<PAGE>
                                   UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549

                                    FORM 10-K/A
                                 (Amendment No. 1)



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

                    FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                                         OR

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

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

                           COMMISSION FILE NUMBER 1-10478


                         WAHLCO ENVIRONMENTAL SYSTEMS, INC.

               (Exact name of registrant as specified in its charter)


                    DELAWARE                               33-0391175
(State or other jurisdiction of incorporation or   (I.R.S. Identification No.)
                  organization)

           3600 WEST SEGERSTROM AVENUE
             SANTA ANA, CALIFORNIA                            92704
    (Address of principal executive offices)               (Zip Code)

      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:  (714) 979-7300

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

               Title of each class                NAME OF EACH EXCHANGE ON WHICH
                                                           REGISTERED

          Common Stock, Par Value $0.01              New York Stock Exchange

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

              TITLE OF EACH CLASS
                      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 such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  X     No
                                       ---    ---

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

At March 13, 1998, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $1,482,688.

At March 13, 1998, there were 17,649,000 shares of the registrant's common stock
outstanding.


                         DOCUMENTS INCORPORATED BY REFERENCE

                                         NONE

                                                                   Page 1 of 11

<PAGE>

                                       PART III



ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors are elected to serve for a one-year term and until their successors
are elected and qualified.  Pursuant to the Company's Bylaws, the number of
directors is established by the Board from time to time, provided that the
authorized number of directors may not be less than five nor more than nine.
The Board has set the number of directors at five.

<TABLE>
<CAPTION>

                                                DIRECTOR
               NAME                     AGE       SINCE
               <S>                      <C>     <C>

               C. Stephen Beal          50        1995
               Maarten D. Hemsley       48        1995
               Paul H. Hunn             63        1995
               Mark L. Plaumann         42        1996
               David R. A. Steadman     60        1995

</TABLE>

ADDITIONAL INFORMATION CONCERNING THE COMPANY'S DIRECTORS

C. STEPHEN BEAL.  Mr. Beal has been President and Chief Executive Officer of the
Company since October 1996 and President of the Company's Engineered Products
Group since 1991.  Prior to joining the Company, pursuant to the acquisition of
Pentney Engineering, Ltd. by the Company in 1991, Mr. Beal served as Managing
Director and was a joint owner of the Pentney Group since 1974.

MAARTEN D. HEMSLEY.  Mr. Hemsley has been President of Bryanston Management
Limited, a financial consulting and advisory firm, since January 1993.  Since
its founding in April 1991 until December 1995, Mr. Hemsley served in various
executive capacities and as a director of Oakhurst Company, Inc., a holding
company in the automotive after-market products business, most recently as
Chairman and Chief Executive Officer.  From January 1989 until December 1995,
Mr. Hemsley served in various executive capacities and as a director of Steel
City Products, Inc., a majority owned, publicly traded subsidiary of Oakhurst,
most recently as Chief Financial Officer.  From 1990 until March 1994, Mr.
Hemsley was Chief Financial Officer and from January 1992 until March 1994, also
President and a director of Integra -- A Hotel and Restaurant Company.  Mr.
Hemsley is a director of Industrial Acoustics Company, Inc., a New York based
engineered products group specializing in noise control products and systems.

PAUL H. HUNN.  Mr. Hunn was Chief Executive Officer of Reliance Bank in White
Plains, New York from 1995 to 1996 and has been its Chairman since 1995.  He
retired as Managing Director of Manufacturers Hanover Trust in May 1991 after
thirty-two years.

MARK L. PLAUMANN.  Mr. Plaumann has been a financial consultant, primarily to
Wexford Management LLC ("WEXFORD"), since March 1998.  Prior to that he was a
Senior Vice President of Wexford from January 1996 and a director and/or Vice
President of the general partner of various public partnerships managed by
Wexford from March 1995.  From June 1996 to October 1996, he served as interim
President of the Company.  Mr. Plaumann joined the predecessor entities of
Wexford in February 1995.  Prior to joining Wexford, Mr. Plaumann was a Managing
Director of Alvarez & Marsal, Inc., a crisis management consulting firm, from
1990 to 1995, and from 1985 to 1990 he was with American Healthcare Management,
Inc., an owner and operator of hospitals, where he served in a variety of
capacities, most recently as its President.  Prior to that he was with Ernst &
Young LLP in its auditing and consulting divisions for eleven years.

DAVID R. A. STEADMAN.  Mr. Steadman has been President of Atlantic Management
Associates, Inc., a management services firm, since 1988.  From 1990 to 1994,
Mr. Steadman served as President and Chief Executive Officer of Integra -- A
Hotel and Restaurant Company and from 1987 to 1988 as Chairman and Chief
Executive Officer of GCA Corporation, a manufacturer of automated semiconductor
capital


                                         -2-
<PAGE>

equipment.  From 1980 to 1987, Mr. Steadman was a Vice President of Raytheon
Company, a defense electronics manufacturer, and served in various management
positions, most recently as President of its venture capital division.  Mr.
Steadman is a director of Elcotel, Inc., a manufacturer of high technology pay
telephone components; Aavid Thermal Technologies, Inc., a manufacturer of
thermal management products and a producer of computational fluid dynamics
software; and Tech/Ops Sevcon, Inc., a manufacturer of electronic control
systems for electric vehicles.

Messrs. Hemsley, Hunn and Steadman were designated by WES Acquisition Corp.
("WESAC"), which holds approximately 81% of the Company's common stock, $0.01
par value per share ("COMMON STOCK"), to be appointed to the Board to replace
the directors who resigned pursuant to an understanding relating to WESAC's
purchase of stock and debt of the Company from Pacific Diversified Capital
Company in June 1995.  Mr. Plaumann was appointed a director in connection with
his election as President of the Company in June 1996, upon the request of
WESAC.  Mr. Beal was appointed pursuant to the terms of a letter agreement dated
May 5, 1995 between Mr. Beal and WESAC.  There are no family relationships
between any director or executive officer and any other director or executive
officer of the Company.


SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities ("INSIDERS") to file reports of ownership and
certain changes in ownership with the Securities and Exchange Commission and to
furnish the Company with copies of those reports.

Based solely on a review of those reports and amendments thereto furnished to
the Company during its most recent fiscal year or written representations by
Insiders that no Forms 5 were required to be filed, the Company believes that
during the fiscal year ended December 31, 1997, all Section 16(a) filing
requirements applicable to the Company's Insiders were satisfied.



ITEM 11.  EXECUTIVE COMPENSATION.

This item contains information about the compensation, stock option grants and
employment arrangements of the directors and certain executive officers of the
Company as well as other information about the Company.


SUMMARY COMPENSATION TABLE

The following table sets forth all compensation for the fiscal years ended
December 31, 1997, 1996 and 1995 allocated or paid on or before March 31, 1998
to the Company's Chief Executive Officer during 1997 and to the other most
highly compensated executive officers of the Company whose compensation exceeded
$100,000 in 1997 and who were serving at the end of 1997 for services rendered
in all capacities to the Company and its subsidiaries.




<TABLE>
<CAPTION>

                                                                                  LONG TERM
                                           ANNUAL COMPENSATION                   COMPENSATION
                               ---------------------------------------  ---------------------------
                                                               OTHER
                                                               ANNUAL    SECURITIES     ALL OTHER
                                                                COM-     UNDERLYING     COMPENSA-
 NAME AND PRINCIPAL                      SALARY      BONUS   PENSATION  OPTIONS/SARS      TION
 POSITION                       YEAR        ($)       ($)      ($) (1)       (#)           ($)
---------------------------------------------------------------------------------------------------
<S>                             <C>      <C>         <C>     <C>        <C>             <C>
   C. STEPHEN BEAL               1997     190,824     -0-        -0-         -0-           347 (2)
      President and Chief        1996     212,497     -0-        -0-         -0-           307
      Executive Officer          1995     186,117     -0-      145,282     529,470         348

                                      -3-
<PAGE>

   BARRY J. SOUTHAM              1997     150,936     -0-        -0-         -0-         2,808 (2)
      Senior Vice President      1996     181,553     -0-        -0-       15,525        4,696
      Sales & Marketing          1995     154,248     -0-      39,813     200,000        4,995


   A. NOEL DEWINTER              1997     116,051     -0-        -0-         -0-           405 (2)
      Vice President and Chief   1996     101,276     -0-        -0-       59,500        1,132
      Financial Officer          1995     120,328     -0-        -0-         -0-         2,231

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



1.   Excludes perquisites and other personal benefits if the aggregate amount of
     such items of compensation was less than the lesser of either $50,000 or
     10% of the total annual salary and bonus of the named executive officer.

2.   This amount consists of premiums paid on excess life insurance.


OPTION/SAR GRANTS

During the fiscal year ended December 31, 1997, no stock options or SARs were
granted to the executive officers named in the Summary Compensation Table,
above.


AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUE TABLE

During 1997, there were no option exercises by any of the executive officers
named in the Summary Compensation Table, above.

The following table sets forth certain information based on the fair market
value per share ($0.375) of the Common Stock at December 31, 1997, the last day
of the Company's 1997 fiscal year, with respect to stock options held at that
date by each of the individuals named in the Summary Compensation Table, above.
No SARs were held during 1997 and none are now held by any of such persons.  The
"Value of Unexercised In-The-Money Options" is the positive difference (if any)
between the market value of the Common Stock subject to the options at December
31, 1997 and the exercise price.



<TABLE>
<CAPTION>

                        NUMBER OF SECURITIES UNDERLYING
                         UNEXERCISED OPTIONS AT FISCAL     VALUE OF UNEXERCISED IN-THE-MONEY
                                    YEAR END                  OPTIONS AT FISCAL YEAR END
                        ---------------------------------------------------------------------
 NAME                      EXERCISABLE     UNEXERCISABLE      EXERCISABLE       UNEXERCISABLE
----------------------------------------------------------------------------------------------
<S>                        <C>             <C>                <C>               <C>
 C. Stephen Beal            529,470             -0-               -0-                 -0-
 Barry J. Southam           115,525           100,000             -0-                 -0-
 A. Noel DeWinter            22,000            37,500             -0-                 -0-
</TABLE>



                                         -4-
<PAGE>

EMPLOYMENT, SEVERANCE AND OTHER AGREEMENTS.

EMPLOYMENT AGREEMENTS.  Effective as of May 5, 1995, Mr. Beal entered into an
employment agreement with the Company substantially on the terms agreed to at
the time WES Acquisition Corp. acquired an 81% stock interest in the Company and
certain Company debt from Pacific Diversified Capital Company.  See footnote (3)
under "SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT" in Item 12,
below.  The initial term of the agreement expired on May 5, 1997, but the
agreement continues in effect thereafter unless terminated by either party on
sixty days' prior notice.  The agreement provides (i) that Mr. Beal is to be
elected President of the Company's Engineered Products Group at a salary of
$16,700 per month; (ii) for payment by the Company of the final installment of
his relocation payments in the amount of $124,596; and (iii) for conveyance to
him of a Company membership in a local country club.  Mr. Beal is entitled to
participate in the Company's benefit programs made available to other executives
generally and, in addition, to receive reimbursement on a tax grossed-up basis
for premiums paid to maintain $2 million of life insurance coverage;
reimbursement for country club membership; and reimbursement for monthly auto
lease payments not to exceed $750 per month when his Company vehicle lease
expires.  The agreement provides that the Compensation Committee of the Board of
Directors will establish an appropriate bonus plan for Mr. Beal, but as of April
30, 1997, no such plan had been established.  In the event that Mr. Beal's
employment is terminated without cause, whether during the initial term or
thereafter, the Company is obliged to continue to pay him his salary for a
period of eighteen months following such termination and, at the Company's
expense, to continue to provide the benefits described above for the same
period.  If termination is for cause, only accrued salary and unused vacation is
paid.

SEVERANCE AGREEMENTS.  The Company has an agreement with each of Messrs. Southam
and DeWinter that provides for the continued payment to each of them of his
salary for a period of twelve months after his employment terminates (and in the
case of Mr. DeWinter continuation of automobile allowance and health benefits)
unless termination is for cause or by reason of his resignation.

INDEMNIFICATION AGREEMENTS.  The Company has entered into indemnification
agreements with each of the executive officers named in the Summary Compensation
Table, above, that provide contractual indemnification rights similar in scope
to the applicable sections of the Company's Bylaws.  Each agreement applies
retroactively as well as prospectively to any actions taken by the indemnified
officer while serving as an officer and/or director of the Company.  The
indemnification agreements also provide that the Company will indemnify such
persons to the fullest extent permitted by law, notwithstanding that the
indemnification is not specifically authorized by the indemnification agreement,
the Company's Certificate of Incorporation, the Company's Bylaws, or by statute.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of the members of the Compensation Committee during 1997 (Messrs. Steadman,
Hemsley and Hunn) is or was an employee of the Company or any of its
subsidiaries, and during 1997, no executive officer of the Company while serving
as such also served as a director or member of a compensation committee of any
entity with which any director of the Company had any relationship as a director
or officer.

In April 1996, the Company retained Atlantic Management Associates, Inc., of
which Mr. Steadman is President, to obtain Mr. Steadman's services as a
management consultant for a fee of $8,000 per month.  In connection with these
consulting services, in June 1996, Mr. Steadman was granted an option under the
Second Amended and Restated Stock Incentive Plan to purchase 50,000 shares of
Common Stock at an option price of $0.49 per share.  The option becomes
exercisable in two equal installments, on the first and second anniversary of
the grant date.


                                         -5-
<PAGE>

See Item 7.  "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES" in Part II, above, for
a description of loan transactions between the Company, WESAC and certain
limited partnership funds managed by Wexford.


                                         -6-
<PAGE>

NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
FILINGS UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934
THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS ANNUAL REPORT ON FORM 10-K
IN WHOLE OR IN PART, THE FOLLOWING REPORT OF THE COMPENSATION COMMITTEE, AND THE
PERFORMANCE GRAPH SHALL NOT BE DEEMED TO BE INCORPORATED BY REFERENCE INTO ANY
SUCH FILINGS.


COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

This report has been prepared by the members of the Compensation Committee of
the Board and addresses the Company's compensation policies with respect to the
Chief Executive Officer and other executive officers of the Company for the 1997
fiscal year.


CHIEF EXECUTIVE OFFICER'S COMPENSATION

Mr. Beal's compensation in 1997 was determined according to an employment
agreement between him and the Company dated as of May 5, 1995.  See "EMPLOYMENT,
SEVERANCE AND OTHER AGREEMENTS," above.


COMPENSATION OF OTHER EXECUTIVES

The executive compensation philosophy of the Company with respect to its
executive officers is to provide a total compensation package in which base
salary, bonus, incentives and benefits are structured and administered in a
manner designed to align compensation with the Company's business strategy and
performance, to be reasonable in comparison to competitive practice, and to
motivate and reward executives on the basis of Company and individual
performance.  However, because of the Company's poor financial performance, the
10% cut in their pay that the executive officers of the Company agreed to in
mid-1996 remained in effect until April 1997 at which time it was reduced
to a 5% pay cut.


COMPONENTS OF COMPENSATION

The Company's executive compensation is, in general, composed of base salary,
incentive compensation and stock option grants; however there was no incentive
award program in effect and no stock option grants were made in 1997.

The base salaries of executive officers are reviewed periodically and are
designed to be competitive within the industries in which the Company competes,
subject however, to the Company's financial resources, which in 1997 were
severely limited.  In addition, the Committee considers a number of subjective
criteria, including individual performance, levels of responsibility and prior
experience.  The Committee does not make individual base salary decisions
according to specific criteria and does not ascribe specific weights to the
factors it considers.

THE COMPENSATION COMMITTEE:   David R. A. Steadman
                              Maarten D. Hemsley
                              Paul H. Hunn



COMPENSATION OF DIRECTORS

Directors who are employees of the Company do not receive additional
compensation for service as a member of the Board or of any of its committees.
From January through September 1996, non-employee directors each received a
retainer at the rate of $3,000 per quarter and a fee of $500 for each Board and
committee meeting attended.  No meeting fees were paid for telephone conference
call meetings.

Each non-employee director on the date of his election to the Board was
automatically granted a ten-year stock option to purchase 8,000 shares of Common
Stock under the Second Amended and Restated Stock Incentive Plan at a per-share
exercise price equal to the fair market value of a share of Common Stock on the
grant date.  The option was exercisable as to one-half of the shares from and
after the grant date and as to an additional one-quarter of the shares on each
of the next two anniversaries of the grant date.


                                         -7-
<PAGE>

In October 1996, directors reduced their fees to $2,000 per quarter and $500 for
each day spent in attendance at Board and/or Committee meetings, to be partially
offset by a stock option grant, which is expected to be made in connection with
the consummation of the Company's 1998 rights offering.  All directors, whether
or not employees, are reimbursed for expenses incurred by them in attending
Board and committee meetings.


PERFORMANCE GRAPH

The following graph compares the percentage change in the Company's cumulative
total stockholder return on Common Stock for the last five years with the
performances of the Standard & Poor's 500 Index (a broad market index) and New
York Stock Exchange stocks in Sanitary Services, SIC 4950-4959, (a peer group
index), over the same period.  Because there are a limited number of air
pollution control companies that may be included in an index, the industry group
index includes companies engaged in hazardous waste, water treatment and air
pollution control.

                                   [GRAPH]
<TABLE>
<CAPTION>

                                                                 Fiscal Year Ended December 31
                                                  1992       1993      1994      1995       1996     1997
<S>                                              <C>       <C>       <C>       <C>       <C>       <C>
Wahlco Environmental Systems, Inc.                100       $ 59.32   $ 27.12   $ 18.64   $  5.08   $  5.08
Peer Group (NYSE Stocks - SIC 4950-4959)          100       $ 74.12   $ 71.46   $ 81.42   $ 86.24   $ 85.67
           (US Companies - Sanitary Services)
Broad Market Index (S&P 500)                      100       $110.08   $111.54   $153.45   $188.69   $251.64

</TABLE>



The returns are calculated assuming the value of the investment in the Company's
stock and each index was $100 on December 31, 1992, and that all dividends were
reinvested; however, the Company paid no dividends during the periods shown.
The graph lines merely connect the beginning and end of the measuring periods
and do not reflect fluctuations within the periods.  The historical stock
performance shown on the graph is not intended to, and may not be indicative of,
future stock performance.


                                         -8-
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT.

The following table contains certain information as of April 1, 1998, regarding
the beneficial ownership of the Company's Common Stock (i) by each person known
by the Company to own beneficially more than 5% of the outstanding Common Stock;
(ii) by each of the directors of the Company; (iii) by the executive officers
named in the Summary Compensation Table, in Item 11, above; and (iv) by all
directors and executive officers as a group.  The numbers and percentages are
based on 17,649,000 shares of Common Stock outstanding on April 1, 1998 and
assume for each person or group listed, the exercise of all warrants and stock
options held by such person or group that are exercisable within 60 days of
April 1, 1998, in accordance with Rule 13d-3(d)(1) of the Securities Exchange
Act of 1934, but not the exercise of such warrants or stock options owned by any
other person.  Except as otherwise noted, beneficial ownership includes both
sole voting and dispositive powers with respect to the shares listed.

<TABLE>
<CAPTION>

                                    NUMBER OF SHARES            PERCENT OF
 NAME                               BENEFICIALLY OWNED (1)         CLASS
<S>                                 <C>                         <C>
 Wexford Management LLC (2)                 17,664,255 (3)         83.9%
 C. Stephen Beal                               529,470 (4)          2.9%
 Maarten D. Hemsley                              8,000 (5)           *
 Paul H. Hunn                                    8,000 (5)           *
 Mark L. Plaumann                               12,500 (6)           *
 David R. A. Steadman                           33,000 (7)           *
 Barry J. Southam                              115,525 (8)           *
 A. Noel DeWinter                               22,000 (9)           *
 All directors and executive
 officers as a group (7 persons)
                                       18,392,750 (10)(11)         84.4%

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


*    Less than 1%.

1.   Based upon information furnished by the stockholders.

2.   The address of Wexford Management LLC ("WEXFORD") is 411 West Putnam
     Avenue, Greenwich, Connecticut 06830.

3.   Pursuant to a Stock Purchase Agreement dated as of May 15, 1995, WES
     Accusation Corp. ("WESAC") purchased all of the shares of the Company's
     Common Stock (14,260,000 shares) held by Pacific Diversified Capital
     Company ("PDC"), which represent approximately 81% of the outstanding
     Common Stock, together with $4.9 million out of approximately $20 million
     of debt owed by the Company to PDC for a total purchase price of
     $5 million.  PDC contributed the remainder of the debt to the capital of
     the Company.  The annual interest rate on the note evidencing the $4.9
     million debt is 13%.

     The purchase by WESAC was funded through the sale of 94% of its shares to
     two private investment funds and the balance to Henry N. Huta, a former
     President of the Company, Mr. Beal and two of Mr. Hemsley's children.  See
     footnote (11), below.  Through investment management agreements with those
     two funds, Wexford has shared voting and dispositive power as to these
     shares.

     Of the 17,664,255 shares listed, 3,404,255 represent shares that are
     subject to purchase under currently exercisable warrants with an exercise
     price per share of $0.47 that are held by four limited partnerships managed
     by Wexford.  These warrants were granted by the Company to these
     partnerships in partial consideration of their making a loan to the Company
     through WESAC.  See


                                         -9-
<PAGE>

     Item 7.  "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
     RESULTS OF OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES" in Part II,
     above, for a description of these loan transactions.

4.   These shares may be purchased under an employee stock option that is
     currently exercisable at an option price of $0.49 per share.  Mr. Beal is
     also a minority shareholder in WESAC.  See footnote (11), below.

5.   These shares may be purchased under a stock option that is currently
     exercisable at an option price of $1.875 per share.

6.   These shares are purchasable within 60 days of April 1, 1998 under an
     outstanding stock option at an option price of $0.49 per share.

7.   These shares are purchasable within 60 days of April 1, 1998 under two
     outstanding stock options at per-share option prices of $0.49 (25,000
     shares) and $1.875 (8,000 shares).

8.   These shares are purchasable within 60 days of April 1, 1998 under two
     outstanding employee stock options at per-share option prices of $0.49
     (15,525 shares) and $0.99 (100,000 shares).

9.   These shares are purchasable within 60 days of April 1, 1998 under two
     outstanding stock options at an option price of $0.49 per share.

10.  This number includes 3,404,255 shares that are purchasable at $0.47 per
     share under currently exercisable warrants held by the Wexford-managed
     limited partnerships referred to in footnote (3), above, and 728,495 shares
     purchasable within 60 days of April 1, 1998, under outstanding stock
     options at prices ranging from $0.49 to $1.875 per share.

11.  The ownership of WESAC is as follows:



<TABLE>
<CAPTION>

                                         SHARES OF    PERCENTAGE OF OUTSTANDING
    NAME OF SHAREHOLDER                 WESAC HELD          WESAC SHARES
 <S>                                    <C>           <C>
 Wexford Capital Partners II L.P.         9,411,600               66%
 Wexford Overseas Partners I L.P.         4,033,543               28%
 Henry N. Huta                              356,500              2.5%
 C. Stephen Beal                            356,500              2.5%
 Rebecca Hemsley                             50,928              0.3%
 Debra Hemsley                               50,929              0.3%

</TABLE>



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Reference is made to "COMPENSATION OF DIRECTORS" and "COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION" in Item 11, above, and to Item 7.
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES" in Part II, above.

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


                                         -10-
<PAGE>


                                      SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Amendment No. 1 to the
Company's report on Form 10-K for the fiscal year ended December 31, 1997 to be
signed on its behalf by the undersigned, thereunto duly authorized.

                                        WAHLCO ENVIRONMENTAL SYSTEMS, INC.

Date: April 21, 1998                    By:     /s/ C. Stephen Beal
                                            -----------------------------------
                                             C. Stephen Beal
                                             President & Chief Executive Officer

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



<TABLE>
<CAPTION>

 SIGNATURES                                               TITLE                      DATE
<S>                                      <C>                                     <C>

   /s/ David R. A. Steadman*             Chairman of the Board of Directors      April 21, 1998
------------------------------
 David R. A. Steadman


   /s/ C. Stephen Beal                   President & Chief Executive Officer     April 21, 1998
------------------------------
 C. Stephen Beal



   /s/ A. Noel DeWinter                  Vice President & Chief Financial        April 21, 1998
------------------------------           Officer (principal accounting and
 A. Noel DeWinter                        financial officer)


   /s/Maarten D. Hemsley*                Director                                April 21, 1998
------------------------------
 Maarten D. Hemsley


   /s/ Paul H. Hunn*                     Director                                April 21, 1998
------------------------------
 Paul H. Hunn


   /s/ Mark L. Plaumann*                 Director                                April 21, 1998
------------------------------
 Mark L. Plaumann

*By:    /s/ Roger M. Barzun
    --------------------------
     Roger M. Barzun
     ATTORNEY-IN-FACT

</TABLE>

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