================================================================================

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


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


                                    FORM 10-Q


                Quarterly Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934


                   For the Quarter Period Ended June 30, 1998


                           Commission File No. 0-29664


                            SOLUCORP INDUSTRIES LTD.
             ------------------------------------------------------
             (Exact name of Registrant as specified in its Charter)


                 YUKON                                              N/A
     ------------------------------                          -------------------
       (State or jurisdiction of                               (IRS Employer
     incorporation or organization)                          Identification No.)


  250 WEST NYACK ROAD, WEST NYACK, NY                               10994
---------------------------------------                          ----------
(Address of Principal Executive Office)                          (Zip Code)


               Registrant's telephone number, including area code:
               ---------------------------------------------------
                                 (914) 623-2333


              Former name, former address and former fiscal year,
                       if changed since last report:
              ---------------------------------------------------
                                      None


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 a 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 [ ]


As of August 14, 1998, there were 19,357,785 shares of Common Stock, no par
value outstanding.

================================================================================

<PAGE>


BASIS OF PRESENTATION

     The following unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information without audit. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. These unaudited statements should be read in
conjunction with the audited financial statements of the Company and notes
thereto included in the Company's Transition Report for the six month period
ended December 31, 1997. The results of operations for the six months ended
June 30, 1998 are not necessarily indicative of the results which may be
expected for the full year ending December 31, 1998.


                                                                               2

<PAGE>
<TABLE>
                                                               PART I
                                                        FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                                       SOLUCORP INDUSTRIES LTD
                                          CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
                                                (UNAUDITED - PREPARED BY MANAGEMENT)
                                                          (In U.S. Dollars)
<CAPTION>

                                               THREE MONTHS ENDED            SIX MONTHS ENDED
                                                    JUNE 30,                     JUNE 30,
                                           ---------------------------   --------------------------
                                              1998           1997           1998          1997
                                           ------------   ------------   ------------  ------------
<S>                                        <C>            <C>            <C>           <C>          
REVENUES
   Environmental clean-up and waste disposal  $481,412      ($298,287)      $986,563      ($19,096)
   Training Institute                              680         19,617          8,396        25,447
                                           ------------   ------------   ------------  ------------
                                               482,092       (278,670)       994,959         6,351
                                           ------------   ------------   ------------  ------------

COST OF SALES AND REVENUE
   Environmental clean-up and waste disposal   410,588        220,511        855,710       503,844
   Training Institute                                0          4,867          2,964         7,097
    Inventory storage costs                     42,931              0        139,746             0
                                           ------------   ------------   ------------  ------------
                                               453,519        225,378        998,420       510,941
                                           ------------   ------------   ------------  ------------

GROSS MARGIN                                    28,573       (504,048)        (3,461)     (504,590)

INVESTMENT AND OTHER INCOME                     44,828          7,499        108,374         8,999

LICENSE FEES                                   530,304              0      1,075,758             0
                                           ------------   ------------   ------------  ------------

                                               603,705       (496,549)     1,180,671      (495,591)
                                           ------------   ------------   ------------  ------------


EXPENSES
   Administrative and general                1,116,168       (750,712)     1,769,072      (141,105)
   Corporate development and marketing         142,421         59,444        256,447       160,511
   Depreciation and amortization                88,155         65,661        157,671       147,384
   Research and development                          0      1,968,858              0     1,968,910
                                           ------------   ------------   ------------  ------------
                                             1,346,744      1,343,251      2,183,190     2,135,700
                                           ------------   ------------   ------------  ------------

EARNINGS (LOSS) FROM OPERATIONS               (743,039)    (1,839,800)    (1,002,519)   (2,631,291)

OTHER INCOME (EXPENSE)                        (527,968)       (36,013)      (527,968)      (36,013)

                                           ------------   ------------   ------------  ------------
EARNINGS (LOSS) FOR THE PERIOD              (1,271,007)    (1,875,813)    (1,530,487)   (2,667,304)

DEFICIT, BEGINNING OF PERIOD               (13,507,218)   (11,391,440)   (13,247,738)  (10,599,949)
                                           ------------   ------------   ------------  ------------

DEFICIT, END OF PERIOD                     ($14,778,225)  ($13,267,253)  ($14,778,225) ($13,267,253)
                                           ============   ============   ============  ============

EARNINGS (LOSS) PER SHARE                        ($0.07)        ($0.12)        ($0.08)       ($0.17)
                                           ============   ============   ============  ============

The accompanying notes are an integral part of this statement.

                                                                                                 3
</TABLE>



<PAGE>


                            SOLUCORP INDUSTRIES LTD
                           CONSOLIDATED BALANCE SHEET
                               (In U.S. Dollars)

                                                       JUNE          DECEMBER
                                                     30, 1998        31, 1997
                                                  --------------  -------------
                                                   (UNAUDITED)               
ASSETS

CURRENT ASSETS
   Cash                                             $   32,755      $   26,646
   Accounts receivable                               1,133,530         672,791
   License fees                                        166,667         490,910
   Loan receivable                                      39,979          50,000
   Due from related parties                          1,426,219       1,981,377
   Other receivables                                    69,218         100,872
   Inventories                                       1,824,262         784,815
   Prepaid expenses                                    205,709         816,495
                                                  -------------   -------------
                                                     4,898,339       4,923,906
                                                                 
LONG TERM INVESTMENTS                                  377,699         368,844
CAPITAL ASSETS                                         339,301         350,663
WASTE DISPOSAL RIGHTS                                1,515,937       1,624,219
OTHER ASSETS                                           475,000               0
                                                  -------------   -------------
                                                                 
TOTAL ASSETS                                        $7,606,276      $7,267,632
                                                  =============   =============
                                                                 
LIABILITIES
                                                                 
CURRENT LIABILITIES
                                                                 
   Accounts payable & accrued liabilities           $1,603,824      $  868,198
   Loans payable                                       268,877         270,722
                                                  -------------   -------------
                                                     1,872,701       1,138,920
                                                                 
DUE ON WASTE DISPOSAL RIGHTS                         1,265,625       1,265,625
                                                  -------------   -------------
                                                     3,138,326       2,404,545
                                                  -------------   -------------
                                                                 
SHAREHOLDERS EQUITY
                                                                 
SHARE CAPITAL                                       19,270,590      18,135,240
DEFICIT                                            (14,778,225)    (13,247,738)
                                                  -------------   -------------
                                                     4,492,365       4,887,502
                                                                 
   LESS:    Cost of 8,000 shares held by                         
            company's subsidiary                       (24,415)        (24,415)
                                                  -------------   -------------
                                                                 
                                                     4,467,950       4,863,087
                                                                 
                                                  -------------   -------------
                                                                 
TOTAL LIABILITIES AND
   SHAREHOLDERS EQUITY                              $7,606,276      $7,267,632
                                                  =============   =============

The accompanying notes are an integral part of this statement.

                                                                               4


<PAGE>


                            SOLUCORP INDUSTRIES LTD
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                      (UNAUDITED - PREPARED BY MANAGEMENT)
                               (IN U.S. DOLLARS)
<TABLE>
<CAPTION>
                                                                  SIX MONTHS ENDED
                                                                      JUNE 30,
                                                              ---------------------------
                                                                 1998            1997
                                                              -------------   -----------
<S>                                                            <C>            <C>        
CASH PROVIDED BY (USED IN)
  OPERATING ACTIVITIES
     Net profit (loss) for the period                          ($1,530,487)   ($2,667,304)
     Items not involving cash:
        Depreciation & amortization                                157,671        147,384
        Writedown of investments                                                   36,013
                                                              -------------  -------------

     Funds provided (used) from operations                      (1,372,816)    (2,483,907)
     Non-cash working capital changes                              202,122        447,630
                                                              -------------  -------------

       Cash provided by (used in) operating activities          (1,170,694)    (2,036,277)
                                                              -------------  -------------

  FINANCING ACTIVITIES
     Issue of common shares                                      1,135,350      2,947,754
     Due from related parties                                      555,158       (573,483)
     Loans receivable                                               10,021
     Loans payable                                                  (1,845)       (14,620)
                                                              -------------  -------------

       Cash provided by (used in) financing activities           1,698,684      2,359,651
                                                              -------------  -------------

  INVESTMENT ACTIVITIES
     (Increase) decrease in capital assets                         (13,027)       (50,953)
     Revenue agreement inducement                                                (250,000)
     (Increase) decrease in deferred charges                      (500,000)
     (Increase) decrease in long-term investments                   (8,854)       (17,085)
                                                              -------------  -------------

       Cash provided by (used in) investment activities           (521,881)      (318,038)
                                                              -------------  -------------

  INCREASE (DECREASE) IN CASH POSITION                               6,109          5,336

  CASH POSITION, BEGINNING OF PERIOD                                26,646         10,451
                                                              -------------  -------------

  CASH POSITION, END OF PERIOD                                  $   32,755     $   15,787
                                                              =============  =============

The accompanying notes are an integral part of this statement.

                                                                                        5
</TABLE>



<PAGE>

SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
--------------------------------------------------------------------------------

1.   Significant Accounting Policies

     a)   Generally Accepted Accounting Principles

          The consolidated financial statements have been prepared in accordance
          with accounting principles generally accepted in Canada, which differ
          in some respects from those in the United States. Except as disclosed
          in note 22, no differences have been reported as they are not
          considered significant.

     b)   Basis of Consolidation

          The consolidated financial statements include the accounts of the
          Company and its subsidiaries. At June 30, 1998 the Company's
          subsidiaries and its percentage equity interest in each are as
          follows:

           ESM Industries (Canada) Inc.                         100%
           World Travel Plazas Inc.                             100%
           World Tec Equities Inc.                              100%
           EPS Environmental, Inc.                              100%
           Environmental Training Institute Inc. 
             (incorporated in the US)                           100%

     c)   Cash and Cash Equivalents

          For purposes of balance sheet classification and the statements of
          cash flows, the Company considers all highly liquid investments
          purchased with an original maturity of three months or less to be cash
          equivalents.

     d)   Estimates

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

     e)   Fair Value of Financial Instruments

          The carrying amounts reported in the balance sheets for cash and cash
          equivalents, accounts receivable, loans and other receivables,
          accounts payable and accrued liabilities and loans payable approximate
          fair market value because of the immediate or short-term maturity of
          these financial accounts. The fair values of the long-term investments
          are not readily determinable due to uncertainties in their
          realization; however, where available, the quoted market prices have
          been disclosed. The fair value of the amount due on the waste disposal
          rights is not determinable due to uncertainty regarding payment.

                                                                              6
<PAGE>


SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
--------------------------------------------------------------------------------


     f)   Inventory

          Inventory is valued at the lower of cost or net realizable value. Cost
          is determined on a first-in, first-out bases.

     g)   Long-term Investments

          Investments are recorded at cost less a provision for permanent
          impairment in value.

     h)   Capital Assets

          Capital assets are recorded at cost. Amortization is provided over the
          estimated useful lives of the assets on the following bases:

          Computer                                     30% declining balance
          Furniture and office equipment               20% declining balance
          Leasehold improvements                        5 years straight-line
          Remediation equipment                        30% declining balance
          Patent costs                                 10 years straight-line

     i)   Waste Disposal Rights

          Waste disposal rights are recorded at cost net of amortization. These
          rights are being amortized at the greater of $10 per ton of waste
          delivered or $216,500 per year. The Company conducts an annual review
          of the carrying value to ensure it is not in excess of the estimated
          recoverable amount of this asset (see note 10). Any excess amount
          identified as a result of this review is charged to income in that
          year as a write-down of the carrying value.

     j)   Reporting Currency and Translation of Foreign Currency

          The Company adopted the United States dollar as its reporting currency
          for its financial statements prepared after March 31, 1996. The United
          States dollar is the currency of the primary economic environment in
          which the Company conducts its business, and is considered the
          appropriate functional currency for its operations. Accordingly, the
          financial statements of the Company have been translated using the
          temporal method with translation gains and losses included in
          earnings. Under this method the operations of the Company have been
          converted into U.S. dollars at the following rates of exchange:

               (i)  Monetary assets and liabilities - at the rate of exchange
                    prevailing at the balance sheet date.

               (ii) All other assets and liabilities - at the exchange rate
                    prevailing at the time of the transactions.


                                                                               7
<PAGE>


SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
--------------------------------------------------------------------------------


              (iii) Revenue and expenses - at the average exchange rates
                    prevailing during the period.
 
     k)   Share Issue Costs

          Share issue costs are charged directly to the deficit.

     l)   Revenue Recognition

          Revenue from on-site remediation projects is recognized using the
          percentage of completion method of accounting. Under this method
          contract revenue is determined by applying to the total estimated
          income on each contract, a percentage which is equal to the ratio of
          contract costs incurred to date, to the most recent estimate of total
          costs which will have to be incurred upon the completion of the
          contract. Costs and estimated earnings in excess of billings
          represents additional earnings over billings, based upon the
          percentage completed, as outlined above. Similarly, billings in excess
          of costs and estimated earnings represent excess of amounts billed
          over income recognized. Provision for estimated losses on uncompleted
          contracts are made in the period in which such losses are determined.
          At June 30, 1998 there were no on-site projects in process.

          Revenue from in-line remediation projects is recognized using the
          completed contract method. Under this method revenue is recognized
          when work is completed and invoiced.

          Revenue from license fees, option payments and royalties are
          recognized as the accrue in accordance with the terms of the relevant
          agreements.

     m)   Research and Development

          Research and development expenditures less related government grants
          are charged to operations.

     n)   Earnings (Loss) Per Share

          The earnings (loss) per share is computed using the weighted-average
          number of common shares outstanding during the year.

     o)   Accounting for Stock-Based Compensation

          In October 1995 the FASB issued SFAS No. 123 "Accounting for
          Stock-Based Compensation". The statement encourages all entities to
          adopt a new method of accounting to measure compensation cost of all
          employee stock compensation plans based on the estimated fair value of
          the award at the date it is granted. Companies are, however, allowed
          to continue to measure compensation cost for those plans using the
          intrinsic value based method of accounting, which generally does not
          result in compensation expense recognition for most plans. Companies
          that elect to remain with the existing accounting are required to
          disclose in a footnote to the financial statement pro forma net income


                                                                               8
<PAGE>

SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
--------------------------------------------------------------------------------


          and, if presented, earnings per share, as if SFAS No. 123 had been
          adopted. The accounting requirements of SFAS No. 123 are effective for
          transactions entered into in fiscal years that begin after December
          15, 1995; however, companies are required to disclose information for
          awards granted in their first fiscal year beginning after December 15,
          1995. Currently, the Company's stock-based compensation plan is
          accounted for using Canadian generally accepted accounting principles
          similar to the intrinsic value method prescribed by APB No. 25. The
          Company is in the process of computing the effect of adopting SFAS No.
          123 and has not yet made a decision on whether to adopt the U.S.
          accounting policy for the fiscal period ended June 30, 1998.
          Management believes the financial impact of adopting SFAS No. 123
          would be immaterial.

     2.   Accounts Receivable

                                                         June 30,   December 31,
                                                           1998        1997
                                                        -----------------------
           Tristate Restoration Company, Inc.
             (note 7a)                                  $        0   $293,361
           Smart International Ltd.                      1,006,984    203,796

           Other                                           230,943    216,741
                                                        ---------------------
                                                         1,237,927    713,898

           Allowance for bad debts                        (104,397)   (41,107)

                                                        ---------------------
                                                        $1,133,530   $672,791
                                                        =====================

     3.   License Fees

          By a letter of intent dated June 4, 1997 and an agreement dated
          September 15, 1997 the Company granted to Smart International Ltd.
          (Smart) the right to manufacture chemicals for the Company and the
          right to exclusively engage in remediation projects in China using the
          Company's technology. The agreement is for a ten-year term commencing
          from June 1, 1997 with an option to renew for a further 10 years. As
          consideration, Smart has agreed to pay an annual license fee of
          $2,000,000 per year plus a royalty of $5 per ton for each ton of
          processed material in excess of 100,000 tons per contract year. At
          June 30, 1998 the Company has received $1,118,750 of the $2,000,000
          billed towards the license fee and has accrued an amount receivable of
          $166,667 for license fees earned. No royalties were earned.


                                                                               9
<PAGE>


SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
--------------------------------------------------------------------------------


     4.   Loan Receivable

                                                        June 30,   December 31,
                                                          1998         1997
                                                       ------------------------
          Loan receivable, 5% per annum, due
            November 30, 1997                             $ 0        $50,000
                                                       ========================

          $25,000 of the $50,000 was collected in February 1998. The remaining
          $25,000 was fully reserved against at June 30, 1998.

     5.   Due From Related Parties

          Advances, primarily to directors, and employees related to directors
          in the amount of $1,426,219 (December, 1997 - $1,981,377) bear
          interest at 8.50%, are secured with marketable securities (market
          value at June 30, 1998 - $ 207,539) and have no specific terms of
          repayment.

     6.   Inventories

                                                      June 30,      December 31,
                                                       1998            1997
                                                     ---------------------------
          Raw chemicals                              $1,799,302      $731,576
          Blended chemicals                              21,143        13,626
          Goods for resale                                3,817        39,613
                                                     ---------------------------
                                                     $1,824,262      $784,815
                                                     ===========================


     7.   Prepaid Expenses

                                                        June 30,   December 31,
                                                          1998         1997
                                                     ---------------------------
          Employment agreement (note 7a)             $      --        $250,000
          Deposit on inventory purchase (note 7b)           --         244,250
          Consulting agreements (note 7c)                154,688       283,911
          Rental expense                                  40,477        28,334
          Other                                           10,544        10,000
                                                     ---------------------------
                                                     $   205,709      $816,495
                                                     ===========================


                                                                              10
<PAGE>


SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
--------------------------------------------------------------------------------


     a)   Employment agreement

          In May, 1998, the Company filed a suit in the United States District
          Court for the District of New Jersey against Tristate Restoration
          Company, Inc., and the two shareholders of Tristate alleging
          conversion, fraud, and breech of contract. Accordingly, the account
          receivable from Tristate and the related employment agreements have
          been fully reserved against at June 30, 1998.

     b)   Deposits on Inventory Purchase

          Subsequent to December 31, 1997 the $244,250 deposit was applied to
          net purchases of raw chemicals totaling $415,250.

     c)   Consulting Agreements

               (i)  The Company issued 50,000 shares at $4.50 per share related
                    to a consulting agreement which has a two-year term ending
                    November 19, 1999.


                                                                              11
<PAGE>


SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
--------------------------------------------------------------------------------


8.   Long-term Investments

                                                  June 30,          December 31,
                                                   1998                1997
                                                 -------------------------------

     (a)  100,500 shares of Earthworks
          Industries Inc. plus accrued
          shares of 40,023 (December 31,
          1997 - 36,165) (note 11 and
          18(d)) (Market value $70,262)           $108,142          $ 99,287

     (b)  Convertible debenture from
          Travel Plaza Developments Inc.
          (Travel Plaza). The Company
          elected on December 28, 1994
          to convert the $50,000
          debenture into 250,000 shares
          of Travel Plaza. Final
          regulatory approval for this
          conversion from the Alberta
          Stock Exchange is still
          pending subject to their
          acceptance of a financing
          arrangement and the approval
          of minority shareholders. On
          August 21, 1996, pending the
          finalization of the required
          financing to compute the
          project, construction has been
          temporarily suspended and the
          stock of Travel Plaza has been
          halted from trading. Due to
          these uncertainties, the
          Company has written this
          investment down to a nominal
          value.                                         1                 1

     (c)  Convertible loan to Cortina
          Integrated Waste Management
          Inc., a subsidiary of
          Earthworks industries inc.
          (public company), Due
          September 5, 2000 with
          interest at 15% Per annum. The
          Company is entitled to Convert
          all or a portion of the loan
          into Shares of Earthworks
          Industries Inc. at any Time.
          During the term of this loan,
          the Company has the right to
          offset royalty Payments due to
          Earthworks Industries Inc.
          Against the loan balance.                208,821           208,821

     (d)  Investment in EPS Chemicals,
          Inc.                                           1                 1

     (e)  70,000 shares of Global
          Technologies Inc. (note 11).              60,734            60,734
                                                  --------------------------
                                                  $377,699          $368,844
                                                  ==========================


                                                                              12
<PAGE>


SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
--------------------------------------------------------------------------------


9.   Capital Assets

                                             June 30,          December 31,
                                               1998                1997
                                            --------------------------------
     Computers                               $ 24,047           $ 24,047
     Furniture and office equipment           100,940            100,940
     Remediation equipment                    439,657            426,630
     Leasehold improvements                    15,927             15,927
     Incorporation costs                          688                688
     Patent costs                              53,177             53,177
                                            ----------------------------------
                                              634,436             621,409
                                                                
     Less: Accumulated amortization           295,135             270,746
                                            ----------------------------------
                                             $339,301            $350,663
                                            ==================================
                                                               
10.  Waste Disposal Rights

     During the year ended June 30, 1995, the Company entered into a one-year
     agreement effective from August 1, 1994 with a non-related public company,
     Thermo Tech Technologies inc. (Thermo Tech), to deliver 3,500 tons per
     month of suitable organic waste to a bio-conversion facility located in
     Corinth, New York at $55 per ton on a put or pay basis. The Company
     delivered only approximately 5% of the waste contemplated under the
     one-year agreement. The Corinth facility experienced technical start-up
     problems and was shut down in July 1995 to correct an engineering design
     problem. On September 14, 1995 and January 17, 1996 the Company and Thermo
     Tech signed confirmation agreements which resulted in a ten (10) year
     extension from the put or pay agreement to commence when either the Corinth
     facility became operational, or as an alternative, when organic waste was
     delivered to another Thermo Tech facility. The agreements obligated the
     Company to pay an initial amount of $2,165,625 for the right to deliver
     216,500 tons of acceptable organic waste ($10 per ton) plus an additional
     $45 per ton during the ten (10) year term of the agreement.

     The Company paid Thermo Tech $900,000 of the initial amount leaving
     $1,265,625 still to be paid. Thermo Tech recently resolved their lease
     terms at the Corinth facility, and they are now retrofitting the plant to
     obtain the required permits. Since the schedule to make the plant
     operational is not yet determinable, Thermo Tech has agreed to defer
     Solucorp's balance due on the waste disposal rights. Accordingly, the
     $1,265,625 is reflected as a non-current payable. Furthermore, it is still
     the Company's position that it will fully recover its investment in waste
     disposal rights over the ten-year contractual period by delivering waste to
     either the Corinth facility or an alternative Thermo Tech facility.


                                                                              13
<PAGE>


SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
--------------------------------------------------------------------------------


     The carrying value for the waste disposal rights represents a significant
     portion of the Company's assets. Measurement of the recoverability of the
     carrying value is based on an assessment of the waste disposal rates
     currently existing in the New York and New Jersey areas, and at other areas
     where Thermo Tech plants are located, and on the assumption that the
     Corinth plant will be in operation in the near future. As of June 30, 1998,
     the Company has determined that no write-down is necessary. However, it is
     reasonably possible, based on existing knowledge, that changes in future
     conditions in the near term could require a material change in the
     estimated recoverable amount.

11.  Other Assets

     The $475,000 represents a deferred charge from an up-front license fee of
     $500,000 paid to KBF Pollution Management, Inc. (KBF) in the form of
     190,550 shares of restricted common stock, net of amortization of $25,000.
     The license permits the Company to market worldwide KBF's selective
     separation technology (SST), a water treatment system, for five (5) years
     with automatic renewals for successive one year periods.

12.  Loans Payable

                                                     June 30,       December 31,
                                                       1998             1997
                                                --------------------------------
                                                   (Unaudited)
     IDM Environmental Corp., due on
     demand with interest at 10.25%,
     secured by the Company's treasury
     stock, 100,500 shares of Earthworks
     Industries Ltd. (note 8a) and
     70,000 shares of Global
     Technologies Inc. (note 8a) held as
     investments by the Company.                $     200,748         $200,748
                                                                     
     Global Technologies Inc., due on                                
     demand ($100,000 Cdn).                            68,129           69,974
                                                                     
                                                                     
                                                --------------------------------
                                                $     268,877         $270,722
                                                ================================


                                                                              14
<PAGE>


SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
--------------------------------------------------------------------------------


13.  Share Capital

     a)   Authorized:

     200,000,000 common shares of no par value

     b)   Issued:
<TABLE>
<CAPTION>
                                                   Six Months Ended                Six Months Ended
                                                     June 30, 1998                  June 30, 1997
                                                      (Unaudited)                    (Unaudited)
                                            ----------------------------------------------------------
                                               Shares         Amount             Shares      Amount
                                            ----------------------------------------------------------
<S>                                          <C>           <C>                 <C>         <C>        
Balance, beginning                           18,652,497    $18,135,240         15,062,463  $11,472,295
                                            ----------------------------------------------------------
Issued pursuant to
         Stock options                          271,000        568,850            693,294    1,202,084
         Private placements                                                       131,457      230,050
         Warrants                                36,557         63,975            128,790      146,680
         Shares for debt settlements                                              264,320      520,630
         Conversion of debentures                                                 264,355      395,000
         Employment agreements                                                    100,000      250,000
         License agreement                      190,550        500,000
                                            ----------------------------------------------------------
                                                498,107      1,132,825          1,582,216    2,744,444
                                            ----------------------------------------------------------

Alloted for cash                                  1,443          2,525            122,873      203,310
                                            ----------------------------------------------------------
Balance, ending                              19,152,047    $19,270,590         16,767,552  $14,420,049
                                            ==========================================================
</TABLE>
     c)   During the six month period ended June 30, 1998 the Company granted
          employees, directors and other individuals associated with Company
          stock options to acquire up to 465,000 shares at $3.50 per share.
          (Effective July 17, 1998 Solucorp's Board of Directors repriced these
          options and the options with an expiration date of November 4, 2002 to
          $1.81). At June 30, 1998 stock options were outstanding as follows:

           Shares                  Exercise Price              Expiration Date
--------------------------------------------------------------------------------
            250,000                    $1.38                  December 21, 1999
             50,500                    $1.75                      July 13, 2000
             81,500                    $1.75                 September 12, 2000
             52,500                    $1.75                    January 6, 2002
          1,842,829                    $1.75                       June 9, 2002
            872,210                    $1.81                   November 4, 2002
            456,000                    $1.81                  February 19, 2003


                                                                              15
<PAGE>


SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
--------------------------------------------------------------------------------


     d)   At June 30, 1998 warrants were outstanding as follows:

           Shares               Exercise Price                 Expiration Date
--------------------------------------------------------------------------------
          155,443               $1.75 - $2.00                      June 25, 1999
          750,000                   $2.75                     September 10, 2000
           25,000                   $4.00                          April 4, 2001
          300,000                   $7.50                           June 3, 2001


     e)   At June 30, 1998, 1,675,000 (June 30, 1997 - 1,675,000) common shares
          were held in escrow. However, pursuant to an escrow agreement dated
          April 30, 1988 these shares were subject to release on or before June
          22, 1998 in the event that the Company attained certain cash flow
          targets. Since these cash flow targets were not achieved these
          escrowed shares are in the process of being cancelled.

14.  Income Taxes

     At December 31, 1997, the Company had accumulated tax losses aggregating
     $9,636,000, which may be carried forward and applied against taxable income
     in future years up to 2003. The Company does not record the income tax
     benefit of these losses.

15.  Subsequent Events - None


                                                                              16
<PAGE>


SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
--------------------------------------------------------------------------------


16.  Segmented Information
<TABLE>
<CAPTION>
                                                          US Services & Products         Canada       Consolidated Totals
                                                          ----------------------------------------------------------------
<S>                                                            <C>                     <C>               <C>
    (a) Three Months Ended June 30, 1998:
                              (Unaudited)
        Revenue                                                $    482,092            $      -          $    482,092
        License fees                                                530,304                   -               530,304
        Cost of sales                                               475,457                   -               475,457
                                                               -----------------------------------------------------------

        Operating earnings (loss)                                   536,939                                   536,939

        Administrative and general                                1,059,442               56,726            1,116,168
        Corporate development and marketing                         101,990               40,431              142,421
        Amortization and depreciation                                88,155                   -                88,155
                                                               -----------------------------------------

        Segmented loss                                         $   (712,648)           $ (97,157)            (809,805)
                                                               -----------------------------------------

        Unallocated:
        Other income (expense)                                                                               (521,039)
        Investment and other income                                                                             2,899
                                                                                                         -----------------
        LOSS FOR THE PERIOD                                                                              $ (1,327,945)
                                                                                                         =================
        IDENTIFIABLE ASSETS                                    $  7,108,528            $ 497,748         $  7,606,276
                                                               ===========================================================
    (b) Three Months Ended June 30, 1997:
                          (Unaudited)

        Revenue                                                $    278,670            $      -          $    278,670
        Cost of sales                                               225,378                   -               225,378
                                                               -----------------------------------------------------------

        Operating earnings (loss)                                  (504,048)                  -              (504,048)

        Administrative and general                                 (849,198)              98,486             (750,712)
        Corporate development and marketing                          70,678              (11,234)              59,444
        Research and development                                  1,968,537                  321             1,968,85
        Amortization and depreciation                                65,661                   -                65,661
                                                               -----------------------------------------------------------

        Segmented loss                                         $ (1,759,726)           $ (87,573)          (1,847,299)
                                                               -----------------------------------------
        Unallocated:
        Writedown of investment                                                                               (36,013)
        Investment and other income                                                                             7,499
                                                                                                         -----------------
        LOSS FOR THE PERIOD                                                                              $ (1,875,813)
                                                                                                         =================
        IDENTIFIABLE ASSETS                                    $  2,817,389            $ 407,796         $  3,867,638
                                                               ===========================================================
                                                                                                                        17
</TABLE>


<PAGE>


SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
--------------------------------------------------------------------------------


16.  Segmented Information
<TABLE>
<CAPTION>
                                                               US Services &                               Consolidated
                                                                  Products              Canada                Totals
                                                          ----------------------------------------------------------------
<S>                                                            <C>                     <C>               <C>
    (c) Six Months Ended June 30, 1998:
                              (Unaudited)
        Revenue                                                $     994,959           $      -          $    994,959
        License fees                                               1,075,758                  -             1,075,758
        Cost of sales                                              1,020,358                  -             1,020,358
                                                               ------------------------------------------------------

        Operating earnings (loss)                                  1,050,359                                1,050,359

        Administrative and general                                 1,677,370               91,702           1,769,072
        Corporate development and marketing                          202,655               53,792             256,447
        Amortization and depreciation                                151,311                6,360             157,671
                                                               ------------------------------------------------------

        Segmented loss                                         $    (980,977)         $  (151,854)         (1,132,831)
                                                               -------------------------------------

        Unallocated:
        Other income (expense)                                                                               (521,039)
        Investment and other income
                                                                                                               66,445
                                                                                                     ----------------
        LOSS FOR THE PERIOD                                                                              $ (1,587,425)
                                                                                                     ================
        IDENTIFIABLE ASSETS                                    $   7,108,528          $   497,748        $  7,606,276
                                                               ======================================================
    (d) Six Months Ended June 30, 1997:
                          (Unaudited)
        Revenue                                                $       6,351           $        -        $      6,351
        Cost of sales                                                510,941                    -             510,941
                                                               ------------------------------------------------------

        Operating earnings (loss)                                   (504,590)                   -            (504,590)

        Administrative and general                                  (287,027)              145,922           (141,105)
        Corporate development and marketing                          166,617                (6,106)           160,511
        Research and development                                   1,968,537                   373          1,968,910
        Amortization and depreciation                                147,384                   -              147,384
                                                               ------------------------------------------------------

        Segmented loss                                         $  (2,500,101)          $  (140,189)        (2,640,290)
                                                               -------------------------------------
        Unallocated:
        Writedown of investment                                                                               (36,013)
        Investment and other income                                                                             8,999
                                                                                                     ----------------
        LOSS FOR THE PERIOD                                                                              $ (2,667,304)
                                                                                                     ================
        IDENTIFIABLE ASSETS                                    $   3,118,451           $   749,187       $  3,867,638
                                                               ======================================================


                                                                                                                   18
</TABLE>

<PAGE>


SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
--------------------------------------------------------------------------------


17.  Contingencies

     a)   Pending Litigation

     During May 1998, the Company and two of its officers were served with a
putative class action complaint alleging purported violations of the federal
securities laws [GESTEN v. SOLUCORP INDUSTRIES, LTD., et al,. 98 Civ. 3248 (LMM)
(SDNY)]. Since that time, three additional class action complaints were filed
against the Company and various of its personnel. The substantive allegations of
all four of the complaints, some of which have never been served on the Company
or the individual defendants, consist of no more than extensive quotations from
prior statements purportedly made by the Company and general allegations that
such statements were false and misleading. The Company has reviewed its prior
statements and is convinced that none of such statements were false or
misleading. The Company and the individuals named in the four complaints, after
consultation with their attorneys, concluded that the actions filed against them
have no merit and determined to vigorously defend the actions.

     The Company and the individuals named in the GESTEN action filed a motion
to dismiss that complaint. While that motion to dismiss was pending, the
plaintiffs in the four class actions filed a motion to consolidate the four
actions into one action, as part of the GESTEN case, and to file one amended
consolidated complaint if the motion is granted. The Company and the individual
defendants have not opposed consolidation and agreed to withdraw their motion to
dismiss the GESTEN complaint until after the Court rules on the consolidation
motion. The consolidation motion currently is pending before the Court.

     b)   Waste Disposal Rights

Recoverability of the waste disposal rights is subject to the realization of
management's assumptions as discussed in note 10.

18.  Related Party Transactions

     During the three and six month periods ended June 30, 1998, the Company
     paid consulting fees and salaries of $102,154 and $206,824, respectively
     (June 30, 1997 - $93,791 and $201,616, respectively) to directors, former
     directors and/or private companies controlled by directors and/or
     individuals related to directors.


                                                                              19
<PAGE>


SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
--------------------------------------------------------------------------------


19.  Commitments

     a)   The Company has a lease for the building it presently occupies in New
          York which requires the following payments:

                1998                                            $144,000
                1999                                            $144,000
                2000                                            $144,000
                2001                                            $144,000
                2002 and subsequent                             $ 24,000

     b)   The Company has entered into numerous non-exclusive finder's
          agreements with third parties to promote the company's soil
          remediation process. The company will pay between 1% and 7% for
          commissions on gross revenues generated by the third parties. These
          agreements expire between one and two years.

     c)   The Company has agreed to pay royalties to Earthworks Industries Inc.
          (Earthworks) (a Canadian public company) based on $1/ton (Cdn) for
          soil remediated in Canada or $1/ton (US) if soil is remediated in the
          United States. The Company will receive one share for each $1 of
          royalty paid, to a maximum of 200,000 shares, in minimum blocks of
          50,000. These shares are accrued as the soil is remediated. An
          additional $1 (Cdn or US) will be paid for each ton remediated on
          contracts resulting from the efforts of Earthworks. The Company has
          the right to offset royalty payments against the convertible loan from
          Cortina Integrated Waste Management, Inc. (note 8(c)).

     d)   The Company entered into a consulting agreement with a third party who
          will provide business development and operational support. The Company
          will pay the third party $3,000 per month plus any costs over and
          above the monthly consulting fee. The agreement expires on October 1,
          1998 with an annual renewal option.

     e)   In October 1995 the Company entered into an exclusive licensing
          agreement with a United Kingdom company for the U.K. company to
          utilize the Company's soil remediation process and to market the
          company's soil remediation technology in the U.K. The agreement
          required an annual licensing fee and a royalty per ton of soil
          remediated. This agreement will be superseded by a new agreement dated
          August 1, 1997, when the U.K. company obtains an official listing on
          the Alternative Investment Market. The Company also granted an option
          for a twelve month period to the U.K. company for similar licensing
          agreements related to various European territories. Consideration
          received for granting the option was $200,000. On December 10, 1997
          the U.K. company advised its intention to exercise the option and to
          proceed with drafting agreements for France, Poland, Hungary and
          Portugal.


                                                                              20
<PAGE>


SOLUCORP INDUSTRIES LTD.
Notes to Financial Statements
Three and Six Month Periods Ended June 30, 1998 & 1997
--------------------------------------------------------------------------------


20.  Comparative Figures

     The Company changed its year-end to December 31. In accordance with SEC
     guidelines the consolidated statement of operations and the consolidated
     statement of cash flow for the three month period ended March 31, 1998 was
     compared to the comparable period in 1997, whereas the consolidated balance
     sheet at March 31, 1998 was compared to the previous year ended date of
     December 31, 1997.

21.  Economic Dependence

     During the six months ended June 30, 1998, revenues of $383,800 and
     $328,000 were earned from two customers, of which $56,875 and $Nil is
     included in accounts receivable, respectively.

     License fees of $1,075,758 were recognized in the six months ended June 30,
     1998. See note 3.

22.  Reconciliation to United States Generally Accepted Accounting Principles

As discussed in Significant Accounting Policies, these consolidated financial
statements are prepared in accordance with accounting principles generally
accepted in Canada. Differences in accounting principles as they pertain to
these consolidated financial statements are as follows:

     Marketable Securities

     Under GAAP, the accounting for marketable securities depends on the
     classification of securities as held to maturity, trading or available for
     sale. The classification would be based on management's intent. Marketable
     securities included in long-term investments (note 8) would be classified
     as being available for sale. Under U.S. GAAP, such securities would be
     recorded at fair value with any changes recorded in a separate component of
     shareholder's equity. Realized gains or losses would be recorded on the
     income statements. At June 30, 1998 the effect on the presentation of
     long-term investment for U.S. GAAP purposes would not be material.


                                                                              21
<PAGE>

<TABLE>
<CAPTION>
                                           SOLUCORP INDUSTRIES LTD.
                         Schedule of Administrative and General Expenses (US Dollars)
                           Three and Six Month Periods Ended June 30, 1998 and 1997

                                                         Three Months Ended June 30,             June 30,
                                                                   1998                           1997
                                             -----------------------------------------------    -----------
                                                  U.S.            Canada            Total         Total
                                             --------------    -----------     -------------    -----------
<S>                                            <C>                <C>            <C>            <C>       
Automobile                                     $     7,378        $     0        $    7,378      ($    858)
Bad Debts                                           86,600              0            86,600         41,690
Bank charges and interest                            6,695            123             6,818          9,405
Consulting and management fees                     305,704              0           305,704       (147,182)
Foreign exchange (gain) loss                       (25,307)           789           (24,518)       (34,328)
Insurance                                            4,397              0             4,397        (24,387)
Legal, accounting and audit                        224,658         28,442           253,100        153,024
Office, printing and related                       123,542          3,003           126,545       (102,876)
Rent                                                33,282          1,762            35,044        (21,558)
Salaries and wages                                 245,146         18,409           263,555       (551,261)
Telephone                                           17,652          2,692            20,344        (56,568)
Transfer and filing fees                                 0             (2)               (2)        17,361
Travel                                              29,695          1,508            31,203        (33,174)
                                             --------------    -----------     -------------    -----------

                                                $1,059,442        $56,726        $1,116,168      ($750,712)
                                             ==============    ===========     =============    ===========

<CAPTION>
                                                          Six Months Ended June 30,             June 30,
                                                                   1998                           1997
                                             -----------------------------------------------    -----------
                                                  U.S.            Canada            Total         Total
                                             --------------    -----------     -------------    -----------
<S>                                             <C>               <C>            <C>             <C>       
Automobile                                     $   18,387         $     0        $   18,387       $  8,485
Bad Debts                                          86,600                            86,600         41,690
Bank charges and interest                          10,490             201            10,691         20,965
Consulting and management fees                    414,811                           414,811       (100,776)
Foreign exchange (gain) loss                       52,112             789            52,901         (6,006)
Insurance                                          20,261                            20,261        (13,129)
Legal, accounting and audit                       301,884          34,386           336,270        187,707
Office, printing and related                      162,375           6,797           169,172        (70,503)
Rent                                               59,952           3,545            63,497         39,868
Salaries and wages                                469,277          38,249           507,526       (233,548)
Telephone                                          35,805           5,493            41,298        (26,108)
Transfer and filing fees                                              401               401         17,890
Travel                                             45,416           1,841            47,257         (7,640)
                                             -------------    ------------     -------------    -----------

                                               $1,677,370         $91,702        $1,769,072      ($141,105)
                                             =============    ============     =============    ===========


                                                                                                            22
</TABLE>


<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
         FINANCIAL CONDITION

The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto.

Results of Operations

Six Months Ended June 30, 1998 Compared to the Six Months Ended June 30, 1997.

Aggregate revenue (environmental clean-ups and waste disposal projects, Training
Institute fees and license fees) increased to $2,070,717 from $6,351; an
increase of $2,064,366 for the six months ended June 30, 1998 when compared to
the comparable period last year. This resulted primarily from increased
transportation and disposal activity and from license fees in the current
period. Given the Company's reliance on a relatively small number of customers
at this stage, revenue may vary significantly from period to period.
Accordingly, no specific trend can be identified. (For the quarter ended June
30, 1997 an in-line job was projected to be a loss. Accordingly, the reversal of
previously anticipated profits utilizing the percentage of completion
methodology had the effect of reducing revenue by approximately $279,000).

Cost of sales increased $487,479 or 95%. This increase was due to the abnormally
high inventory storage costs and from the increased revenues in 1998.

Gross margin went from a loss of $504,590 in the six months ended June 30, 1997
to a loss of $3,461 in the current six-month period. At this point in the
Company's development its project costs do not yet reflect the economy of scale
needed for a normal operation. In addition, the abnormally high inventory
storage costs have also hindered profitability.

 Investment and other income increased to $108,374 from $8,999 This increase
occurred primarily from interest charged on related party loans.

For the six months ended June 30, 1998 total operating expenses were $2,183,190
versus $2,135,700 in the comparable period last year; an increase of $47,490 or
2%. Current expenses focused primarily on the Company becoming a reporting
entity with the SEC, the protection and final issuance of the Company's patents,
and the Company's cooperation with an ongoing investigation by the SEC. In the
comparable period last year operating expenses were geared primarliy toward the
successful demonstrations of its MBS technology for the EPA, and finding
reliable chemical suppliers for the reagents used in MBS.

Other expenses in the six months ended June 30, 1998 were $527,968 versus
$36,013 in the comparable period in 1997. The current amount was mostly a
reserve established against a prepaid employment agreement, and other advances
made to Tristate Restoration and its officers which the Company is suing to
recover. The $36,013 in 1997 reflects the writedown of an investment.

For the six months ended June 30, 1998 the Company experienced a loss of
$1,530,487 compared to a loss of $2,667,304 in the comparable period lin 1997.
In addition to the low volume in relation to the Company's costs and other


                                                                              23
<PAGE>

operating expenses in both six-month periods, the Company experienced
significant abnormal expenses in both periods which are discussed above.

Three Months Ended June 30, 1998 Compared to the Three Months Ended June 30,
1997.

Aggregate revenue as defined above increased to $1,012,396 from $(278,670) in
the comparable period last year; an increase of $1,291,066. As indicated above,
increased transportation and disposal activity, and license fees in the current
period more than offset the reversal of previously anticipated profits on an
in-line project that was utilizing the percentage of completion methodology in
the comparable period in 1997. In addition, as indicated above, the Company
relies on a relatively small number of customers at this stage, and therefore
revenue may vary significantly from period to period. Accordingly, no specific
trend can be identified.

Cost of sales increased $228,141 or 101%. As indicated above, this increase was
primarily due to the abnormally high inventory storage costs from the buildup in
inventory for the anticipated increased remediation activity in 1998, and from
increased transportation and disposal activity.

Gross margin reflected a profit of $28,573 for the three months ended June 30,
1998 versus a loss of $504,048 in the comparable period last year. Putting aside
the condition noted above regarding the accounting for an in-line project last
year, the Company's project costs do not yet reflect the economy of scale needed
for a normal operation. In addition, the abnormal inventory storage costs and
non-billable treatability work at the current revenue level have hindered
profitability.

 Investment and other income increased to $44,828 from $7,499; an increase of
$37,329. As noted above this increase was due primarily from interest charged on
related party loans.

Total operating expenses in the current three-month period ended June 30, 1998
were essentially unchanged from the comparable period last year. However, as
noted above, last year these expenses focused mainly on the successful
demonstrations of the Company's MBS technology for the EPA, whereas this year it
was focused primarily on the Company becoming a reporting entity with the SEC,
the protection and final issuance of the Company's patents, and the Company's
cooperation with an ongoing investigation by the SEC.

Other expenses in the three months ended June 30, 1998 were $527,968 versus
$36,013 in the comparable period in 1997. As noted above, the current amount was
mostly a reserve established against a prepaid employment agreement and other
advances made to Tristate Restoration and its officers which the Company is
suing to recover. The $36,013 in 1997 reflects the writedown of an investment.

For the three months ended June 30, 1998 the Company experienced a loss of
$1,271,007 compared to a loss of $1,839,800 in the comparable period in 1997. As
indicated above, the low volume in relation to the Company's costs and other
operating expenses as well as the significant abnormal expenses in both periods,
accounted for these losses.


                                                                              24
<PAGE>

Liquidity and Capital Resources

At June 30, 1998, the Company had working capital of $3,025,638, a decrease of
$759,348, or 20% from the $3,784,986 reflected at December 31, 1997. Within the
current assets significant increases occurred in accounts receivable and
inventories; whereas significant decreases occurred in unbilled license fees,
due from related parties and prepaid expenses. Within the current liabilities,
accounts payable and accrued liabilities reflected the only significant
increase.

The Company has financed its operations through the sale of its securities
pursuant to the Company's stock option plans and to certain private investors,
and the Company expects to continue to provide for its cash and capital needs in
this manner until operations are sufficient to meet these needs.

Cash Flows

During the six months June March 30, 1998, the Company increased its cash
position $6,109 versus an increased cash position of $5,336 in the comparable
period in 1997. In the current period, cash was provided mainly from the
issuance of the Company's capital stock and the repayment of related party
loans. This was used primarily to fund the current loss, and from the incurrence
of a deferred charge.

Other

The carrying value of the waste disposal rights ($1,515,937) at June 30, 1998
represented a significant portion of the Company's assets. Measurement of the
recoverability of the carrying value was based on an assessment of the waste
disposal rates currently existing in the New York and New Jersey areas, and at
other areas where Thermo Tech plants are located, and on the assumption that the
Corinth plant will be in operation in the near future. However, it is reasonably
possible, based upon existing knowledge, that changes in future conditions in
the near term could require a material change in the estimated recoverable
amount. Accordingly, the Company is currently amortizing these rights $216,500
per year, which has left a net amount of $250,312 at June 30, 1998.

In anticipation of significantly increased remediation activity in 1998, and due
to the relatively long lead time required to purchase one of the main chemical
ingredients in MBS, the Company continued to increase its inventory of this
chemical in the three months ended June 30, 1998. This was the primary reason
for the inventory increasing $1,039,447 from the $784,079 at December 31, 1997.

In February 1998 The British Columbia Ministry of the Environment (BCMOE) issued
its first and only site permit allowing heavy metals contaminated soil that is
treated with the Company's Molecular Bonding System (MBS) to be disposed in an
authorized landfill as "nonspecial" waste. This officially waives the B.C. law
that all treated soil must be disposed of in a hazardous waste landfill, and
consequently allow for significant cost savings on disposal charges for
MBS-treated material.


                                                                              25
<PAGE>

The Company filed a patent application which utilizes the Company's Molecular
Bonding System to eliminate heavy metals pollution from a variety of
manufactured items, including mercury switches and batteries commonly containing
lead, cadmium and nickel. These products previously found their way into
municipal landfills or incinerators which subsequently released the hazardous
pollution into the environment.

Laboratory tests conducted by Brookhaven National Laboratory with the Company's
MBS Technology successfully treated mixed radioactive waste. These tests
represent an important step in the Company's attempt to penetrate the
radioactive-based market by potentially providing the US Department of Energy
with a cost effective solution to dispose of mixed waste.

The Company was notified by the US Department of Commerce Patent and Trademark
Office that its MBS Soil Remediation Process Patent Application was examined and
allowed for issuance as a patent.

On May 1, 1998, the Company was informed by the Securities and Exchange
Commission (SEC) that it had temporarily suspended the over the counter trading
in the securities of the Company from May 1, 1998 through May 14, 1998. The
suspension was based upon questions that were raised concerning the accuracy and
adequacy of the public information about various aspects of the Company's
business, The Company is confident that it will demonstrate to the satisfaction
of the SEC that it acted properly.

Pending Litigation

During May 1998 the Company and two of its officers were served with a putative
class action complaint alleging purported violations of the securities laws [
GESTEN v SOLUCORP INDUSTRIES LTD, et al., 98 Civ. 3248 (LMM) (SDNY) ]. Since
that time, three additional class actions complaints were filed against the
Company and various of its personnel. The substantive allegations of the
complaint consist of no more than extensive quotations from prior statements
purportedly made by the Company and general allegations that such statements
were false and misleading. The Company has reviewed its prior statements and is
convinced that none of such statements were false or misleading. The Company and
the individuals named in the complaints, after consultation with their
attorneys, believe that the action filed against them has no merit and have
determined to vigorously defend the action.

The Company and the individuals named in the GESTEN action filed a motion to
dismiss that complaint. While the motion was pending the plaintiffs in the four
class actions filed a motion to consolidate the four actions into one action, as
part of the GESTEN case, and to file one amended consolidated complaint if the
motion is granted. The Company and the individual defendants have not opposed
consolidation and agreed to withdraw their motion to dismiss the GESTEN
complaint until after the Court rules on the consolidation motion. The
consolidation motion .is currently pending before the Court.


                                                                              26
<PAGE>

Material Contracts

In March 1998 the Company entered into a world-wide license agreement with KBF
Pollution Management, Inc. (KBF). The five (5) year license with automatic
renewals for successive one year periods permits the Company to market KBF's
patented SST Water Treatment Technology, which removes and recovers metals from
waste water, facilitating beneficial reuse of the metals and purification of the
water. The agreement initially required the payment of an up-front license fee
of $500,000 in the form of 190,550 shares of common stock.

In June 1998 the Company was awarded a $1.1 million subcontract from
Environmental Waste Technology Inc. pursuant to their general contract with the
New York City Department of Environmental Protection. The contract involves lead
and asbestos abatement, and demolition services in Brooklyn, New York. Work on
the contract is scheduled to commence September 1998, and under the terms of the
agreement the Company will bill for its services as work is completed.

In June 1998 the Company entered into a contract with Geomar Holdings Limited, a
recently formed Delaware limited liability company. Subject to Geomar raising a
specified amount of capital, it will be responsible for funding the acquisition
and development of real estate interests in selected sites which require
remediation of contamination before they can be developed. The contract also
specifies that Solucorp will have exclusive rights as general contractor to
manage all remediation work.

In July 1998 the Company was awarded a subcontract by Roy F. Weston Inc. from
their contract with the US Army Corps of Engineers to remediate hazardous soils
utilizing its MBS technology at the former Waldon Spring Ordnance Work in St.
Charles, MO. The subcontract, which is valued at $352,000, is scheduled to
commence in September 1998.

The Company was recently informed that the Basic Ordering Agreement issued to
IDM Environmental Inc. for various services at the Los Alamos National
Laboratory has terminated. Accordingly, Solucorp's subcontract with IDM, which
involved remediation services, will not be rendered. The termination of the
contract has had no effect on the Company's operations.

The Company was recently informed that the OENJ project to remediate 1,400 tons
of classified hazardous soils (VOC's & volitile organics) on site was disposed
of. Therefore, Solucorp will not render its services for this project.

Year 2000 Issue

The Company's services do not utilize equipment or systems that depend on
computer software. The Company's accounting systems are personal computer based
and presently utilize off the shelf accounting software. The Company plans to
purchase software upgrades from software vendors, and these purchases are not
expected to have a material impact on the Company's results of operations.

Forward Looking Statements

Certain matters discussed herein may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 and
as such may involve risks and uncertainties. These forward-looking statements


                                                                              27
<PAGE>

relate to, among other things, expectations of business environment in which the
Company operates, projections of future performance, perceived opportunities in
the market and statements regarding the Company's mission and vision. The
Company's actual results, performance, or achievements may differ significantly
from the results, performance, or achievements expressed or implied in such
forward-looking statements.


                                                                              28

<PAGE>
<TABLE>

                                                       SOLUCORP INDUSTRIES LTD
                                              COMPUTATION OF EARNINGS PER COMMON SHARE
<CAPTION>

                                                                                  Three Months Ended
                                                                                       June 30,
                                                                           -------------------------------
                                                                                 1998            1997
                                                                                 ----            ----
<S>                                                                          <C>             <C>         
Primary Earnings:  (*)
      Net Income (Loss)                                                       ($1,271,007)    ($1,875,813)
                                                                              ============    ============

Shares:
      Weighted average number of common shares issued and outstanding          19,018,892      15,878,790

      Assuming conversion of options issued and outstanding  (*)

                                                                           -------------------------------
      Weighted average number of common shares as adjusted                     19,018,892      15,878,790
                                                                               ==========      ==========

Primary earnings/(loss) per common share (*)                                       ($0.07)         ($0.12)
                                                                                  =======         =======

<CAPTION>

                                                                                  Six Months Ended
                                                                                       June 30,
                                                                           -------------------------------
                                                                                  1998            1997
                                                                                  ----            ----
Primary Earnings:  (*)
      Net Income (Loss)                                                       ($1,530,487)    ($2,667,304)
                                                                              ============    ============

Shares:
      Weighted average number of common shares issued and outstanding          18,895,908      15,570,933

      Assuming conversion of options issued and outstanding  (*)

                                                                           -------------------------------
      Weighted average number of common shares as adjusted                     18,895,908      15,570,933
                                                                               ==========      ==========

Primary earnings/(loss) per common share (*)                                       ($0.08)         ($0.17)
                                                                                   =======         =======


(*)  Fully diluted earnings and other computations entailing conversions of options and warrants are omitted
     since they would diminish the loss per share.

                                                                                                         29

</TABLE>



<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

            None

ITEM 2:     CHANGES IN SECURITIES AND USE OF PROCEEDS

            (a)   None

            (b)   None

            (c) During the period covered by this report, the Company sold an
aggregate of 76,000 shares of common stock to officers, directors, employees and
consultants for cash consideration of $149,325.00 upon the exercise of stock
options which were granted before the Company was subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended. No commission was paid upon the exercise of the options nor was any
person acting as underwriter with respect to the sales. The offers and sales are
claimed to be exempt pursuant to Rule 701 under the Securities Act of 1933, as
amended in that such sales were offered and sold:

      (1) pursuant to written option agreements issued prior to the time the
Company was subject to reporting obligations under the Exchange Act;

      (2) the compenstation options were granted for bona fide services rendered
not related to capital raising transactions; and

      (3) the number of shares issued does not exceed 15% of the shares of the
Company's common stock outstanding nor does the amount received upon the
exercise of the options exceed $5,000,000 during the preceding 12 months.

            (d)   Not Applicable

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

            None

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

            No


                                                                              30
<PAGE>




ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

      (a)   The following exhibits are filed as part of this report:

      27    Financial Data Schedule

      (b)   No reports on Form 8-K have been filed during the quarter for which
            this report is filed.


                                                                              31
<PAGE>







                                   SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

Dated:   August 14, 1998

                                    SOLUCORP INDUSTRIES LTD.

                                    By:   /s/   PETER MANTIA
                                          --------------------------------
                                             Peter Mantia, President

                                    By:     /s/  VICTOR HERMAN
                                          --------------------------------
                                              Victor Herman, CFO
                                           (Principal Accounting Officer)