF in the Midwest has continued to strengthen, and the Company believes that 
TDF demand within the market area served by these two facilities presently 
exceeds the facilities aggregate capacity to produce TDF. In an effort to 
address this problem, the Company has lowered tipping fees to attract 
additional tire flow which has met with encouraging results.  As a 
consequence, the Company now projects that operations of these two facilities 
in 1998 will exceed the break even level and consequently will make their 
first profitable contribution to the Company's bottom line.

                                       19

<PAGE>

On March 21, 1998, the Company's Marseilles, Illinois facility was
substantially damaged by fire.  The facility is covered by replacement and
business interruption insurance; however, uninsured costs, if any, are unknown
and are not reasonably or practicably determinable.


U.S. TIRE, INC. - CONCORD FACILITY

In December of 1996, the Company acquired U.S. Tire, a scrap tire processor
located in Concord, North Carolina, which operates a scrap tire collection
network throughout the state and surrounding Eastern corridor as well as its
own scrap tire monofill.  The Concord facility landfills approximately 50% of
the scrap tires collected, with the balance being shredded and sold as
drainfill or leachate material, primarily in South Carolina where the product
is used as a substitute for gravel in septic tanks for single-family homes.
The Concord facility also produces some tire-derived fuel and other tire-
derived products which are used for civil engineering purposes.  Tire flow at
this facility exceeded 7.5 million PTE's in 1997 which is a continuation of
U.S. Tire's historically strong operating results.  This facility was a
significant contributor to the Company's operations in 1997 and met the overall
operating targets which were established when the company was purchased in
1996.


PORTLAND FACILITY

In 1997, the Portland facility continued to suffer from the loss of its largest
TDF customer, and from increasing competition for scrap tires.  As a
consequence, this facility was a major disappointment with final results which
varied from those originally projected by a wide margin.  In late 1996, a wire
recycling system was installed which created as a by-product, a 1/4 inch minus
wire free chip which is sold as a feedstock to the crumb rubber manufacturing
industry.  Demand for this particular product exceeds supply by a wide margin.
The scrap steel market in this area of the country is significantly weaker than
in more industrialized areas resulting in very low or zero sales prices for the
Company's scrap steel which numbers have adversely affected this facilities
bottom line.


BAYTOWN FACILITY

The Baytown facility experienced a good year both in terms of disposal fees and
end product sales.  The State of Texas' scrap tire allocation program expired
on December 31, 1997.  This event caused significantly improved levels of
operations in the fourth quarter of the year as disposers of tires sought to
eliminate their inventories prior to the conclusion of the State subsidy.
Going forward, the Company expects that the beginning of the year will see a
significant decrease in operating levels due to the large volumes that were
processed through the facility in November and December.  The Company maintains
its position of being the only processor in the State of Texas capable of
recycling 100% of each tire, and accordingly hopes that as the free market
environment created by the elimination of the State program takes effect, that
operations in the second half of the year will return to the levels experienced
in 1997.

                                       20

<PAGE>

ATLANTA FACILITY

The mechanical fire that shut down the Atlanta facility in November of 1996,
caused a dramatic decrease in operations at that facility for 1997.   While a
portion of the plant remained open to receive scrap tires which were shredded
and landfilled at the Company's U.S. Tire facility in Concord, North Carolina,
the plant did not regain full mechanical operation until June of 1997.  During
the second half of the year, operating levels increased, but they did not reach
the prior year's levels until the fourth quarter.  Notwithstanding these
events, because of business interruption insurance, the bottom line operations
for the facility came in at a level approximating the Company's internal budget
which was prepared prior to the fire.  Additionally, because the facility was
adequately insured and much of the damaged equipment already fully depreciated,
the Company recognized an involuntary gain on the conversion of assets during
the fourth quarter of 1996.


PHILADELPHIA FACILITY

The Company's Pennsylvania facility which is located north of Philadelphia in
the town of Conshohocken was purchased by WRI in 1995.  This facility has
remained unprofitable during the past two years because the TDF markets which
the Company foresaw failed to materialize.  This facility is the only permitted
tire recycling plant in Pennsylvania and was awarded in excess of $1 million in
tire pile abatement projects in 1995.  In April of 1998, the Company concluded
an agreement to sell TDF to International Paper's facility located in
Lockhaven, Pennsylvania at a level which it is hoped will bring this facility
closer to profitability in 1998.


A recap of the Company's operating results before income taxes follows:


<TABLE>
<CAPTION>

                                                        1997            1996          1995
                                                    -----------      ---------     ---------
<S>                                                 <C>              <C>           <C>
Operating income (loss)                             $(1,638,958)     $ 399,752     $(527,055)

Interest expense (net)                                 (823,443)      (375,093)     (457,202)

Gains on sales of equipment and other income            489,343        311,576       380,066

Gain (loss) on involuntary conversion of assets         164,918        624,219             -

Equity in loss from Partnership operations                    -       (668,504)     (322,630)
                                                    -----------      ---------     ---------
Income (loss) before income taxes                   $(1,808,140)     $ 291,950     $(926,821)
                                                    -----------      ---------     ---------
                                                    -----------      ---------     ---------
</TABLE>

                                      21
<PAGE>

1997 VS. 1996 VS. 1995

The table below summarizes the activity of the Company as well as the basic
revenue categories for the last three years:

<TABLE>
<CAPTION>

                                                        1997           1996           1995
                                                     -----------    -----------    -----------
<S>                                                  <C>            <C>            <C>
TDF Tons Sold                                            168,263        102,929         72,961

Passenger Tire Equivalents Received (Tons)               318,659        162,926        132,793

TDF Sales                                            $ 4,007,545    $ 1,589,405    $ 1,080,172

Wire Sales                                           $   801,283    $   397,701              -

Disposal and Hauling Fees                            $24,499,916    $14,687,426    $13,059,751
</TABLE>

The Company's total revenues of $29,308,744 for 1997 were 76% higher than the
$16,674,532 received in 1996, and 107% higher than the $14,139,923 received in
1995.  This increase is the result of a 152% and 271% increase in TDF sales,
and a 67% and 88% increase in disposal fees, hauling, and other revenue over
1996 and 1995, respectively, as well as sales of wire product for the first
time in 1996 generated from the newly installed wire systems.  Tons of TDF sold
were improved in 1997 for an increase of 63% over 1996 and 131% over 1995.
These increases are primarily due to the December 1996 acquisitions of WR-
Illinois and U.S. Tire, which accounted for 44% of total revenues for the year
ending December 31, 1997.  Tire flow increased for the year ending 1997 showing
an increase of 96% and 140% compared to the same periods ending 1996 and 1995,
primarily as a result of the acquisitions, with WR-Illinois and U.S. Tire
accounting for 51% of total 1997 tire flow.

TDF sales were down at the Portland plant for the year ending 1997 compared to
1996, while disposal fees decreased due to a decrease in related tire flow.
TDF sales and disposal fees decreased at the Atlanta plant due to the
rebuilding efforts, which were completed in late May 1997, as a result of the
November 1996 fire.  The Houston plant showed improvement in TDF and wire sales
as the market for these products strengthened in that region.  Margins in
Houston improved because of lower freight costs, and higher delivered prices
which are attributable to the increasing demand for TDF in the south central
states.  Domino showed improvement for the year ending 1997 compared to 1996
and 1995 in part as a result of a cleanup project for the Commonwealth of
Pennsylvania.  TDF sales for Domino, however, were flat for 1997 compared to
1996.  WR-Illinois showed improved TDF sales with the Marseilles plant
producing and selling TDF beginning January 1997, while the Dupo plant's TDF
sales were flat for the year ending 1997 compared to 1996.  Tire flow for WR-
Illinois improved 53% for the year ending December 1997 compared to the same
period in 1996.

The table below compares cost elements as a percentage of revenues (Revs.) over
the last three years:

<TABLE>
<CAPTION>
                                                    % of                     % of                    % of
                                       1997         Revs.       1996         Revs.        1995       Revs.
                                    -----------     -----    -----------     -----    ----------     -----
<S>                                 <C>             <C>      <C>             <C>      <C>            <C>
Total Variable
     Operating Expenses             $22,449,857       76%    $11,908,912       71%    $11,143,176     79%
Depreciation                          2,820,580       10%      1,194,450        7%        955,708      7%
                                    -----------       ---    -----------       ---    -----------     ---
Total Operating Expenses            $25,270,437       86%    $13,103,362       78%    $12,098,884     86%
                                    -----------       ---    -----------       ---    -----------     ---
                                    -----------       ---    -----------       ---    -----------     ---
</TABLE>


                                     22
<PAGE>
Operating expense for the year ended December 31, 1997 increased compared to
the same periods ending in 1996 and 1995 due to the acquisitions of WR-Illinois
and U.S. Tire in December 1996.  Operating expense as a percent of revenues
increased to 76% for the year ending December 31, 1997 from 71% for the same
period ending in 1996.  This increase is primarily the result of a decreased
tire flow in Portland, and increased operating costs at the Houston plant due
to further expansion and tire collection efforts in Texas.  Operating expense
as a percent of revenues for WR-Illinois and Domino improved from 87% to 78%
for 1996 and 1997, respectively, due to an increased tire flow for all three
plants, and improved TDF sales at the Marseilles plant.  Operating expense as a
percent of revenues for the year ending 1996 compared to the same period in
1995 improved primarily as a result of the wire systems installed in 1996.
Prior to installation of the wire systems, the Company incurred costs to
dispose of the wire waste residue.  The wire product is now sold in the scrap
steel market.

Depreciation expense increased significantly to $2,820,580 for the year ending
December 31, 1997 compared to $1,194,450 and $955,708 for the same periods
ending in 1996 and 1995, respectively.  The increase in 1996 over 1995 was
primarily due to the installation of the wire systems installed in the Atlanta,
Baytown, and Portland plants.  The increase in 1997 is due primarily to the
acquisition of U.S. Tire, and the inclusion of WR-Illinois in the Consolidated
Financial Statements of the Company which resulted from the acquisition of the
55% of WR-Illinois not owned by the Company prior to December 1996.  In 1995,
WRI owned 45% of WR-Illinois, and in accordance with generally accepted
accounting principals, reported the results of operations of these two Illinois
facilities as a one-line item entitled "Equity in loss from partnership
operations" as required by the equity method of accounting for subsidiaries.
With the completion of the acquisition of the 55% majority interest in December
1996, the Company used the consolidation method of accounting for subsidiaries
to consolidate the operations of these facilities thereby including components
of income and expense in its operating statements.  Depreciation expense as a
percent of revenues was 10% for the year ending December 31, 1997, compared
with 7% for the years 1996 and 1995, which resulted primarily from the
consolidation of WR-Illinois cited above and the inclusion of U.S. Tire.



                                 [End of Page]


                                     23
<PAGE>

General and administrative expenses increased to $5,677,265 for 1997, compared
with $3,171,418 for 1996, and $2,568,094 in 1995.  These increases are
attributable primarily to the consolidation of WR-Illinois, the acquisition of
U.S. Tire, as well as increased staffing at the plant and corporate levels,
higher salaries and health insurance costs, and other administrative costs from
the overall increase in corporate activities as a result of the Company's
expansion.  As a percent of revenues, general and administrative costs were
unchanged at 19% for 1997 and 1996, and were up compared to 18% for 1995.  The
increases are primarily due to the acquisitions of WR-Illinois and U.S. Tire in
December 1996.  Interest expense increased to $940,136 for 1997 from $447,176
for 1996.  The increase is primarily attributable to the consolidation of WR-
Illinois.  Interest expense decreased in 1996 compared to 1995 due to the
conversion of the subordinated convertible debentures on July 1, 1996, as well
as the capitalization of interest in connection with the construction and
installation of the wire systems in the Atlanta, Houston, and Portland plants
in 1996.  Interest expense as a percent of revenues was unchanged at 3% for
1997 and 1996.



<TABLE>
<CAPTION>
                                             % of                     % of                    % of
                                1997         Revs.       1996         Revs.        1995       Revs.
                             -----------     -----    -----------     -----    ----------     -----
<S>                          <C>             <C>      <C>             <C>      <C>            <C>
General and
   Administrative             $5,677,265      19%      $3,171,418       19%     $2,568,094      18%
Interest Expense                 940,136       3%         447,176        3%        517,986       4%
Interest Income                 (116,693)      -          (72,083)       -         (60,784)      -
                              ----------      --       ----------       --      ----------      --
                              $6,500,708      22%      $3,546,511       22%     $3,025,296      22%
                              ----------      --       ----------       --      ----------      --
                              ----------      --       ----------       --      ----------      --
</TABLE>


                                 [End of Page]


                                     24
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Despite the significant increases in operating levels in 1997 over 1996, the
deterioration in the Company's profitability has had a significant adverse
affect on the Company's liquidity, and on measures of financial leverage.  As a
consequence of these poor operating results in 1997, management has focused its
attention on cost reduction and the deferral of capital expenditures and
improvement in operating efficiencies until such time as the Company is able to
restore its liquidity through obtaining additional capital and improvement in
its operations.

In order to meet liquidity needs, in 1997, various directors of the Company
advanced $300,000 in the form of convertible debt.  An additional $385,000 was
advanced during the first quarter of 1998.  Additionally, the Company's lead
financial institution, Chase Bank of Texas, modified its existing indebtedness
by increasing the overall amount by $350,000, and deferring principal
amortization by an aggregate of $154,000 in 1998.  Despite these events, the
Company ended the year in a deficit cash position which is recorded as an
account payable reflecting a bank overdraft.  While the funds contributed in
1998, along with the increased bank debt, have eliminated the overdraft
problem, the Company believes that it will need the proceeds from additional
equity and long-term debt to meet the levels of liquidity that are necessary
for future operations.

On March 20, 1997, the Domino debt was modified to change the due date of the
second installment of $225,000 to May 21, 1997.  The third installment of
$275,000 was to remain due on March 21, 1998.

As a result of the poor operating results in 1997 and the related adverse
effect on the Company's liquidity, the Company defaulted on certain of its
debt.

On January 15, 1998, the Company was in default on the convertible subordinated
notes as a result of the nonpayment of interest.  These notes were given as
consideration for the acquisition of U.S. Tire and are accounted for as a
contingent obligation (see note 14 of the financial statements beginning on
page F-1 of this Form 10-K.)  The note agreement provides that, in the event of
a default, the noteholders may convert the notes to common stock at a reduced
price of $1.00 per share or foreclose on the common stock of New U.S.  Tire
Recycling Corp., a wholly-owned subsidiary of the Company which owns 84% of
U.S. Tire.

On January 27, 1998, the Company announced a default by its wholly-owned
subsidiary, WR-Illinois with respect to debt service payments due February 1,
1998 in connection with the loan agreements relating to outstanding bonds
issued by the Southwestern Illinois Development Authority and the Upper
Illinois River Valley Development Authority.  The bonds are secured by the
assets of WR-Illinois, restricted trust funds, and a corporate guaranty by the
Company.  As a result of the default, the indenture trustee has made demand for
payment, and, although notice of acceleration has not been given, the
bondholders have the right to accelerate maturity.

Management is attempting to resolve each of these matters, as well as the
overall liquidity problems of the Company, through efforts to restructure debt,
obtain additional capital, limit capital expenditures, and improve operations.


                                     25
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required by this item begin at page F-1 hereof.

ITEM 9.  DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     -None-



                                 [End of Page]


                                     26
<PAGE>

                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required in response to this item is incorporated herein by
reference to the Company's Proxy Statement to be filed under Regulation 14A
within 120 days after December 31, 1997.


ITEM 11.  EXECUTIVE COMPENSATION

The information required in response to this item is incorporated herein by
reference to the Company's Proxy Statement to be filed under Regulation 14A
within 120 days after December 31, 1997.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required in response to this item is incorporated herein by
reference to the Company's Proxy Statement to be filed under Regulation 14A
within 120 days after December 31, 1997.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required in response to this item is incorporated herein by
reference to the Company's Proxy Statement to be filed under Regulation 14A
within 120 days after December 31, 1997.



                                 [End of Page]


                                     27
<PAGE>
                                    PART IV

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

               (a)  1.   Financial statements are listed in the "Index to
               Consolidated Financial Statements for Waste Recovery, Inc." on
               page 35 of this Form 10-K.

               (a)  2.   Exhibits are listed on page E-1 through E-4 of this
               Form 10-K.
                                
<TABLE>
<CAPTION>
               Exhibit          
               Number                             Exhibit
               -------                            -------
               <S>              <C>
                                
               3.1              Amended and Restated Articles of Incorporation filed July
                                5, 1988, with the Secretary of State of Texas,
                                incorporated herein by reference to Exhibit 3.4 to the
                                Company's Form 10-K filed March 24, 1989.
                                
               3.2              Articles of Amendment to the Articles of Incorporation
                                filed June 8, 1990, with the Secretary of State of Texas,
                                incorporated herein by reference to Exhibit 3.5 to the
                                Company's Form 10-K filed March 27, 1991.
                                
               3.3              By-Laws, amended and restated as of March 10, 1992,
                                incorporated herein by reference to Exhibit 3.6 to the
                                Company's Form 10-K filed March 26, 1992.
                                
                                
               4.1              Form of Common Stock Certificate of Registrant,
                                incorporated herein by reference to the Company's Form S-
                                1, as amended, filed July 15, 1986.
                                
               4.2              Indenture of Trust dated April 1, 1988, between
                                Development Authority of Fulton County and Citizens and
                                Southern Trust Company (Georgia), National Association, as
                                Trustee, incorporated herein by reference to Exhibit 4.2
                                to the Company's report on Form 8-K filed June 1, 1988.
                                
               4.6              Form of 10% Convertible Subordinated Debenture due March
                                15, 1996, incorporated herein by reference to Exhibit 4.6
                                to the Company's report on Form 8-K filed October 5, 1994.
                                
                                
               10.6             Agreement dated May 9, 1986, between Registrant and The
                                Goodyear Tire and Rubber Company, incorporated herein by
                                reference to Exhibit 10.32 to the Company's Amendment No.
                                1 to Form S-1 filed July 1, 1986.
                                
               10.7             Lease Agreement dated January 15, 1988, between Southern
                                Metal Finishing Company, Inc. and the Registrant,
                                incorporated herein by reference to Exhibit 10.37 to the
                                Company's Form 10-K filed March 25, 1988.
                                
               10.8             Indemnity Agreement dated January 29, 1988, by the
                                Registrant and Southern Metal Finishing Company, Inc.,
                                incorporated herein by reference to Exhibit 10.38 to the
                                Company's Form 10-K filed March 25, 1988.
</TABLE>


                                     28
<PAGE>
<TABLE>
<CAPTION>
               Exhibit          
               Number                             Exhibit
               -------                            -------
               <S>              <C>

               10.10            Estoppel Deed, dated December 28, 1989, between the
                                Registrant as Grantor, and Tex A. Perkins, et al., as
                                Grantee, incorporated herein by reference to Exhibit 10.64
                                to the Company's Form 10-K filed March 26, 1990.
                                
               10.11            Lease of Real Property, dated January 1, 1990, between the
                                Registrant, as Lessee, and Tex A. Perkins, et al., as
                                Lessor, incorporated herein by reference to Exhibit 10.65
                                to the Company's Form 10-K filed March 26, 1990.
                                
               10.12            Warranty Deed, dated February 7, 1990, between Tex A.
                                Perkins, et al., as Grantor, and Wayne Easley, as Grantee,
                                incorporated herein by reference to Exhibit 10.66 to the
                                Company's Form 10-K filed March 26, 1990.
                                
               10.13            Assignment of Lease, dated February 7, 1990, from Tex A.
                                Perkins, et al., as Assignor, and Wayne Easley, as
                                Assignee, incorporated herein by reference to Exhibit
                                10.68 to the Company's Form 10-K filed March 26, 1990.
                                
               10.14            The Registrant's 1989 Stock Plan for Employees, effective
                                March 6, 1989, and approved by the Registrant's
                                shareholders at the 1989 Annual Meeting, incorporated
                                herein by reference to Exhibit 10.73 to the Company's Form
                                10-K filed March 26, 1990.
                                
               10.15            Amendment No. 1 to the Registrant's 1989 Stock Plan for
                                Employees, incorporated herein by reference to Exhibit
                                10.15 to the Company's Form 10-K filed March 28, 1996.
                                
               10.16            Nonqualified Stock Option Agreement dated April 4, 1990,
                                granted by the Registrant to Allan Shivers, Jr. for
                                200,000 shares, incorporated herein by reference to
                                Exhibit 10.77 to the Company's Form 10-K filed March 27,
                                1991.
                                
               10.17            Form of Nonqualified Stock Option Agreement for grants to
                                employees made January 7, 1991, incorporated herein by
                                reference to Exhibit 10.89 to the Company's Form 10-K
                                filed March 26, 1992.
                                
               10.18            Form of Incentive Stock Option Agreement for grants to
                                employees made October 1, 1991, incorporated herein by
                                reference to Exhibit 10.90 to the Company's Form 10-K
                                filed March 26, 1992.
                                
               10.19            1992 Stock Plan for Non-Employee Directors, incorporated
                                herein by reference to Exhibit 4.8 of the Company's Form S-
                                8 filed May 8, 1992.
                                
               10.20            Form of Nonqualified Stock Option Agreement for grants to
                                non-employee directors made January 4, 1991, incorporated
                                herein by reference to Exhibit 10.88 to the Company's Form
                                10-K filed March 26, 1992.
</TABLE>

                                      29
<PAGE>

<TABLE>
<CAPTION>
               Exhibit          
               Number                             Exhibit
               -------                            -------
               <S>              <C>

               10.21            Indemnity and Security Agreement, dated June 1, 1990,
                                between Registrant and The Goodyear Tire and Rubber
                                Company, incorporated herein by reference to Exhibit 10.82
                                to the Company's Form 10-K filed March 27, 1991.
                                
               10.22            Amendment to Lease of Real Property dated April 25, 1991,
                                between the Registrant, as Lessee, and George Glanz, as
                                Lessor, Incorporated herein by reference to Exhibit 10.86
                                to the Company's Form 10-K filed March 26, 1992.
                                
               10.23            Agreement (for supply of TDF) between the Registrant and
                                Illinois Power Company dated October 12, 1993, (paragraph
                                4 of Exhibit 10.007 is subject to a request for
                                confidential treatment), incorporated herein by reference
                                to Exhibit 10.007 to the Company's report on Amendment No.
                                1 to Form 8-K/A filed December 14, 1993.
                                
               10.24            Leasehold Commercial Deed of Trust, Security Agreement,
                                Fixture Filing, Financing Statement, and Assignment of
                                Leases and Rents dated September 20, 1994, executed by the
                                Registrant as Grantor, for the benefit of NationsBank of
                                Georgia N.A. as Trustee, incorporated herein by reference
                                to Exhibit 10.021 to the Company's Form 10-K filed March
                                30, 1995.
                                
               10.25            Stock Purchase Agreement for the purchase by the
                                Registrant of the outstanding stock of Domino Salvage,
                                Tire Division, Inc., dated March 21, 1995, incorporated
                                herein by reference to Exhibit 10.024 to the Company's
                                Form 10-K filed March 30, 1995.
                                
               10.26            Loan Agreements dated April 1, 1988, between Development
                                Authority of Fulton County and the Registrant,
                                incorporated herein by reference to Exhibit 28.2 to the
                                Company's report on Form 8-K filed June 1, 1988.
                                
               10.27            Promissory Note dated April 1, 1988, from the Registrant
                                to Development Authority of Fulton County, incorporated
                                herein by reference to Exhibit 28.3 to the Company's
                                report on Form 8-K filed June 1, 1988.
                                
               10.28            Leasehold Deed to Secure Debt and Security Agreement dated
                                April 1, 1988, between the Registrant and the Trustee,
                                incorporated herein by reference to Exhibit 28.5 to the
                                Company's report on Form 8-K filed June 1, 1988.
                                
               10.29            First Amendment to Lease Agreement dated April 1, 1988,
                                between Southern Metal Finishing Company, Inc. and the
                                Registrant, incorporated herein by reference to Exhibit
                                28.6 to the Company's report on Form 8-K filed June 1,
                                1988.
                                
               10.30            Assignment of Contracts dated April 1, 1988, between the
                                Registrant and Development Authority of Fulton County,
                                incorporated herein by reference to Exhibit 28.7 to the
                                Company's report on Form 8-K filed June 1, 1988.
</TABLE>

                                      30
<PAGE>

<TABLE>
<CAPTION>
               Exhibit          
               Number                             Exhibit
               -------                            -------
               <S>              <C>

               10.31            Promissory Note dated February 29, 1996, executed by the
                                Registrant as maker payable to Texas Commerce Bank
                                National Association in principal amount of $1,119,309.01,
                                incorporated herein by reference to Exhibit 10.31 to the
                                Company's Form 10-K filed April 15, 1997.
                                
               10.32            Note Purchase Agreement dated February 29, 1996, between
                                The Goodyear Tire and Rubber Company and Texas Commerce
                                Bank National Association, incorporated herein by
                                reference to Exhibit 10.32 to the Company's Form 10-K
                                filed April 15, 1997.
                                
               10.33            Form of Convertible Subordinated Debenture Conversion
                                Agreements effective July 1, 1996, incorporated herein by
                                reference to Exhibit 10.33 to the Company's Form 10-K
                                filed April 15, 1997.
                                
               10.34            Form of Warrant to Purchase Common Stock of Waste
                                Recovery, Inc. as of July 1, 1996, as Exhibit "A" to the
                                Convertible Subordinated Debenture Conversion Agreements
                                included herein in Exhibit 10.47, incorporated herein by
                                reference to Exhibit 10.34 to the Company's Form 10-K
                                filed April 15, 1997.
                                
               10.35            Dodge Common Stock and Warrant Purchase Agreement dated
                                December 24, 1996 between Waste Recovery, Inc. and Michael
                                C. Dodge, incorporated herein by reference to Exhibit
                                10.35 to the Company's Form 10-K filed April 15, 1997.
                                
               10.36            Common Stock and Warrant Purchase Agreement dated December
                                26, 1996 by and among Waste Recovery, Inc. and Bette
                                Nagelberg, Ronald I. Heller, Rachel Heller, Ronald I.
                                Heller as custodian for Evan Heller, Delaware Charter
                                Guaranty & Trust Co. FBO, and R. Anthony Cioffari,
                                incorporated herein by reference to Exhibit 10.36 to the
                                Company's Form 10-K filed April 15, 1997.
                                
               10.37            Agreement and Plan of Reorganization dated as of the 30th
                                day of September 1996 by and among Waste Recovery, Inc.,
                                New U.S. Tire Recycling Corp., U.S. Tire Recycling
                                Partners, L.P., Bodner/Greenstein Capital Holdings, Inc.,
                                Tirus, Inc., Tirus Associates, L.L.C., Environmental
                                Venture Fund, L.P., Argentum Capital, L.P., and Certain
                                Shareholders, incorporated herein by reference to Exhibit
                                1.1 of the Company's current report on From 8-K filed
                                December 20, 1996.
                                
               10.38            Partnership Purchase Agreement dated as of December 16,
                                1996, between Riverside Caloric Company, Waste Recovery,
                                Inc., and Waste Recovery-Illinois, L.L.C., incorporated
                                herein by reference to Exhibit 1.2 of the company's
                                current report on Form 8-K filed December 20, 1996.
                                
               10.39            Deed of Trust and Security Agreement between New U.S. Tire
                                Recycling Corp. (a wholly-owned subsidiary of the
                                Registrant) as Grantor, and the former partners and
                                shareholders of U.S. Tire Recycling Partners, L.P. as
                                Beneficiary, incorporated herein by reference to Exhibit
                                10.39 to the Company's Form 10-K filed April 15, 1997.
</TABLE>

                                      31
<PAGE>

<TABLE>
<CAPTION>
               Exhibit          
               Number                             Exhibit
               -------                            -------
               <S>              <C>
                                
               10.40            Letter Agreement between Waste Recovery, Inc. and Cameron
                                & Associates relating to the retention of Cameron &
                                Associates as financial advisor in connection with the
                                acquisition of U.S. Tire, incorporated herein by reference
                                to Exhibit 10.40 to the Company's Form 10-K filed April
                                15, 1997.
                                
               10.41            Nonqualified Stock Option Agreement dated February 12,
                                1997, granted by the Registrant to Martin B. Bernstein for
                                1 million shares.(1)
                                
               10.42            Consulting Agreement dated December 31, 1997 between
                                Registrant and Thomas L. Earnshaw, as consultant.(1)
                                
               10.43            Promissory Note dated March 17, 1998, executed by
                                Registrant as maker payable to Chase Bank of Texas,
                                National Association in principal amount of $350,000.(1)
                                
               11.1             Statement regarding computation of per share earnings -
                                See page F-5 of this Form 10-K which is incorporated
                                herein by reference.
                                
                                
               21.1             Subsidiaries of the Registrant, incorporated herein by
                                reference to Exhibit 21.1 to the Company's Form 10-K filed
                                April 15, 1997.
                                
                                
               23               Consent of Independent Accountants.(1)
                                
               23.1             Consent of Independent Accountants.(1)
                                
               23.2             Consent of Independent Accountants.(1)
                                
                                
               27.1             Financial Data Schedule.(1)
                                
                                
               99.1             The Company's Proxy Statement for its 1998 Annual Meeting
                                of Shareholders, incorporated herein by reference pursuant
                                to Rule 12b-32 of the Securities Exchange Act of 1934.
                                Definitive copies of such Proxy Statement to be filed
                                under Regulation 14A within 120 days after December 31,
                                1997.

</TABLE>
               --------------------

               (1) Filed herewith


                                      32
<PAGE>

               (b)  (i)  On December 24, 1996, the Company filed a current
               report on Form 8-K dated December 9, 1996, as amended by current
               report on Form 8-K/A filed February 24, 1997 and current report
               on Form 8-K/A filed February 28, 1997, and as further amended by
               current report on Form 8-K/A filed August 27, 1997, pursuant to
               Item 2 thereof, reporting the acquisitions of U.S. Tire
               Recycling Partners, L.P. and Waste Recovery-Illinois, general
               partnership.

                    (ii) On December 19, 1997, the Company filed a current
               report on Form 8-K dated December 16, 1997 pursuant to item 4
               thereof, reporting the dismissal of Price Waterhouse LLP as its
               independent certified public accounts, and the engagement of
               Grant Thornton LLP to act as the Company's new independent
               certified public accountant.

                    (iii)     On January 27, 1998, the Company filed a current
               report on Form 8-K dated January 27, 1998 pursuant to item 5
               thereof, reporting the default by one of the Company's
               subsidiaries, Waste Recovery-Illinois, General Partnership, with
               respect to certain of such subsidiary's debt service obligations
               on two industrial revenue bond issues.



                                 [End of Page]


                                     33
<PAGE>
                                  SIGNATURES
                                       
                                       
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this report has been signed below on April 15, 1998, by the
following duly authorized person on behalf of the Company.


                             WASTE RECOVERY, INC.
                                 (Registrant)

Date:     April 15, 1998           By:       /s/ DAVID G. GREENSTEIN
                                       --------------------------------------
                                               David G. Greenstein
                                       President and Chief Executive Officer


                               POWER OF ATTORNEY

KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David G. Greenstein and Donald R.
Phillips, and each of them, such individual's true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for such
individual and in his name, place and stead, in any and all capacities, to sign
any and all amendments to this Form 10-K under the Securities Exchange Act of
1934, and to file the same, with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements to the Securities Exchange Act of 1934, this
report has been signed below on March 31, 1998, by the following persons on
behalf of the Registrant in the capacities indicated.


     /s/ DAVID G. GREENSTEIN                     /s/ CRANDALL S. CONNORS
     -----------------------------------       --------------------------------
By:  David G. Greenstein                    By:  Crandall S. Connors, Director
     President and Chief Executive
     Officer (Principal Executive Officer,       /s/ MICHAEL C. DODGE
     and Principal Financial and                -------------------------------
     Accounting Officer), and Director      By:  Michael C. Dodge, Director

                                                 /s/ THOMAS L. EARNSHAW
                                                -------------------------------
     /s/ STEPHEN P. ADIK                    By:  Thomas L. Earnshaw, Director
     -----------------------------------
By:  Stephen P. Adik, Director
                                                 /s/ JOHN C. KERR
                                                -------------------------------
     /s/ JAY I. ANDERSON                    By:  John C. Kerr, Director
     -----------------------------------
By:  Jay I. Anderson, Director
                                                 /s/ STEVEN E. MACINTYRE
                                                -------------------------------
     /s/ MARTIN B. BERNSTEIN                By:  Steven E. MacIntyre, Director
     ------------------------------------
By:  Martin B. Bernstein, Director
                                                 /s/ ROBERT L. THELEN
                                                -------------------------------
                                            By:  Robert L. Thelen, Director


                                     34

<PAGE>

<TABLE>
<CAPTION>
                                                                         Page
                                                                         ----
<S>                                                                      <C>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FOR WASTE RECOVERY, INC.

Reports of Independent Accountants                                        F-1

Financial Statements:
  Consolidated Balance Sheets at December 31, 1997 and 1996               F-4

  Consolidated Statements of Operations for the years ended
     December 31, 1997, 1996 and 1995                                     F-6

  Consolidated Statements of Stockholders' Equity for the years ended
     December 31, 1997, 1996 and 1995                                     F-7

  Consolidated Statements of Cash Flows for the years ended
     December 31, 1997, 1996 and 1995                                     F-8

  Notes to Consolidated Financial Statements                              F-9

  Schedule II.  Valuation and Qualifying Accounts                         S-2
</TABLE>





All other schedules are omitted because they are not required, not applicable,
or the required information is presented in the accompanying financial
statements.


                                     35
<PAGE>

              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors and Stockholders
Waste Recovery, Inc.


We have audited the accompanying consolidated balance sheet of Waste Recovery,
Inc. and Subsidiaries as of December 31, 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year
then ended.  These financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards.  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 audit provides a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Waste
Recovery, Inc. and Subsidiaries as of December 31, 1997, and the consolidated
results of their operations and their consolidated cash flows for the year then
ended, in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.  As discussed in note 2 to the
financial statements, the Company incurred a net loss of $2,325,344 in 1997, is
in default on $8,790,000 principal amount of debt obligations which are subject
to acceleration of maturity by the lenders, and had a working capital deficit
of $9,551,085 at December 31, 1997.  The Company does not have the financial
resources to pay the aforementioned debt obligations.  As further discussed in
note 2, the Company is in default on convertible subordinated notes in the
amount of $1,850,000.  These notes were given as consideration for the
acquisition of U.S. Tire Recycling Partners, L.P. and are accounted for as a
contingent obligation.  The note agreement provides that, in the event of a
default, the note holders may convert the notes to common stock at a reduced
price of $1.00 per share or foreclose on the common stock of New U.S. Tire
Recycling Corporation (U.S. Tire).  A substantial portion of the Company's
revenues and cash flows for 1997 were generated by U.S. Tire.  Because of
uncertainties with respect to the ultimate resolution of the aforementioned
liquidity matters and the Company's continued ownership of U.S. Tire, there is
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are described in note 2.  The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.



GRANT THORNTON LLP

Dallas, Texas
March 16, 1998, except for Note 28,
as to which the date is March 31, 1998


                                     F-1

<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Waste Recovery, Inc.

In our opinion, based on our audits and the report of other auditors, the 
accompanying consolidated financial statements listed in the accompanying 
index present fairly, in all material respects, the financial position of 
Waste Recovery, Inc. and its subsidiaries at December 31, 1996 and 1995, and 
the results of their operations and their cash flows for each of the three 
years in the period ended December 31, 1996, in conformity with generally 
accepted accounting principles.  These financial statements are the 
responsibility of the Company's management; our responsibility is to express 
an opinion on these financial statements based on our audits.  We did not 
audit the financial statements of U.S. Tire Recycling Partners, L.P., a 
wholly-owned subsidiary, which statements reflect total assets of $4,466,037 
at December 31, 1996, and total revenues of $470,540 for the one month period 
ended December 31, 1996. Those statements were audited by other auditors 
whose report thereon has been furnished to us, and our opinion expressed 
herein, insofar as it relates to the amounts included for U.S. Tire Recycling 
Partners, L.P., is based solely on the report of the other auditors.  We 
conducted our audits of these statements in accordance with generally 
accepted auditing standards which 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, 
assessing the accounting principles used and significant estimates made by 
management, and evaluating the overall financial statement presentation.  We 
believe that our audits and the report of other auditors provide a reasonable 
basis for the opinion expressed above.

PRICE WATERHOUSE LLP

Dallas, Texas
March 31, 1997

                                     F-2

<PAGE>


                       REPORT OF INDEPENDENT ACCOUNTANTS


To The Partners of U.S. Tire Recycling Partners, L.P.
Concord, North Carolina

We have audited the accompanying balance sheet of U.S. Tire Recycling 
Partners, L.P. (a limited partnership) as at December 31, 1996, and the 
related statements of income, partners' capital and cash flows for the month 
then ended. These financial statements are the responsibility of the 
Company's management. Our responsibility is to express an opinion on these 
financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing 
standards. 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 audit provides a 
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the financial position of U.S. Tire Recycling 
Partners, L.P. as at December 31, 1996, and the results of its operations and 
its cash flows for the month then ended.

COHEN & ROSEN, P.C.

New York, New York
January 24, 1997

                                     F-3

<PAGE>

                             WASTE RECOVERY, INC.
                          CONSOLIDATED BALANCE SHEETS
                                       
                          December 31, 1997 and 1996
                                       
                                    ASSETS


<TABLE>
<CAPTION>
                                                                         1997                1996
                                                                  --------------       -------------
<S>                                                               <C>                  <C>
Current Assets:
 Cash and cash equivalents                                        $            -       $   1,892,427
 Accounts receivable, less allowance for doubtful accounts
  of $128,602 and $51,017, respectively (notes 13 and 24)              3,047,265           2,736,388
 Other receivables (notes 4 and 21)                                       82,180           1,061,958
 Inventories (notes 5 and 13)                                            186,563             602,769
 Other current assets (note 6)                                           933,760             992,672
 Restricted cash and cash equivalents (notes 9, 11, and 13)            2,145,362                   -
                                                                  --------------       -------------
   Total current assets                                                6,395,130           7,286,214
                                                                  --------------       -------------
Property, plant and equipment (notes 7, 8, 11, 13 and 18)             26,451,740          24,226,392
 Less accumulated depreciation                                      (10,429,868)         (7,923,939)
                                                                  --------------       -------------
   Net property, plant and equipment                                  16,021,872          16,302,453
                                                                  --------------       -------------
Restricted cash and cash equivalents (notes 9, 11 and 13)                171,898           1,914,795
Bond and debt issuance costs, less accumulated amortization of
 $197,580 and $181,275, respectively                                     130,754             147,059
Deferred income taxes (note 20)                                                -             447,543
Goodwill, less accumulated amortization of $238,025 and
 $102,787, respectively                                                1,833,888           1,895,678
Other assets                                                             441,866             398,058
                                                                  --------------       -------------
                                                                  $   24,995,408         $28,391,800
                                                                  --------------       -------------
                                                                  --------------       -------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                     F-4

<PAGE>

                             WASTE RECOVERY, INC.
                          CONSOLIDATED BALANCE SHEETS
                                       
                          December 31, 1997 and 1996
                     LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                        1997                   1996
                                                                  --------------         -------------
<S>                                                               <C>                    <C>
Current Liabilities:
 Current installments and accelerated maturities of bonds 
   payable (notes 11 and 28)                                        $  7,567,795            $  883,024
 Notes payable (note 12)                                                 713,861               632,003
 Current installments of long-term debt (note 13)                      2,373,858               998,719
 Current installments of capital lease obligations (note 8)               83,328               111,982
 Accounts payable                                                      3,168,128             3,269,300
 Other accrued liabilities                                             1,652,425             1,105,193
 Deferred revenue                                                              -                16,071
 Deferred grant revenue (notes 10 and 15)                                386,820               296,940
                                                                  --------------         -------------
   Total current liabilities                                          15,946,215             7,313,232
                                                                  --------------         -------------
Bonds payable, noncurrent (notes 11 and 28)                                    -             7,567,795
Long-term debt, excluding current installments (note 13)               2,495,195             4,069,498
Notes payable (note 12)                                                  170,684               312,085
Obligations under capital leases, excluding current
 installments (note 8)                                                    22,708               104,017
Deferred grant revenue, noncurrent (notes 10 and 15)                     219,350               696,050
                                                                  --------------         -------------
   Total liabilities                                                  18,854,152            20,062,677
                                                                  --------------         -------------
Stockholders' Equity (notes 14, 16, 17, 18 and 19):
 Cumulative preferred stock, $1.00 par value, 250,000 shares
  authorized, 203,580 issued and outstanding in 1997 and 1996
  (liquidating preference $15.31 per share, aggregating
  $3,117,031, and $14.61 per share, aggregating $2,974,525, in
  1997 and 1996, respectively)                                           203,580               203,580
 Preferred stock, $1.00 par value, authorized and unissued
  9,750,000 shares in 1997 and 1996                                            -                     -
 Common stock, no par value, authorized 30,000,000 shares,
  17,494,323 and 17,322,121 shares issued and outstanding
  in 1997 and 1996, respectively                                         407,800               407,800
 Additional paid-in capital                                           18,604,904            18,467,427
 Accumulated deficit                                                 (13,001,148)          (10,675,804)
                                                                  --------------         -------------
                                                                       6,215,136             8,403,003
 Treasury stock, at cost, 103,760 common shares                          (73,880)              (73,880)
                                                                  --------------         -------------
   Total stockholders' equity                                          6,141,256             8,329,123
                                                                  --------------         -------------
Commitments and contingencies (notes 2, 3, 8, 10, 14, 23, 26,
 and 28)                                                                       -                     -
                                                                     $24,995,408           $28,391,800
                                                                  --------------         -------------
                                                                  --------------         -------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                     F-5

<PAGE>

                             WASTE RECOVERY, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                       
                 Years Ended December 31, 1997, 1996 and 1995


<TABLE>
<CAPTION>
                                                         1997           1996           1995
                                                    ------------    -----------   -------------
<S>                                                 <C>             <C>           <C>
Revenues (note 24):
 Tire-derived fuel sales                            $  4,007,545   $  1,589,405   $  1,080,172
 Wire sales                                              801,283        397,701              -
 Disposal fees, hauling and other revenue             24,499,916     14,687,426     13,059,751
                                                    ------------    ------------  -------------
   Total revenues                                     29,308,744     16,674,532     14,139,923

Operating expenses                                    22,449,857     11,908,912     11,143,176
General and administrative expenses                    5,677,265      3,171,418      2,568,094
Depreciation and amortization                          2,820,580      1,194,450        955,708
                                                    ------------    ------------  -------------
   Operating profit (loss)                            (1,638,958)       399,752       (527,055)
                                                    ------------    ------------  -------------
Other income (expense):
 Interest income                                         116,693         72,083         60,784
 Interest expense                                       (940,136)      (447,176)      (517,986)
 Other income                                            470,833        302,306        355,360
 Gains on sales of property and equipment                 18,510          9,270         24,706
 Gain on involuntary conversion of assets (note 21)      164,918        624,219              -
 Equity in loss from partnership operations (note 10)          -       (668,504)      (322,630)
                                                    ------------    ------------  -------------
                                                        (169,182)      (107,802)      (399,766)

Income (loss) before income taxes                     (1,808,140)       291,950       (926,821)
Income tax expense (note 20)                            (517,204)        (8,850)             -
                                                    ------------    ------------  -------------
   Net income (loss)                                  (2,325,344)       283,100       (926,821)

Undeclared cumulative preferred stock dividends          142,506        142,896        142,506
                                                    ------------    ------------  -------------
   Net income (loss) allocable to common
    stockholders                                     $(2,467,850)     $ 140,204   $(1,069,327)
                                                    ------------    ------------  -------------
   Net income (loss) per share                       $      (.14)     $     .01   $       (.12)
                                                    ------------    ------------  -------------
Weighted average number of common shares
 outstanding                                          17,334,892     11,549,750      9,132,359
                                                    ------------    -----------   -------------
                                                    ------------    -----------   -------------

</TABLE>

See accompanying notes to consolidated financial statements.

                                     F-6

<PAGE>

                          WASTE RECOVERY, INC.
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

             YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                                               Cumulative                                      
                                                           Preferred Stock                Common Stock         
                                                       ------------------------     -------------------------- 
                                                         Shares       Par Value       Shares       Par Value   
                                                       ----------   ------------    -----------   -------------
<S>                                                    <C>          <C>             <C>           <C>
Balances at December 31, 1994                             203,580     $  203,580      7,137,143     $  407,800 
Stock issued to Directors                                       -              -         27,366              - 
Options exercised under stock
   option plan                                                  -              -         44,800              - 
Conversion of subordinated
   debentures                                                   -              -        382,004              - 
Rights offering to common
   shareholders                                                 -              -      3,238,857              - 
Net loss                                                        -              -              -              - 
                                                       ----------   ------------    -----------   -------------
Balances at December 31, 1995                             203,580     $  203,580     10,830,170     $  407,800 
Stock issued to Directors                                       -              -         10,806              - 
Options exercised under incentive
   stock option plan                                            -              -        178,000              - 
Stock issued in connection with
   U.S. Tire acquisition                                        -              -      3,486,221              - 
Stock issued in connection with
   WR-Illinois acquisition                                      -              -      1,100,000              - 
Conversion of subordinated
   debentures                                                   -              -        666,924              - 
Warrants issued to subordinated
   debenture holders upon conversion                            -              -              -              - 
Sale of common stock and warrants                               -              -      1,050,000              - 
Net income                                                      -              -              -              - 
                                                       ----------   ------------    -----------   -------------
Balances at December 31, 1996                             203,580     $  203,580     17,322,121     $  407,800 
Options exercised                                               -              -        122,000              - 
Stock issued in connection with
   U.S. Tire acquisition                                        -              -         50,202              - 
Net loss                                                        -              -              -              - 
                                                       ----------   ------------    -----------   -------------
Balances at December 31, 1997                             203,580     $  203,580     17,494,323     $  407,800 
                                                       ----------   ------------    -----------   -------------
                                                       ----------   ------------    -----------   -------------

<CAPTION>
                                                         Additional                                              
                                                          Paid-In     Accumulated      Treasury     Stockholders'
                                                          Capital       Deficit         Stock          Equity
                                                       -------------  -------------  -------------  --------------
<S>                                                    <C>            <C>            <C>            <C>
Balances at December 31, 1994                          $  10,753,402  $(10,032,083)    $  (73,880)   $  1,258,819 
Stock issued to Directors                                     15,900              -              -         15,900 
Options exercised under stock                                                                                     
   option plan                                                11,648              -              -         11,648 
Conversion of subordinated                                                                                        
   debentures                                                334,252              -              -        334,252 
Rights offering to common                                                                                         
   shareholders                                            2,205,208              -              -      2,205,208 
Net loss                                                           -      (926,821)              -       (926,821)
                                                       -------------  -------------  -------------  --------------
Balances at December 31, 1995                          $  13,320,410  $(10,958,904)    $  (73,880)   $  2,899,006 
Stock issued to Directors                                     12,000              -              -         12,000 
Options exercised under incentive                                                                                 
   stock option plan                                          71,477              -              -         71,477 
Stock issued in connection with                                                                                   
   U.S. Tire acquisition                                   2,086,000              -              -      2,086,000 
Stock issued in connection with                                                                                   
   WR-Illinois acquisition                                   869,000              -              -        869,000 
Conversion of subordinated                                                                                        
   debentures                                                583,559              -              -        583,559 
Warrants issued to subordinated                                                                                   
   debenture holders upon conversion                          10,000              -              -         10,000 
Sale of common stock and warrants                          1,514,981              -              -      1,514,981 
Net income                                                         -        283,100              -        283,100 
                                                       -------------  -------------  -------------  --------------
Balances at December 31, 1996                          $  18,467,427  $(10,675,804)    $  (73,880)   $  8,329,123 
Options exercised                                             64,030              -              -         64,030 
Stock issued in connection with                                                                                   
   U.S. Tire acquisition                                      73,447              -              -         73,447 
Net loss                                                           -    (2,325,344)              -     (2,325,344)
                                                       -------------  -------------  -------------  --------------
Balances at December 31, 1997                          $  18,604,904  $(13,001,148)    $  (73,880)   $  6,141,256 
                                                       -------------  -------------  -------------  --------------
                                                       -------------  -------------  -------------  --------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                     F-7

<PAGE>

                            WASTE RECOVERY, INC.
                 CONSOLIDATED STATEMENTS OF CASH FLOWS
              YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                                         1997            1996           1995
                                                   -------------      ----------   ------------
<S>                                                <C>                <C>          <C>
Cash flows from operating activities:
 Net income (loss)                                 $   (2,325,344)     $ 283,100   $   (926,821)
 Adjustments to reconcile net income (loss) 
  to net cash provided by operating activities:
   Charge-off of other receivables                              -              -         28,582
   Depreciation and amortization                        2,685,343      1,132,827      1,515,759
   Gains on sales of property and equipment               (18,510)        (9,270)       (24,706)
   Amortization of goodwill                               135,237         61,623         41,164
   Deferred income taxes                                  447,543              -              -
   Interest imputed on discounted note payable              8,599         18,009         13,508
   Amortization of bond premium                           (78,024)             -              -
   Equity in loss from partnership operations                   -        668,504        322,630
   Stock issued to Directors                                    -         12,000         12,000
   Warrants issued to debenture holders                         -         10,000              -
 Changes in assets and liabilities:
   Accounts receivable                                   (310,877)        95,492        143,420
   Note and other receivables                             979,778     (1,049,211)             -
   Inventories                                            416,206        (24,083)      (583,898)
   Other current assets                                    58,912       (415,306)        28,004
   Other assets                                         (105,398)        (11,333)        75,157
   Accounts payable                                        76,328        846,740       (387,772)
   Payable to/receivable from affiliate                         -     (1,058,266)       (25,846)
   Accrued liabilities                                    569,034         86,371        (45,920)
   Bond interest payable                                  (21,802)        43,956              -
   Deferred grant revenue                                (386,820)       (32,235)             -
   Deferred revenue                                       (16,071)      (115,409)       289,814
   Other                                                  (30,414)       (19,604)        12,546
                                                   --------------      ----------   ------------
    Net cash provided by operating activities           2,083,720        523,905        487,621
                                                   --------------      ----------   ------------
Cash flows from investing activities:
 Proceeds received on note and other receivables                -              -        490,320
 Proceeds from sales of property, plant and
  equipment                                                18,510          7,813         78,000
 Purchases of property, plant and equipment            (2,296,453)    (1,625,475)    (1,681,169)
 Net cash received in connection with the purchase
  of WR-Illinois                                                -         64,744              -
 Net cash received in connection with the purchase
  of U.S. Tire                                                  -        315,744              -
 Cash placed in restricted accounts                    (1,952,578)       (52,084)      (530,200)
 Cash payments out of restricted accounts               1,550,113        516,931         38,686
 Purchase of Domino Salvage, Tire Division, Inc.,
  net of cash received of $16,165                               -              -       (170,019)
                                                   --------------      ----------   ------------
    Net cash used by investing activities              (2,680,408)      (772,327)    (1,774,382)
                                                   --------------      ----------   ------------
Cash flows from financing activities:
 Payment of bonds payable                               (805,000)              -              -
 Proceeds from issuance of notes payable                1,079,525        298,405         64,764
 Payment of notes payable                              (1,325,167)      (150,382)      (206,734)
 Proceeds from issuance of convertible
  subordinated debentures                                       -         85,000              -
 Payment upon maturity of convertible 
  subordinated debentures                                       -        (85,000)             -
 Proceeds from issuance of long-term debt                 553,290              -         88,230
 Repayment of long-term debt                             (752,454)      (222,669)      (297,013)
 Repayment of capital lease obligations                  (109,963)       (97,525)      (117,798)
 Proceeds from issuance of common stock and
  warrants                                                 64,030      1,586,458      2,220,756
                                                   --------------      ----------   ------------
  Net cash provided (used) by financing activities     (1,295,739)     1,414,287      1,752,205
                                                   --------------      ----------   ------------
Net increase (decrease) in cash and cash equivalents   (1,892,427)     1,165,865        465,444
Cash and cash equivalents at beginning of year          1,892,427        726,562        261,118
                                                   -------------      ----------   ------------
Cash and cash equivalents at end of year                     $  -   $  1,892,427     $  726,562
                                                   -------------      ----------   ------------
                                                   -------------      ----------   ------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                     F-8


<PAGE>

                                WASTE RECOVERY, INC.

                     Notes to Consolidated Financial Statements

                                 December 31, 1997

NOTE 1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          (a)  Organization and Operations.  Waste Recovery, Inc. (the Company
               or WRI) is a tire recovery company that specializes in processing
               scrap tires into a refined fuel supplement more commonly referred
               to as tire-derived fuel (TDF).  The Company generates income from
               the sale of TDF and wire, and from tipping fees charged for the 
               disposal of tires.

               The Company is incorporated in the State of Texas and has its 
               headquarters in Dallas, Texas.  The operating plants are located 
               in or near Portland, Oregon, Houston, Texas, Atlanta, Georgia, 
               Philadelphia, Pennsylvania, Dupo, Illinois, Marseilles, Illinois 
               and Concord, North Carolina.

               The Company entered into an agreement as of November 29, 1993, to
               form a joint venture in a partnership, Waste Recovery - Illinois,
               an Illinois general partnership (Illinois partnership), in which 
               it owned a 45% interest.  Riverside Caloric Company (RCC), an 
               Indiana corporation, owned 55% of the Illinois partnership.  In 
               December 1996, the Company acquired RCC's 55% ownership interest 
               in WR-Illinois (see note 3).

               In December 1996, the Company acquired U.S. Tire Recycling 
               Partners, L.P., a scrap tire collector which recycles tires and 
               operates a scrap tire monofill  (see note 3).
               
               On March 21, 1995, the Company acquired 100% of the outstanding 
               stock of Domino Salvage, Tire Division, Inc. (Domino), a scrap 
               tire recycling company located in Conshohocken, Pennsylvania, a 
               suburb of Philadelphia (see note 3).

          (b)  Principles of Consolidation.  For 1997 and 1996, the consolidated
               financial statements include the financial statements of Waste 
               Recovery-Illinois, General Partnership (WR-Illinois), a 
               wholly-owned subsidiary of the Company and its affiliates 
               which was purchased in December 1996 (see note 3), and the 
               financial statements of U.S. Tire Recycling Partners, L.P. 
               (U.S. Tire), a wholly-owned subsidiary of the Company and its 
               affiliates which was purchased in December 1996 (see note 3).  
               The 1996 consolidated financial statements include the 
               operations of WR-Illinois and U.S. Tire for the period 
               December 1, 1996 through December 31, 1996.

               For all years, the consolidated financial statements include 
               the financial statements of Domino Salvage, Tire Division, 
               Inc., a wholly-owned subsidiary of the Company, which was 
               purchased on March 21, 1995 (see note 3).  The 1995 
               consolidated financial statements include the operations of 
               Domino for the period March 21, 1995 through December 31, 1995.

                                      F-9

<PAGE>

                                WASTE RECOVERY, INC.

                     Notes to Consolidated Financial Statements

               All significant intercompany balances and transactions have 
               been eliminated in consolidation.  The Company's investment in 
               and equity in earnings of WR-Illinois were accounted for by 
               the equity method until the December 1, 1996 acquisition date 
               (see notes 3 and 10).

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

          (c)  CASH AND CASH EQUIVALENTS.  The Company considers all
               unrestricted cash and highly liquid debt instruments with 
               original maturities of three months or less to be cash 
               equivalents.

          (d)  INVENTORIES.  TDF and wire inventories are stated at the lower
               of cost or market.  Cost is determined using a weighted 
               average cost method.  Work-in-process is valued at the lower 
               of cost or estimated net realizable value.

          (e)  OTHER CURRENT ASSETS.  Parts inventories, which are included in
               other current assets, represent primarily the cost of the 
               grinder knives and machinery parts used in the TDF 
               manufacturing process. These inventories are stated at cost 
               (first-in, first-out) and are depreciated over the useful 
               lives of these parts, generally six to twelve months.
               
          (f)  PROPERTY, PLANT AND EQUIPMENT.  Property, plant and equipment
               are stated at cost.  Property, plant and equipment acquired in 
               connection with the purchase of WR-Illinois and U.S. Tire were 
               recorded at fair value.  Property and equipment under capital 
               leases are stated at the lower of the present value of minimum 
               lease payments or fair value of the asset at the inception of 
               the lease.

               Depreciation of property, plant and equipment is calculated 
               using the straight-line method over the estimated useful lives 
               of the assets (generally three to ten years).  Property, plant 
               and equipment held under capital leases and leasehold 
               improvements are amortized using the straight-line method over 
               the shorter of the lease term or estimated useful life of the 
               asset.

          (g)  BOND ISSUANCE COSTS.  Bond issuance costs are recorded at cost 
               and amortized over the life of the associated debt using the 
               effective interest method.
               
          (h)  GOODWILL.  The Company assesses the recoverability of goodwill 
               by determining whether the amortization of the asset balance over
               its remaining life can be recovered through undiscounted 

                                      F-10

<PAGE>

                                WASTE RECOVERY, INC.

                     Notes to Consolidated Financial Statements

               future operating cash flows of the acquired operation.  The 
               amount of impairment, if any, is measured based on the 
               estimated fair value of the operation. Goodwill associated 
               with the purchase of Domino of $548,859 (see note 3) is being 
               amortized on a straight-line basis over 10  years. Goodwill 
               associated with the purchases of WR-Illinois of $947,712 (see 
               note 3) and U.S. Tire of $575,341 (see note 3) is being 
               amortized over 20 and 15 years, respectively.

          (i)  OTHER ASSETS.  Patents are recorded at cost and amortized over a
               15-year period using the straight-line method.  Site license and
               permits in connection with the U.S. Tire landfill operation were
               recorded at their fair value as of the acquisition date of U.S. 
               Tire, and are being amortized using the straight-line method over
               their estimated useful lives of five years.

          (j)  DEFERRED GRANT REVENUE.  WR-Illinois has an agreement whereby it
               has received $1,000,000 in grants from the State of Illinois 
               with the successful completion of certain pieces of equipment 
               at the Illinois plants.  As of December 31, 1995, WR-Illinois 
               had received $800,000 from these grants; the remaining 
               $200,000 was received in January 1996.  The grant award is 
               being amortized, beginning when the plants were placed in 
               operation, through the term of the grants, which expire July 
               31, 1999.

               In 1995, WR-Illinois also received $365,903 through a grant 
               awarded to Illinois Power Company for the construction and 
               installation of a metering unit at Illinois Power.  At 
               December 31, 1995, 20% of the total amount of the grant was 
               retained pending satisfaction of certain operational 
               requirements.  WR-Illinois received payment for the retainage 
               of approximately $91,000 in 1996. Ownership of the metering 
               unit reverts to Illinois Power at the end of the contract.

          (k)  INCOME TAXES.  Deferred taxes are recognized for the tax 
               consequences of temporary differences by applying enacted 
               statutory tax rates applicable to future years to differences 
               between the financial statement carrying amounts and the tax 
               bases of existing assets and liabilities.  The effect on 
               deferred taxes for a change in tax rates is recognized in 
               income in the period that includes the enactment date.  In 
               addition, future tax benefits are recognized to the extent 
               that realization of such benefits is more likely than not. A 
               valuation allowance is provided for a portion or all of the 
               deferred tax assets when there is sufficient uncertainty 
               regarding the Company's ability to recognize the benefits of 
               the assets in future years.

          (l)  NET INCOME (LOSS) PER COMMON SHARE.  In the fourth quarter of 
               1997, the Company adopted the provisions of Statement of 
               Financial Accounting Standards No. 128, "Earnings per Share" 
               (SFAS No. 128). In accordance with SFAS No. 128, the Company 
               computes income (loss) per common share based on the weighted 
               average number of common shares outstanding.  Income 

                                      F-11

<PAGE>

                                WASTE RECOVERY, INC.

                     Notes to Consolidated Financial Statements

               (loss) per common share - assuming dilution is computed based 
               on the weighted average number of common shares outstanding 
               plus the number of additional common shares that would have 
               been outstanding if dilutive potential common shares, 
               consisting of stock options, warrants and shares issuable upon 
               conversion of debt, had been issued; income is adjusted for 
               interest on the convertible debt.  Retroactive application, 
               which is required by SFAS No. 128, did not result in 
               restatement of 1995 or 1996 per share data.  Per share data - 
               assuming dilution has not been presented because the effect of 
               potential common shares is insignificant.
               
               Net income or loss is adjusted by the effect of undeclared 
               dividends on preferred stock of $142,506, $142,896, and 
               $142,506 for the years ended December 31, 1997, 1996 and 1995, 
               respectively.  The effect was to: (1) increase the net loss 
               per common share by $0.01 in 1997, (2) reduce the net income 
               per common share by $0.01 in 1996, and (3) increase the net 
               loss per common share by $0.02 in 1995.

          (m)  STATEMENTS OF CASH FLOWS.  The Company paid $915,150, $425,964, 
               and $469,903 for interest in 1997, 1996 and 1995, 
               respectively.  The Company paid $8,850 in income taxes in 
               1997.  No income taxes were paid during 1996 or 1995.  See 
               note 22 for further discussion of noncash transactions.

          (n)  RECENT ACCOUNTING PRONOUNCEMENTS.  In 1995, the Financial
               Accounting Standards Board (FASB) issued Statement No. 121, 
               "Accounting for the Impairment of Long-Lived Assets and for 
               the Long-Lived Assets to be Disposed of" and Statement No. 
               123, "Accounting for Stock-Based Compensation."  Both 
               statements were effective for 1996.

               Statement No. 121 requires the review of long-lived assets for 
               impairment whenever events or changes in circumstances 
               indicate that the carrying amount of an asset may not be 
               recoverable.  An impairment loss will be recognized if the sum 
               of the expected future cash flows (undiscounted and without 
               interest charges) is less than the carrying amount of the 
               asset.  The amount of the impairment loss will be measured as 
               the difference between the carrying amount of the asset and 
               its estimated fair value.  Based on its most recent analysis, 
               the Company believes no impairment existed at December 31, 
               1997.

               Statement No. 123 establishes accounting and reporting 
               standards for various stock-based compensation plans.  
               Statement No. 123 encourages the adoption of a fair value 
               based method of accounting for employee stock options, but 
               permits continued application of the accounting method 
               prescribed by Accounting Principles Board Opinion No. 25 
               (Opinion 25), "Accounting for Stock Issued to Employees." 
               Entities that continue to apply the provisions of Opinion 25 

                                      F-12

<PAGE>

                                WASTE RECOVERY, INC.

                     Notes to Consolidated Financial Statements

               must make pro forma disclosures of net income and earnings per 
               share as if the fair value based method of accounting had been 
               applied.  In 1996, the Company adopted this statement on a 
               disclosure basis only.

               In February 1997, the FASB issued Statement No. 128, "Earnings 
               Per Share."  The Company adopted this statement in 1997 as 
               required.

          (o)  RECLASSIFICATIONS.  Certain prior year amounts have been
               reclassified to conform with the current year presentation.

NOTE 2.   GOING CONCERN MATTERS

               The accompanying consolidated financial statements have been 
               prepared assuming the Company will continue as a going 
               concern.  The Company had a net loss of $2,325,344 for 1997 
               and, as discussed in notes 11, 13 and 28, is in default under 
               loan agreements relating to a $1,480,000 note payable and 
               outstanding bonds in the amount of $7,310,000.  The defaults 
               give the lenders the right to accelerate maturity.  Payment 
               has been demanded by the Trustee for the bondholders.  The 
               entire unpaid balances of the notes and the bonds have been 
               classified as current liabilities in the balance sheet at 
               December 31, 1997.  As a result, the Company has an excess of 
               current liabilities over currents assets of $9,551,085 at 
               December 31, 1997.  The Company does not currently have the 
               financial resources to pay these obligations.  To resolve 
               these matters, the Company is attempting to restructure the 
               debt or obtain additional capital, or combination thereof.

               As discussed in note 28, the Company became in default on 
               convertible subordinated notes in the amount of $1,850,000 as 
               a result of nonpayment of interest due January 15, 1998.  
               These notes were given as consideration for the acquisition of 
               U.S. Tire and are accounted for as a contingent obligation 
               (see note 14).  The note agreement provides that, in the event 
               of a default, the noteholders may convert the notes to common 
               stock at a reduced price of $1.00 per share or foreclose on 
               the common stock of New U.S. Tire Recycling Corp., a 
               wholly-owned subsidiary of the Company which owns 84% of U.S. 
               Tire.  A substantial portion of the Company's revenues and 
               cash flows for 1997 were generated by U.S. Tire.

               Because of the uncertainties with respect to the ultimate 
               resolution of the aforementioned liquidity matters and the 
               Company's continued ownership of U.S. Tire, there is 
               substantial doubt about the Company's ability to continue as a 
               going concern.  The financial statements do not include any 
               adjustments that might result from the outcome of these 
               uncertainties.

                                      F-13

<PAGE>

                                WASTE RECOVERY, INC.

                     Notes to Consolidated Financial Statements

NOTE 3.   ACQUISITIONS

               In December 1996, WRI acquired from Riverside Caloric Company 
               (RCC) its 55% interest in the Waste Recovery-Illinois general 
               partnership, in which the Company owned the remaining 45% 
               interest (see note 10).
               
               Also in December 1996, WRI through its subsidiaries acquired 
               all of the partnership interests in U.S. Tire Recycling 
               Partners, L.P. (U.S. Tire), which collects and processes scrap 
               tires, and operates a scrap tire monofill in Concord, North 
               Carolina.
               
               On March 21, 1995, WRI acquired 100% of the outstanding stock 
               of Domino Salvage, Tire Division, Inc., (Domino), a scrap tire 
               recycling company located in Conshohocken, Pennsylvania, a 
               suburb of Philadelphia.  WRI invested approximately $500,000 
               during 1995 into Domino to bring Domino's scrap tire recycling 
               capacity up to 5 million passenger tire equivalents (PTE's) 
               per year.  Reconstruction of the plant was completed in late 
               1995, and the plant became fully operational in early 1996.

               The acquisitions were accounted for as a purchase and, 
               accordingly, the purchase price was allocated to the assets 
               acquired and liabilities assumed based on estimated fair 
               values at the date of acquisition.  The results of operations 
               of WR-Illinois, U.S. Tire, and Domino have been included in 
               the Company's consolidated statements of operations from the 
               date of acquisition.

               A summary of the assets acquired and liabilities assumed 
               follows:

<TABLE>
<CAPTION>
                                      WR-Illinois    U.S. Tire        Domino
                                     ------------   -----------      ----------
<S>                                   <C>             <C>            <C>
Current assets                       $    829,328   $    907,438     $  134,996
Property, plant and equipment           7,981,325      1,967,838        650,765
Other assets                            1,462,517        195,960              -
Debt and notes payable                (8,115,000)    (1,271,958)      (368,149)
Deferred grant revenue                (1,025,225)              -              -
Accounts payable and accrued
 liabilities                            (558,964)      (349,118)       (96,452)
                                     ------------   -----------      ----------
                                     $   573,981    $ 1,450,160      $  321,160
                                     ------------   -----------      ----------
                                     ------------   -----------      ----------
</TABLE>

                                  [End of Page]

                                      F-14

<PAGE>

                                WASTE RECOVERY, INC.

                     Notes to Consolidated Financial Statements

               The following unaudited pro forma summary presents the 
               consolidated results of the Company's operations as if the 
               acquisitions had occurred at the beginning of the periods 
               presented.  The information does not purport to be indicative 
               of the results that actually would have been obtained if the 
               operations were combined during the periods presented and is 
               not intended to be a projection of future results or trends.

<TABLE>
<CAPTION>
                               For the year ended         For the year ended
                                December 31, 1996          December 31, 1995
                                   Unaudited                  Unaudited
                               ------------------         ------------------
<S>                            <C>                        <C>
Revenues                         $  24,583,814               $  20,042,222
                               ------------------         ------------------
                               ------------------         ------------------
Net loss                         $    (749,435)              $    (961,502)
                               ------------------         ------------------
                               ------------------         ------------------
Loss per share                   $       (0.06)              $       (0.11)
                               ------------------         ------------------
                               ------------------         ------------------
</TABLE>

               The Company purchased RCC's interest in WR-Illinois in exchange 
               for 1.1 million unregistered shares of Common Stock of the 
               Company (see note 17).

               The Company purchased U.S. Tire in exchange for 3,242,997 
               unregistered shares of Common Stock (see note 17), contingent 
               convertible subordinated notes in the amount of $1,850,000 (see 
               note 14), and notes payable (see note 12) in the amount of 
               $605,035.  The debt is secured by the assets of U.S. Tire.  
               Additionally, the Company issued 243,224 unregistered shares of 
               Common Stock to a third party as compensation for services 
               rendered as financial advisor to the Company in connection with 
               the acquisition of U.S. Tire (see notes 17 and 19).  In 1997, the
               Company gave additional consideration to the former owners of 
               U.S. Tire in connection with the requirements of a contingency 
               agreement with regard to the involuntary conversion of assets at 
               the Atlanta plant (see note 21).  The additional consideration 
               consisted of 50,202 unregistered shares of Common Stock, and 
               $27,857 in contingent convertible subordinated notes with the 
               same terms and provisions as the original convertible 
               subordinated notes issued for the acquisition of U.S. Tire (see 
               notes 14 and 17).

               The Company purchased Domino for approximately $867,000, 
               including legal costs, with an initial cash payment to the former
               shareholders of $100,000 and a note for $700,000. The Company is 
               withholding an additional $50,000, payment of which is contingent
               upon resolution of certain events.  The note was originally due 
               as follows:

<TABLE>
<CAPTION>
                             <S>                      <C>
                             1996                     $  66,664
                             1997                       358,336
                             1998                       275,000
                                                      $ 700,000
</TABLE>

               Effective March 21, 1996, this note was modified to commence 
               monthly installment payments on September 21, 1996, in the amount
               of $16,666 per month for twelve consecutive months.  Effective 

                                      F-15

<PAGE>

                                WASTE RECOVERY, INC.

                     Notes to Consolidated Financial Statements

               March 20, 1997, this note was modified to change the due date of 
               the second installment of $225,000 to May 21, 1997.  The third 
               installment of $275,000 is to remain due on March 21, 1998.  This
               note bears interest at the rate of 1% over prime and the note is 
               secured by the assets and the stock of Domino.  The new terms of 
               the modified agreement are reflected in the above remaining 
               payments schedule.  The acquisition also includes a five-year 
               employment agreement with the former President and owner of 
               Domino.

NOTE 4.   OTHER RECEIVABLES

               Included in other receivables at December 31, 1996 is a 
               receivable for $985,000 from an insurance company for property 
               damage and business interruption insurance related to the Atlanta
               fire (see note 21).  The Company received the full amount of this
               receivable in the first and second quarters of 1997.

NOTE 5.   INVENTORIES

               Inventory components at December 31, 1997 and 1996 are as 
               follows:

<TABLE>
<CAPTION>
                                         1997           1996
                                     ----------     ----------
<S>                                  <C>            <C>
Manufactured fuel inventory          $  103,245     $  281,938
Manufactured wire inventory               8,478         27,761
Work in process                          74,840        293,070
                                     ----------     ----------
                                     $  186,563     $  602,769
                                     ----------     ----------
                                     ----------     ----------
</TABLE>

NOTE 6.   OTHER CURRENT ASSETS

               Other current assets at December 31, 1997 and 1996 are as 
               follows:

<TABLE>
<CAPTION>
                                        1997            1996
                                     ----------     ----------
<S>                                  <C>            <C>
Prepaid insurance                    $  386,684     $  259,443
Parts inventory                         473,473        636,714
Other                                    73,603         96,515
                                     ----------     ----------
                                     $  933,760     $  992,672
                                     ----------     ----------
                                     ----------     ----------
</TABLE>

NOTE 7.   PROPERTY, PLANT AND EQUIPMENT

               Property, plant and equipment at December 31, 1997 and 1996 are 
               summarized as follows:

<TABLE>
<CAPTION>
                                         1997            1996
                                     ------------   ------------
<S>                                  <C>            <C>
Land                                 $  2,491,076   $  2,389,580
Buildings                               1,472,270      1,472,270
Tire processing equipment              15,205,945     14,346,593
Hauling equipment                       2,233,121      1,435,781
Metering units                            836,606        817,785
Shop tools and yard equipment             245,063        209,177
Furniture and fixtures                    416,596        313,294
Leasehold improvements                  3,544,795      2,970,747
Construction in progress                    6,268        271,165
                                     ------------   ------------
                                      $26,451,740    $24,226,392
                                     ------------   ------------
                                     ------------   ------------
</TABLE>

               Approximately $68,000 of capitalized interest is included in tire
               processing equipment in connection with the construction of the 
               wire systems in 1996.

                                      F-16

<PAGE>

                                WASTE RECOVERY, INC.

                     Notes to Consolidated Financial Statements

NOTE 8.   LEASES

               The Company leases certain property and equipment under capital 
               leases, and certain other property and equipment is leased under 
               noncancelable operating leases.  Property and equipment include 
               the following amounts for capital leases at December 31, 1997 and
               1996:

<TABLE>
<CAPTION>
                                                   1997           1996
                                                ----------     ----------
<S>                                             <C>            <C>

Hauling equipment                               $  210,829     $  210,829
Tire processing equipment                          107,574        107,574
Furniture and fixtures                              57,533         57,533
                                                   375,936        375,936
Less accumulated depreciation                    (201,729)      (145,474)
                                                ----------     ----------
                                                $  174,207     $  230,462
                                                ----------     ----------
                                                ----------     ----------
</TABLE>

               A summary of the minimum rental commitments under noncancelable 
               operating leases and the present value of future minimum capital
               lease payments as of December 31, 1997 is as follows:

<TABLE>
<CAPTION>
                                                   Capital     Operating
                                                   Leases        Leases
                                                 ---------     ----------
<S>                                              <C>           <C>
Year ending December 31:
1998                                             $  88,291     $  687,843
1999                                                19,908        491,333
2000                                                 8,499        233,740
2001                                                     -        124,751
2002                                                     -        103,487
Thereafter                                               -        144,000
                                                 ---------     ----------
                                                   116,698     $1,785,154
Less: amount representing interest                (10,662)     ----------
                                                 ---------     ----------
Present value of minimum lease payments          $ 106,036
                                                 ---------
</TABLE>

               Total rent expense for operating leases for the years ended 
               December 31, 1997, 1996 and 1995 was $1,686,455, $1,136,209, and
               $813,397, respectively.

                                 [End of Page]

                                      F-17

<PAGE>

                                WASTE RECOVERY, INC.

                     Notes to Consolidated Financial Statements

NOTE 9.   RESTRICTED CASH

               Under terms of various debt agreements (see notes 11 and 13), the
               Company is required to maintain cash balances which have certain 
               withdrawal restrictions.  Amounts on deposit at December 31, 1997
               and 1996 consisted of certificates of deposit or money market 
               accounts as follows:

<TABLE>
<CAPTION>
                                                                             Release
                                                  1997            1996         Date
                                              ------------     ----------    --------
<S>                                           <C>              <C>           <C>
Atlanta plant financing debt reserve          $    390,000     $  390,000      2007
Illinois plant financing debt reserve 
 (see note 11)                                   1,366,755      1,362,174      2004
Secured operating permits                          105,829         93,853         -
Repair and maintenance fund                        113,911         49,275      2007
Illinois financial assurance trust                  66,069         19,493         -
Security for Illinois debt (see note 11)           274,696              -         -
                                                 2,317,260      1,914,795
Less current portion                           (2,145,362)              -
Noncurrent restricted cash                    $    171,898     $1,914,795
</TABLE>

               Under terms of the bond agreements (see note 11), WR-Illinois is
               required to maintain cash balances for the debt service reserve 
               funds which have certain withdrawal restrictions.  Interest 
               earned on this restricted cash may only be used for payment of 
               current debt service or sinking fund requirements on the bonds.

               Restricted cash and cash equivalents relating to the Atlanta 
               plant debt and Illinois plant debt are classified as current 
               assets at December 31, 1997 as a result of the current 
               classification of the related debt (see notes 11, 13, and 28).

NOTE 10.  INVESTMENT IN WASTE RECOVERY - ILLINOIS

               Effective December 1, 1996, the Company acquired from Riverside 
               Caloric Company (RCC) its 55% interest in the Waste 
               Recovery-Illinois general partnership, in which the Company owned
               the remaining 45% interest (see note 3).  Until the December 1, 
               1996 acquisition date, the Company's investment in WR-Illinois 
               was accounted for under the equity method of accounting.
               
               Waste Recovery - Illinois was formed to jointly build and operate
               two tire-derived fuel processing facilities in Dupo and 
               Marseilles, Illinois. The facilities cost approximately $5 
               million each and began operation in late 1995.  Waste Recovery - 
               Illinois has a five year contract to supply Illinois Power 
               Company with 60,000 tons of TDF annually which represents 50% of 
               the facilities' estimated production capacity.

                                      F-18

<PAGE>

                                WASTE RECOVERY, INC.

                     Notes to Consolidated Financial Statements

               Waste Recovery - Illinois completed the sale of $8.875 million in
               solid waste disposal revenue bonds as of September 27, 1994.  The
               proceeds of the bonds were used to finance the construction of 
               the two facilities. The Company is guarantor on the bonds and, as
               managing partner of the Illinois partnership until the December 
               1, 1996 acquisition date, was subject to receive administrative 
               fees of $4,000 per month plus a management fee based on net 
               income, as defined.  During 1996 and 1995, the Company collected 
               management fees of $36,000 and $12,000, respectively.

               Until the December 1, 1996 acquisition date, under the equity 
               method of accounting, the Company recognized $668,504 and 
               $322,630 as losses from partnership operations for the years 
               ended December 31, 1996 and 1995, respectively.

               RCC contributed $2 million and the Company contributed a license 
               of its technology and assigned the Illinois partnership all of 
               its right, title and interest in the five-year contract with 
               Illinois Power Company.  In 1995, the Company received $750,000 
               upon reaching certain performance objectives for the construction
               of equipment used by the Illinois partnership upon the startup of
               the facilities.  Until the December 1, 1996 acquisition date, 55%
               of this fee, representing the percentage of the Illinois 
               partnership not owned by the Company, was recognized in other 
               income for the eleven months ending November 30, 1996 and the 
               year ended December 31, 1995.  The remaining 45% had been 
               recorded as deferred revenue to be recognized such that it would
               offset the Company's interest in the excess depreciation expense 
               recorded by WR-Illinois related to this portion of the cost of 
               the plants.  The remaining unrecognized portion of deferred 
               revenue at December 1, 1996 was included in the purchase price 
               for WR-Illinois and allocated to the assets and liabilities 
               acquired on December 1, 1996.

NOTE 11.   BONDS PAYABLE

               To provide funding for the construction of the Dupo and 
               Marseilles plants, WR-Illinois entered into two loan agreements: 
               1) $4,845,000 with the Southwestern Illinois Development 
               Authority (SWIDA) and 2) $4,030,000 with the Upper Illinois River
               Valley Development Authority (UIRVDA) (together, the Bonds), 
               respectively.  The Bonds were issued through the Solid Waste 
               Disposal Revenue Bonds, Series 1994 (Waste Recovery -Illinois 
               Project) dated September 1, 1994, under an Indenture of Trust. 
               The proceeds to the Partnership were to fund a debt service 
               reserve fund, to pay the costs of issuing the Bonds, to pay 
               interest during construction, and to finance the cost of the 
               construction of buildings and related improvements and the 
               acquisition and installation of machinery, equipment and related 
               property, all constituting industrial, commercial and solid waste
               disposal facilities located at Dupo and Marseilles, Illinois.

                                      F-19

<PAGE>

                                WASTE RECOVERY, INC.

                     Notes to Consolidated Financial Statements

      The Bonds bear interest at 6.5% per annum with interest payable February
      1 and August 1 each year, beginning February 1, 1995.  Principal payments
      are due annually on February 1 beginning in 1996 through 2004.

      The Bonds are collateralized by the property, plant and equipment of WR-
      Illinois, $1,641,451 in restricted cash (see note 9), and are guaranteed
      by Waste Recovery, Inc.  Future minimum payments as of February 1 each
      year are as follows:

<TABLE>
<CAPTION>

               YEAR                         SWIDA         UIRVDA          TOTAL
               ----                       ----------     ----------     ----------
<S>                                       <C>            <C>            <C>
               1998                       $  470,000     $  390,000     $  860,000
               1999                          500,000        415,000        915,000
               2000                          530,000        440,000        970,000
               2001                          565,000        470,000      1,035,000
               2002                          600,000        500,000      1,100,000
            Thereafter                     1,325,000      1,105,000      2,430,000
                                          ----------     ----------     ----------
              Total                       $3,990,000     $3,320,000     $7,310,000
          Bond Premium                       140,644        117,151        257,795
                                          ----------     ----------     ----------
       Total Bonds Payable                $4,130,644     $3,437,151     $7,567,795
                                          ----------     ----------     ----------
                                          ----------     ----------     ----------
</TABLE>

      Bond premium represents the purchase adjustment recorded to reflect the
      Bonds at market on December 1, 1996 when the Company acquired WR-Illinois
      (see note 3).  Amortization of $78,024 and $7,153 was recorded for the
      years ended December 31, 1997 and 1996, respectively.

      In August of 1997, the indenture trustee for the Bonds determined that,
      although the debt service reserve fund was fully funded, supplementary
      sinking fund requirements had not been adequately funded, resulting in a
      default and the reclassification of the Bonds to current liabilities.
      The Company has entered into an agreement with the bondholders which
      provides for a cure of this default through periodic payments, which is
      composed of monthly payments of $5,500, plus excess funds transferred
      from the debt service reserve fund representing interest income thereon
      which exceeded the debt service reserve fund's minimum reserve
      requirement.

      On January 27, 1998, the Company announced an additional default by WR-
      Illinois with respect to the debt service payments due February 1, 1998
      (see note 28) which included a default on the aforementioned agreement
      with respect to the supplementary sinking fund.  Other debt of the
      Company affected by this default includes the 10.5% note payable (see
      note 13).

NOTE 12.   NOTES PAYABLE

      The Company finances insurance premiums under note agreements providing
      for fixed monthly principal and interest payments due over terms not to
      exceed nine months.  Balances outstanding under such note agreements
      aggregated $228,787 and $176,968 at December 31, 1997 and 1996,
      respectively.

                                    F-20

<PAGE>

                                WASTE RECOVERY, INC.

                     Notes to Consolidated Financial Statements

      In 1997, the Company borrowed money to meet current working capital
      requirements (see note 19).  The note is non-interest bearing, secured by
      receivables and payable on demand.  The balance of this note is $300,000
      at December 31, 1997.

      In connection with the acquisition of U.S. Tire (see note 3), the Company
      issued promissory notes payable to the sellers in the aggregate amount of
      $605,035.  The notes are non-interest bearing and payable in two
      installments with the first installment of $455,035 due February 1, 1997,
      and the final installment of $150,000 due March 31, 1998 (see note 28).

      With the acquisition of Domino (see note 3), the Company assumed debt to
      an affiliate of Domino in the original amount of $180,095.  The terms of
      this note provide for interest and principal to be deferred until January
      1, 1998, at which time monthly principal and interest payments are to be
      made at prime over a two-year term.  Consequently, this note has been
      recorded as of March 21, 1995 (acquisition date) at its present value of
      $130,569, discounted at a rate of ten percent.  The present value at
      December 31, 1996 was $162,085.  On May 21, 1997, this note was replaced
      with a new note for the original amount of $180,095.  The terms of the
      new note provide for interest and principal to be deferred until June 24,
      2000, at which time monthly principal and interest payments are to be
      made at 11.25% over a one-year term.  The present value of this note at
      December 31, 1997 was $170,684.

      At December 31, 1997, the Company had other notes payable totaling
      $35,074.



                                 [End of Page]

                                      F-21

<PAGE>

                                WASTE RECOVERY, INC.

                     Notes to Consolidated Financial Statements


NOTE 13.  LONG-TERM DEBT

     Long-term debt at December 31, 1997 and 1996, substantially all of which
     is collateralized, consisted of the following:

<TABLE>
<CAPTION>
                                                                         1997                 1996
                                                                         ----                 ----
<S>                                                                   <C>                  <C>
     10.5% note payable to corporation; due on various dates 
       through December 2007; interest payable semi-annually*         $1,480,000           $1,560,000
     Prime plus .5% note payable to bank; due December 2004, 
       guaranteed by The Goodyear Tire & Rubber Company; principal 
       and interest payable monthly**                                    899,309            1,019,309
     Mortgage payable to corporation, interest at prime rate; 
       due July 2003; principal and interest payable monthly             797,619              940,476
     Notes payable to banks with interest rates ranging from 8% to 
       10.5%; expiring through November 2000; principal and 
       interest payable monthly                                          347,612              321,755
     7.6% note payable to Small Business Administration; due 
       May 2001; principal and interest payable monthly                  168,515              210,065
     Prime plus 1% note payable to former Domino shareholders; 
       payments due beginning September 1996 (see note 3); due 
       March 1998                                                        614,954              654,222
     Prime plus 1% note payable to bank; due July 1998; principal 
       and interest due monthly                                           41,417              112,417
     7.9% note payable to financial institution; due April 28, 2001; 
       principal and interest payable monthly                             99,828              167,707
     9% note payable to bank; due May 10, 2000; principal and 
       interest payable monthly                                           13,626               18,456
     Notes payable to finance companies with interest rates from 
       8.25% to 10.0%, expiring through December 2001; principal 
       and interest payable monthly                                      406,173                    -
     13.25% notes payable to financial institution; due 
       September 1997; principal and interest payable monthly                  -               31,137
     7.9% note payable to financial institution; due November 1997; 
       principal and interest payable monthly                                  -               22,726
     Notes payable to finance companies with interest rates from 
       8.95% to 12%, expiring through June 1997; principal and 
       interest payable monthly                                                -                4,994
     10.5% note payable to financial institution; due August 1997; 
       principal and interest payable monthly                                  -                4,953
                                                                       ---------            ---------
                                                                       4,869,053            5,068,217
     Less:
       Current installments of long-term debt                         (2,373,858)            (998,719)
     Long-term debt                                                   $2,495,195           $4,069,498
                                                                       ---------            ---------
                                                                       ---------            ---------
</TABLE>

      *The Loan Agreement contains various restrictions, including a
      prohibition against the payment of dividends when such payment would
      cause an event of default, as defined, and financial ratio maintenance
      requirements, which includes minimum working capital and net worth
      requirements.  As of December 31, 1997, the Company was not in compliance
      with all required covenants as a result of non-compliance with certain
      financial covenants, and the default by the Company's subsidiary, WR-
      Illinois, on certain of its debt (see notes 11 and 28).  Accordingly, the
      note has been classified as current.

      **As of February 29, 1996, this note was transferred to another bank.
      The interest rate with the original bank was prime plus 1%.

                                      F-22

<PAGE>

                                WASTE RECOVERY, INC.

                     Notes to Consolidated Financial Statements


      Debt is secured by substantially all of the Company's accounts
      receivable, inventories and property, plant and equipment and $390,000 of
      the restricted cash accounts (see note 9).

      The aggregate maturities of long-term debt at December 31, 1997 are as
      follows:

       Year ending December 31:
       1998                                          $  2,373,858
       1999                                               902,414
       2000                                               623,952
       2001                                               323,330
       2002                                               262,857
       Thereafter                                         382,642
                                                     $  4,869,053

NOTE 14.   CONVERTIBLE SUBORDINATED NOTES

      In connection with the purchase of U.S. Tire (see note 3), the Company
      issued convertible subordinated notes in the aggregate amount of
      $1,850,000 payable to the former equity holders of U.S. Tire.  As a
      result of the Atlanta fire (see note 21), the Company agreed to amend its
      agreement with the equity holders of U.S. Tire and to issue additional
      common stock and convertible subordinated notes to the former equity
      holders of U.S. Tire (see notes 3 and 17). The agreement called for
      additional consideration in the form of common stock and convertible
      subordinated notes based on any uninsured reconstruction costs and on
      certain cash flow requirements of the Atlanta facility during the period
      of reconstruction.  As a result of this agreement, the Company issued
      $27,857 of additional convertible subordinated notes to the former equity
      holders of U.S. Tire.

      The notes bear interest at an annual rate of 5% for the first twelve
      months, 6% for the second twelve months and 7% until maturity.  Principal
      payments are due in the amounts of $507,604 on March 31, 1999, $456,751
      on September 30, 1999, $456,751 on March 31, 2000, and $456,751 on
      September 30, 2000.  Interest payments are due quarterly.  On January 15,
      1998, the Company was in default on the notes as a result of non-payment
      of interest due January 15, 1998 (see note 28).

      The holders of the notes have the right at their option, at any time
      after September 30, 1997, to convert all but not less than all of the
      principal amount of the notes then outstanding into Common Stock of the
      Company at the price of $2.50 per share, provided that such election to
      convert shall be agreed upon unanimously by the holders of the notes then
      outstanding.

                                      F-23

<PAGE>

                                WASTE RECOVERY, INC.

                     Notes to Consolidated Financial Statements

      The convertible subordinated note agreements provide for adjustments as
      reductions to the principal amount of the notes based on certain minimum
      future cash flow of U.S. Tire, as defined for the period from October 1,
      1996 to September 30, 2000.  In accordance with APB Opinion No. 16, the
      convertible subordinated notes are treated as "contingent consideration",
      and accordingly, have not been recorded as a liability as of December 31,
      1996, and will remain unrecorded until such time as the contingency is
      resolved or the contingency period expires.  Interest payments on the
      convertible subordinated notes during the contingency period are recorded
      as a deferred charge.  If the contingency is resolved in favor of the
      note holders, the contingent consideration and deferred interest will be
      recorded as an additional cost of the assets acquired (goodwill) and
      amortized prospectively over its remaining life.

NOTE 15.   DEFERRED GRANT REVENUE

      WR-Illinois (Grantee) entered into two grant agreements with the Illinois
      Department of Commerce and Community Affairs (Department) (formerly, the
      Illinois Department of Energy and Natural Resources) as of June 1, 1994.
      The Department administers the Used Tire Recovery Program which offers
      financial incentives for projects which reuse, recycle or recover energy
      from Illinois used or scrap tires.

      WR-Illinois requested funding assistance to build its TDF processing
      plants in Dupo and Marseilles, Illinois.  The Department agreed to
      provide grants towards WR-Illinois' "projects", as defined.  The Grantee
      agreed that at least 30% of the scrap tires it processes will come from
      Illinois sources, and that a minimum of one million Illinois PTE's
      (passenger tire equivalents), as defined, will be collected and processed
      annually at each plant.  The Department awarded the Grantee $1,000,000
      towards specified equipment ($500,000 at each plant).  As of December 31,
      1996, the full amount of the grants has been received.

      The grant agreements require WR-Illinois to maintain the equipment for
      the purpose as originally set forth in the agreement, to provide the
      Department with semi-annual reports, and to meet certain other listed
      criteria.

      WR-Illinois received additional funding through a grant of approximately
      $450,000 awarded by the Department to Illinois Power Company for the
      construction of a TDF metering unit at its Baldwin Power Plant.  This
      award is being amortized over the remainder of the original contract with
      Illinois Power Company, which expires July 1999.

      As of December 31, 1997, $606,170 of the total grant money received is
      recorded as deferred grant revenue in the accompanying balance sheet and
      is being amortized to income through July 31, 1999, at approximately
      $32,000 per month.

                                      F-24
<PAGE>

                                WASTE RECOVERY, INC.

                     Notes to Consolidated Financial Statements


NOTE 16.   STOCK OPTIONS AND WARRANTS

      1989 INCENTIVE STOCK OPTION PLAN

      In 1989, the Company adopted the 1989 Incentive Stock Option Plan for
      employees (the Incentive Plan).  The purpose of the Incentive Plan is to
      provide certain key employees of the Company with a proprietary interest
      in the Company through the granting of options, restricted stock or other
      stock rights.  The Company has reserved 1,550,000 shares of Common Stock
      for issuance upon exercise of such options and rights issued pursuant to
      this Plan.

      The terms and amounts of options are determined by the Board of
      Directors.  The Incentive Plan provides that option prices will be no
      less than 50% (or 100% depending on the type of option) of the fair
      market value per share at the grant date.  The aggregate fair market
      value of Common Stock underlying an incentive stock option determined at
      the date of the grant shall not exceed $100,000 in the year in which the
      options are first exercisable.  All options issued to date have terms of
      ten years and vest either immediately or over a five year period.

      Shares of Common Stock issued under the Incentive Plan as restricted
      stock are determined by the Board of Directors.  Restrictions, including
      forfeiture provisions and consideration for issuance of such shares, are
      determined by the Board of Directors.  The consideration to be received
      by the Company for issuance of such restricted stock shall be no more
      than 50% of the fair market value at the date of the grant.

      The Incentive Plan also provides that the Board of Directors may grant
      stock appreciation rights (SARs) entitling the grantee, upon exercise of
      such rights, to receive cash from the Company equal to the increase of
      the fair market value of the Common Stock of the Company multiplied by
      the number of units of SARs exercised subsequent to the date of grant.
      As of December 31, 1997, no restricted stock or SARs had been granted.

      The terms of the grants, including the grantees, are administered by a
      Stock Option Committee which was formed by the Board of Directors.

      The stock options discussed herein were granted at the market price at
      the date of grant, thus no compensation expense has been recorded.

      NONQUALIFIED STOCK OPTIONS TO NON-EMPLOYEE DIRECTORS

      On February 12, 1997, the Company granted 1,000,000 nonqualified stock
      options to the Chairman of the Company's Board of Directors.  The options
      fully vest on February 12, 1998 and are exercisable at prices ranging
      from $2.06 to $7.00 per share.  The options expire on February 12, 2002.
      During 1988 

                                      F-25

<PAGE>

                                WASTE RECOVERY, INC.

                     Notes to Consolidated Financial Statements


      and 1991, the Company granted nonqualified stock options to non-employee 
      directors (the Nonqualified Issuances) for continued service to the 
      Company.  Such options were exercisable through December 1993 and
      January 1996, respectively.

      1992 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS

      At the 1992 Annual Meeting, the shareholders approved the 1992 Stock Plan
      for Non-Employee Directors (the Directors Plan).  Pursuant to such plan,
      non-employee directors of the Company receive annually (1) after the
      annual meeting, a stock option to purchase 2,500 shares of Common Stock
      so long as the Company's net income for the fiscal year just ended
      improved over the prior year, and (2) in January, a Common Stock grant
      valued at $2,000 for service as a director if attendance criteria are
      met.  Such plan terminates January 31, 2000 and 250,000 shares were
      reserved by the Company for grants thereunder.  Under this plan, 10,806
      and 12,366 shares were issued for the years ended December 31, 1996 and
      1995, respectively.  No shares were issued for the year ended December
      31, 1997.  The option terms are ten years and vest immediately.

      WARRANT ISSUANCES

      In 1995, 100,000 warrants were issued to an investment company.  These
      warrants are exercisable in 1996 at $0.86 per share.  The warrants expire
      July 1, 1998.

      See note 17 for warrant issuances in 1996.

      Pro forma information regarding net income and earnings per share is
      required by SFAS No. 123, and has been determined as if the Company had
      accounted for its employee stock options under the fair value method of
      that statement.  The fair value of each option grant is estimated on the
      date of grant using the Black-Scholes option pricing model with the
      following weighted-average assumptions used for grants in 1997, 1996 and
      1995, respectively; no dividend yield, expected volatility of 72%, 73.2%
      and 74.3%, risk free interest rates of 5.7%, 6.7% and 6.1% and expected
      lives of 4.6, 8.4 and 8.4 years.

      For purposes of pro forma disclosures, the estimated fair value of the
      options is amortized to expense over the options' vesting period.  The
      Company's pro forma information:

<TABLE>
<CAPTION>
                                          1997                          1996                       1995
                                          ----                          ----                       ----
                                     As                            As                        As                  
                                  Reported     Pro forma        Reported     Pro forma     Reported     Pro forma  
                                  --------     ---------        --------     ---------     --------     ---------
<S>                             <C>           <C>               <C>          <C>         <C>            <C>
Income (loss) applicable
  to common share               $(2,467,850)  $(3,339,547)      $140,204     $(32,893)   $(1,069,327)   $(1,123,281)
Income (loss) per
          common share               $(0.14)       $(0.19)         $0.01        $0.00         $(0.12)        $(0.12)
</TABLE>

                                      F-26

<PAGE>

                                WASTE RECOVERY, INC.

                     Notes to Consolidated Financial Statements


      The effects of applying SFAS No. 123 in this pro forma disclosure are not
      indicative of future amounts as SFAS No. 123 does not apply to awards
      prior to 1995 and additional awards are anticipated in future years.

      A summary of stock option transactions under the Incentive Plan and
      Directors Plan, as well as Nonqualified Issuances, is as follows:

<TABLE>
<CAPTION>
                                                1997                         1996                          1995
                                                ----                         ----                          ----
                                                     Weighted-                    Weighted-                    Weighted- 
                                                     Average                       Average                      Average   
                                                     Exercise                     Exercise                     Exercise    
                                         Shares        Price        Shares          Price          Shares        Price     
                                         ------      ---------     ---------      ---------       -------      ---------
<S>                                  <C>             <C>           <C>            <C>            <C>           <C>
Outstanding at beginning of year        739,900        $1.05        761,100          $0.83        565,900        $0.69

     Granted                          1,100,000         4.12        214,900           1.30        275,000         1.01

     Exercised                         (122,000)        0.52       (178,000)          0.40        (59,800)        0.26

     Forfeited                          (51,500)        1.20        (58,100)          1.12        (20,000)        0.73
                                      ---------        
Outstanding at end of year            1,666,400         3.11        739,900          $1.05        761,100        $0.83

Exercisable at end of year              451,400         1.22        559,900          $1.07        516,100        $0.76

Weighted-average fair value of
  options granted during the year         $0.96                       $0.96                         $1.12

</TABLE>

      The following table summarizes information about the stock options
      outstanding at December 31, 1997:

<TABLE>
<CAPTION>

                                Options Outstanding                               Options Exercisable
                   ------------------------------------------------------   --------------------------------
                     Shares         Weighted-Average                           Shares
  Range of         Outstanding         Remaining         Weighted-Average   Exercisable    Weighted-Average
Exercise Prices    at 12/31/97      Contractual Life      Exercise Price    at 12/31/97     Exercise Price
---------------   -------------     -----------------    ----------------  ------------    -----------------
<S>               <C>               <C>                  <C>               <C>             <C>
  $0.75               66,000         5.1 years                 $0.75          66,000             $0.75
  $0.98-$1.11        252,500         7.5 years                 $0.99         117,500             $1.00
  $1.19               25,000         8.3 years                 $1.19          25,000             $1.19
  $1.31              142,900         8.6 years                 $1.31         142,900             $1.31
  $1.57               80,000         5.4 years                 $1.57          80,000             $1.57
  $2.03-$2.14        350,000         5.5 years                 $2.06          20,000             $2.14
  $3.50              250,000         4.1 years                 $3.50               -              -
  $4.75              250,000         4.1 years                 $4.75               -              -
  $7.00              250,000         4.1 years                 $7.00               -              -
  Totals           1,666,400         5.5 years                 $3.11         451,400             $1.22

</TABLE>

      At December 31, 1997, 885,300 shares were available for grant as options
      or incentive grants under the Incentive Plan and 186,803 shares were
      available for grant as options under the Directors Plan.


<PAGE>

                           WASTE RECOVERY, INC.

              Notes to Consolidated Financial Statements


NOTE 17.   STOCKHOLDERS' EQUITY

      On October 1, 1997, as a result of the Atlanta fire (see note 21), the
      Company agreed to amend its agreement with the equity holders of U.S.
      Tire and to issue additional common stock and convertible subordinated
      notes to the former equity holders of U.S. Tire in connection with the
      acquisition of U.S. Tire (see notes 3 and 14).  The agreement called for
      additional consideration in the form of common stock and convertible
      subordinated notes based on any uninsured reconstruction costs and on
      certain cash flow requirements of the Atlanta facility during the period
      of reconstruction.  As a result of this agreement, the Company issued
      50,202 shares of common stock valued at $73,447 to the former equity
      holders of U.S. Tire.

      On December 26, 1996, the Company sold 750,000 shares of unregistered
      Common Stock at a price of $1.45 per share and 750,000 warrants to
      purchase Common Stock at $0.05 per warrant.  The exercise price of the
      warrants is $2.06, which equals the quoted market price for the Company's
      Common Stock on December 26, 1996.  The warrants expire December 26,
      2000.

      On December 24, 1996, the Company sold 300,000 shares of unregistered
      Common Stock at a price of $1.45 per share and 300,000 warrants to
      purchase Common Stock at $0.05 per warrant (see note 19).  The exercise
      price of the warrants is $2.06, which equals the quoted market price for
      the Company's Common Stock on December 24, 1996.  The warrants expire
      December 24, 2000.

      In connection with the conversion of $495,000 convertible debentures and
      $46,564 of accrued interest on July 1, 1996, the debenture holders also
      received warrants to purchase 304,425 shares of common stock at $1.25 per
      share, the market price at date of conversion.  The warrants expire July
      1, 1998.

      In December 1996, the Company issued 1.1 million shares of unregistered
      Common Stock in connection with the acquisition of WR-Illinois (see note
      3).

      In December 1996, the Company issued 3,486,221 shares of unregistered
      Common Stock in connection with the acquisition of U.S. Tire (see note
      3).  Included in the 3,486,221 shares issued are 243,224 (see note 19)
      shares issued to a third party as compensation for services rendered as
      financial advisor to the Company in connection with the acquisition of
      U.S. Tire.

      As a condition of the acquisition of U.S. Tire, the Company committed to
      file a registration statement with the Securities and Exchange Commission
      to register shares issued to the sellers of U.S. Tire.  The shares of
      Common Stock issued in connection with the WR-Illinois acquisition and
      those sold in the December 1996 private placement were given the right to
      be included in this filing.


                                       F-28
<PAGE>

                           WASTE RECOVERY, INC.

              Notes to Consolidated Financial Statements


      In 1990, the Company issued 203,580 shares of 7% cumulative preferred
      stock redeemable at the Company's option for $10 per share.  No dividends
      have been declared or paid on such preferred stock.  Accordingly,
      undeclared dividends on cumulative preferred stock aggregated $1,081,231
      at December 31, 1997 which represents $5.31 per share of such stock
      outstanding.  Dividends on cumulative preferred stock have been added to
      net loss or deducted from net income for purposes of computing per common
      share amounts.

NOTE 18.   RIGHTS OFFERING

      The Company completed a rights offering on June 26, 1995, which
      distributed nontransferable subscription rights to eligible stockholders,
      as defined, to subscribe to the Company's Common Stock at an offering
      price of $.75.  This "Rights Offering" raised approximately $2.2 million
      in capital, which was to be utilized for specific equipment improvements
      at each of the Company's facilities, including Domino.  The Company
      issued 3,238,857 shares of Common Stock with this rights offering.

NOTE 19.   RELATED PARTY TRANSACTIONS

      In 1997, the Company borrowed money (see note 12) for working capital
      needs from a third-party lender which is controlled by two members of the
      Company's Board of Directors.

      In 1997, in connection with the Atlanta fire (see note 21), the Company
      agreed to amend its agreement with the former equity holders of U.S. Tire
      and to issue additional common stock and convertible subordinated notes
      to the former equity holders of U.S. Tire (see notes 14 and 17).  Certain
      of these former equity holders are directors of the Company.

      In 1997, the Company incurred consulting fees of $30,000 to a director
      for advisory services and assistance with various financial matters of
      the Company.

      In 1997, the Company paid approximately $530,000 in debt service payments
      for promissory notes payable (see note 12) and convertible subordinated
      notes (see note 14) issued in connection with the purchase of U.S. Tire
      (see note 3).  Certain of the note holders are members of the Company's
      Board of Directors.

      In 1996, the Company incurred a consulting fee of $20,000 to a director
      in connection with the private placement sale of unregistered Common
      Stock of the Company (see note 17).

      In connection with the acquisition of U.S. Tire (see note 3), the Company
      paid a third party public relations firm, which is also a shareholder of
      the Company, 243,224 shares of Common Stock of the Company for its
      assistance as a financial advisor in arranging and facilitating the
      acquisition of U.S.


                                       F-29
<PAGE>

                           WASTE RECOVERY, INC.

              Notes to Consolidated Financial Statements

      Tire.  A director of the Company, as an employee of the Company's
      financial advisor, received $175,000 in connection with his assistance
      to the Company's financial advisor in closing the U.S. Tire transaction.

      In 1996, the Company loaned $40,000 to an officer of the Company.  The
      loan is non-interest bearing and is payable on demand.

      In 1996, the Company sold to a director 300,000 shares of unregistered
      Common Stock at a price of $1.45 per share and 300,000 warrants to
      purchase Common Stock at $0.05 per warrant (see note 17).  The exercise
      price of the warrants is $2.06 which equals the quoted market price of
      the Company's Common Stock on the date the warrants were purchased.

      The Company incurred $60,000 in consulting fees to certain directors for
      assistance with the sale of the Waste Recovery - Illinois bonds, which
      was recorded in 1994 and paid in 1995.

NOTE 20.  INCOME TAXES
      The provision (benefit) for income taxes consists of the following
      components for the year ended December 31:

<TABLE>
<CAPTION>

                                                         1997           1996            1995
                                                      ----------      ---------      ---------
      <S>                                            <C>              <C>           <C>
      Current:
      Federal                                         $        -       $      -      $       -
      State                                               69,661          8,850              -
                                                      ----------      ---------      ---------
          Total current                                   69,661          8,850              -
                                                      ----------      ---------      ---------
      Deferred:
      Deferred taxes                                    (769,946)      (119,278)        284,862
      Deferred tax asset valuation allowance           1,217,489        119,278        (284,862)
                                                      ----------      ---------      ---------
          Total deferred                                 447,543              -              -
                                                      ----------      ---------      ---------
                                                      $  517,204       $  8,850      $       -
                                                      ----------      ---------      ---------
                                                      ----------      ---------      ---------
</TABLE>

      In the fourth quarter of 1997, the Company increased the deferred tax
      valuation allowance to $3,904,366 because of uncertainties regarding the
      realization of the previously recorded net deferred tax asset in the
      amount of $447,543.



                                  [End of Page]


                                       F-30
<PAGE>

                           WASTE RECOVERY, INC.

              Notes to Consolidated Financial Statements


      Total income tax expense (benefit) differs from the amount computed by
      applying the U.S. federal income tax rate of 34% to income before income
      taxes for the following reasons:

<TABLE>
<CAPTION>
                                                         1997           1996           1995
                                                    ------------     ----------     ----------
      <S>                                           <C>              <C>            <C>
      U.S. federal income tax, at statutory rates    $  (790,617)     $  96,254      $(315,119)
      Penalties                                           17,259            220         20,216
      Amortization of goodwill                            20,110         20,115         13,996
      Change in valuation allowance                    1,217,489       (119,278)       284,862
      State income tax                                    69,661          8,850              -
      Other                                              (16,698)         2,689         (3,955)
                                                    ------------     ----------     ----------
                                                      $  517,204       $  8,850           $  -
                                                    ------------     ----------     ----------
                                                    ------------     ----------     ----------
</TABLE>

      The deferred tax assets (liabilities) are comprised of the following at
      December 31:

<TABLE>
<CAPTION>

                                                         1997           1996
                                                     -----------   ------------
      <S>                                           <S>            <S>
      Deferred tax assets:
        Net operating loss carry forwards           $  3,524,051   $  2,622,220
        Depreciation                                      91,050        312,269
        Deferred grant revenues                          222,101         91,587
      Accruals for financial reporting purposes
        currently not deductible for tax                 201,693         32,104
      Capitalization of general and administrative
        costs for tax                                     70,491         62,098
       Carrying differences for investment in Illinois         -        269,386
        Other                                             47,120         13,080
                                                     -----------   ------------
       Gross deferred tax asset                        4,156,506      3,402,744
      Valuation allowance                             (3,904,366)    (2,686,877)
                                                     -----------   ------------
                                                         252,140        715,867
                                                     -----------   ------------
      Deferred tax liabilities:
        Book/tax basis in fixed assets and 
          deferred gain                                 (252,140)      (268,324)
                                                     -----------   ------------
      Net deferred tax asset                                $  -     $  447,543
                                                     -----------   ------------
                                                     -----------   ------------
</TABLE>

      As of December 31, 1997, the Company has approximately $9,618,000 in net
      operating loss carry forwards which expire between the years 2002 and
      2012.  The deferred tax asset recorded at December 31, 1996, is based on
      the expected utilization of net operating loss carry forwards based on
      projected positive results.  Due to changes in ownership which occurred
      in 1996, there will be an annual limitation of approximately $1 million
      on the amount of net operating losses available to offset future taxable
      income.

      As a result of the December 1996 acquisitions discussed in note 3, a
      deferred tax asset of $145,336 was set up in the opening balance sheet.
      A valuation allowance for the full amount of the deferred tax asset was
      also set up in the opening balance sheet.

                                     F-31

<PAGE>

                           WASTE RECOVERY, INC.

              Notes to Consolidated Financial Statements

NOTE 21.  INVOLUNTARY CONVERSION OF ASSETS
      On November 26, 1996, the Atlanta plant sustained damage due to a
      mechanical fire.  The shredding machinery and equipment was not damaged,
      thus allowing the plant to continue accepting scrap tires for disposal
      which were then shredded and disposed of.  The reconstruction of the
      Atlanta plant was completed in late May 1997, at which time the plant
      became fully operational.  This involuntary conversion of assets was
      estimated and recognized in the year ending December 31, 1996, as
      follows:

      Estimated insurance proceeds to be received on property     $  901,815
      Net book value of property destroyed                          (151,844)
                                                                  -----------
      Gain on involuntary conversion of property                     749,971
      Estimated insurance proceeds from business interruption 
        insurance                                                     83,333
      Costs incurred in clean-up                                    (209,085)
                                                                  -----------
      Net gain on involuntary conversion                           $  624,219
                                                                  -----------
      The estimated insurance proceeds are included in other receivables (see
      note 4) at December 31, 1996, all of which was received in 1997.
      Proceeds exceeded the estimate by $164,918 and were recognized in income
      in 1997, as well as $333,332 in insurance proceeds from business
      interruption insurance.

NOTE 22.  NONCASH TRANSACTIONS
      During 1997, the Company issued additional Common Stock valued at $73,447
      to the former equity holders of U.S. Tire (see notes 3 and 17) which was
      excluded as a noncash transaction from the statements of cash flows.

      During 1996, the Company had the following noncash transactions which
      have been excluded from the statements of cash flows:

                                                                  Increase
                                                                 (Decrease)
                                                                -----------
      Additions of equipment under capital lease                $  (41,304)
      New capital lease obligations                                 41,304
      Convertible, subordinated debentures converted to 
        common stock                                               535,000
      Interest on debentures converted to common stock              48,559
      Decrease in debentures payable                              (535,000)
      Decrease in interest payable on debentures                   (48,559)
                                                                -----------
                                                                $        -
                                                                -----------
                                                                -----------

                                     F-32

<PAGE>

                           WASTE RECOVERY, INC.

              Notes to Consolidated Financial Statements

      During 1995, the Company had the following noncash transactions which
      have been excluded from the statements of cash flows:

                                                                    Increase
                                                                   (Decrease)
                                                                 ------------
      Transfer of manufactured inventory to Illinois             $  (258,680)
      Investment in Illinois Partnership                             258,680
      Additions of equipment under capital lease                    (141,553)
      New capital lease obligations                                  141,553
      Convertible, subordinated debentures converted to 
        common stock                                                 265,000
      Interest on debentures converted to common stock                69,252
      Decrease in debentures payable                                (265,000)
      Decrease in interest payable on debentures                     (69,252)
                                                                 ------------
                                                                 $         -
                                                                 ------------
                                                                 ------------

Note 23.  SIGNIFICANT CONTRACTS
      WR-Illinois entered into a contract with Illinois Power Company on
      October 12, 1993, to supply it with 60,000 tons of TDF per year for a
      period of five years.  If WR-Illinois is unable to fulfill this
      requirement, the Company will sell TDF produced at its other facilities
      to Illinois Power.  Sales to Illinois Power of TDF produced at the Dupo
      facility began in September 1995.

Note 24.  BUSINESS AND CREDIT CONCENTRATIONS
      The Company's customers are located throughout the United States.  Five
      customers accounted for significant Company sales for the years ended
      December 31:

<TABLE>
<CAPTION>
                                                          1997           1996           1995
                                                      ----------     ----------    -----------
<S>                                                   <C>            <C>            <C>
      Customer one                                    $5,483,000     $2,940,000     $2,221,000
      Customer two                                     1,535,000              -              -
      Customer three                                   1,255,000              -              -
      Customer four                                    1,137,000      1,840,000      1,604,000
      Customer five                                      434,000        566,000        535,000
      Customer six                                             -        364,000      2,999,000
      Customer seven                                           -        257,000        832,000
                                                      ----------     ----------    -----------
      Total                                           $9,844,000     $5,967,000     $8,191,000
                                                      ----------     ----------    -----------
                                                      ----------     ----------    -----------
</TABLE>

      In addition to these customers, the Company does business with a variety
      of companies with diverse credit risk.  The Company does not generally
      require collateral or other security from its customers and has
      historically encountered very little loss on its receivables.

                                     F-33

<PAGE>

                           WASTE RECOVERY, INC.

              Notes to Consolidated Financial Statements

NOTE 25.  PROFIT SHARING PLAN
      Effective January 1, 1995, the Company adopted the Waste Recovery, Inc.
      401(k) Plan (the Plan), a defined contribution plan.  Employees who have
      completed six months of service and have attained the age of twenty-one
      are eligible to become participants in the Plan.  Participants may
      contribute up to 15% of their compensation, as defined, annually.
      Company contributions to the Plan are determined at the discretion of the
      Board of Directors.  No contributions were made during the years ended
      December 31, 1997, 1996 and 1995.

NOTE 26.   LITIGATION AND CONTINGENCIES
      The Company is a party to certain lawsuits which are generally incidental
      to its business.  Management does not believe the ultimate resolution of
      such matters will have a significant effect on the Company's financial
      position, results of operations, or cash flows , and therefore, no
      liabilities have been recorded in the accompanying consolidated financial
      statements.

      Like other waste management companies, the Company's operations are
      subject to extensive and changing federal and state environmental
      regulations governing emissions into the atmosphere, wastewater
      discharges, solid and hazardous waste management activities and site
      restoration and abandonment activities.  As of December 31, 1997, no such
      costs had been accrued and management does not believe the effects of the
      aforementioned activities will have a material effect on the Company's
      financial statements.

NOTE 27.   DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
      The fair value of the Company's current assets, restricted cash and
      accounts payable approximates the recorded amounts because of the
      liquidity and short maturity of these instruments.

      It is not practicable to estimate the fair value of the Company's long-
      term debt and notes payable as they are unique as debt instruments for
      which there is no public market and as discussed in note 2, the Company's
      ability to honor these obligations is uncertain.

NOTE 28.  SUBSEQUENT EVENTS
      On January 27, 1998, the Company announced a default by its wholly-owned
      subsidiary, WR-Illinois, with respect to the debt service payments due
      February 1, 1998 in connection with the loan agreements between WR-
      Illinois and the Southwestern Illinois Development Authority (SWIDA), and
      the Upper Illinois River Valley Development Authority (UIRVDA) (see note
      11).  The debt is classified in current liabilities as of December 31,
      1997.  As a result of the default, the indenture trustee has made demand
      for payment.  The bondholders have the right to accelerate maturity.

                                     F-34

<PAGE>

                           WASTE RECOVERY, INC.

              Notes to Consolidated Financial Statements

      On January 15, 1998, the Company was in default on the convertible
      subordinated notes (see note 14) as a result of nonpayment of interest
      due January 15, 1998.  As a result of the default, one of the noteholders
      has made demand for payment.  Upon occurrence of an event of default, as
      defined, the noteholders may convert the notes to common stock of the
      Company at a reduced price of $1.00 per share or foreclose on the common
      stock of New U.S. Tire Recycling Corp., a wholly-owned subsidiary of the
      Company which owns 84% of U.S. Tire.

      On March 31, 1998, the Company was in default due to non-payment of the
      final installment of promissory notes payable in the amount of $150,000
      issued in connection with the acquisition of U.S. Tire.  One of the
      noteholders has made demand for payment.

      On March 21, 1998, the Company's Marseilles, Illinois facility was
      substantially damaged by fire.  The facility is covered by replacement
      and business interruption insurance; however, uninsured costs, if any,
      are unknown and are not reasonably or practicably determinable.



                                 [End of Page]

                                     F-35

<PAGE>


        REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULES


Board of Directors and Stockholders
Waste Recovery, Inc.


In connection with our audit of the consolidated financial statements of Waste
Recovery, Inc. and Subsidiaries referred to in our report dated March 16, 1998,
which is included in Part II of this Form 10-K, we have also audited Schedule
II at December 31, 1997 and for the year then ended.  In our opinion, this
schedule presents fairly, in all material respects, the information required to
be set forth therein.  Our report on the financial statements referred to above
includes an explanatory paragraph which discusses that there is substantial
doubt about the Company's ability to continue as a going concern.



GRANT THORNTON LLP

Dallas, Texas
March 16, 1998

                                     S-1

<PAGE>
                                                                    SCHEDULE II


                             WASTE RECOVERY, INC.
                       VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                                               Additions
                                                                     ----------------------------
                                                      Balance at     Charged to        Charged to                  Balance at
                                                     Beginning of    Costs and         Other                         End of
             Description                                 Year        Expenses          Accounts     Deductions       Year(1)
             -----------                             ------------    ----------        ----------   ----------     ----------
<S>                                                  <C>             <C>               <C>          <C>            <C>
Year ended December 1995:
     Allowance for doubtful accounts                     $25,000        $38,917        $  -           $36,834        $27,083
                                                         -------        -------        ---------      -------      ---------
Year ended December 1996:
     Allowance for doubtful accounts                     $27,083        $63,554        $  -           $39,620        $51,017
                                                         -------        -------        ---------      -------      ---------
Year ended December 1997:
     Allowance for doubtful accounts                     $51,017        $96,000        $  -           $18,415       $128,602
                                                         -------        -------        ---------      -------      ---------

</TABLE>
(1) Amount represents the allowance for doubtful accounts, a contra account to
trade accounts receivable.

                                     S-2

<PAGE>

                               INDEX TO EXHIBITS

                                                             Sequentially
Exhibit                                                        Numbered
Number                          Exhibit                          Page
-------                         -------                      ------------
3.1     Amended and Restated Articles of Incorporation filed       
        July 5, 1988, with the Secretary of State of Texas,
        incorporated herein by reference to Exhibit 3.4 to the
        Company's Form 10-K filed March 24, 1989.
                                                                   
3.2     Articles of Amendment to the Articles of Incorporation     
        filed June 8, 1990, with the Secretary of State of
        Texas, incorporated herein by reference to Exhibit 3.5
        to the Company's Form 10-K filed March 27, 1991.
                                                                   
3.3     By-Laws, amended and restated as of March 10, 1992,        
        incorporated herein by reference to Exhibit 3.6 to the
        Company's Form 10-K filed March 26, 1992.
                                                                   
                                                                   
4.1     Form of Common Stock Certificate of Registrant,            
        incorporated herein by reference to the Company's Form
        S-1, as amended, filed July 15, 1986.
                                                                   
4.2     Indenture of Trust dated April 1, 1988, between            
        Development Authority of Fulton County and Citizens
        and Southern Trust Company (Georgia), National
        Association, as Trustee, incorporated herein by
        reference to Exhibit 4.2 to the Company's report on
        Form 8-K filed June 1, 1988.
                                                                   
4.6     Form of 10% Convertible Subordinated Debenture due         
        March 15, 1996, incorporated herein by reference to
        Exhibit 4.6 to the Company's report on Form 8-K filed
        October 5, 1994.
                                                                   
                                                                   
10.6    Agreement dated May 9, 1986, between Registrant and        
        The Goodyear Tire and Rubber Company, incorporated
        herein by reference to Exhibit 10.32 to the Company's
        Amendment No. 1 to Form S-1 filed July 1, 1986.
                                                                   
10.7    Lease Agreement dated January 15, 1988, between            
        Southern Metal Finishing Company, Inc. and the
        Registrant, incorporated herein by reference to
        Exhibit 10.37 to the Company's Form 10-K filed March
        25, 1988.
                                                                   
10.8    Indemnity Agreement dated January 29, 1988, by the         
        Registrant and Southern Metal Finishing Company, Inc.,
        incorporated herein by reference to Exhibit 10.38 to
        the Company's Form 10-K filed March 25, 1988.
                                                                   
10.10   Estoppel Deed, dated December 28, 1989, between the        
        Registrant as Grantor, and Tex A. Perkins, et al., as
        Grantee, incorporated herein by reference to Exhibit
        10.64 to the Company's Form 10-K filed March 26, 1990.
                                                                   
10.11   Lease of Real Property, dated January 1, 1990, between     
        the Registrant, as Lessee, and Tex A. Perkins, et al.,
        as Lessor, incorporated herein by reference to Exhibit
        10.65 to the Company's Form 10-K filed March 26, 1990.
                                                                   
10.12   Warranty Deed, dated February 7, 1990, between Tex A.      
        Perkins, et al., as Grantor, and Wayne Easley, as
        Grantee, incorporated herein by reference to Exhibit
        10.66 to the Company's Form 10-K filed March 26, 1990.
                                                                   
10.13   Assignment of Lease, dated February 7, 1990, from Tex      
        A. Perkins, et al., as Assignor, and Wayne Easley, as
        Assignee, incorporated herein by reference to Exhibit
        10.68 to the Company's Form 10-K filed March 26, 1990.

                                     E-1
<PAGE>

                                                             Sequentially
Exhibit                                                        Numbered
Number                          Exhibit                          Page
-------                         -------                      ------------
10.14   The Registrant's 1989 Stock Plan for Employees,            
        effective March 6, 1989, and approved by the
        Registrant's shareholders at the 1989 Annual Meeting,
        incorporated herein by reference to Exhibit 10.73 to
        the Company's Form 10-K filed March 26, 1990.
                                                                   
10.15   Amendment No. 1 to the Registrant's 1989 Stock Plan        
        for Employees, incorporated herein by reference to
        Exhibit 10.15 to the Company's Form 10-K filed March
        28, 1996.
                                                                   
10.16   Nonqualified Stock Option Agreement dated April 4,         
        1990, granted by the Registrant to Allan Shivers, Jr.
        for 200,000 shares, incorporated herein by reference
        to Exhibit 10.77 to the Company's Form 10-K filed
        March 27, 1991.
                                                                   
10.17   Form of Nonqualified Stock Option Agreement for grants     
        to employees made January 7, 1991, incorporated herein
        by reference to Exhibit 10.89 to the Company's Form 10-
        K filed March 26, 1992.
                                                                   
10.18   Form of Incentive Stock Option Agreement for grants to     
        employees made October 1, 1991, incorporated herein by
        reference to Exhibit 10.90 to the Company's Form 10-K
        filed March 26, 1992.
                                                                   
10.19   1992 Stock Plan for Non-Employee Directors,                
        incorporated herein by reference to Exhibit 4.8 of the
        Company's Form S-8 filed May 8, 1992.
                                                                   
10.20   Form of Nonqualified Stock Option Agreement for grants     
        to non-employee directors made January 4, 1991,
        incorporated herein by reference to Exhibit 10.88 to
        the Company's Form 10-K filed March 26, 1992.
                                                                   
10.21   Indemnity and Security Agreement, dated June 1, 1990,      
        between Registrant and The Goodyear Tire and Rubber
        Company, incorporated herein by reference to Exhibit
        10.82 to the Company's Form 10-K filed March 27, 1991.
                                                                   
10.22   Amendment to Lease of Real Property dated April 25,        
        1991, between the Registrant, as Lessee, and George
        Glanz, as Lessor, incorporated herein by reference to
        Exhibit 10.86 to the Company's Form 10-K filed March
        26, 1992.
                                                                   
10.23   Agreement (for supply of TDF) between the Registrant       
        and Illinois Power Company dated October 12, 1993,
        (paragraph 4 of Exhibit 10.007 is subject to a request
        for confidential treatment), incorporated herein by
        reference to Exhibit 10.007 to the Company's report on
        Amendment No. 1 to Form 8-K/A filed December 14, 1993.
                                                                   
10.24   Leasehold Commercial Deed of Trust, Security               
        Agreement, Fixture Filing, Financing Statement, and
        Assignment of Leases and Rents dated September 20,
        1994, executed by the Registrant as Grantor, for the
        benefit of NationsBank of Georgia N.A. as Trustee,
        incorporated herein by reference to Exhibit 10.021 to
        the Company's Form 10-K filed March 30, 1995.
                                                                   
10.25   Stock Purchase Agreement for the purchase by the           
        Registrant of the outstanding stock of Domino Salvage,
        Tire Division, Inc., dated March 21, 1995,
        incorporated herein by reference to Exhibit 10.024 to
        the Company's Form 10-K filed March 30, 1995.
                                                                   
10.26   Loan Agreements dated April 1, 1988, between               
        Development Authority of Fulton County and the
        Registrant, incorporated herein by reference to
        Exhibit 28.2 to the Company's report on Form 8-K filed
        June 1, 1988.

                                     E-2

<PAGE>
                                                             Sequentially
Exhibit                                                        Numbered
Number                          Exhibit                          Page
-------                         -------                      ------------
10.27   Promissory Note dated April 1, 1988, from the              
        Registrant to Development Authority of Fulton County,
        incorporated herein by reference to Exhibit 28.3 to
        the Company's report on Form 8-K filed June 1, 1988.
                                                                   
10.28   Leasehold Deed to Secure Debt and Security Agreement       
        dated April 1, 1988, between the Registrant and the
        Trustee, incorporated herein by reference to Exhibit
        28.5 to the Company's report on Form 8-K filed June 1,
        1988.
                                                                   
10.29   First Amendment to Lease Agreement dated April 1,          
        1988, between Southern Metal Finishing Company, Inc.
        and the Registrant, incorporated herein by reference
        to Exhibit 28.6 to the Company's report on Form 8-K
        filed June 1, 1988.
                                                                   
10.30   Assignment of Contracts dated April 1, 1988, between       
        the Registrant and Development Authority of Fulton
        County, incorporated herein by reference to Exhibit
        28.7 to the Company's report on Form 8-K filed June 1,
        1988.
                                                                   
10.31   Promissory Note dated February 29, 1996, executed by       
        the Registrant as maker payable to Texas Commerce Bank
        National Association in principal amount of
        $1,119,309.01, incorporated herein by reference to
        Exhibit 10.31 to the Company's Form 10-K filed April
        15, 1997.
                                                                   
10.32   Note Purchase Agreement dated February 29, 1996,           
        between The Goodyear Tire and Rubber Company and Texas
        Commerce Bank National Association, incorporated
        herein by reference to Exhibit 10.32 to the Company's
        Form 10-K filed April 15, 1997.
                                                                   
10.33   Form of Convertible Subordinated Debenture Conversion      
        Agreements effective July 1, 1996, incorporated herein
        by reference to Exhibit 10.33 to the Company's Form 10-
        K filed April 15, 1997.
                                                                   
10.34   Form of Warrant to Purchase Common Stock of Waste          
        Recovery, Inc. as of July 1, 1996, as Exhibit "A" to
        the Convertible Subordinated Debenture Conversion
        Agreements included herein in Exhibit 10.47,
        incorporated herein by reference to Exhibit 10.34 to
        the Company's Form 10-K filed April 15, 1997.
                                                                   
10.35   Dodge Common Stock and Warrant Purchase Agreement          
        dated December 24, 1996 between Waste Recovery, Inc.
        and Michael C. Dodge, incorporated herein by reference
        to Exhibit 10.35 to the Company's Form 10-K filed
        April 15, 1997.
                                                                   
10.36   Common Stock and Warrant Purchase Agreement dated          
        December 26, 1996 by and among Waste Recovery, Inc.
        and Bette Nagelberg, Ronald I. Heller, Rachel Heller,
        Ronald I. Heller as custodian for Evan Heller,
        Delaware Charter Guaranty & Trust Co. FBO, and R.
        Anthony Cioffari, incorporated herein by reference to
        Exhibit 10.36 to the Company's Form 10-K filed April
        15, 1997.
                                                                   
10.37   Agreement and Plan of Reorganization dated as of the       
        30th day of September 1996 by and among Waste
        Recovery, Inc., New U.S. Tire Recycling Corp., U.S.
        Tire Recycling Partners, L.P., Bodner/Greenstein
        Capital Holdings, Inc., Tirus, Inc., Tirus Associates,
        L.L.C., Environmental Venture Fund, L.P., Argentum
        Capital, L.P., and Certain Shareholders, incorporated
        herein by reference to Exhibit 1.1 of the Company's
        current report on From 8-K filed December 20, 1996.

                                     E-3

<PAGE>

                                                             Sequentially
Exhibit                                                        Numbered
Number                          Exhibit                          Page
-------                         -------                      ------------
10.38   Partnership Purchase Agreement dated as of December        
        16, 1996, between Riverside Caloric Company, Waste
        Recovery, Inc., and Waste Recovery-Illinois, L.L.C.,
        incorporated herein by reference to Exhibit 1.2 of the
        company's current report on Form 8-K filed December
        20, 1996.
                                                                   
10.39   Deed of Trust and Security Agreement between New U.S.      
        Tire Recycling Corp. (a wholly-owned subsidiary of the
        Registrant) as Grantor, and the former partners and
        shareholders of U.S. Tire Recycling Partners, L.P. as
        Beneficiary, incorporated herein by reference to
        Exhibit 10.39 to the Company's Form 10-K filed April
        15, 1997.
                                                                   
10.40   Letter Agreement between Waste Recovery, Inc. and          
        Cameron & Associates relating to the retention of
        Cameron & Associates as financial advisor in
        connection with the acquisition of U.S. Tire,
        incorporated herein by reference to Exhibit 10.40 to
        the Company's Form 10-K filed April 15, 1997.
                                                                   
10.41   Nonqualified Stock Option Agreement dated February 12,     
        1997, granted by the Registrant to Martin B. Bernstein
        for 1 million shares.(1)
                                                                   
10.42   Consulting Agreement dated December 31, 1997 between       
        Registrant and Thomas L. Earnshaw, as consultant.(1)
                                                                   
10.43   Promissory Note dated March 17, 1998, executed by          
        Registrant as maker payable to Chase Bank of Texas,
        National Association in principal amount of
        $350,000.(1)
                                                                   
                                                                   
11.1    Statement regarding computation of per share earnings      
        - See page F-5 of this Form 10-K which is incorporated
        herein by reference.
                                                                   
                                                                   
21.1    Subsidiaries of the Registrant, incorporated herein by     
        reference to Exhibit 21.1 to the Company's Form 10-K
        filed April 15, 1997.
                                                                   
                                                                   
23      Consent of Independent Accountants.(1)                     
                                                                   
23.1    Consent of Independent Accountants.(1)                     
                                                                   
23.2    Consent of Independent Accountants.(1)                     
                                                                   
                                                                   
27.1    Financial Data Schedule.(1)                                
                                                                   
                                                                   
99.1    The Company's Proxy Statement for its 1997 Annual          
        Meeting of Shareholders, incorporated herein by
        reference pursuant to Rule 12b-32 of the Securities
        Exchange Act of 1934.  Definitive copies of such Proxy
        Statement to be filed under Regulation 14A within 120
        days after December 31, 1996.

--------------------
(1)  Filed herewith.

                                     E-4