SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                    FORM 10-K


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

                   For the Fiscal Year Ended December 31, 1997
                        Commission File Number: 0-13738

                        RADIATION DISPOSAL SYSTEMS, INC.
                        --------------------------------
             (Exact name of registrant as specified in its charter)


   NORTH CAROLINA                                       56-1426581
   --------------                                       ----------
(State of Incorporation)                    (I.R.S. Employer Identification No.)

1373 East Morehead St., Suite 48, Charlotte, North Carolina            28204
-----------------------------------------------------------          ----------
     (Address of principal executive offices)                        (Zip Code)

Registrant's telephone number, including area code: (704) 376-5350
                                                    --------------

Securities registered pursuant to Section 12(b) of the Act: NONE
                                                            ----
Securities registered pursuant to Section 12(b) of the Act: Common Stock,
 $.001 par value
 ----- --- -----

Indicate by check mark whether the registrant (1) has filed all reports required
to be files 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      NO X
                            
The registrant has included disclosure of delinquent filers pursuant to Item 405
of Regulation S-K.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant as of July 31, 1998 was $0.

The number of shares of the Registrant's Common Stock outstanding as of July 31,
1998 was 9,977,495

                   DOCUMENTS INCORPORATED BY REFERENCE: NONE

TOTAL NO. OF PAGES:  47
                    ----

EXHIBIT INDEX ON PAGE:  20
                       ----



<PAGE>


                                     PART I

ITEM 1. BUSINESS

                                    BUSINESS

Radiation  Disposal  Systems,  Inc. (the  "Company") was  incorporated  in North
Carolina on January 10, 1984, under the name Chem-Waste Corporation,  to acquire
a patented  process for reducinq the volume of  contaminated  insoluble  organic
solid resin  materials;  to develop and market  machines to utilize such process
(the  "Process")  to treat a  variety  of  radioactive  waste,  and to  continue
development  work in  connection  with the Process  and  machines to improve and
expand their commercial  applications and uses. 

The  Company  also  developed  waste and water  treatment  technologies  ("Ozone
Technologies")  to  treat  nonradioactive  wastes  and  water  using  the  basic
component of the Process, ozone, in conjunction with, in some applications,  the
light pro6uced by high intensity discharge ("HID") lamps. The Ozone Technologies
may be used to treat various types of waste.  In connection with any application
of the Ozone Technologies,  a system may be customed-designed  and fabricated to
meet the particular needs of the purchaser.

The Company has been  unsuccessful in marketing  either the Process or the Ozone
Technologies. To date, the Company has generated no significant revenues. During
1992, the Company  substantially ceased operations and terminated all but two of
its  employees.  The Company had very limited  operations  consisting in 1997 of
transfer agent  activities  resulting in revenues of $2,087.  Manuel E. Kane and
Albert D. Kane,  while serving as officers and  Directors and having  employment
contracts  with the Company,  have confined their  activities to  administrative
functions  including,  but not limited to,  answering  inquires,  performing the
duties as the Company's  transfer agent,  and dealing with matters involved with
winding down the Company's operations.  At December 31, 1997, the Company had no
working  capital or prospects  for increased  revenues.  Because the Company has
been unable to generate revenues and has no other sources to fund operations, it
is  unlikely  that the  Company  will have any  operations  in the  future.  See
"MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF FINANCIAL  CONDITION  AND RESULTS OF
OPERATION" and "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."

The Company did not hold an annual meeting of  shareholders  or include  audited
financial  statements  in its  filinq of this Form 10-K  because  the  estimated
expense of doing so would exhaust the Company's remaining funds. The Company has
included internally  generated and unaudited  financial  statements in this Form
10-K. 

                        NARRATIVE DESCRIPTION OF BUSINESS

     Generally.  The  Company  has been  unsuccessful  in  marketing  either the
Process or the Ozone Technologies.  See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL  CONDITION AND RESULTS OF OPERATION"  and  "FINANCIAL  STATEMENTS AND
SUPPLEMENTARY DATA."

     Competition. The Company attributes its inability to market the Process and
the  Ozone  Technology  to the fact that the use of ozone as a means of waste or
water treatment is not a widely accepted  technology.  Producers use other means
of waste disposal and/or treatment such as chemical

                                       1

<PAGE>


and biological treatment, burial, and in certain cases, incineration. Therefore,
the market for the Process and Ozone  Technology  has not developed  and, in the
opinion of Management,  may never develop. 

     There are a number of other firms offering  various  application:  of ozone
technology.  Most of these  firms have been in business  for a longer  period of
time, are better established and better  capitalized.  Management is aware of at
least two other companies,  Ultrox International  ("Ultrox") and Para Oxidation,
that offer waste treatment  systems which utilize ozone,  hydrogen  peroxide and
conventional  ultraviolet  light to treat  water and  various  types of  wastes,
including  radioactive  wastes  and  other  wastes.  Ultrox,  which  has been in
existence  since  1983,  has been  actively  marketing  and  selling  its  waste
treatment system for several years. Any such waste treatment system is likely to
compete directly with the Ozone Technologies and/or the Process.

     Management is aware of several firms including,  but not limited to, Ultrox
International,  Para Oxidation,  PCI Ozone Corporation,  Griffin Technics, Inc.,
Henkel  Corporation  and the  successor  company  to  Brown-Bovari,  Inc.  which
presently have available  ozone-based  waste and water treatment  systems which
would compete with any system the Company might market.

     Within this limited market, given its historical lack of sales, the Company
is of the opinion that its market position is negligible or nonexistent.

     Marketing. Although the Company has several sales representation agreements
with various  companies and individuals,  as described  below,  these agreements
have not resulted in sales sufficient to support the continued  operation of the
Company.   The  Company  has  no  marketing   outlets  other  than  these  sales
representation  agreements,  and does not intend to develop any. Therefore,  the
Company   currently  is  not  actively   marketing  the  Process  or  the  Ozone
Technologies. The sales representatives are paid by commission only.

     The  Company  has  received  relatively  few  inquiries  as a result of the
efforts of the sales  representatives  and has had no sales as a result of these
sales  representation  agreements in the past three fiscal years, and has had no
sales during that period.

     The Company  entered into various sales  representation  agreements in 1988
through 1991, the majority of which have a three-year  term, with one individual
who is  authorized  thereunder to represent the Company in marketing the Process
and/or  certain of the Ozone  Technologies  to  certain  entities  operating  at
predetermined waste treatment sites. These agreements provide for the payment of
a commission  based an a percentage of the sales price. No sales were made under
these  agreements  during 1995,  1996, and 1997. All these sales  representation
agreements expired or were not renewed as of December 31, 1995.

     In  December,   1988,   the  Company   entered  into  a  three-year   sales
representation agreement with Steven M. Kane, Inc., of which the principal owner
and  officer is Steven  Kane,  a former  Director  of the Company and the son of
Manuel E. Kane and the nephew of Albert D. Kane. The agreement has been renewed
for four  additional  one-year  periods.  This  agreement  was not renewed as of
December  31, 1995.  This  agreement  provided for a commission  of up to lO% on
certain sales of the Company's  products in the designated  territory  and/or to
designated companies. Historically, the Company has had four sales and leases of
machines and equipment  utilizing the Ozone Technologies as result of this sales
representation agreement.

                                        2



<PAGE>


In April,  1991, the Company entered into a three-year  finder's  agreement with
Steven M. Kane,  Inc.  This  agreement  provided for a commission of 10% of the
revenue  collected for sales of the Company's  products to a designated group of
four potential customers.  No sales have been made under this agreement.  This
Agreement was renewed for an additional one-year period.  This agreement was not
renewed as of December 31, 1995.

     Material  and  Production.   The  following  discussion  of  materials  and
production  must be read in light of the fact that the Company has  virtually no
operations.  The  Company  does  not  employ,  nor  does it  intend  to  employ,
sufficient  personnel to produce any systems or machines which the Company could
sell or lease.  While  there are a number of outside  fabricators  that have the
capabilities to construct and assemble the systems and machines,  the absence of
sales renders issues of production capability moot.

     The Company does not presently  inventory any equipment or component parts.
Although this dependence on suppliers for equipment and components could lead to
significant  production  delays,  the absence of sales  renders  concerns  about
delays moot.

     The Company  gained  certain  technology  regarding the generation of ozone
pursuant  to an  agreement  it  entered  into  with  Pillar  Technologies,  Inc.
("Pillar")  in 1988.  Pillar is  presently  the only source for the power supply
used in  conjunction  with the ozone  generator in the systems and machines.  No
purchases were made in 1997.

     The Company entered into an agreement in November,  1989, pursuant to which
it received a license to use certain  technology  relating to the materials used
in and the construction of an essential component of the ozone generator.


     Patents.  On March 5, 1984, the Company  obtained,  by assignment from Gram
Research &  Development  Co.,  Inc.  ("Gram"),  all Gram's  interest in and to a
patented  process for a method of reducing the volume of contaminated  insoluble
organic solid resin  materials,  and any U.S. or foreign  letters  patent issued
therefor.  The Process is based upon the process  described in this Patent.  The
U.S.  Patent  and  Trademark  Office  issued  U.S.  Patent  No.  4,437,999  (the
"Patent"),  dated March 20, 1984, for such patented  process entitled "Method of
Treating Contaminated Insoluble Organic Solid Material", naming Sherman T. Mayne
as the inventor and Gram as assignee. An assignment of such patented process and
the aforedescribed  U.S. Letters Patent from Gram to the Company was recorded in
the U.S. Patent and Trademark Office on March 29, 1984. The Patent expires March
20, 2001.  During the year ended December 1995, the Company  forwent the payment
of  applicable  annual  renewal fees for the Patent  because of the  substantial
depletion of its financial resources, thereby allowing the Patent to lapse.

     Due to  insufficient  funds,  the Company forwent payment of the applicable
yearly renewal fees on its European,  Australian and Norwegian  patents,  all of
which  lapsed on March 19,  1991.  The  Company's  Finnish and  Japanese  patent
applications were abandoned on August 14, 1990, and March, 1991, respectively.


In September, 1986, the Canadian Patent Office granted the Company a
patent for the Process, as described in the Patent,  which expires September 16,
2003. The Company does not know if this Canadian patent remains in effect.


                                        3

<PAGE>


     Seasonality. The Company's business is not seasonal in nature.


     Working Capital Items,  Customer Dependence,  Back Log Orders.  Because the
Company's  sales or other  distributions  of the systems and machines  have been
have been  insignificant,  customer  dependence  and any backlog  orders are not
germane to the  Company's  business.  The Company  maintains no  inventory.  See
"FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."

     Research and  Development.  During the year ended  December  31, 1997,  the
Company  incurred  no  expenses  related  to   company-sponsored   research  and
development  and  engineering  activities,  which  activities  were  principally
related to the engineering and design of systems for particular  applications of
the Ozone Technologies. ( See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.") The Company incurred  approximately $2,345
and $2,965 in expenses related to company-sponsored research and development and
engineering  activities  for the  years  ended  December  31,  1996,  and  1995,
respectively.

     Environmental  Compliance.  Without  sales of current  systems  designed to
apply the Ozone  Technologies or machines  designed to apply the Process,  it is
difficult  to  evaluate  the  material  effects of  compliance  with  applicable
regulations of the various  federal,  state and local agencies,  which have been
enacted or adopted regulating the discharge of materials into the environment or
otherwise  relating to the  protection  of the  environment,  will have upon the
capital  expenditures,  earnings and competitive position of the Company. If the
Company  were ever to make  such  sales,  which  management  views as  unlikely,
environmental  compliance  could become a significant  issue for the Company to
overcome in achieving successful operations.

     To date,  the systems  designed to apply the Ozone  Technologies  have been
distributed through the sale or lease thereof.  Under this plan of distribution,
it is anticipated  that it will be primarily the purchasers  and/or users of the
systems, and not the Company,  that will be subject to environmental  regulation
in connection with the use thereof.

     With regard to the nachines designed to apply the Process,  compliance with
any federal,  state and local governmental  regulations may be so burdensome for
the Company  and/or users of such machines as to have a material  adverse effect
upon the viability of the Process or will render the use in a commercial setting
of  such  machines  unfeasible  or  impossible.   It  is  possible,  though  not
anticipated,   that  certain  of  the  radioactive   materials  remaining  after
radioactive  wastes have been  treated with the Process  may,  under  current or
future government  regulations,  be classified as "intermediate  level" or "high
level"  radioactive  materials,  the disposal of which is highly regulated,  and
could be  sufficiently  costly as to diminish or offset any economic  benefit of
the reduction of the radioactive wastes by treatment with the Process. In this
event, the Process would be uneconomical and therefore unmarketable.

     It is  possible  that the  Company  will have to modify  the  design of the
system and/or  machines for the Ozone  Technologies  or the Process in order for
the  users  thereof  to meet  regulatory  standards.  The  Company  is unable to
currently assess the extent or costs of any such modifications.  The company has
insufficient assets to fund any modifications.

     The Company anticipates that it will have no material capital


                                       4

<PAGE>


expenditures  for  environmental  control  facilities for the remainder of its
current fiscal year. No assurance can be given that government  regulations will
not be  promulgated  in the future which will have a material  adverse effect on
the operations of the Company's business.  

     Employees. As of August 1, 1998, the Company had two employees.  Mr. Manuel
E. Kane and Mr.  Albert D. Kane,  while  serving as officers  and  Directors and
having  employment  contracts  with the Company,  have  confined  activities  to
administrative  functions  including,  but not limited to answering inquires and
dealing with matters involved with winding down the Company's operations.  These
two employees are not sufficient to sustain operations.


     Mr.  Albert D. Kane is Chairman of the Board and Secretary of the Company.
Mr. Kane resides in Short Hills, New Jersey. Mr. Manuel E. Kane is President and
Treasurer of the Company.


ITEM 2.  PROPERTIES

     The Company  subleases  office space located at 1373 East Morehead  Street,
Suite 48,  Charlotte,  North  Carolina  from Manuel E. Kane pursuant to a month-
to-month  lease  agreement.  The  Company  does not pay rent  under  this  lease
agreement.

     The Company had an agreement with Pfeiffer College, located in Misenheimer,
North  Carolina,  under  which  it is  used  certain  of  Pfeiffer's  laboratory
facilities for producing  electrodes  ordered by users of the Company's systems.
In addition,  Pfeiffer agreed to provide the Company with storage facilities and
access to  utilities  and certain  auxiliaries  needed in  connection  with such
activities.  As a consideration for Pfeiffer's performance under this agreement,
the Company  agreed to transfer  certain of its testing  equipmnent  to Pfeiffer
following the  Company's  use of such  equipment.  The Company  transferred  the
aforementioned  equipment to Pfeiffer College during the year ended December 31,
1996.

     The Company constructed a small pilot plant facility on the Pfeiffer campus
and had the  exclusive  right to use and  occupy  the  facility  for  various
activities through October 12, 1996. Upon expiration of the agreement, the right
to use and occupy the building belonged to Pfeiffer College.

     On October 12, 1996, Pfeiffer College took possession of the aforementioned
small  pilot  plant.  At that  time,  the  Company  donated  all its  office and
laboratory  equipment  and its  test and  demonstration  machinery  and  related
components to Pfeiffer College. The Company did not have the financial resources
to move and store the aforementioned equipment and machinery.


     Presently,  the Company has no  insurance  coverage of any kind in force at
December 31, 1997. The Company  allowed its insurance  coverages to expire after
July 7, 1993, and did not renew any of its policies.

     ITEM 3. LEGAL PROCEEDINGS Thomas Publishing Co. filed a lawsuit against the
Company for collection



                                       5

<PAGE>

of a past due account in the total of $3,265,  in the District  Court of Western
North  Carolina.  On May 5, 1995,  the Company  settled the lawsuit by signing a
Consent Judgment  providing that Thomas Publishing Co. have and recover Judgment
against  the  Company in the sum of $3,265,  plus  interest at 18% per annum and
collection  cost of  $1,179  plus  interest  of 8% per  annum  from  the date of
Judgement until paid in full, and court costs.  Because the Company did not have
the financial resources to pay this Judqment, it was not paid as of December 31,
1997.

     McKinney & Moore,  Inc. filed a lawsuit  against the Company for collection
of a past due account in the total of $3,802, in the District Court of Henderson
County,  Texas. On February 25, 1993, McKinney & Moore, Inc. received a Judgment
to recover  the debt,  attorney  fees of $1,250,  prejudgement  interest  in the
amount of $211,  plus interest at 10% per annum from the date of Judgment until
paid in full.  Because the Company did not have the  financial  resources to pay
this Judgment, it was not paid as of December 31, 1997.


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

No matter was submitted to a vote of the Company's  security  holders  during
the fourth  quarter of the year ended  December 31, 1995,  and during the years
ended December 31, 1996 and 1997.

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

     The Company's Common Stock trades in the  over-the-counter  market.  Due to
lack of trading,  no bid and asked  closing  prices per share for the  Company's
Common Stock for any quarterly period in 1997 or 1996 are available.

     As of July 31, 1998, the Company had outstanding 9,977,495 shares of common
stock and  approximately  1,095  shareholders  of record.  (The  Company had the
option to  repurchase  a number of shares of the  Company's  stock held by three
individuals,  which  repurchase  option expired on June 30, 1990. In June, 1990,
prior to the  expiration of the  repurchase  option,  the Company  exercised its
option to  repurchase  with regard to a total of 34,418  shares of stock held by
these three  individuals.  As of the date hereof, the three individuals have not
executed all the necessary documents to effect the transfer of the shares to the
Company and consequently these shares remain outstanding.)

The Company has not been in a financial  position to pay dividends
since its  inception  and  because  of the  Company's  continuing  losses  from
operations and the substantial  depletion of its cash reserves,  the Company has
no plans to pay  dividends  in the future.

ITEM 6. SELECTED FINANCIAL DATA

(Remainder of page left intentionally blank)


                                       6


<PAGE>

<TABLE>

<CAPTION>


                        RADIATION DISPOSAL SYSTEMS, INC.
                          (A Development Stage Company)

                            SELECTED FINANCIAL DATA



                          At and for the Year ended December 31
                     ---------------------------------------------------------------------------------
                       1997          1996           1995          1994          1993          1992     
                     ----------    ----------     ----------    ----------    ----------    ----------  

<S>                                                                           <C>           <C>

SELECTED STATEMENT
OF INCOME (LOSS) DATA:

Sales                $  -          $   -          $   -         $   -         $   -         $  18,725                

Cost of sales           -              -              -             -             -            41,557
                    ----------     ----------     ----------    ----------    ----------    ----------
 Gross margin           -              -              -             -             -           (22,832)

Engineering,
research and
development
expenses                -               2,345          2,965        13,055       124,176      173,006 

Administrative 
expenses                 4,568          7,017        194,643       194,283       201,605      183,325
                     ----------    ----------     ----------    ----------    ----------    ----------
Income (loss) from
operations              (4,568)        (9,362)      (197,608)     (207,338)     (325,781)    (379,163)

Interest and
other income             3,096          5,013        938,806         9,477         7,512        5,817
                     ----------    ----------     ----------    ----------    ----------    ----------

 Net income (loss)   $  (1,472)    $   (4,349)    $  741,198    $(197,861)    $(318,269)    $(373,346)
                     ==========    ===========    ==========    ==========    ==========    ==========

Weighted average
shares of 
common stock          9,977,495      9,977,495     9,977,495     9,977,495     9,977,495     9,977,495
                     ==========    ===========    ==========    ==========    ==========    ========== 
 Net income (loss)
 per share           $   (.00)     $    (.00)     $    .07      $  (.02)      $  (.03)      $  (.04)
                     ==========    ===========    ==========    ==========    ==========    ==========

SELECTED BALANCE
SHEET DATA:

Current assets       $     159     $      193     $       17    $  24,638     $   25,150    $   33,013
Current
liabilities             74,825         73,387         71,207      918,796        747,037       571,994
                     ----------     ----------     ----------   ----------    ----------    ----------

 Working capital
 (deficit)           $ (74,666)    $  (73,194)    $  (71,190)   $(894,158)    $(721,887)    $(538,981)
                     ==========    ==========     ==========    ==========    ==========    ==========
 Total assets        $     159     $      193     $    2,362    $ 108,753     $ 134,855     $ 278,081
                     ==========    ==========     ==========    ==========    ==========    ==========  

 Stockholders' equity
 (deficit)           $  74,666     $  (73,194)    $  (68,845)   $ (810,043)   $(612,182)    $(293,913)
                     ==========    ==========     ==========    ==========    ==========    ==========


</TABLE>


                                  (continued)
                                       7

<PAGE>



<TABLE>

<CAPTION>


                        RADIATION DISPOSAL SYSTEMS, INC.
                          (A Development Stage Company)

                            SELECTED FINANCIAL DATA



                          At and for the Year ended December 31
                     ----------------------------------------------------------------------
                       1991          1990           1989          1988          1987       
                     ----------    ----------     ----------    ----------    ----------   

<S>                                                                           <C>          

SELECTED STATEMENT
OF INCOME (LOSS) DATA:

Sales                $ 202,982     $ 172,740      $   -         $   -         $   -                     

Cost of sales          188,524       100,525          -             -             -       
                    ----------     ----------     ----------    ----------    ----------   
 Gross margin           14,458        72,215          -             -             -        

Engineering,
research and
development
expenses               217,024       301,252         495,494       370,313       254,446   

Administrative 
expenses               291,681       436,815         522,132       465,490       344,853   
                     ----------    ----------     ----------    ----------    ----------   
Income (loss) 
from operations        (494,247)    (665,852)     (1,017,626)     (835,803)     (599,299)  

Interest and
other income             57,228       68,070         120,473       141,435       171,614  
                     ----------    ----------     ----------    ----------    ----------   

 Net income (loss)   $ (437,019)   $(597,782)     $ (897,153)   $ (694,368)   $ (427,685)   
                     ==========    ===========    ==========    ==========    ==========   

Weighted average
shares of 
common stock          9,977,495      9,977,495     9,968,355     9,754,646     9,262,646   
                     ==========    ===========    ==========    ==========    ==========   
 Net income (loss)
 per share           $   (.04)     $    (.06)     $   (.09)     $  (.07)      $  (.05)     
                     ==========    ===========    ==========    ==========    ==========   

SELECTED BALANCE
SHEET DATA:

Current assets       $ 159,198     $  199,425     $  706,825    $1,454,678    $1,874,892     
Current
liabilities            419,184        151,567         57,689        76,830        96,514  
                     ----------     ----------     ----------   ----------    ----------   

 Working capital
 (deficit)           $(259,986)    $   47,858     $  649,136    $1,377,848    $1,778,378   
                     ==========    ==========     ==========    ==========    ==========   
 Total assets        $ 498,617     $  668,019     $1,171,923    $2,058,217    $2,410,664  
                     ==========    ==========     ==========    ==========    ==========   

 Stockholders' equity
 (deficit)           $  79,433     $  516,452     $1,114,234    $1,981,387    $2,315,664  
                     ==========    ==========     ==========    ==========    ==========   


</TABLE>


                                  (continued)
                                        8

<PAGE>

<TABLE>

<CAPTION>

                        RADIATION DISPOSAL SYSTEMS, INC.
                          (A Development Stage Company)

                            SELECTED FINANCIAL DATA (continued)


                                                                         At and for the
                                                                           Period from
                                                                         January 10, 1984 
                                                                          (Inception) to
                          At and for the Year ended December 31           December 31
                     ------------------------------------------          -------------
                       1986          1985           1984                      1997
                     ----------    ----------     ----------             -------------
<S>                  <C>           <C>            <C>                   <C>    

SELECTED STATEMENT
OF INCOME (LOSS) DATA:

Sales                $  -          $   -          $   -                  $   394,447

Cost of sales           -              -              -                      330,606
                    ----------     ----------     ----------             -------------
 Gross margin           -              -              -                       63,841

Engineering,
research and
development
expenses                94,875        124,806         -                    2,173,757

Administrative 
expenses               324,886        149,952          1,906               3,323,156
                     ----------    ----------     ----------   
Income (loss) from
operations            (419,761)      (274,758)        (1,906)             (5,433,072)

Interest and
other income           218,697        148,950            651               1,896,839   
                     ----------    ----------     ----------             -------------  

 Net income (loss)   $ (201,064)   $ (125,808)    $  (1,255)             $(3,536,233)    
                     ==========    ===========    ==========             =============

Weighted average
shares of 
common stock          9,009,495      7,818,525     2,795,118  
                     ==========    ===========    ==========   
 Net income (loss)
 per share           $   (.02)     $    (.02)     $    (.00)     
                     ==========    ===========    ==========   

SELECTED BALANCE
SHEET DATA:

Current assets       $2,417,502    $2,787,668     $  289,469          
Current
liabilities              96,267        35,198         44,822  
                     ----------     ----------     ----------  

 Working capital
 (deficit)           $2,321,235    $2,752,470     $  244,647  
                     ==========    ==========     ==========   
 Total assets        $2,838,102    $2,978,097     $  375,408`    
                     ==========    ==========     ==========   

 Stockholders' equity
 (deficit)           $2,741,835    $2,942,899     $  330,586  
                     ==========    ==========     ==========   


 
</TABLE>


                                  
                                       9

<PAGE>


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

                              RESULTS OF OPERATIONS

     The Company had no net sales for the year ended December 31, 1997 and 1996,
and 1995.

     Historically,  the Company has had no sales of equipment using the Process,
and few sales of machines and  equipment  utilizing the Ozone  Technologies.  To
date, the Company has been unsuccessful in marketing machines and equipment that
utilize the Process or Ozone Technologies.

     The  Company  has not been able to  generate  sales of its  products,  and,
consequently, the Company had incurred substantial losses and continues to incur
losses  disregarding  cancellation of debt income. The Company experienced a net
loss of $1,492 for the year ended December 31, 1997, compared to $4,349 for 1996
and net income of $741,198 for 1995 for a decrease of $2,857 as compared to 1996
and an increase of 9742,690 as compared to 1995.  Disregarding  cancellation  of
debt income,  the Company  would have  experienced  a net loss of $7,077 for the
year ended  December 31, 1997,  compared to $11,746 for 1996 and of 8191,774 for
1995 for a decrease of $4,669 as compared to 1996,  and  $184,697 as compared to
1995.  The Company  continued to severely  curtail its  operations in 1997.  The
decrease  in the 1997 net  loss  disregarding  cancellation  of debt  income  as
compared to 1996 and 1995 was due, in large part, to the continued  abatement of
the Company's operations.

     For the year ended  December  31,  1997,  the Company  had no  engineering,
research  and  development  expenses  compared to $2,345 for 1996 and $2,965 for
1995.

     All  costs  related  to  research  and  development,  including  costs for
drawings and testing,  are expensed when incurred in accordance  with  Financial
Accounting Standards Board Statement No. 2.

     For the year ended December 31, 1997, the Company  incurred  administrative
expenses of $4,568,  compared to $7,017 for 1996 and  $194,643  for 1995,  for a
decrease of $2,449 as  compared  to 1996 of  $190,075  as compared to 1995.  The
significant components of 1997 administrative expenses together with comparative
data where significant  change has occurred in relation to prior years,  include
the following:

     (a) The Company had no salary  expense  pursuant to  employment  agreements
     with Albert D. Kane and Manuel E. Kane as officers of the Company, who both
     are  stockholders  and  Directors  of the  Company  for 1997 and 1996,  and
     $75,000 for 1995. Pursuant to their employment contracts,  the officers are
     entitled to each receive annual salaries of $50,000. In December, 1995, the
     officers  agreed to perform  the limited  duties that the Company  requires
     without  compensation  until  such  time  as  the  Company  has  sufficient
     financial  resources  to pay  salaries.  In  December,  1995,  the officers
     forgave  all  accrued  salaries  owed them by the  Company  because  of the
     Company's depleted financial  resources and the Company's uncertain future.
     In 1995, the Company recognized  $579,167 in cancellation of debt income as
     a result of this forgiveness of debt.

     (b) The  Company  had no  professional  fees for 1997 and 1996  compared to
     $4,006 for 1995. (See Item 3.--"LEGAL PROCEEDINGS"). 


                                       10


<PAGE>


     (c) Office  expense of $2,512,  compared  to $3,962 for 1996 and $9,083 for
     1995,  for a  decrease  of  91,450  as  compared  to 1996 and of  $6,571 as
     compared to 1995.  This  decrease was due, in large part,  to the Company's
     severe curtailing of operations.

     (d) The Company  had no  amortization  of patent  expense for 1997 and 1996
     compared to $78,804 for 1995.  During 1995, the Company forwent the payment
     of applicable annual renewal fees for the Patent because of the substantial
     depletion of its financial resources, thereby allowing the Patent to lapse.
     The Company recognized the remaining  unamortized cost ($78,804) as expense
     in 1995.


     (e) The  Company  had no bad debt  expense  for 1997 and 1996  compared  to
     $24,096  for  1995.  In  1995,  the  Company  was  unable  to  collect  the
     outstanding  debt due it from Chandler  County, a municipality in Texas and
     recognized bad debt expense.

     The  Company  had other  income of $3,096 for the year ended  December  31,
1997,  compared  to $5,013 for 1996 and  $938,806  for 1995,  for an decrease of
$1,917 as compared to 1996 and of $935,710 as compared to 1995. The  significant
components of 1997 other income together with comparative data where significant
change has occurred in relation to prior years, include the following:

     (a) The  Company  no other  income for the year ended  December  31,  1997,
     compared to $995 for 1996 and $12,669 for 1995. Other income represents net
     proceeds (after deducting costs) from mainly miscellaneous replacement part
     sales, machinery rental, and treatability testing activities.

     (b) The Company had interest  expense of $4,596 for the year ended December
     31, 1997,  compared to $4,373 in 1996 and $6,835 in 1995 for an increase of
     $223 as  compared  to 1996 and a decrease  of $2,239 as  compared  to 1995.
     During  1997,  the Company  exhausted  its cash  reserves and was forced to
     borrow  funds from its two officers to finance its working  capital  needs.
     (For additional information,  see the discussion under "FINANCIAL CONDITION
     AND  LIQUIDITY"  of this  Item 7.) In 1997,  1996,  and 1995,  the  Company
     incurred interest expense involved with judgments against it which have not
     been paid. (For additional information,  see the discussion under ITEM 3. -
     LEGAL PROCEEDINGS.

     (c) Cancellation of debt income of $5,605,  compared to $7,397 for 1996 and
     $932,972  for 1995,  for a decrease  of $1,792 as  compared  to 1996 and of
     $927,367 as compared to 1995.  During the years ended  December  31,  1997,
     1996, and 1995,  the time limit allowed by the Statute of  Limitations  for
     vendors to collect certain of the Company's trade payables expired. Because
     the Company  does not have the  financial  resources to pay these debts and
     the  aforementioned  Statute  of  Limitations  bars their  collection,  the
     Company  included  these amounts in  cancellation  of debt income.  For the
     years ended  December  31,  1997,  1996,  and 1995,  the amounts of $5,605,
     $7,397,  and $147,923,  respectively  were included in cancellation of debt
     income.  In December,  1995, the officers forgave all accrued salaries owed
     them by the Company because of the Company's depleted  financial  resources
     and the  Company's  uncertain  future.  In  1995,  the  Company  recognized
     $579,167 in cancellation of debt income as a result of this  forgiveness of
     debt. In December,  1995,  the  individuals  who is related to officers and
     directors of the Company forgave the debt which totaled $201,164 because of
     the Company's depleted cash reserves and the uncertainty of the Company's

                                       11



<PAGE>

     future.  For the year ended  December 31,  1995,  the amount of $201,164 is
     included in cancellation of debt income. In addition,  the Company included
     $4,718 of accrued  payroll taxes related to the forgiven in cancellation of
     debt income for the year ended December 31, 1995.

                 FINANCIAL CONDITION AND LIQUIDITY 

     The Company's  cash decreased $34 for the year ended December 31, 1997 from
$193 at December 31, 1996 to $159 at December 31, 1997,  compared to an increase
of $176 during 1996 and a decrease of $350 during 1995.  The 1997 change in cash
was affected by the following:

     (a) Operations  used $2,481 in cash,  which is comprised of the net loss of
     $1,472  increased by the net change in other  working  capital  accounts of
     $1,009.

     (b) Financing  activities  provided $2,447 which represents the issuance of
     $9,447 of notes payable to officers and Directors of the Company reduced by
     the retirement of $7,000 of notes payable.  Management  believes that it is
     unlikely that the Company will be able to obtain financing of any nature in
     the future other than nominal  amounts lent by  Management  to fund nominal
     operations.

     The  Company  is unable to  currently  estimate  the cost of any  necessary
compliance with applicable government regulations.

     As of its 1997 fiscal year end, the Company's significant commitments which
may result in  identifiable  expenses in the  immediate  future were pursuant to
employment  agreements with its two officers.  Under employment agreements with
the Company,  Manuel E. Kane as President  and  Treasurer  and Albert D. Kane as
Chairman of the Board and  Secretary  each  receive  annual  salaries of $50,000
subject to any increases,  plus any bonuses  approved by the Company's  Board of
Directors.  The Kanes' employment  continues for successive  periods of one year
unless  terminated by either party.  In December,  1995, the officers  agreed to
perform the limited duties that the Company requires without  compensation until
such time as the Company has sufficient financial resources to pay salaries.  In
the  absence of a capital  infusion or the  location of other  sources of funds,
which Management believes unlikely,  the Company will have insufficient funds to
pay salaries in the near future.

     Manuel E. Kane and Albert D. Kane,  officers and  Directors of the Company,
made certain loans to the Company  totaling  $9,447 to provide  working  capital
during  the year  ended  December  31,  1997.  In  connection  with such  loans,
promissory notes,  payable on demand,  were executed by the Comnpany in favor of
Manuel E. Kane and Albert D. Kane. These notes were secured by all the Company's
account  receivables,  contract  claims,  choses in  action,  money and  general
intangibles;  inventory;  other goods;  and  insurance and other  proceeds.  The
interest rate on the notes was the rate  publicly  announced by  NationsBank  of
North  Carolina,  N. A. in  Charlotte,  North  Carolina from time to time as its
prime rate. Notes totaling 7,000 were retired during 1997.

     There have been no significant expenditures for property or other

                                       12


<PAGE>

equipment or assets since January 1, 1998.


     During 1997,  the Company  continued to take steps to reduce its  operating
expenses and to severely  curtail its  operations  in an attempt to conserve its
remaining  limited  financial  resources.  However,  at December 31,  1997,  the
Company's financial resources were almost completely  exhausted.  Because of its
extremely weak financial  condition,  the Company did not hold an annual meeting
of meeting of  shareholders  in 1997 because the estimated  cost of that meeting
would exhaust its remaining financial  resources.  In addition,  the Company did
not include audited financial statements in this Form 10-K because the estimated
expense of such  compliance  with the  Securities and Exchange Act of 1934 would
exhaust the Company's  remaining financial  resources.  The Company has included
internally generated and unaudited financial statements in this Form 10-K.

     The Company has, to date,  generated no significant  revenues.  Because the
Company's available remaining funds are extremely limited,  Management has taken
extreme steps to severely curtail the Company's  operations  including,  but not
limited  to,  performing  as its own  transfer  agent;  allowing  the  insurance
policies to expire;  including unaudited financial statements in this Form 10-K,
and not holding an annual meeting of  stockholders.  In the absence of a capital
infusion or the location of other sources of funds,  which  Management  believes
unlikely, the Company will have insufficient funds to continue operations beyond
August or September, 1998. See "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."

                               CAPITAL RESOURCES

     Subsequent to December 31, 1997,  and as of July 31, 1998,  the Company has
had no expenditures  for the purchase of materials,  machinery and other testing
equipment.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY  DATA


     Because of its  extremely  weak  financial  condition,  the Company did not
include audited financial statements in its filing of this Form 10-K because the
estimated  expense of such  compliance  with the  Securities and Exchange Act of
1934 would exhaust the Company's remaining financial resources. The Company has
included financial  statements in this Form 10-K which were generated internally
and are unaudited.


     The  information  required by this Item 8. is referenced in Item 14.(a) and
is included in pages F-1 through  F-17 and pages S-1 through S-6 hereof,  except
that the information included is unaudited.


ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL  DISCLOSURE 

     Because of its  extremely  weak financial  condition,  the Company did not
include  audited  financial  statements in its filing of this Form 10-K because
the estimated  expense of such  compliance  with the Securities and Exchange Act
wou1d  exhaust the  Company's  remaining  financial  resources.  The Company has
included financial  statements in this Form 10-K which were generated internally
and are  unaudited.  If the Company  had had the  financial  resources,  Cherry,
Bekaert and Holland,  the principal  accountants in the prior years,  would have
been asked to issue a Report of Independent Certified

                                       13


                                       
<PAGE>


Public. Accountants.

     The principal  accountant's report on the financial statements for the year
ended  December  31,  1990,  the last year for  which a Report  of  Independent
Certified Public Accountants was issued, contained a qualified opinion as to the
uncertainty that the Company will continue as a going concern.

     The Company and the principal  accountant have had no  disagreements on any
matter of accounting principles or practices, financial statement disclosure, or
auditing  scope or  procedure  involved  with the  registrant's  two most recent
fiscal years and all subsequent interim periods.

     The Company has not engaged another principal accountant.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

 Directors and Executive  Officers.  The Directors and executive
officers of the Company, as of July 15, 1998, are as follows:

 Name                      Age                   Position
 ----                      ---                   --------

Albert D. Kane             82                    Chairman of the Board, 
                                                  Secretary & Director
Manuel E. Kane             78                    President,  Treasurer &
                                                  Director  

     All Directors are elected each year by the  shareholders  of the Company at
its annual meeting of shareholders  normally held in June. Each of the Directors
holds   office   until   his   death,    resignation,    retirement,    removal,
disqualification,  or until his successor is elected and qualified. The officers
are elected by the Directors and each holds office,  unless otherwise  specified
by  the  Directors,   until  his  death,   resignation,   retirement,   removal,
disqualification,  or until his successor is elected and  qualified.  All of the
Company's  executive  officers  presently have  employment  agreements  with the
Company.

     During 1997, the Company continued to reduce its operating  expenses and to
severely curtail its operations in an attempt to conserve its remaining  limited
financial  resources.  However,  at December 31, 1997,  the Company's  financial
resources  were  almost  completely  exhausted.  Because of its  extremely  weak
financial condition,  the Company did not hold an annual meeting of shareholders
in 1997 because the  estimated  cost of that meeting would exhaust its remaining
financial resources.

     Effective July 5, 1994, Wachovia Bank of North Carolina,  N. A. resigned as
the  transfer  agent of the Company.  Because of its  extremely  weak  financial
condition, the Company is acting as its own transfer agent.

     Information as of July 15, 1998, relating to the business experience of the
present Directors and executive officers of the Company is set forth below.

     MR. ALBERT D. KANE, together with his brother,  Manuel E. Kane, founded the
Company in January  1984,  and has served as a Director  since January 17, 1984,
and as its Chairman of the Board and Secretary since October 12, 1987.

                                       14



                                     
<PAGE>


Prior to October 12, 1987, Mr. Kane served as the President of the Company.  For
a period of approximately 33 years,  from 1942 until 1975, Mr. Kane was involved
in various  areas of the textile  business.  For the majority of this time,  Mr.
Kane worked with his  brother,  Manuel E. Kane.  During this  period,  the Kanes
conducted their textile businesses through various companies owned by them.

     In 1963,  Mr.  Kane and his  brother,  Manuel E. Kane,  formed  Kane Realty
Corp., which owned and managed real estate in Gaston County, North Carolina.  In
1978, this Company sold its assets to Albert Kane/Manuel Kane Joint Venture (the
"Joint  Venture").  In 1995,  the Joint Venture was  liquidated,  and Mr. Kane's
interest in the Joint Venture was  transferred  to Albert D. Kane,  L.L.C.  This
industrial real estate was leased to the Kane's textile  business until 1976 and
has been leased to unrelated parties since that date.

     Mr. Kane  graduated  from  Harvard  University  in 1937  having  received a
Bachelor of Arts degree in Economics.

     Mr. Kane has an employment  agreement  with the Company,  under which he is
employed as the Company's Chairman of the Board and Secretary.  Thereunder,  Mr.
Kane agrees to devote as much time to the duties assigned to him by the Board of
Directors  and to the  business  and  affairs of the  Company  as is  reasonably
necessary  for the  efficient  performance  and carrying on thereof.  Mr. Kane's
employment by the Company under this agreement  continues for successive periods
of one year unless terminated by either party as provided therein.  In December,
1995,  Mr. Kane agreed to perform the limited duties  Company  requires  without
compensation  until such time as the Company client  financial  resources to pay
salaries.

     MR. MANUEL E. KANE, together with his brother,  Albert D. Kane, founded the
Company in January,  1984,  and has served as a Director since January 17, 1984,
and as its President and Treasurer since October 12, 1987.  Prior to October 12,
1987,  Mr. Kane served as the Vice  President,  Secretary  and  Treasurer of the
Company.  From 1979 to 1983,  Mr.  Kane served as  President  and  Treasurer  of
Ultracept,  Inc., a  manufacturer  of patented  pollution  control  equipment to
reduce  toxic  waste  discharged  from  industrial  plants.  From 1983 until the
commencement  of his duties as Vice  President,  Secretary  and Treasurer of the
Company,  Mr. Kane was involved in the management of the industrial  real estate
owned by Albert Kane/Manuel Kane Joint Venture.

     From 1945 until 1975,  Mr. Kane has been involved with his brother,  Albert
D. Kane, in various areas of the textile  business.  Since 1963, Mr. Kane worked
and his brother,  Albert D. Kane, in owning and managing  industrial real estate
located in Gaston  County,  North  Carolina.  Upon the  liquidation of the Joint
Venture,  Mr. Kane's  interest was transferred to Manuel E. Kane,  L.L.C.  For a
description  of these  business  ventures,  see the biography of Albert D. Kane,
above.

     Mr.  Kane was one of the  founders  of  Carolina  State Bank (now  Southern
National  Bank) and served as a member of its Board of  Directors  from 1969 to
1976.  From June,  1987 until  November,  1992,  Mr. Kane served on the Board of
Directors  of  a  public  company,  First  Provident  Group,  Inc.,  located  in
Charlotte, North Carolina.

     Mr. Kane  graduated  from  Harvard  University  in 1943  having  received a
Bachelor of Arts degree in Political Science.

     Mr. Kane has an employment  agreement  with the Company,  under which he is
employed as the Company's President and Treasurer. Mr. Kane is authorized

                                       15



                                      
<PAGE>

under the  agreement to act as the  Company's  chief  operating  officer.  Mr.
Kane's  employment by the Company under this agreement  continues for successive
periods of one year unless  terminated by either party.  In December,  1995, Mr.
Kane  agreed to perform the limited  duties  that the Company  requires  without
compensation until such time as the Company has sufficient  financial  resources
to pay salaries.

     Executive  Committee.  The  Company's  Board of Directors  has an Executive
Committee  consisting of Albert D. Kane and Manuel E. Kane.  This committee  has
been granted all the authority allowable under North Carolina law to act for the
Board of Directors.

     To the best of the Company's  knowledge,  no persons failed to file or were
delinquent in filing Forms 4 or 5, with the Securities  and Exchange  Commission
as required by Section  16(a) of the  Securities  and Exchange  Act of 1934,  to
report the transactions during the year ended December 31, 1997.


ITEM 11.  EXECUTIVE  COMPENSATION.

     The  following  table  sets  forth  certain   information   concerning  the
compensation of the Directors and executive officers of the Company for the year
ended December 31, 1997.

Name of Individual or
Number in Group           Capacities in which Served         Cash Compensation 
-----------------------   --------------------------         -----------------

All executive officers         All  capacities                   $ -0-
as a group (2  persons)

     None of the Company's  executive  officers  received cash  compensation  in
excess of $60,000 for the year ended  December 31, 1997. In December,  1995, the
officers agreed to perform the limited duties that the Company  requires without
compensation until such time as the Company has sufficient  financial  resources
to pay  salaries.  All of such  officers as a group (2 persons) were entitled to
receive aggregate compensation of $ -0- for the year ended December 31, 1997. In
December,  1995,  the  officers  forgave all accrued  salaries  owed them by the
Company because of the Company's depleted financial  resources and the Company's
uncertain  future. In 1995, the Company  recognized  $579,167 in cancellation of
debt income as a result of this forgiveness of debt.

     Pursuant to their employment  agreements with the Company,  Albert D. Kane
and Manuel E. Kane were entitled to reimbursement  for expenses  relating to the
business of the Company and the  performance  of their duties as officers of the
Company during 1997.

     Other than as set forth herein, no remuneration of any nature has been paid
for or on account of services rendered by a Director in such capacity.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The fo11owing table sets forth as of July 15, a998, the number of shares of
the Company's  outstanding  Common Stock owned  beneficially  by (i) each person
known to the Company to be the  beneficial  owner of more than 5% of such stock,
(ii) each Director of the Company, and (iii) all officers and

                                       16

<PAGE>


Directors of the Company as a group:

Name & Address of          Amount and Nature of       Percentage of Outstanding
Beneficial Owner           Beneficial Ownership             Common Stock
------------------         --------------------       ------------------------- 
                                   (1)

Manuel E. Kane                   200,000                       2.00%
4252 Woodglen Lane               
Charlotte,  NC 28226


Albert D. Kane                   200,000                       2.00%
391 Hartshorn                    
Drive Short Hills,  NJ 07078 
                                ---------                    ---------


All directors and officers
as a group (2 persons)           400,000                       4.00%

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

Steven M. Kane                 2,015,100                      20.19%   
4013 Walnut Clay Road            
Austin, TX 78731-3934          

Seth M. Kane                   1,245,050                      12.48%
23 Circle Drive
Belmont, NC 28012  


Ross A. Kane                   1,245,050                      12.48%  
6115 Hickory Forest Drive
Charlotte,  NC 28277


(1) All shares are held  directly.

 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Under employment  agreements with the Company,  Manuel E. Kane as President
and Treasurer and Albert D. Kane as Chairman of the Board and Secretary, each is
entitled to receive annual  salaries of $50,000  subject to any increases,  plus
any bonuses approved by the Company's Board of Directors. In December, 1995, the
officers agreed to perform the limited duties that the Company  requires without
compensation until such time as the Company has sufficient  financial  resources
to pay salaries.  In December,  1995, the officers  forgave all accrued salaries
owed them by the Company because of the Company's depleted financial resources
and the Company's  uncertain  future.  The Kanes'  employment  pursuant to their
agreements  continues for  successive  periods of one year unless  terminated by
either party.

     During 1994, Ross A. Kane, the son of Albert D. Kane, was hired to perform
accounting and administrative functions including, but not limited to, functions
involved with the filing of the Company's  Form 10-K for the year ended December
31, 1993,  and the Forms 10-Q for the year ended  December  31,  1994.  Mr. Kane
billed the Company a total of $120,000 for the services

                                       17



<PAGE>

rendered in 1994 and 1993,  but he agreed to defer  payment of these fees due to
the  depletion  of the  Company's  cash  reserves.  The Company  terminated  the
employment  of Ross A. Kane as a full-time  employee  of the  Company  effective
August 24,  1992.  Since  March,  1990,  the Company had  employed Mr. Kane on a
full-time  basis.  Mr.  Kane was  compensated  in the amount of $56,001  for his
services in 1992.  During 1992,  $17,334 was paid to Mr.  Kane,  and $38,667 was
deferred  because of the depletion of the Company's cash reserves.  In December,
1995, Mr. Kane forgave the debt owed him by the Company which totaled  $183,667
because of the  Company's  depleted  cash  reserves and the  uncertainty  of the
Company's  future.  Ross Kane received  1,245,050 shares of the Company's common
stock by gift from his father,  Albert D. Kane;  75,000  shares on November  30,
1990,  200,000 shares on December 20, 1991, 200,000 shares on December 15, 1992,
and 770,050 shares on March 10, 1998. Ross Kane is the nephew of Manuel E. Kane.

     In  December,   1988,   the  Company   entered  into  a  three-year   sales
representation agreement with Steven M. Kane, Inc., of which the principal owner
and  officer is Steven  Kane,  a former  Director  of the Company and the son of
Manuel E. Kane and the nephew of Albert D. Kane.  The agreement had been renewed
for five additional  one-year periods.  This agreement provided for a commission
of up to 10% on  certain  sales  of the  Company's  products  in the  designated
territory and/or to designated  companies.  Commissions of $2,132 have been paid
under this  agreement,  and  commissions  of $17,497  had been  accrued and were
unpaid at  December  31,  1994.  In April,  1991,  the  Company  entered  into a
three-year  finder's agreement with Steven M. Kane, Inc. This agreement provided
for a  commission  of 10% of the revenue  collected  for sales of the  Company's
products to a designated  group of four potential  customers.  The agreement has
been renewed for an additional  one-year period. No finder's fees have been paid
under  this  agreement.  The  Company  reimbursed  Steven  Kane for  only  those
out-of-pocket  expenses  relating  to  services  he  performed  on behalf of the
Company that are unrelated to Company sales  activities in which he engages.  In
December,  1995, Mr. Kane forgave the debt which totaled  $17,497 because of the
Company's depleted cash reserves and the uncertainty of the Company's future. As
of December 31, 1995,  this  agreement  was not  renewed.  Steven Kane  received
2,015,100 shares of the Company's  common stock by gift from his father,  Manuel
E. Kane,  75,000  shares on November  30, 1990,  200,000  shares on December 20,
1991,  200,000  shares on December 15, 1992,  and 1,540,100  shares on March 10,
1998. Steven Kane is the nephew of Albert D. Kane.

Michael Kane received  475,000 shares of the Company's common stock by gift from
his father,  Manuel E. Kane, 75,000 shares on November 30, 1990,  200,000 shares
on December 20, 1991,  200,000 shares on December 15, 1992.  Michael Kane is the
nephew of Albert D. Kane.

On March 10, 1998, Seth Kane received  1,245,050  shares of the Company's common
stock by gift from his father, Albert D. Kane. Seth Kane is the nephew of Manuel
E. Kane.

                                    PART IV

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

     (a) 1. Financial  Statements.  The following Financial Statements are filed
herewith as required pursuant to Part I, Item 8 of this Form 10-K:

                                       18

<PAGE>


REPORT OF INDEPENDENT CERTIFIED PUBLIC                               Page
ACCOUNTANTS (is not filed with this report because                   ----
the financial statements filed with this Form 10-K
were generated internally and unaudited.)

BALANCE SHEETS, December 31, 1997 and 1996 (Unaudited)               F-1

STATEMENTS OF LOSS                                                   F-3
     Years ended December 31, 1997, 1996, and 1995
     and the period from January 10, 1984 (Inception
     to December 31, 1997 (Unaudited)                       

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY,                       F-5
     Years ended December 31, 1997, 1996, and 1995
     and the period from January 10, 1984 (Inception)
     to December 31, 1997 (Unaudited)

STATEMENT OF CASH FLOWS,                                             F-7
     Years ended December 31, 1997, 1996, and 1995         
     and the period from January 10, 1984 (Inception) 
     to December 31, 1997 (Unaudited)                 
                                                      
NOTES TO FINANCIAL STATEMENTS (Unaudited)                            F-8

          2.  Schedules.  The following Financial Statement Schedules are filed
herewith:     

INDEPENDENT AUDITOR'S REPORT ON SCHEDULES (is                        Page
not filed with this report because                                   ----
the financial statements filed with this Form 10-K
were generated internally and unaudited.)

SCHEDULE V - Property, Plant and Equipment                           S-1

SCHEDULE VI - Accumulated Depreciation and amortization              S-4
              of Property and Equipment

          3.  Exhibits.  The following exhibits are filed herewith pursuant to
the requirements of paragraph (c) of this Item 14 and Item 601 of Regulation 
S-K:




                  (Remainder of page left intentionally blank)





                                       19

<PAGE>




<TABLE>

Exhibit No.               Document                                               Method of Filing
----------               --------                                               ----------------

<S>                                                              <C>   

3.1            Articles of Incorporation & Amendments            Filed herewith and reference is made to
                                                                 Exhibits 3.1, 3.2, 3.3 and 3.4 of the 
                                                                 Company's Form S-18 Registration Statement
                                                                 (Registration No. 2-96567-A)  effective date
                                                                 May 14, 1985, which is hereby incorporated
                                                                 herein and reference is made to Exhibit 3.1
                                                                 of the Company's Form 10-K (Commission File
                                                                 No. 0-13738) for the year ended December 31,
                                                                 1990 which is hereby incorporated herein.
3.2            Bylaws as Amended Through September 21, 1990      Reference is made to Exhibit 3.2 of the 
                                                                 Company's Form 10-K (Commission File No.
                                                                 0-013738) for the year ended December 31, 1990
                                                                 which is hereby incorporated herein.
4.1            Specimen Certificate                              Reference is made to Exhibit 4.1 of the 
                                                                 Company's Form 10-K (Commission File No.
                                                                 0-13738) for the year ended December 31, 1985
                                                                 which is hereby incorporated herein.
9              Voting trust agreement (Not applicable)           
10.1           Employment agreement with Sherman T. Mayne**      Reference is made to Exhibit 10.1 of the 
                                                                 Company's Form 10-K (Commission File No.
                                                                 0-13738) for the year ended December 31, 1990
                                                                 which is hereby incorporated herein.
10.2           Employment agreement with Manuel E. Kane          Reference is made to Exhibit 10.6 of the
                                                                 Company's Form S-18 Post-Effective Amendment
                                                                 No. 2 (Registration No. 2-96567-A) filed
                                                                 January 5, 1988 which is hereby incorporated
                                                                 herein.
10.3           Employment agreement with Albert D. Kane          Reference is made to Exhibit 10.6 of the 
                                                                 Company's Form S-18 Post-Effective Amendment
                                                                 No. 2 (Registration No. 2-96567-A) filed
                                                                 January 5, 1988 which is hereby incorporated
                                                                 herein.
10.4           Stock Repurchase Agreement between Gram           Reference is made to Exhibit 10.7 of the
               Research & Development Co. and Registrant         Company's Form S-18 Registration Statement
                                                                 (Registration No. 2-96567-A) effective date
                                                                 May 14, 1985, which is hereby incorporated
                                                                 herein.
10.5           Agreement with Pfeiffer College - 1985***         Reference is made to Exhibit 10.6 of the 
                                                                 Company's Form 10-K (Commission File No.
                                                                 0-13738) for the year ended December 31,
                                                                 1985 which is hereby incorporated herein.
10.6           Agreement with Pfeiffer College - 1986***         Reference is made to Exhibit 10.15 of the
                                                                 Company's Form S-18 Post-Effective
                                                                 Amendment No. 1 (Registration No. 2-96567-A)
                                                                 filed February 13, 1987 which is hereby
                                                                 incorporated herein.
10.7           Agreement with Pillar TEchnologies, Inc.*         Reference is made to Exhibit 10.26 of the
                                                                 Company's Form 10-K (Commission File No. 
                                                                 0-13738) for the year ended December 31, 
                                                                 1987 which is hereby incorporated herein.
10.8           Agreement with Excalibur Enterprises, Inc.*       Reference is made to Exhibit 10.26 of the
                                                                 Company's Form 10-K (Commission File No.
                                                                 0-13738) for the year ended December 31,
                                                                 1987 which is hereby incorporated herein.
10.9           Agreement with Rowe R. Motley, Doris B. Stith     Reference is made to Exhibit 10.34 of the
               and Sherman T. Mayne                              Company's Form 10-K (Commission File No.
                                                                 0-13738) for the year ended December 31,
                                                                 1988 which is hereby incorporated herein.
10.10          Consulting Agreement with Howard L. Cytryn        Reference is made to Exhibit 10.13 of the
               5/06/89-11/05/89***                               Company's Form 10-K (Commission File No.
                                                                 0-13738) for the year ended December 31,
                                                                 1989 which is hereby incorporated herein.


                                       20

<PAGE>


10.11          Employment Contract with Terry R. Denton**        Reference is made to Exhibit 10.14 of the
                                                                 Company's Form 10-K (Commission File No.
                                                                 0-13738) for the year ended December 31,
                                                                 1989 which is hereby incorporated herein.
10.12          Testing Services Agreement between Bechtel-KWU    Reference is made to Exhibit 10.15 of the
               Alliance and Registrant**                         Company's Form 10-K (Commission File No.
                                                                 0-13738) for the year ended December 31,
                                                                 1989 which is hereby incorporated herein.
10.13          Lease between Washington Power Supply**           Reference is made to Exhibit 10.13 of the
                                                                 Company's Form 10-K (Commission File No.
                                                                 0-13738) for the year ended December 31,
                                                                 1990 which is hereby incorporated herein.
10.14          Employment Contract with Rodney Webb**            Reference is made to Exhibit 10.14 of the
                                                                 Company's Form 10-K (Commission File No.
                                                                 0-13738) for the year ended December 31,
                                                                 1990 which is hereby incorporated herein.
10.15          Lease between Pfizer, Inc. and REgistrant**       Reference is made to Exhibit 10.15 of the
                                                                 Company's Form 10-K (Commission File No.
                                                                 0-13738) for the year ended December 31,
                                                                 1990 which is hereby incorporated herein.
10.16          Agreement between World Financial Network, Inc.   Reference is made to Exhibit 10.16 of the
               and Registrant*                                   Company's Form 10-K (Commission File No.
                                                                 0-13738) for the year ended December 31,
                                                                 1990 which is hereby incorporated herein.
10.17          Agreement between Stone & Webster Engineering     Reference is made to Exhibit 10.17 of the
               and Registrant***                                 Company's Form 10-K (Commission File No.
                                                                 0-13738) for the year ended December 31, 
                                                                 1990 which is hereby incorporated herein.
10.18          Agreement between Tracy Staller and Registrant*   Reference is made to Exhibit 10.18 of the
                                                                 Company's Form 10-K (Commission File No. 
                                                                 0-13738) for the year ended December 31,
                                                                 1990 which is hereby incorporated herein.
11             Statement re computation of per share earnings (not applicable)
12             Statement re computation of ratios (not applicable)
13             Annual or Quarterly Report (Not applicable)
16             Letter re Change in Certifying Accountant (Not applicable)
18             Letter re change in accounting principles (Not applicable)
19             Previously unfiled documents (Not applicable)
22             Subsidiaries of the registrant (Not applicable)
23             Published report regarding matters submitted to
               vote of security holders (Not applicable)
24             Contents (Not applicable)
25             Power of Attorney (Not applicable)
28.1           Patent                                            Reference is made to Exhibit 28.1 of the
                                                                 Company's Form S-18 Registration Statement
                                                                 (Registration No. 2-96567-A0 effective date
                                                                 May 14, 1985, which is hereby incorporated
                                                                 herein.
28.2           Assignment of Patent                              Reference is made to Exhibit 28.2 of the 
                                                                 Company's Form S-18 Registration Statement
                                                                 (Registration No. 2-96567-A) effective date
                                                                 May 14, 1985, which is hereby incorporated
                                                                 herein.
29             Information from reports furnished to state
               insurance regulatory authorities (Not applicable)

</TABLE>


-------------------------------
*    Although this agreement has not been terminated, no joint activities are 
     expected to be conducted thereunder.
**   This agreement has been terminated. 
***  This agreement has expired. 



                                       21

<PAGE>                  
                                                                       






                        RADIATION DISPOSAL SYSTEMS, INC.
                         (A Development Stage Company)

                                 Balance Sheets
                                  (Unaudited)

                                     Assets


                                                       December 31
                                               ----------------------------     
                                                   1997            1996
                                               -----------      -----------
Assets
  Cash                                         $     159        $     193
                                               -----------      -----------
     Total Assets                                    159              193
                                               ===========      ===========

















See notes to the financial statements.


                                   (continued)


                                      F-1

<PAGE>


                        RADIATION DISPOSAL SYSTEMS, INC.
                         (A Development Stage Company)

                           Balance Sheets (continued)
                                  (Unaudited)


                      Liabilities and Stockholders' Equity


                                                       December 31
                                               ----------------------------
                                                   1997            1996    
                                               -----------      -----------
Current liabilities
  Accounts payable                             $    9,497       $   15,102
  Notes payable                                    44,231           41,783
  Accrued interest payable                         21,097           16,502
                                               -----------      -----------
      Total current liabilities                    74,825           73,387



Stockholders' equity
  Convertible preferred stock - non-voting,
    non-cumulative, $.50 par value,
    authorized 1,500,000 shares, issued
    and subsequently converted to common
    stock, 650,000 shares                              -              -
  Common stock, $.001 par value, authorized
    20,000,000 shares, issued and
    outstanding - 9,977,495 shares                    9,977          9,977
  Additional paid-in capital                      3,451,590      3,451,590
  Deficit accumulated during development
    stage                                        (3,536,233)    (3,534,761)
                                                ------------    -----------
                                                    (74,666)       (73,194)
                                                ------------    -----------
                                                $       159            193
                                                ============    ===========



See notes to the financial statements.


                                      F-2

<PAGE>


                        RADIATION DISPOSAL SYSTEMS, INC.
                          (A Delopment Stage Company)

                              Statements of Income
                                  (Unaudited)
                                        

<TABLE>

<S>                                                    <C>                                       <C>            
                                                                                                    Period from    
                                                                                                  January 10, 1984
                                                                Year ended December 31              (Inception) to
                                                       ------------------------------------
                                                         1997          1996          1995         December 31, 1997
                                                       ----------   ----------   ----------       -----------------



Sales - net                                            $    -       $    -       $    -           $        394,447

Cost of sales                                               -            -            -                    330,606
                                                       ----------   ----------   ----------       -----------------
Gross margin                                                -            -            -                     63,841
                                                       ----------   ----------   ----------       -----------------
Engineering, research and development expenses
  Engineering expenses                                      -            -            -                    243,499
  Consulting expenses                                       -            -            -                    218,205
  Materials and supplies                                    -            -            -                    148,623
  Depreciation                                              -            -            -                    453,237
  Amortization of improvements to research facility         -           2,345        2,965                  29,644
  Labor and salaries                                        -            -            -                    667,144
  Service and use agreement expense                         -            -            -                     14,065
  Loss on abandoned property and equipment                  -            -            -                    356,516
  Taxes and licenses                                        -            -            -                     42,824
                                                       ----------   ----------   ----------       -----------------
                                                            -           2,345        2,965               2,173,757
                                                       ----------   ----------   ----------       -----------------
Administrative expenses                                    
  Salaries                                                  -            -          75,000               1,059,183
  Consulting fees                                           -            -           2,079                 198,273
  Public relations                                          -            -            -                    142,344
  Professional fees                                         -            -           4,006                 830,948
  Depreciation                                              -            -            -                      7,569
  Amortization of patent and organization expense           -            -          78,804                 205,455
  Rent                                                      -            -             525                  35,339
  Travel and entertainment                                  -           1,628          524                 214,845
  Office expense                                           2,512        3,962        9,083                 272,010
  Group insurance                                           -            -            -                     30,889
  Insurance                                                 -            -            -                     85,837
  Transfer agent fees                                      2,056          967         -                     59,544
  Taxes and licenses                                        -              45          326                  67,004
  Advertising                                               -            -            -                      7,010
  Commissions                                               -            -             200                  31,145
  Bad debt                                                  -            -          24,096                  24,096
  Other                                                     -             415         -                     51,665
                                                       ----------   ----------   ----------        ----------------
                                                           4,568        7,017      194,643               3,323,156 
                                                       ----------   ----------   ----------        ----------------
    Loss from operations                                   4,568        9,362      197,608               5,433,072

See notes to the financial statements.

</TABLE>

                                      F-3

                                   (continued)


<PAGE>


                        RADIATION DISPOSAL SYSTEMS, INC.
                           (A Delopment Stage Company)

                        Statements of Income (continued)
                                  (Unaudited)

<TABLE>

<S>                                                    <C>                                       <C> 
                                                                                                  
                                                                                                   
                                                                                                    Period from
                                                                                                  January 10, 1984
                                                              Year ended Dcember 31                (Inception) to               
                                                       ------------------------------------           
                                                         1997          1996          1995         December 31, 1997                 
                                                       ----------   ----------   ----------       -----------------       

Other income (expense)
  Interest income                                     $     -           -       $    -           $         788,820
  Other - net (principally
    replacement part sales,
    testing and rental income)                              -            995        12,669                 178,791
  Transfer agent fees                                      2,087         994          -                      3,081
  Cancellation of debt                                     5,605       7,397       932,972                 945,974
  Gain on sale of capital assets                            -           -             -                      1,789
  Interest expense                                        (4,596)     (4,349)       (6,835)                (21,616)
                                                       ----------   ----------   ----------       ------------------      
                                                           3,096       5,013       938,806               1,896,839
                                                       ----------   ----------   ----------       ------------------
    Net Income (loss)                                 $   (1,472)  $  (4,349)   $  741,198        $     (3,536,233)
                                                       ==========   ==========   ==========       ==================

Weighted average shares
  of common stock                                      9,977,495   9,997,495     9,997,495            
                                                       ==========  ==========    ==========
Net income (loss) per share                           $    (.00)   $   (.00)    $      .07
                                                       ==========  ==========    ==========               

</TABLE>









                                      
See notes to the financial statements.

                                      F-4


<PAGE>

                        RADIATION DISPOSAL SYSTEMS, INC.
                         (A Development Stage Company)

                 Statements of Changes in Stockholders' Equity
                                  (Unaudited)

       Years ended December 31, 1997, 1996, and 1995 and the period from
               January 10, 1984 (Inception) to December 31, 1997

<TABLE>

<CAPTION>

                                                                                                               Deficit
                                                       Common Stock        Convertible                        Accumulated
                                                                            Preferred Convertible  Additional   During
                                                   --------------------
                                                   Number of                  Stock    Preferred    Paid-in   Development
                                                   Shares         Amount   Subscribed    Stock      Capital      Stage        Total
                                                   ---------------------------------------------------------------------------------
<S>                                                                  <C>         <C>       <C>         <C>         <C>

Issuance of common stock for cash                     5,777.3873  $5,777   $    -      $   -     $     532   $     -     $    6,309
Issuance of common stock under patent
  assignment agreement                                  532.1077     532        -          -          -            -            532
Change in par value of common stock
  $1.00 per share to $.001 per share              6,303,185.5050    -           -          -          -            -           -
Subscriptions received from convertible
  preferred stock through private placement                -        -       325,000        -          -            -        325,000
Net loss for the initial period ended
  December 31, 1984                                        -        -           -          -          -          (1,255)     (1,255)

Issuance of convertible preferred stock                    -        -      (325,000)    325,000       -            -           -
Issuance of common stock through public
  offering                                       2,7000,000.0000   2,700        -          -      3,372,300        -      3,375,000
Costs incurred in the issuance of common
  and convertible preferred stock:
    Reclassification of deferred expense
      at December 31, 1984                                 -        -           -          -        (78,387)       -        (78,387)
    Costs incurred subsequent to
      December 31, 1984                                    -        -           -          -       (558,492)       -       (558,492)
Net loss for the year ended December 31, 1985              -        -           -          -           -       (125,808)   (125,808)

Net loss for the year ended December 31, 1986              -        -           -          -           -       (201,064)   (201,064)

Conversion of convertible preferred stock
  to common stock                                   650,000.0000     650        -      (325,000)    324,350       -           -
Net loss for the year ended December 31, 1987              -        -           -          -           -       (427,685)   (427,685)

Exercise of warrants held by underwriter            270,000.0000     270        -          -        404,730        -        405,000
Costs incurred to register the common
  stock underlying the warrants                            -        -           -          -        (73,395)       -        (73,395)
Exercise of common stock options                     24,000.0000      24        -          -         29,976        -         30,000
Net loss for the year ended December 31, 1988              -        -           -          -           -       (694,368)   (694,368)

Exercise of common stock options                     24,000.0000      24        -          -         29,976        -         30,000
Net loss for the year ended December 31, 1989              -        -           -          -           -       (897,153)   (897,153)

Net loss for the year ended December 31, 1990              -        -           -          -           -       (597,782)   (597,782)

Net loss for the year ended December 31, 1991              -        -           -          -           -       (437,019)   (437,019)

Net loss for the year ended December 31, 1992              -        -           -          -           -       (373,346)   (373,346)
                                                ------------------------------------------------------------------------------------
Balance, December 31, 1992                       9,977,495.0000   $9,977   $    -      $   -     $3,451,590 $(3,755,480)  $(293,913)
                                                ------------------------------------------------------------------------------------
</TABLE>

                                  (continued)

     See notes to financial statements.

   

                                       F-5

<PAGE>


                        RADIATION DISPOSAL SYSTEMS, INC.
                         (A Development Stage Comapny)

           Statements of Changes in Stockholder's Equity (continued)
                                  (Unaudited)

       Years ended December 31, 1997, 1996, and 1995, and the period from
               January 10, 1984 (Inception) do December 31, 1997

                               
<TABLE> 
<S>     <C>                                      <C>                       <C>                   <C>         <C>          <C>

                                                                                                               Deficit              
                                                       Common Stock        Convertible                        Accumulated           
                                                                           Preferred Convertible  Additional   During              
                                                   --------------------                                                             
                                                  Number of                  Stock    Preferred    Paid-in   Development           
                                                  Shares         Amount    Subscribed   Stock      Capital      Stage        Total 
                                                  -------------- -------  ------------ --------   --------- ------------ ----------

Net loss for the year ended December 31, 1993              -        -           -          -           -       (318,269)   (318,269)
                                                  -------------- -------   ----------- --------  ---------- ------------  ----------
Balance, December 31, 1993                        9,977,495.0000 $ 9,977   $    -      $   -     $3,451,590 $(4,073,749)  $(612,182)
                                                  -------------- -------   ----------- --------  ---------- ------------  ----------
Net loss for the year ended December 31, 1994              -        -           -          -           -       (197,861)   (197,861)
                                                  -------------- -------   ----------- --------  ---------- ------------  ----------
Balance, December 31, 1994                        9,977,495.0000 $ 9,977   $    -      $   -     $3,451,590 $(4,271,610)  $(810,043)
                                                  -------------- -------   ----------- --------  ---------- ------------  ----------
Net income for the year ended December 31, 1995            -        -           -          -           -        741,198     741,198
                                                  -------------- -------   ----------- --------  ---------- ------------  ----------
Balance, December 31, 1995                        9,977,495.0000 $ 9,977   $    -      $   -     $3,451,590 $(3,530,412)  $ (68,845)
                                                  -------------- -------   ----------- --------  ---------- ------------  ----------
Net loss for the year ended December 31, 1996              -        -           -          -           -         (4,349)     (4,349)
                                                  -------------- -------   ----------- --------  ---------- ------------  ----------
Balance, December 31, 1996                        9,977,495.0000 $ 9,977   $    -      $   -     $3,451,59  $(3,534,761)  $ (73,194)
                                                  -------------- -------   ----------- --------  ---------- ------------  ----------
Net loss for the year ended December 31, 1997              -        -           -          -           -         (1,472)     (1,472)
                                                  -------------- -------   ----------- --------  ---------- ------------  ----------
Balance, December 31, 1997                        9,977,495.0000 $ 9,977   $    -      $   -     $3,451,590 $(3,536,233)  $ (74,666)
                                                  ============== =======   =========== ========  ========== ============  ==========
                        

</TABLE>







        See notes to the financial statements.

                                      F-6

<PAGE>


                        RADIATION DISPOSAL SYSTEMS, INC.
                         (A Development Stage Company)

                            Statements of Cash Flows
                                  (Unaudited)
<TABLE>
<CAPTION>


                                                                                                          Period from
                                                                                                        January 10, 1984
                                                               Year ended December 31                    (Inception) to
                                                       ------------------------------------
                                                         1997          1996          1995               December 31, 1994
                                                       ---------   -----------  -----------             -----------------
<S>                                                                             <C>                     <C>

Cash flows from operating activities
  Net income (loss)                                     $(1,472)    $(4,349)    $ 741,198                    $(3,536,233)
  Adjustment to reconcile net loss to net
  cash used by operating activities                
    Depreciation and amortization                          -          2,345        81,770                        695,906
    Loss on abandoned property
      and equipment                                        -           -             -                           356,516
    Book value of machinery included
      in cost of sales                                     -           -             -                             6,236
    (Increase) decrease in accounts receivable             -           -           24,096                           -
    (Increase) decrease in prepaid expenses                -           -              175                           -
    Increase (decrease) in accounts payable              (5,605)     (7,397)     (281,502)                         9,497
    Increase (decrease) in accrued liabilities            4,596       4,374      (565,667)                        21,097
                                                       ---------   -----------  -----------             -----------------
      Net cash provided by (used by)
        operating activities                             (2,481)     (5,027)           70                     (2,446,981)
                                                       ---------   -----------  -----------             -----------------
Cash flows from investing activities
  Property and equipment additions                         -           -             -                          (853,202)
  Costs incurred in connection with purchase
    and protection of patent rights                        -           -             -                          (201,270)
  Increase in organization expense                         -           -             -                            (4,185)
                                                      ---------    -----------  -----------             -----------------
     Net Cash used in investing activities                 -           -             -                        (1,058,657)
                                                      ---------    -----------  -----------             -----------------
Cash flows from financing activities
  Proceeds from the issuance of common stock,
    including the conversion of proferred stock            -           -             -                         4,171,841
  Costs incurred in connection with the issuance
    of common and convertible preferred stock,
    including costs classified as deferred expense         -           -             -                          (710,274)
  Issuance of notes payable                               9,447       5,700        14,180                        118,827
  Retirement of notes payable                            (7,000)       (497)      (14,600)                       (74,597)  
                                                      ---------    -----------  -----------             -----------------
    Net cash provided (used) by financing activities      2,447       5,203          (420)                     3,505,797
                                                      ---------    -----------  -----------             -----------------
    Net increase (decrease) in cash                         (34)        176          (350)                           159

Cash
  Beginning                                                 193          17           367                           -
                                                      ---------    -----------  -----------             -----------------
  Ending                                                $   159     $   193     $      17                    $       159
                                                      =========    ===========  ===========             =================      

</TABLE>

See notes to the financial statements.

                                      F-7

<PAGE>


                        RADIATION DISPOSAL SYSTEMS, INC.
                         (A Development Stage Company)

                         Notes to Financial Statements
             December 31, 1997, 1996, and 1995, and the period from
                January 10 1984 (Inception) to December 31, 1997

                                  (Unaudited)

Note 1 - Omission of Report of Independent Public Accountants

Due to its  severe  curtailing  of its  operations  and its  lack  of  remaining
financial  resources,  the  Company was  not audited by its  Independent  Public
Accountants.  The financial statements presented in the Form 10-K are unaudited.
                                                                      ----------

In the opinion of the Company,  the accompanying  unaudited financial statements
contain  all  adjustments  (consisting  of only  normal  recurring  adjustments)
necessary to present  fairly the financial  position as of December 31, 1997 and
1996, the results of operations,  the changes in stockholders'  equity,  and its
cash flows for the years ended December 31, 1997, 1996, and 1995, and the period
from January 10, 1984 (inception) to December 31, 1997.

The  financial  statements  have been  prepared  assuming  that the Company will
continue as a going concern.  As discussed more fully in Note 2 to the financial
statements,  the Company has been in the  development  stage since its inception
(January  10,  1984) and as such  devoted  substantially  all its efforts in the
areas of engineering and research and in developing markets for systems designed
to apply the ozone  technologies to treat wastes and water.  The Company has not
generated significant  operating revenues,  has incurred substantial losses, and
has made  substantial  investments  in property and  equipment and patent costs.
Because the Company's  cash  reserves are  substantially  depleted,  substantial
doubt exists about the  Company's  ability to continue as a going  concern.  The
Company has extremely curtailed its operations.

Note  2  -  Accounting  policies  

Organization

The Company was incorporated on January 10, 1984, with its principal  purpose to
design,  manufacture,  sell, and service equipment and systems for the treatment
of contaminated insoluble organic solid materials.  Because the Company has been
unsuccessful in its efforts to market the equipment and systems for treatment of
radioactive  wastes,  it  devoted  a  significant  amount  of  activity  in  the
development and application of ozone technologies to treat nonradioactive wastes
and water. The Company has been  unsuccessful in its efforts to market the ozone
technologies to treat nonradioactive wastes and water.

Since its inception  (January 10, 1984), the Company has been in the development
stage. Although operations have commenced and the Company has generated sales of
equipment  and systems,  the operating  revenue  received by the Company has not
been  significant.  Development  stage activities to date consisted in the early
years of testing  and  engineering  the  machinery  to treat the  organic  solid
materials referred to in the preceding paragraph and

                                       F-8


<PAGE>



                        RADIATION DISPOSAL SYSTEMS, INC.
                         (A Development Stage Company)


                         Notes to Financial Statements

             December 31, 1997, 1996, and 1995, and the period from

               January 10, 1984 (Inception) to December 31, 1997

                                   (Unaudited)

Note 2 - Accounting policies (continued)

testing the  application  of the method  referred to in Note 4, to treat certain
insoluble  radioactive  materials.  In  later  years,  these  development  stage
activities  have  consisted of developing  and marketing the ozone  technologies
referred to in the  preceding  paragraph.  During this  development  stage,  the
Company  has  incurred  significant  operating  losses and has made  substantial
investments 1n property and equipment and patent costs.

Because  of the  significant  losses  referred  to on the  preceding  page,  the
substantial  depletion  of the  Company's  cash  reserves  and  the  uncertainty
surrounding whether additional debt or equity funds can be obtained, the Company
may be unable to continue as a going concern.

Property and equipment  

Property  and  equipment  included  the  historical  costs  incurred  to acquire
components of and assemble the  laboratory and  demonstration  models of certain
systems used to apply the technologies  referred to on the preceding page. These
costs had been  capitalized  because of  management's  intention to utilize such
models in  alternative  engineering  activities  and to assist in the  marketing
process. The carrying value of machinery and components which are no longer used
in the testing and marketing  processes and which have been permanently  removed
from the models is charged to loss on abandoned  property  and  equipment in the
year the  components  are  abandoned.  As of  December  31,  1997,  all of the
carrying value of the  aforementioned  machinery and components has been charged
to loss on abandoned property and equipment.

Depreciation 

Depreciation  on equipment  was computed  using  principally  the  straight-line
method  over  seven  years,   the  estimated   useful  life  of  the  equipment.
Depreciation   on  office   equipment  was  computed   using   principally   the
straight-line method over five years.

Warranty costs


Because sales of machinery and equipment have not been significant,  the Company
has been unable to establish any historical  experience with respect to warranty
costs.  Accordingly,  no  provision  for  warranty  costs  has been  made in the
accompanying  financial statements.  Research and development costs Research and
development costs are expensed as incurred.

                                      F-9



<PAGE>


                        RADIATION DISPOSAL SYSTEMS, INC.
                         (A Development Stage Company)

                         Notes to Financial Statements
             December 31, 1997, 1996, and 1995, and the period from
                January 10, 1984 (Inception) to December 31, l997

                                   (Unaudited)

Note 2 - Accounting policies (continued)

PATENT


The Company's patent,  originally  granted to Gram Research and Development Co.,
Inc.  (Gram) on March 20, 1984, is being amortized on a straight-1ine basis over
190 months  beginning June,  1985. The Company forwent the payment of applicable
annual renewal fees for all foreign patents,  except the Canadian patent. During
the year ended December 31, 1995, the Company  forwent the payment of applicable
annual  renewal fees for the United  States  patent  because of the  substantial
depletion  of its cash  reserves.  The  remaining  patent costs in the amount of
$78,804 was  included in  amortization  expense in the year ended  December  31,
1995.

Net loss per  share

Net loss per  share  calculations  are  based on the
weighted-average  number of common shares outstanding. 

Note 3 - Improvements to research  facility

Under a ten-year  agreement with Pfeiffer  College entered into in October 1986,
the Company had  exclusive  right to use and occupy a building  for any research
purpose  which does not  involve  radioactive  materials.  Such use was  without
payment of  consideration  for seven years and for  payment of $1  annually  for
three years.  Upon expiration of the agreement,  and the right to use and occupy
the building  belonged to Pfeiffer  College.  The Company's  costs in connection
with the  construction  of the building were amortized  using the  straight-line
method over ten years,  the term of the agreement.  In October,  1996,  Pfeiffer
College took  possession of the building.  In the year ended  December 31, 1996,
the Company retired the asset but did not recognize any loss on retirement.

Note 4 - Patent 

1n March,  1984,  the  Company  obtained  a patent  through
assignment from Gram for a method of treating  contaminated  insoluble  organic
solid  materials.  In connection  therewith,  the  Company  gave Gram and/or its
stockholders  a continuing  9%  ownership of all present and future  outstanding
voting and nonvoting common stock and voting preferred stock of the Company (see
Note 5), and upon the successful completion of the public offering (see Note 5),
the Company paid Gram $170,000. In December, 1988, Gram transferred its right of
continuing ownership to its stockholders.  The amount stated in the accompany1ng
balance sheet includes legal fees incurred in the assignment and

                                      F-10

<PAGE>



                        RADIATION DISPOSAL SYSTEMS, INC.
                         (A Development Stage Company)

                         Notes to Financial Statements
             December 31, 1997, 1996, and 1995, and the period from
                January 10, 1984 (Inception) to December 31, l997

                                   (Unaudited)



 Note 4 - Patent (continued)

additional legal costs to register foreign patents.

Note 5 - Capital stock

Preferred stock

In September,  1984, the stockholders of the Company authorized the amendment of
the Company's Articles of Incorporation to allow the issuance of up to 1,500,000
shares  of $.50 par  value,  non-voting  preferred  stock,  such  amendment  and
issuance  to be in such  amount  and at such time as deemed  appropriate.  These
shares had a 10% non-cumulative dividend, were callable at 105% of par value and
were  convertible  into common stock on a  share-for-share  basis.  In December,
1984, the Company received through a private placement $325,000 in subscriptions
for  650,000  shares of  convertible  preferred  stock,  and in  January,  1985,
subsequent to the amendment of the Company's Article of Incorporation  described
above,  650,000 shares of this stock were issued. In connection with this issue,
the Company incurred $75,450 in legal,  accounting and brokerage  expenses which
were charged to additional paid-in capital in January, 1985.

In June and August, 1987, the holders of 100,000 and 550,000,  respectively,  of
convertible  preferred  stock  exercised  their right to convert such  preferred
stock into common stock on a share-for-share basis.

Public offering In June, 1985, the Company  conducted a
public  offering of 2,700,000  shares of common  stock for $1.25 per share.  The
underwriter  received a sales  commission of $337,500 (10% of the gross offering
proceeds),  a non-accountable  expense allowance of $85,000 and warrants,  which
were exercisable  over a four-year  period which began in June, 1986,  entitling
the  underwriter to purchase  270,000  shares of the Company's  common stock for
$1.50 per share (see below). 

In  connection  with the  public  offering,  legal,  accounting,  and  brokerage
expenses  of  $561,429  were  incurred,   including  the   underwriter's   sales
commissions and expense allowance  described above.  These costs were charged to
additional paid-in capital.

Warrants

The Company filed two  post-effective  amendments to the registration  statement
filed in connection  with the initial public  offering of its common stock.  The
amendments  were filed on behalf of the  warrant  holders  referred  above,  who
exercised their right to require, at the expense of the Company, a one-


                                      F-11

<PAGE>

                        RADIATION DISPOSAL SYSTEMS, INC.
                         (A Development Stage Company)
                         Notes to Financial Statements

             December 31, 1997, 1996, and 1995, and the period from
          January 10, 1984 (Inception) to December 31, 1997 (Unaudited)

 Note 5 - Capital stock  (continued) 

time registration of the 270,000 shares of common stock underlying the warrants.
In July and September, 1988, the warrants were exercised,  whereupon the Company
received  $405,000 ($1.50 per share  exercised),  In connection with the filings
referred to above,  the Company  incurred legal and accounting  fees of $73,395,
which were charged to additional paid-in capital upon exercise of the warrants.

 Stock  options

The Company has granted stock options to Rowe Motley,  an officer,  director and
stockholder of Gram, and George Robinson,  an officer,  director and stockholder
of Gram prior to March, 1983, in partial  consideration for technical consulting
services rendered to the Company.  Options were also granted to Murray Frank and
Anthony J. Forte in exchange for consulting services rendered in connection with
the initial  conceptualization of the Company and the exploitation of the method
described in Note 4. Each of these options was granted to purchase 24,000 shares
of common  stock at $1.25 per  share,  the same  price as the  common  stock was
offered in the initial public offering.  The options for Robinson and Frank have
expired.  In 1988, the Company  received $30,000 for the exercise of the options
held by Mr. Forte and in 1989, the Company received $30,000 for the exercise of:
the options held by Mr. Motley.

In  addition,  the  Company  agreed to give Gram's  stockholders  (see Note 4) a
continuing  9%  ownership  of all  present  and  future  outstanding  voting and
nonvoting  common stock and voting  preferred stock of the Company (see Note 4),
and the  Company  retained  the  right  to  repurchase  any  shares  held by the
stockholders  at $.001 a share as long as such  purchase  would not  reduce  the
ownership  below 9%. Prior to June 30, 1990, the Company  exercised its right to
repurchase a total of 34,418 shares,  but as of December 31, 1997, the necessary
documents  to effect  the  transfer  of  shares  have not been  fully  executed;
consequently, the shares remain outstanding at December 31, 1997. The continuing
9% ownership  right is reduced by the percentage  decrease in the  stockholders'
interest occurring by reason of their sale or assignment of the Company's stock.

 Note 6 - Income taxes

At December 31, 1997,  the Company has  available for tax purposes net operating
loss  carryforwards of approximately  $3,556,000 which have been generated since
inception and may be applied against future taxable income.  Such  carryforwards
began expiring in 1989 for state income tax purposes  (approximately  $2,433,000
have  expired at  December  31,  1997) and 1999 for federal  tax  purposes.  For
financial  reporting  purposes,  the Company's net operating loss carryovers are
approximately $3,465,000 which differ from

                                      F-12

<PAGE>


                        RADIATION DISPOSAL SYSTEMS, INC.
                         (A Development Stage Company)
                         Notes to Financial Statements

             December 31, 1997, 1996, and 1995, and the period from
          January 10, 1984 (Inception) to December 31, 1997 (Unaudited)

                                  (Unaudited)

Note 6 - Income taxes  (continued)

those  available  for  income tax  purposes  because  of timing  differences  in
reporting  loss on abandoned  property and  equipment.  At December 31, 1997 and
1996, no deferred income taxes are applicable to those timing differences.

Additionally,   the  Company  has  available  research  and  development  credit
carryforwards  of  approximately  $103,000  which are available to reduce future
income tax expense and which  begin to expire in the year  ending  December  31,
2000.  No income tax benefit is provided  for the effect of  operating  loss and
credit  carryforwards  since at  December  31,  1997,  1996,  and  1995,  future
utilization of the operating loss is not certain and no deferred tax liabilities
exist for which the credit carryforward can offset.

Note 7 - Related  party transactions

The Company has paid  compensation  to an  individual  who was a director of the
Company  and who is related to  officers  and  directors  of the  Company.  Such
compensation  paid to this  individual  amounted  to $17,497  for the year ended
December 31, 1992. In December, 1995, this individual forgave the debt which the
Company  owed him  totaling  $17,497  because  of the  Company's  depleted  cash
reserves and the  uncertainty of the Company's  future.  The Company has accrued
professional  services of $120,000  for the years  ended  December  31, 1994 and
1993,  and has accrued  compensation  of $38,667 and $25,000 for the years ended
December 31, 1992 and 1991,  respectively,  to an  individual  who is related to
officers  and  directors  of  the  Company.  This  individual  agreed  to  defer
collection of the professional  fees and  compensation  because of the Company's
depletion in its cash reserves.  In December,  1995, this individual forgave the
debt which the  Company  owed him  totaling  $183,667  because of the  Company's
depleted cash reserves and the uncertainty of the Company's future. For the year
ended December 31, 1995, the amount of $201,164 is included in  cancellation  of
debt income,  In addition,  the Company included $4,718 of accrued payroll taxes
related to the  forg1ven  salaries in  cancellation  of debt income for the year
ended December 31, 1995.

Note 8 - Commitments 

Employment agreements The Company

entered into five-year  employment  agreements with two  stockholders,  who are
also  officers  and  directors,  providing  for  compensation  of  $50,000  each
annually.  These agreements were scheduled to expire in December, 1989, but were
automatica11y  renewed for additional one-year periods.  The individuals covered
under these agreements also agreed to defer

                                      F-13

<PAGE>


                        RADIATION DISPOSAL SYSTEMS, INC.
                         (A Development Stage Company)

                         Notes to Financial Statements
             December 31, 1997, 1996, and 1995, and the period from
          January 10, 1984 (Inception) to December 31, 1997 (Unaudited)
 
                                  (Unaudited)


Note 8 - Commitments  (continued)

collection of the  compensation  because of the Company's  depletion in its cash
reserves. In December,  1995, the two shareholders forgave the debt owed them by
the Company  which  totaled  $579,167  because of the  Company's  depleted  cash
reserves and the  uncertainty of the Company's  future.  In December,  1995, the
officers agreed to perform the limited duties that the Company  requires without
compensation until such time as the Company has sufficient  financial  resources
to pay salaries. For the year ended December 31, 1995, the amount of $579,157 is
included in cancellation of debt income.

 Sales and finders  agreements 

In December,  1988, January, 1989, and March, 1989, the Company entered into six
separate  three-year  finders  agreements  with an  individual.  Each  agreement
provides  for a  10't  commission  of  revenue  collected  on all  sales  by the
individual to certain customers  operating at specific sites, as defined in each
separate  agreement.  In addition,  in August,  1988, the Company entered into a
five-year  finders  agreement with an individual which provides for a commission
of 5% of revenue  collected on all sales to a certain customer as defined in the
agreement.  Total  commissions  during the term of the  agreement are limited to
$50,000.  No sales activity is presently being conducted under these agreements.
These agreements were no longer in force at December 31, 1995.

In December,  1988, the Company entered into a three-year  sales  representative
agreement  with a  corporation,  of which the principal  owner and officer was a
director of the Company and is related to the Company's ma3ority stockholders by
reason of family  membership.  The  agreement  provided for a commission  not to
exceed 10% of the net amount,  as  defined,  received by the Company on any sale
made by the corporation of such products and in such territory  specified.  This
agreement was renewed for four additional one-year periods.  Commissions expense
of $19,629 has been incurred by the Company in connection  with this  agreement.
(See Note 7 -Related Parties)

Also, in April,  1991, the Company entered into a three-year  finder's agreement
with a corporation,  of which the principal  owner and officer was a director of
the Company and is related to the Company's majority  stockholders by reason of
family  membership.  This  agreement  provides  for a  commission  of 10% of the
revenue  collected,  as  defined,  for  sales  of the  Company's  products  to a
designated  group of four  potential  customers.  This  agreement was renewed an
additional  one-year period,  No sales activity has occurred as a result of this
agreement.

In January,  1991,  the Company  entered  into a three-year  agreement  with an
engineering  firm. This agreement  provides for the engineering firm to have the
exclusive right to promote,  market and/or sublicense certain of the Company's
ozone technologies in conjunction, with systems designed to utilize

                                      F-14

<PAGE>



                        RADIATION DISPOSAL SYSTEMS, INC.
                         (A Development Stage Company)

                         Notes to Financial Statements
             December 31, 1997, 1996, and 1995, and the period from
          January 10, 1984 (Inception) to December 31, 1997 (Unaudited)
 
                              (Unaudited)

 Note 8 - Commitments (continued)

such   technologies  or  components   thereof,   to  petroleum   refineries  and
petrochemical  plants  in the  United  States  and a  designated  group of three
potential  firms in India.  No sales  activity  has occurred as a result of this
agreement. This agreement expired prior to December 31, 1995.

Research assistance agreement

The Company has entered into an agreement  with Pfeiffer  College for the use of
laboratory  facilities  and  personnel  necessary to test the  prototype  system
utilizing the process to treat insoluble organic solid materials.

In  consideration  of the College's  performance and upon the completion of such
testing,  the  Company  transferred  to the  College  title to  certain  testing
equipment,  with a cost to the  Company  estimated  to be  between  $30,000  and
$35,000.

Lease 

Through  May,  1986,  the  Company   subleased  its  office  facilities  from  a
corporation  owned by a principal  stockholder  for $125 monthly  under a month-
to-month  sublease.  Effective June,  1986, the Company began leasing its office
facilities  for $139 a month under a one-year  noncancellable  operating  lease,
which was renewed in June, 1988, for $144 a month through May, 1989, and renewed
again in June,  1989, for $152 a month through May,  1990. The Company  leased
expanded  facilities  under an  extension  of this lease for $483 a month  until
September,  1996. Effective October, 1996, the Company subleased its facilities
from an individual  who is a stockholder,  director,  and officer of the Company
for $175 monthly under a month-to-month  sublease.  Effective April 1, 1995, the
Company  subleased office space from Manuel E. Kane pursuant to a month-to-month
lease agreement. The Company does not pay rent under this lease agreement.

 Development and consulting  agreement

In  January,  1988,  the  Company  entered  into  an  agreement  with  Excalibur
Enterprises,  Inc.  (Excalibur)  and Lucas Boeve,  the sole  stockholder  of and
president of Excalibur,  for the joint development and construction of machines
and processes that utilize  ozone,  ultraviolet  light and  ultrasonic  sound to
treat wastes and to purify water. The agreement, which expires in January, 1998,
provides certain market restr1ctions for both the Company and Excalibur, subject
to a payment by the  protected  party equal to ten percent (10%) of the profits,
as defined,  derived from the protected  sales  activity.  Profits  derived from
sales in joint  (unrestricted)  areas will be shared  equally by the Company and
Excalibur.  In addition,  the agreement  provided that  Excalibur  would receive
$3,000 a week for thirteen weeks, commencing in 

                                      F-15

<PAGE>



                        RADIATION DISPOSAL SYSTEMS, INC.
                          (A Development Stage Company)

                          Notes to Financial Statements
             December 31, 1997, 1996, and 1995, and the period from
                January 10 1984 (Inception) to December 31, 1997

                                  (Unaudited)


Note 8 - Commitments  (continued) 

January,  1989, in connection with consulting  services  related to the machines
and  processes;  however,  this amount is to be deducted  from any amounts  owed
Excalibur for its share of profits  described  above during the agreement  term.
Currently,  there are no joint  activities being conducted under this agreement.
No expense was incurred in  connection  with this  agreement for the years ended
December 31, 1997, 1996, or 1995.

Development and sales agreement

In  January,   1988,   the  Company   entered  into  an  agreement  with  Pillar
Technologies,  Inc. (Pillar) to jointly develop and patent an electrode assembly
used  for  generating  ozone.  This  agreement  provided  that,  for the  period
commencing  in  January,  1988,  and ending  with the date upon which the patent
referred  to  above is  issued,  the  Company  will  sell to  Pillar  all  ozone
generators  of five pounds or greater that the Company  manufactures  at a price
not to exceed the best price offered to any original equipment  manufacturer for
the same or  similar  product.  No  patent  has been  issued  arising  from this
agreement.  Also, no joint  activities are be1ng conducted under this agreement,
and future activities are not expected.

 Note 9 - Accounts  receivable 

For the year ended December 31, 1995, the Company included the amount of $24,096
in bad debt expense.  The Company was unable to collect the outstanding debt due
it from Chandler County, a municipality in Texas.

 Note 10 - Notes payable 

During 1997, the President and the Chairman of the Board of Directors loaned the
Company  $9,447.  Promissory  notes,  payable  on demand  and  secured by a vast
majority of the  Company's  tangible and  intangible  assets,  were issued.  The
interest rate on the notes was the rate  publicly  announced by  NationsBank  of
North  Carolina,  N. A. in  Charlotte,  North  Carolina from time to time as its
prime  rate.  The amount of $7,000 of these notes were  retired  during the year
ended December 31, 1997.


During 1996, the President and the Cha1rman of the Board of Directors loaned the
Company  $5,700.  Promissory  notes,  payable  on demand  and  secured by a vast
majority of the  Company's  tangible and  intangible  assets,  were issued.  The
interest rate on the notes was the rate  publicly  announced by  NationsBank  of
North  Carolina,  N. A. in  Charlotte,  North  Carolina from time to time as its
prime  rate.  The  amount of $497 of these  notes were  retired  during the year
ended  December 31, 1996. 

During 1995, the President and the Chairman of the Board of Directors loaned the
Company $14,180. Promissory notes, payable on demand and secured by a

                                      F-16

<PAGE>


                        RADIATION DISPOSAL SYSTEMS, INC.
                          (A Development Stage Company)

                          Notes to Financial Statements
             December 31, 1997, 1996, and 1995, and the period from
                January 10 1984 (Inception) to December 31, 1997

                                  (Unaudited)




Note 10 - Note  payable (continued)

vast majority of the Company's tangible and intangible assets,  were issued. The
interest rate on the notes was the rate  publicly  announced by  NationsBank  of
North  Carolina,  N. A. in  Charlotte,  North  Carolina from time to time as its
prime rate. The entire amount of these notes, $14,180, and the amount of $420 of
promissory  notes issued in previous  years were  retired  during the year ended
December 31, 1995.

For the year ended  December  31,  1997 and 1996,  the  amounts  of $15,538  and
$11,804,  respectively,  of interest  payable  relating to the notes  payable to
officers  are included in other  accrued  interest  payable in the  accompanying
balance sheets.

Note 11 - Accounts  payable 

During the years ended December 31, 1997, 1996, and 1995, the time limit allowed
by the Statute of  Limitations  for vendors to collect  certain of the Company's
trade  payables  expired.  Because  the  Company  does not  have  the  financial
resources to pay these debts and the aforementioned  Statute of Limitations bars
their  collection,  the Company  included these amounts in  cancellation of debt
income.  For the years ended  December 31, 1997,  1996, and 1995, the amounts of
$5,206,  $7,397, and $147,923 respectively were included in cancellation of debt
income.

Note 12 - Litigation

Thomas  Publishing  Co. filed a lawsuit  against the Company for collection of a
past due account in the total of $3,265,  in the District Court of Western North
Carolina.  On Nay 5, 1995, the Company  settled the lawsuit by signing a Consent
Judgment  providing that Thomas Publishing Co, have and recover Judgment against
the Company in the sum of $3,265,  plus interest at 18% per annum and collection
costs of $1,179 plus  interest  of 8% per annum from the date of Judgment  until
paid in full,  and court  costs.  The Company has included  collection  costs of
$1,179 in accounts  payable.  For the year ended  December 31, 1997,  1996,  and
1995,  the amounts of $356,  $356,  and $2,168,  respectively,  were included in
interest  expense.  The amount of $3,265 was included in accounts payable in the
accompanying balance sheets.


McKinney & Moore,  Inc. filed a lawsuit  against the Company for collection of a
past due  account 1n the total of $3,802,  in the  District  Court of  Henderson
County,  Texas. On February 25, 1993, McKinney 6 Moore, Inc. received a Judgment
to recover  the debt,  attorney  fees of $1,250,  prejudgement  in the amount of
$211,  plus  interest at lO% per annum from the date of  Judgment  until paid in
full. The Company has included attorney fees of $1,250 in accounts payable.  For
the year ended December 31, 1997, 1996, and 1995, the amounts of $505, $505, and
$1,668,  respectively,  were included in interest expense.  The amount of $3,802
was included in accounts payable in the accompanying balance sheets.


                                      F-17

<PAGE>


                        RADIATION DISPOSAL SYSTEMS, INC.
                         (A Development Stage Company)

                         Notes to Financial Statements
             December 31, 1997, 1996, and 1995, and the period from
          January 10, 1984 (Inception) to December 31, 1997 (Unaudited)
 
                              (Unaudited)





 Note 11 - Contingent  liabilities

During the year ended December 31, 1997, the Company  contracted to have all its
unused  chemicals and other waste  materials  removed from the Pfeiffer  College
campus by a company licensed to dispose of hazardous waste  materials.  Although
the invoice for the removal of the aforementioned  chemicals and waste materials
was paid, a contingent liability of up to $5,000 relating to consulting services
involved with the waste disposal still exists.  The Company did not include this
amount in accrued  liabilities in the accompanying  balance sheet nor in its net
loss for the year ended December 31, 1997.




















                                      F-18

<PAGE>


<TABLE>
<CAPTION>

                   SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT

                        RADIATION DISPOSAL SYSTEMS, INC.
                                  (Unaudited)

<S>                                                                             <C>            <C>            <C>


                Column A                            Column B       Column C       Column D       Column E       Column F
----------------------------------------------    ------------   ------------   ------------   ------------   -----------
                                                   Balance at                                                  Balance at
                                                    Beginning      Additions                       Other         End of
             Classification                         of Period       at Cost     Abandonments      Changes        Period
----------------------------------------------    ------------   ------------   ------------   ------------   -----------

Year ended December 31, 1997:
  Office equipment                                $       -      $      -       $      -       $      -       $      -
  Laboratory equipment                                    -             -              -              -              -
  Improvements to research facility                       -             -              -              -              -
  Test and demonstration machinery                        -             -              -              -              -
                                                  ------------   ------------   ------------   ------------   -----------
    Total                                         $       -      $      -       $      -       $      -       $      -
                                                  ============   ============   ============   ============   ===========

Year ended December 31, 1996:
  Office equipment                                $      7,570   $      -       $      -       $    (7,570)   $      -
  Laboratory equipment                                  51,587          -              -           (51,587)          -
  Improvements to research facility                     29,644          -              -           (29,644)          -
  Test and demonstration machinery                      10,678          -              -           (10,678)          -
                                                  ------------   ------------   ------------   ------------   -----------
    Total                                         $     99,479   $      -              -           (99,479)   $      -
                                                  ============   ============   ============   ============   ===========

Year ended December 31, 1995:
  Office equipment                                $      7,570   $      -       $      -       $      -       $     7,570
  Laboratory equipment                                  51,587          -              -              -            51,587
  Improvements to research facility                     29,644          -              -              -            29,644
  Test and demonstration machinery                      10,678          -              -              -            10,678
                                                  ------------   ------------   ------------   ------------   -----------
    Total                                         $     99,479   $      -       $      -       $      -       $    99,479
                                                  ============   ============   ============   ============   ===========

Year ended December 31, 1994:
  Office equipment                                $      7,570   $      -       $      -       $      -       $     7,570
  Laboratory equipment                                  51,587          -              -              -            51,587
  Inprovements to research facility                     29,644          -              -              -            29,644
  Text and demonstration machinery                      52,409          -            41,730           -            10,678
                                                  ------------   ------------   ------------   ------------   -----------
    Total                                         $    141,209   $      -       $    41,730    $      -            99,479
                                                  ============   ============   ============   ============   ===========

Year ended December 31, 1993:
  Office equipment                                $      7,570   $      -       $      -       $      -       $     7,570
  Laboratory equipment                                  51,587          -              -              -            51,587
  Improvements to research facility                     29,644          -              -              -            29,644
  Test and demonstration machinery                     380,206          -           327,798           -            52,408
                                                  ------------   ------------   ------------   ------------   -----------
    Total                                         $    469,007   $      -       $   327,798    $      -       $   141,209
                                                  ============   ============   ============   ============   ===========
    
</TABLE>


                                      S-1

<PAGE>



<TABLE>
<CAPTION>

             SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT (continued)

                        RADIATION DISPOSAL SYSTEMS, INC.
                                  (Unaudited)

<S>                                                                             <C>            <C>            <C>


                Column A                            Column B       Column C       Column D       Column E       Column F
----------------------------------------------    ------------   ------------   ------------   ------------   -----------
                                                   Balance at                                                  Balance at
                                                    Beginning      Additions                       Other         End of
             Classification                         of Period       at Cost     Abandonments      Changes        Period
----------------------------------------------    ------------   ------------   ------------   ------------   -----------

Year ended December 31, 1992:
  Office equipment                                $      7,570   $      -       $      -       $      -       $     7,570
  Laboratory equipment                                  83,272          -              -           (31,685)        51,587
  Improvements to research facility                     29,644          -              -              -            29,644
  Test and demonstration machinery                     380,206          -              -              -           380,206
                                                  ------------   ------------   ------------   ------------   -----------
    Total                                         $    500,692   $      -       $      -       $   (31,685)   $   469,007
                                                  ============   ============   ============   ============   ===========

Year ended December 31, 1991:
  Office equipment                                $      7,570   $      -       $      -       $      -       $     7,570
  Laboratory equipment                                  83,272          -              -              -            83,272
  Improvements to research facility                     29,644          -              -              -            29,644
  Test and demonstration machinery                     410,970         4,031         54,261         19,466        380,206
  Equipment held for rent                               24,851          -              -           (24,851)          -
                                                  ------------   ------------   ------------   ------------   -----------
    Total                                         $    556,307   $     4,031         54,261         (5,385)   $   500,692
                                                  ============   ============   ============   ============   ===========

Year ended December 31, 1990:
  Office equipment                                $      5,246   $     2,324    $      -       $      -       $     7,570
  Laboratory equipment                                  83,272          -              -              -            83,272
  Improvements to research facility                     29,644          -              -              -            29,644
  Test and demonstration machinery                     353,564        91,958           -           (34,552)       410,970
  Equipment held for rent                                 -             -              -            24,851           -
                                                  ------------   ------------   ------------   ------------   -----------
    Total                                         $    471,726   $    94,282    $      -       $    (9,701)   $   556,307
                                                  ============   ============   ============   ============   ===========

Year ended December 31, 1989:
  Office equipment                                $      5,246   $      -       $      -       $      -       $     5,246
  Laboratory equipment                                  83,272          -              -              -            83,272
  Inprovements to research facility                     29,644          -              -              -            29,644
  Text and demonstration machinery                     440,511        83,361        170,308           -           353,564
                                                  ------------   ------------   ------------   ------------   -----------
    Total                                         $    558,673   $    83,361    $   170,308    $      -           471,726
                                                  ============   ============   ============   ============   ===========

Year ended December 31, 1988:
  Office equipment                                $      4,215   $     1,031    $      -       $      -       $     5,246
  Laboratory equipment                                  69,925        19,668          6,321           -            83,272
  Improvements to research facility                     29,644          -              -              -            29,644
  Test and demonstration machinery                     272,544       251,485         83,518           -           440,511
                                                  ------------   ------------   ------------   ------------   -----------
    Total                                         $    376,328   $   272,184    $    89,839    $      -       $   558,673
                                                  ============   ============   ============   ============   ===========
    
</TABLE>


                                      S-2

<PAGE>

<TABLE>
<CAPTION>

             SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT (continued)

                        RADIATION DISPOSAL SYSTEMS, INC.
                                  (Unaudited)

<S>                                                                             <C>            <C>            <C>


                Column A                            Column B       Column C       Column D       Column E       Column F
----------------------------------------------    ------------   ------------   ------------   ------------   -----------
                                                   Balance at                                                  Balance at
                                                    Beginning      Additions                       Other         End of
             Classification                         of Period       at Cost     Abandonments      Changes        Period
----------------------------------------------    ------------   ------------   ------------   ------------   -----------

Year ended December 31, 1987:
  Office equipment                                $        919   $     3,296    $      -       $      -       $     4,215
  Laboratory equipment                                  69,925          -              -              -            69,925
  Improvements to research facility                     25,777         3,867           -              -            29,644
  Test and demonstration machinery                     152,813       193,594         73,863           -           272,544
                                                  ------------   ------------   ------------   ------------   -----------
    Total                                         $    249,434   $   200,757    $    73,863    $      -       $   376,328
                                                  ============   ============   ============   ============   ===========

Year ended December 31, 1986:
  Office equipment                                $        808   $       111    $      -       $      -       $       919
  Laboratory equipment                                  14,006        55,919           -              -            69,925
  Improvements to research facility                       -           25,777           -              -            25,777
  Test and demonstration machinery                        -          152,813           -              -           152,813
                                                  ------------   ------------   ------------   ------------   -----------
    Total                                         $     14,814   $   234,620           -              -       $   249,434
                                                  ============   ============   ============   ============   ===========

Year ended December 31, 1985:
  Office equipment                                $       -      $       808    $      -       $      -       $       808
  Laboratory equipment                                    -           14,006           -              -            14,006
  Improvements to research facility                       -             -              -              -              -
  Test and demonstration machinery                        -             -              -              -              -
                                                    ------------   ------------   ------------   ------------   -----------
    Total                                         $       -      $    14,814    $      -       $      -       $    14,814
                                                  ============   ============   ============   ============   ===========

</TABLE>



Methods and rates used in computing depreciation and amortization:

     Description                          Method                     Life
----------------------                  -----------                --------

Office equipment                        Strait line                 5 years
Laboratory equipment                    Strait line                 7 years
Improvements to research facility       Strait line                10 years
Test and demonstration machinary        Strait line                 7 years


                                      S-3

<PAGE>


SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATIN OF PROPERTY AND EQUIPMENT

                       RADIATION DISPOSAL SYSTEMS, INC.
                                  (Unaudited)
<TABLE>


<S>                                                                             <C>            <C>            <C>


                Column A                            Column B       Column C       Column D       Column E       Column F
----------------------------------------------    ------------   ------------   ------------   ------------   -----------
                                                   Balance at                                                  Balance at
                                                    Beginning                                      Other         End of
             Classification                         of Period    Depreciation   Abandonments      Changes        Period
----------------------------------------------    ------------   ------------   ------------   ------------   -----------

Year ended December 31, 1997:
  Office equipment                                $       -      $      -       $      -       $      -       $      -
  Laboratory equipment                                    -             -              -              -              -
  Improvements to research facility                       -             -              -              -              -
  Test and demonstration machinery                        -             -              -              -              -
                                                  ------------   ------------   ------------   ------------   -----------
    Total                                         $       -      $      -       $      -       $      -       $      -              
                                                  ============   ============   ============   ============   ===========

Year ended December 31, 1996:
  Office equipment                                $      7,570   $      -       $      -       $    (7,570)   $      -
  Laboratory equipment                                  51,587          -              -           (51,587)          -
  Improvements to research facility                     27,299         2,345           -           (29,644)          -
  Test and demonstration machinery                      10,678          -              -           (10,678)          -
                                                    ------------   ------------   ------------   ------------   -----------
    Total                                         $     97,134   $     2,345    $      -       $   (99,479)   $      -
                                                  ============   ============   ============   ============   ===========

Year ended December 31, 1995:
  Office equipment                                $      7,570   $      -       $      -       $      -       $     7,570
  Laboratory equipment                                  51,587          -              -              -            51,587
  Improvements to research facility                     24,335         2,964           -              -            27,299
  Test and demonstration machinery                      10,678          -              -              -            10,678
                                                    ------------   ------------   ------------   ------------   -----------
    Total                                         $     94,170   $     2,964    $      -       $      -       $    97,134
                                                  ============   ============   ============   ============   ===========

Year ended December 31, 1994:
  Office equipment                                $      7,398   $       170    $      -       $         2       $  7,570
  Laboratory equipment                                  51,587          -              -              -            51,587
  Inprovements to research facility                     21,370         2,965           -              -            24,335
  Text and demonstration machinery                      42,732           323         32,377           -            10,678
                                                  ------------   ------------   ------------   ------------   -----------
    Total                                         $    123,087   $     3,458    $    32,377   $          2         94,170
                                                  ============   ============   ============   ============   ===========

Year ended December 31, 1993:
  Office equipment                                $      6,949   $       449    $      -       $      -       $     7,398
  Laboratory equipment                                  49,869         8,739           -            (7,021)        51,587
  Improvements to research facility                     18,405         2,965           -              -            21,370
  Test and demonstration machinery                     253,078        45,516        262,883          7,021         42,732
                                                  ------------   ------------   ------------   ------------   -----------
    Total                                         $    328,301   $    57,669    $   262,883    $      -       $   123,087
                                                  ============   ============   ============   ============   ===========

    
</TABLE>


                                      S-4


                                       
<PAGE>

<TABLE>

<CAPTION>



SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATIN OF PROPERTY AND EQUIPMENT

                          RADIATION DISPOSAL SYSTEMS, INC.
                                  (Unaudited)


<S>                                                                             <C>            <C>            <C>


                Column A                            Column B       Column C       Column D       Column E       Column F
----------------------------------------------    ------------   ------------   ------------   ------------   -----------
                                                   Balance at                                                  Balance at
                                                    Beginning                                      Other         End of
             Classification                         of Period    Depreciation   Abandonments      Changes        Period
----------------------------------------------    ------------   ------------   ------------   ------------   -----------

Year ended December 31, 1992:
  Office equipment                                $      5,619   $     1,330    $      -       $      -       $     6,949
  Laboratory equipment                                  58,452        12,641           -           (21,224)        49,869
  Improvements to research facility                     15,440         2,965           -              -            18,405
  Test and demonstration machinery                     198,903        54,175           -              -           253,078
                                                  ------------   ------------   ------------   ------------   -----------
    Total                                         $    278,414   $    71,111    $      -       $   (21,224)   $   328,301
                                                  ============   ============   ============   ============   ===========

Year ended December 31, 1991:
  Office equipment                                $      4,289   $     1,330     $     -       $      -       $     5,619
  Laboratory equipment                                  46,557        11,895           -              -            58,452
  Improvements to research facility                     12,475         2,965           -              -            15,440
  Test and demonstration machinery                     147,460        58,575         15,974          8,842        198,903
  Equipment held for rent                                6,179         2,663           -            (8,842)          -
                                                  ------------   ------------   ------------   ------------   -----------
    Total                                         $    216,960   $    77,428    $    15,974    $      -       $   278,414
                                                  ============   ============   ============   ============   ===========

Year ended December 31, 1990:
  Office equipment                                $      3,284   $     1,005    $      -       $      -       $     4,289
  Laboratory equipment                                  34,662        11,895           -              -            46,557
  Improvements to research facility                      9,511         2,964           -              -            12,475
  Test and demonstration machinery                      99,338        55,281           -            (7,159)       147,460
  Equipment held for rent                                 -            2,483           -             3,696          6,179
                                                  ------------   ------------   ------------   ------------   -----------
    Total                                         $    146,795   $    73,628    $      -       $    (3,463)   $   216,960
                                                  ============   ============   ============   ============   ===========

Year ended December 31, 1989:
  Office equipment                                $      2,226   $     1,058      $    -       $      -       $     3,284
  Laboratory equipment                                  22,766        11,896           -              -            34,662
  Inprovements to research facility                      6,547         2,964           -              -             9,511
  Text and demonstration machinery                      73,747        56,720         31,129           -            99,338
                                                  ------------   ------------   ------------   ------------   -----------
    Total                                         $    105,286   $    65,897    $    31,129    $      -           146,795
                                                  ============   ============   ============   ============   ===========

Year ended December 31, 1988:
  Office equipment                                $      1,168   $     1,058    $      -       $      -       $     2,226
  Laboratory equipment                                  14,984         9,588          1,806           -            22,766
  Improvements to research facility                      3,582         2,965           -              -             6,547
  Test and demonstration machinery                      37,583        52,286         16,122           -            73,747
                                                  ------------   ------------   ------------   ------------   -----------
    Total                                         $     57,317   $    65,897    $    17,928    $      -       $   105,286
                                                  ============   ============   ============   ============   ===========
    
</TABLE>

                                       S-5


                                       
<PAGE>

<TABLE>

<CAPTION>


SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATIN OF PROPERTY AND EQUIPMENT

                       RADIATION DISPOSAL SYSTEMS, INC.
                                  (Unaudited)

<S>                                                                             <C>            <C>            <C>


                Column A                            Column B       Column C       Column D       Column E       Column F
----------------------------------------------    ------------   ------------   ------------   ------------   -----------
                                                   Balance at                                                  Balance at
                                                    Beginning                                      Other         End of
             Classification                         of Period    Depreciation   Abandonments      Changes        Period
----------------------------------------------    ------------   ------------   ------------   ------------   -----------

Year ended December 31, 1987:
  Office equipment                                $        315   $       853    $      -       $      -       $     1,168
  Laboratory equipment                                   4,995         9,989           -              -            14,984
  Improvements to research facility                        767         2,815           -              -             3,582
  Test and demonstration machinery                      10,914        32,662          5,993           -            37,583
                                                  ------------   ------------   ------------   ------------   -----------
    Total                                         $     16,991   $    46,319    $     5,993    $      -       $    57,317
                                                  ============   ============   ============   ============   ===========

Year ended December 31, 1986:
  Office equipment                                $        121   $       194    $      -       $      -       $       315
  Laboratory equipment                                    -            4,995           -              -             4,995
  Improvements to research facility                       -              767           -              -               767
  Test and demonstration machinery                        -           10,914           -              -            10,914
                                                  ------------   ------------   ------------   ------------   -----------
    Total                                         $        121   $    16,870           -              -       $    16,991
                                                  ============   ============   ============   ============   ===========

Year ended December 31, 1985:
  Office equipment                                $       -      $       121    $      -       $      -       $       121
  Laboratory equipment                                    -             -              -              -              -
  Improvements to research facility                       -             -              -              -              -
  Test and demonstration machinery                        -             -              -              -              -
                                                    ------------   ------------   ------------   ------------   -----------
    Total                                         $       -      $       121    $      -       $      -       $       121
                                                  ============   ============   ============   ============   ===========

</TABLE>

                                      S-6


                                       
<PAGE>


          

                                   SIGNATURES


     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  securities
Exchange Act of 1934, the Reqistrant has duly caused this report to be signed on
its behalf by the undrsigned, thereunto duly authorized.




                                   RADIATION DISPOSAL SYSTEMS, INC.


DATE:  August 6, 1998              By:  /s/ Manuel E. Kane
                                        ---------------------------------------
                                        Manuel E. Kane, Principal Executive
                                        Officer and Principal Financial and
                                        Accounting Officer




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


    Signature                          Title                     Date
    ---------                          -----                     ----

/s/Manuel E. Kane                 President, Treasurer       August 6, 1998
-----------------
   Manuel E. Kane                 & Director




/s/Albert D. Kane                 Chairman of the Board,     August 6, 1998
-----------------
   Albert D. Kane                 Secretary & Director