SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

           [x]   Annual Report Under Section 13 or 15(d) of the
                 Securities Exchange Act of 1934

                   For the fiscal year ended December 31, 1996

           [ ]   Transition Report Under Section 13 or 15(d) of
                 the Securities Exchange Act of 1934

       For the transition period from ________________ to________________.


                         Commission file number 0-24490


                                 AQUAGENIX, INC.
                  ---------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

               Delaware                                65-0419263
----------------------------------------            ----------------
    (State or Other Jurisdiction of                 (I.R.S. Employer
    Incorporation or Organization)                 Identification No.)

         6500 N.W. 15th Avenue
       Fort Lauderdale, Florida                           33309
----------------------------------------            ----------------
(Address of Principal Executive Offices)               (Zip Code)

                                (305) 975-7771
               ------------------------------------------------
               (Issuer's Telephone Number, Including Area Code)

                Securities registered under Section 12(b) of the
                        Securities Exchange Act of 1934:

                                                  Name of Each Exchange
          Title of Each Class                      on Which Registered
          -------------------                      -------------------

                 None                                     None

             Securities registered pursuant to Section 12(g) of the
                        Securities Exchange Act of 1934:

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

                    Redeemable Common Stock Purchase Warrants
                    -----------------------------------------
                                (Title of Class)

                                      - 1 -


<PAGE>



      Check whether the registrant:  (1) filed all reports  required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days.  Yes [x] No [ ]

      Check if  disclosure  of  delinquent  filers  in  response  to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.  [x]

      State registrant's revenues for its most recent fiscal year:  $11,467,830

      State  the   aggregate   market   value  of  the  voting   stock  held  by
non-affiliates of the registrant on March 12, 1997, computed by reference to the
closing sale price on that date:   $18,717,694. [1]


                      APPLICABLE ONLY TO CORPORATE ISSUERS
                      ------------------------------------

      The number of shares  outstanding of the  registrant's  Common Stock,  par
value $.01 per share (the "Common Stock"), as of March 12, 1997, was 4,227,091.


                      DOCUMENTS INCORPORATED BY REFERENCE
                      -----------------------------------

      None.



















_____________________________
 
  See Item 11.

                                      - 2 -


<PAGE>



                                    PART I

Item 1. Description of Business
        -----------------------
  
        (a)     Background
                ----------
 
        Aquagenix,  Inc., a Delaware  corporation (the  "Company"),  through its
wholly-owned subsidiaries, provides aquatic and industrial vegetation management
services to governmental and commercial customers.  The Company provides aquatic
and industrial vegetation management services in the States of Florida, Georgia,
North and South Carolina,  Arizona,  Alabama and Tennessee. The Company offers a
variety  of  aquatic  and  industrial   vegetation  management  and  maintenance
services, consisting primarily of the control of aquatic weeds, algae and exotic
plants,  brush and noxious  tree  control,  wetland  planting  and  restoration,
installation of fountains and aeration systems and the stocking of fish for game
and plant and insect control.

      The  Company was  incorporated  under the laws of the State of Delaware in
May 1993 to acquire all of the issued and outstanding capital stock of Aquagenix
Land-Water Technologies, Inc. ("ALWT"), formerly known as Environmental Waterway
Management,  Inc.  and Florida  Underground  Petroleum  Tank  Contractors,  Inc.
("FUPTC").  Prior to their acquisition by the Company,  ALWT had been engaged in
the  aquatic  management  business,  primarily  aquatic  weed,  algae  and plant
control,  since its  formation in October 1990.  In February  1995,  the Company
acquired  Haas  Environmental  Services  ("HES").  Both  FUPTC  and HES had been
engaged in the  environmental  remediation  business,  primarily  remediation of
petroleum  contaminated  soil and ground water.  The operations of FUPTC and HES
have  been  discontinued  since  November  1995.  Unless  the  context  requires
otherwise,  the  "Company"  refers  to  Aquagenix,  Inc.  and  its  consolidated
subsidiaries, ALWT, Aquagenix Land-Water Technologies of Arizona, Inc. ("ALWTA")
and  Right  of Way  Control,  Inc.  ("ARC"),  Aquatic  Dynamics,  Inc.  ("ADI"),
Aquagenix  Land-Water  Technologies  of Georgia,  Inc.  (formerly  known as Good
Shepherd, Inc. d/b/a Green Pastures, Inc., - "GPI"), FUPTC and HES.

        In order to raise capital, in September 1994, the Company consummated an
underwritten  initial  public  offering  (the "IPO") of 1,250,000  shares of its
common stock,  $.01 par value (the "Common  Stock"),  and  1,437,500  redeemable
warrants  (the   "Warrants"),   for  aggregate  net  proceeds  of  approximately
$5,541,000  (after deduction of the underwriting  discounts and before deduction
of other expenses of the IPO). In October 1994, the Company realized  additional
net proceeds of  approximately  $815,000 from the sale of an additional  187,500
shares  of  Common   Stock  upon  the  exercise  by  the   underwriter   of  its
over-allotment option.

        (b)     Business Overview
                -----------------

        The  Company  offers a variety  of  aquatic  and  industrial  vegetation
management services, consisting primarily of the control of aquatic weeds, algae


                                      - 3 -


<PAGE>


and exotic  plants,  industrial  vegetation  management,  wetland  planting  and
restoration,  installation of fountains and aeration systems and the stocking of
fish for game and pest and plant control. The Company's services are intended to
assist in flood  control,  maintain  the  health,  beauty,  quality  and natural
balance of life in aquatic and terrestrial  environments  and in some instances,
to maintain  reasonable access to critical utility and other right of way areas.
They  are  designed  to  suit  individual  customer  requirements,  many of whom
maintain  waterways  and  lands in  compliance  with  federal,  state  and local
environmental laws and regulations.

        Lakes,  canals,  ponds,  rivers and  wetlands  have become  increasingly
popular forms of aesthetic and recreational  components in cities, golf courses,
country clubs, commercial and residential developments,  apartment complexes and
parks in and  throughout  the United States.  Waterways  provide  facilities for
recreational use, such as fishing and water sports,  and are important for flood
control, drainage, wildlife preservation and as a source of water for industrial
and  residential  use.  As a result  of  natural  and other  factors,  including
overgrowth of noxious weeds,  algae and exotic plants,  which deplete oxygen and
restrict the flow of water, waterways and wetlands require ongoing management to
preserve and maintain  their  functional  use,  biological  health and aesthetic
value.

        In the  Sunbelt  states  of  Florida,  Georgia,  South  Carolina,  North
Carolina,  Tennessee,  Mississippi,  Missouri,  Louisiana,  Texas,  New  Mexico,
Arizona,  Nevada and  California,  there are over 5,500 golf courses and country
clubs , most of which require aquatic  management  services;  and as a result of
the  climate and  topography  within the Sunbelt  states,  the  majority of real
estate developers have water features which require maintenance.  The market for
aquatic  management  services on private  land in Florida  alone is estimated to
exceed $100 million.

        There is also a  growing  trend  toward  privatization  of  aquatic  and
industrial  vegetation management services carried out on public lands by public
works personnel of governmental  agencies as they come under  increasing  fiscal
pressures to reduce costs. The South Florida Water Management  District,  one of
the Company's customers,  had performed its own vegetation management work years
ago and had subsequently  awarded work to the Company.  The potential market for
such services on public land in Florida is estimated to exceed $500 million.

          Additionally, because extensive land development in the Sunbelt states
and other  coastal  states has  depleted  natural  wetlands,  federal  and state
legislation has been enacted to preserve  wetlands by requiring  property owners
and  developers  to restore  portions of developed  properties  to their natural
state,  in what is known as a "no net loss" policy.  In May 1994, a $700 million
restoration  project  for  Florida's  Everglades  was  adopted  by the  State of
Florida,  which contemplates that the federal  government,  the State of Florida
and a group of landowners will jointly fund restoration of portions of Florida's
Everglades.  The Company will seek to capitalize on perceived demand for aquatic
management services, particularly wetlands planting and restoration services.




                                      - 4 -


<PAGE>


        With annual revenues of approximately  $11,500,000 for 1996, the Company
is currently the largest provider of aquatic and industrial  management services
in the United States. In 1996, with the acquisition of two businesses engaged in
industrial vegetation  management services (see below - "Recent  Acquisitions"),
the Company has increased its revenues  from such services  which  accounted for
17% of total  revenues as compared to only 3% for 1995. In 1996, the Company has
begun  creating  a niche for  itself  in the  industrial  vegetation  management
business,  with the acquisitions  providing the springboard from which marketing
efforts are targeted at electric  and power  utilities,  telephone  and railroad
companies,  transportation  departments and industrial sites throughout Florida,
Georgia and Alabama. In 1997, the Company  anticipates  securing more industrial
vegetation  contracts  which are  generally  larger in value as  compared to the
aquatic vegetation contracts.

        (c)     Business of Issuer
                ------------------
COMPANY SERVICES

        AQUATIC  WEED,  ALGAE  AND  EXOTIC  PLANT  CON The term  "aquatic  weed"
encompasses  a large,  diverse  group of plant types,  consisting  of four basic
groups which pose a problem to waterways: floating aquatics, submersed aquatics,
emergent and ditchbank weeds and grasses.  Algae, a fifth  classification,  is a
lower form of  submersed  plant  life and is the cause of "scum" on the  water's
surface.  Left unattended,  aquatic weeds, algae and plants appear and propagate
in  excessive  amounts  and  interfere  with the aquatic  environment's  natural
balance.  Thick masses of aquatic  weeds can disrupt boat  traffic,  fishing and
other water sports, lower the oxygen levels of water resulting in fish kills and
create water flow problems.  Noxious weeds generate foul odors,  visual eyesores
and create breeding grounds for mosquitos and other pests.  Most noxious aquatic
weeds,  exotic  plants  and trees have been  imported  into the  Sunbelt  States
without natural enemies and have proceeded to displace  natural and native plant
life.  While  beneficial  plants are  essential to creating a properly  balanced
aquatic  ecosystem  and provide  food and  shelter for various  species of fish,
birds and  animals,  dense  infestations  of  aquatic  weeds  and algae  prevent
sunlight from entering the water, potentially endangering all living inhabitants
of aquatic environments.

        The  Company's  aquatic  management  services  consist  primarily of the
control of aquatic  weeds,  algae and exotic  plants.  The  Company  establishes
treatment programs for lakes,  canals,  ponds,  reservoirs,  rivers,  estuaries,
marine areas and wetlands by assessing  ambient water quality and vegetation and
the specific needs of individual customers. The Company maintains a data base of
computerized  water analysis  information  and property  management  control and
service  records  designed to provide  customers  with a  comprehensive  aquatic
treatment  plan.  Company-trained  and  licensed  applicators  utilize  approved
algicides and herbicides and special  spraying  equipment to disperse  algicides
and  herbicides  in water and on adjacent  land to control the growth of aquatic
weeds,  algae and exotic plants. The Company typically uses small boats equipped
with tanks to hold  liquid  formulations  and spray arms for  spraying  from the
water. Similarly equipped four-wheel drive all-terrain vehicles are utilized for
spraying  from the  shoreline.  Significant  reduction  in the growth of aquatic
weeds,  algae and exotic plants is usually  achieved within three to four weeks.
The customers  for these  services  typically  agree to annual  contracts  which
provide for monthly service and payment.

                                    - 5 -


<PAGE>


        In addition to the regular application of algicides and herbicides,  the
Company  utilizes  harvesting  methods to control  aquatic weeds.  Harvesting is
performed either manually or mechanically,  depending upon the nature and extent
of the growth of undesirable aquatic weeds and plants.  Mechanical harvesting is
typically  expensive  but  achieves  immediate  results.   The  Company  engages
third-party  contractors which utilize barges equipped with special  attachments
to  cut,   gather   and   crop   aquatic   weeds.   Harvesting   is  done  on  a
project-by-project basis.

        The Company also controls  submersed aquatic weeds, algae and insects by
introducing   several   species   of  fish,   the   Triploid   Grass   Carp,   a
genetically-engineered weed-eating fish which may consume as much as three times
its body weight each day, and the Gambusia,  or Mosquitofish,  which may consume
up to its  weight in  mosquito  larvae  and pupae  each day.  Additionally,  the
Company stocks  different  types of Tilapia in the Western United States for the
control of toxic algae formations. The Company, when required, obtains necessary
permits from state governmental authorities to use biological control methods on
a project basis.

        For the years ended December 31, 1995 and 1996,  aquatic weed, algae and
exotic  plant  control  services   accounted  for  approximately  93%  and  77%,
respectively, of the Company's revenues from continuing operations.

        INDUSTRIAL VEGETATION MANAGEThe Company provides professional right of
way  weed  control  along  utility   lines,   pipelines,   transmission   lines,
distribution lines, railroads,  power substations,  canals, ditches, bridges and
other industrial sites for private and public sector customers.

        The Company  inspects target areas to determine  environmental  factors,
safety factors,  geographic  criteria  surrounding  plant life and combines this
information  with input from the customers.  The Company  subsequently  provides
precision low volume  application weed, brush and tree control to the designated
system(s).  The  Company's  services  are  varied and may be  "bundled"  to meet
specific customer needs. It maintains a large inventory of application equipment
at peak  performance  condition  and has the most  complete  array of  equipment
available for each job.

        Distribution power lines are serviced by ground application  techniques.
Equipment in service for these applications includes:  four-wheel drive, one-ton
spray  trucks,  track  equipment and ATVs.  In addition,  vegetation  control is
achieved with personnel using backpack  sprayers.  Transmission  power lines are
managed from the air by helicopters and aerial TVB spray equipment. Safety guard
rails  and  transportation  right of ways are  serviced  by  highly  specialized
vehicles,  equipped with computer  injection  systems designed  specifically for
these functions.

        For the years ended  December 31, 1995 and 1996,  industrial  vegetation
management services accounted for approximately 3% and 17%, respectively, of the
Company's total revenues from continuing operations.

                                      - 6 -





<PAGE>



        WETLAND PLANTING AND RESTORAION.   The  preservation and  propagation of
wetland areas has become recognized as an important part of maintaining the eco-
system.   Aquatic  and  wetland plants are critical components of healthy ponds,
lakes or waterways, inasmuch as these plants form a  base for an important  link
between the beginnings of the food-chain and  higher  forms of  plant and animal
life. The Company believes that the  quality of water is  directly  attributable
to the balance of the water's and shoreline's vegetation.

        The  Company  offers  wetland  planting,   restoration  and  maintenance
services,  which  involve the  movement of soil and the  planting of  beneficial
native  plant  life to create or  recreate  wetlands  in the form in which  they
naturally occur. The Company currently engages in wetland planting utilizing its
personnel and equipment  and, to the extent  necessary,  third-party  equipment.
Revenues  from  such  services  comprised  4% of  total  revenues  from  aquatic
management  business  for 1995 and  1996.  With the "no net  loss"  governmental
policy and the State of Florida's  Everglades  restoration  project, the Company
anticipates that wetland  planting and restoration  services will account for an
increasing portion of the Company's revenues in the future.

        DESERT  RAIN(TM)  FOUNTAINS.  The Company  offers an  extensive  line of
decorative  floating fountains,  trademarked  "Desert Rain(TM)",  to enhance the
visual  appeal and beauty of waterways,  while  providing  ecological  benefits,
including increased  circulation,  reduced stagnation and the reduction of odors
caused by  algae.  The  Company's  fountains  feature a unique,  interchangeable
nozzle  which  allows  the  customer  to select  from  several  different  spray
patterns.  Fountains are fabricated using quality waterproof materials which are
treated  to  resist  corrosion.   Nozzle   assemblies  are  manufactured   using
high-density polyurethane, epoxy, brass and stainless steel for durability.

        AERATION  SYSTEMS.  The Company also offers aeration systems designed to
permit waterways to digest organic  sediments which deplete oxygen,  trap gasses
and result in general  degradation  of water  quality.  The  Company's  aeration
systems are custom  designed  systems  consisting  of a pattern of porous stones
which are laid on the bottom of a lake and a  relatively  silent air  compressor
mounted on the shore. When air is injected from the compressor  through pipes to
the  stones,  air rises  through the water  oxygenating  and  cleansing  it. The
Company's  aeration  systems are designed to minimize  fish kills and foul odors
and  to  facilitate  lake  management  and  the  operations  of  wastewater  and
aquaculture  industries.  To date,  revenues  derived from fountain and aeration
system installation services have not been material.

        FISH  STOCKING.  The  Company  offers a variety  of  species of fish for
stocking lakes and ponds for  recreational  and biological  purposes,  including
Triploid Grass Carp (Amur), Tilapia,  Gambusia (Mosquitofish),  Smallmouth Bass,
Largemouth Bass,  Bluegill,  Black Crappie,  Warmouth Perch and Channel Catfish.
The Company's personnel perform salinity,  Ph and oxygen tests,  conduct surveys
of existing fish  population and create aquatic  sanctuaries for successful fish
habitation.  The  Company  obtains  its  requirements  of fish  from a number of
suppliers.  To date,  revenues derived from fish stocking services have not been
material.  However,  the Company is presently expanding this line of business in
the Western United States through its subsidiary, ALWTA, in Arizona.

                                    - 7 -


<PAGE>

OPERATIONS

        Headquartered in Fort Lauderdale, Florida, the operations of the Company
are  decentralized  with eleven customer  service  offices,  one in each of Fort
Lauderdale, West Palm Beach, Orlando, Sarasota, Tampa, Jacksonville, Fort Myers,
Daytona Beach (all in Florida),  Myrtle Beach (South Carolina),  Tempe (Arizona)
and Athens (Georgia). Each customer service office is headed by a branch manager
and supported by sales representatives. As a result of maintaining decentralized
operations,  the Company is able to reduce  transit  time and per diem  expenses
while  providing  better  services to a larger customer base. The branch offices
can also be utilized to integrate  acquisitions  within its geographic region of
operations  and are easily  expandable  to handle  increased  levels of business
without a meaningful increase in administrative expenses. This was the case with
the Jacksonville, Tampa and Fort Lauderdale operations acquired from Aquatic and
Right  of  Way  Control,  Inc  and  AmerAquatic,   Inc.  (see  below  -  "Recent
Acquisitions").  Each  office has the same basic  set-up,  systems  and  general
operations  which  is a key  aspect  in  the  implementation  of  the  Company's
expansion strategy in that branch offices can be quickly established in multiple
geographical  areas in a proven company format.  Offices are fully  computerized
with established customer service protocol.  This enables the Company's services
to be efficient, professional and responsive to the client base.

EXPANSION STRATEGY

        The  Company  believes  that  continuing   initiatives  of  governmental
authorities   relating  to  environmental   problems  as  well  as  the  gradual
privatization of in-house  governmental and utility based aquatic and industrial
vegetation  management contracts have resulted in significant  opportunities for
its business,  through internal growth and  acquisitions.  Management  estimates
that only 30% of the aquatic  and  vegetation  management  industry is served by
commercial  companies.  The  Company's  expansion  strategy  is:  (i) to acquire
similar  businesses and integrate their operations into the existing business so
as to create economies of scale;  (ii) to intensify  marketing  efforts and open
additional  decentralized  branch  offices  that allow the Company to expand its
geographic  markets while maintaining  quality service and minimizing  operating
expenses; and (iii) to achieve critical mass and increase operating leverage and
efficiency so that the Company can pursue larger  contracts  from the 70% of the
industry that traditionally sources contracts in-house.  The proceeds of the IPO
have enabled the Company to finance increased levels of accounts  receivable and
satisfy significant bonding  requirements in connection with its operations.  It
has also  enabled the Company to  establish  substantial  bonding and  insurance
capabilities,  thereby  permitting  the  Company  to bid on  and  secure  larger
contracts,  especially  government and utility work. In addition,  over the past
three years,  the Company has made  significant  investment  in building  middle
management in order to provide the appropriate  infrastructure  to integrate the
acquisitions planned for under its growth strategy.










                                    - 8 -


<PAGE>



        The Company intends to aggressively apply its growth strategy in several
stages  in  the  following   geographic  markets  which  it  perceives  to  have
significant  growth potential:  (i) Georgia,  South Carolina and North Carolina;
(ii)  California,  Arizona  and  Nevada;  and  (iii)  Texas,  Louisiana  and the
remainder of the Southern United States.

        The GPI,  ADI,  ARC,  AmerAquatic,  and L&L  Acquisitions  (see  below -
"Recent  Acquisitions")  were  consummated  as  part  of the  Company's  goal of
expanding its operations.  Consistent  with its strategy of growth,  the Company
will seek to expand its operations  through  further  acquisitions.  The Company
believes  that the  aquatic and  industrial  vegetation  management  industry is
highly fragmented,  consisting  principally of small  privately-owned  companies
with limited capital resources,  bonding capabilities and documentation systems.
The Company believes that with further additions to its existing infrastructure,
including  improvements to its information and  documentation  systems,  coupled
with increased bonding capabilities, this will enable the Company to out-bid its
smaller competitors and position the Company to acquire smaller service
 providers in new geographic  markets.  However,  there can be no assurance that
the Company will be able to obtain the  required  financing to fund the costs of
purchasing  capital  equipment  and to build its  infrastructure  or to make the
acquisitions  to  expand  its  operations  or that the  Company  will be able to
successfully integrate into its operations any acquired business.

RECENT ACQUISITIONS

        On December 31, 1996,  the Company  acquired 100% of the common stock of
Good Shepherd, Inc. d/b/a Green Pastures, Inc. ("GPI Acquisition"), now known as
Aquagenix  Land-  Water  Technologies  of  Georgia,  Inc.,  pursuant  to a Stock
Exchange Agreement, dated as of December 31, 1996, by and among the Company, GPI
and Garry Seitz and Jan Seitz (the "Selling Shareholders"),  the shareholders of
GPI. The aggregate purchase price was $600,000 which was paid by the issuance of
96,000 shares of the  Company's  common stock to the Selling  Shareholders.  The
assets  acquired from GPI  comprised  mainly of high-tech  roadside  application
equipment and recurring service contracts.

        GPI, a  Georgia-based  private company founded in 1988, is a provider of
roadside  vegetation  management  services throughout the state of Georgia using
high-tech computer controlled application systems along roadsides and has annual
revenues of approximately $960,000. This acquisition has been accounted for as a
pooling of interests and the Company intends to continue and further develop the
existing business of GPI as part of ALWT.

        On December 7, 1996, the Company,  through its wholly owned  subsidiary,
merged with Aquatic  Dynamics,  Inc.  (the "ADI  Acquisition")  with the Company
becoming  the  surviving  entity,  pursuant  to the  terms  of a Stock  Exchange
Agreement  and Plan of Merger,  dated as of December  7, 1996,  by and among the
Company,  Aquagenix Land-Water Technologies of Arizona, Inc., ADI and Pat Church
and Stephen Church,  the  shareholders of ADI. The aggregate  purchase price was
$1,000,000,  of which (i) $750,000 was paid by the issuance of 133,333 shares of


                                    - 9 -


<PAGE>

the Company's common stock to the former  shareholders of ADI; (ii) $200,000 was
paid by the issuance of an  installment  note due on January 15,  1997,  bearing
interest  at 7% and (iii)  $50,000  was paid in cash.  The  installment  note of
$200,000  has since been paid in full.  The cash  portion  was funded out of the
proceeds of certain private equity placements which took place in June 1996. The
assets  acquired from ADI comprised  mainly of vehicles and equipment,  accounts
receivable, marketable securities and recurring service contracts.

        In  connection  with the ADI  Acquisition,  the Company has entered into
two-year  employment  agreements  with the  former  shareholders  of ADI who are
participating in the management of the Company's western operations.

        ADI,  an   Arizona-based   private   company  founded  in  1974,  was  a
full-service  aquatic  vegetation  management firm whose experience and services
span  the  gamut of  surface  water  management  needs,  including  residential,
commercial,  industrial and governmental projects, irrigation and effluent reuse
water systems,  lake and pond management and ongoing waterway  maintenance.  ADI
has been a leading provider of aquatic vegetation management services throughout
Arizona and the southwestern United States with annual revenues of approximately
$1,600,000. The ADI Acquisition has established the Company's market presence in
the southwestern United States with ADI serving as the hub of operations in that
region.  The Company  intends to  continue  and  further  develop  the  existing
business of ADI under its new name, namely, Aquagenix Land-Water Technologies of
Arizona, Inc.

        On June 7, 1996, the Company acquired 100% of the voting common stock of
Aquatic and Right of Way Control, Inc. ("ARC Acquisition") pursuant to the terms
of a Stock  Exchange  Agreement,  dated as of June 7,  1996,  by and  among  the
Company,  ARC and Ray A. Spirnock and Shirley J. Spirnock,  the  shareholders of
ARC. The aggregate  purchase price was $1,500,000,  of which $1,350,000 was paid
by the  issuance  of 270,000  shares of the common  stock of the  Company to the
former  shareholders  of ARC and $150,000 was paid in cash. The cash portion was
funded out of cash flows from operations. The assets acquired from ARC consisted
mainly of  recurring  service  contracts,  accounts  receivable  and  industrial
vegetation  application equipment.  In connection with the ARC Acquisition,  the
Company entered into a two-year employment agreement with Ray A.
Spirnock.

        With annual  revenues  of  approximately  $1,350,000,  ARC was a leading
provider of industrial  vegetation and utility right of way management  services
in Florida,  Georgia and Alabama.  These services include the control of noxious
weeds in the right of way areas adjacent to distribution and transmission  power
lines. The Company intends to operate the existing  business as part of ALWT and
is  further  developing  the  industrial  vegetation  and  utility  right of way
management business previously conducted by ARC.

        On November 17, 1995, ALWT acquired (the "L&L  Acquisition")  certain of
the  equipment and customer  contracts of L&L Mosquito & Pest  Control,  Inc., a






                                    - 10 -


<PAGE>


South Carolina corporation  ("L&L"),  used in its aquatic weed and algae control
business,  pursuant  to the terms of an Asset  Purchase  Agreement,  dated as of
November 17, 1995, by and among ALWT,  L&L and the sole  shareholder of L&L. The
aggregate  purchase  price  paid by ALWT for the assets of L&L was  $150,000  in
cash.  The Company is  continuing  to operate the aquatic weed and algae control
business  previously  conducted  by L&L.  The L&L  Acquisition  has  provided an
established foothold for the Company in Hilton Head, South Carolina.

        On October 31,  1995,  ALWT  acquired  ("the  AmerAquatic  Acquisition")
substantially  all of the assets and  assumed  certain  of the  liabilities,  of
AmerAquatic, Inc., a Florida corporation ("AmerAquatic"),  pursuant to the terms
of an Asset Purchase Agreement, dated as of October 19, 1995, by and among ALWT,
the Company,  AmerAquatic  and Thomas Latta and C. Elroy  Timer,  the  principal
shareholders of AmerAquatic.  The aggregate  purchase price paid by ALWT for the
assets of  AmerAquatic  was  $4,291,084,  subject to  adjustment  under  certain
circumstances,  of which (i)  $3,791,084  was paid in cash and (ii) $500,000 was
paid  through the  issuance by ALWT of a  seven-month  promissory  note  bearing
interest at a rate of 9.75% per annum,  which note was guaranteed by the Company
and  subsequently  paid in full.  AmerAquatic  was  engaged in the  business  of
providing lake management  services,  including aquatic and terrestrial weed and
algae  control,  melaleuca  and other exotic plant  control,  wetland and upland
restoration  and  other  related  services.  They  were  the  Company's  largest
competitor  in  this  business  in  Florida  with  over  1,000  customers.   The
AmerAquatic  Acquisition  expanded the Company's  geographic reach into northern
Georgia,   North  Carolina  and  South  Carolina  and  initiated  the  Company's
penetration into its second  strategic  market,  the South Atlantic states.  The
Company  is  continuing  to operate  the lake and  wetland  management  business
previously conducted by AmerAquatic as part of ALWT.

        In connection with the AmerAquatic  Acquisition,  the Company,  ALWT and
AmerAquatic  entered  into a Private  Label  Agreement,  pursuant  to which ALWT
agreed to purchase  sixty  specialized  vehicles known as  "Spra-Buggies",  used
among other things, to provide lake management services,  over a period of three
years  commencing  on October 31, 1995,  for a purchase  price of  approximately
$25,000  each.  ALWT has the  exclusive  right to  purchase,  use and sell these
highly-efficient and durable Spra-Buggies within the aquatics industry.

        In connection with the AmerAquatic Acquisition, the Company, ALWT and C.
Elroy Timmer entered into a one-year employment agreement.

        The Company funded the cash portion of the purchase price for the assets
of  AmerAquatic  from the proceeds of the issuance and sale of (i) the Company's
12.50%  Senior  Secured Note due  February  28, 1996 (the "Bridge  Note") in the
principal  amount of  $5,000,000,  and (ii) warrants (the "Bridge  Warrants") to
purchase an aggregate of 168,166 shares of the Company's Common Stock,  pursuant
to a Senior Secured Note and Warrant Purchase Agreement, dated as of October 31,
1995 (the  "Bridge  Note  Purchase  Agreement"),  between  the  Company  and The
Equitable Life Assurance Society of the United States ("Equitable"). In December
1995, the Company  issued to Equitable the Company's  12.50% Senior Secured Note


                                    - 11 -


<PAGE>


due October 31, 2003 (the  "Senior  Secured  Note") in the  principal  amount of
$5,000,000  and warrants  (the  "Warrants")  to purchase an aggregate of 351,197
shares of the  Company's  Common  Stock,  subject to  adjustment  under  certain
circumstances,  in  substitution  for the Bridge  Note and the Bridge  Warrants,
respectively,  pursuant  to an Amended  and  Restated  Senior  Secured  Note and
Warrant  Purchase  Agreement,  dated as of December 15, 1995 (the "Note Purchase
Agreement"),  between the  Company and  Equitable.  The Senior  Secured  Note is
subordinated  to all  indebtedness  of the  Company  to its bank  lender  and is
secured  by  substantially  all  of  the  Company's  assets.  The  Warrants  are
exercisable  at any time until  December 31, 2000 at an exercise  price of $7.38
per share, subject to adjustment under certain circumstances.

CUSTOMERS

        The Company provides surface water management and industrial  vegetation
management  services to utilities,  golf  courses,  country  clubs,  real estate
owners  and  developers,  homeowners  and  condominium  associations,  apartment
complexes and various municipal,  state and federal governmental authorities and
taxing districts,  many of which maintain waterways and lands in compliance with
local environmental laws and regulations. The Company currently provides aquatic
and industrial  vegetation  management services to approximately 48 customers in
the public sector and  approximately  2,299  customers with whom the Company has
annual aquatic and industrial vegetation management contracts. Substantially all
of the Company's  contracts  for aquatic and  industrial  vegetation  management
services are recurring in nature and for the year ended December 31, 1996,  this
comprised 73% of total revenues (1995:  77%).  These recurring  annual contracts
provide  for  monthly  payments  and are  automatically  renewable.  The  annual
contracts for industrial  vegetation  management  services are usually renewable
for a term of up to three  years and provide  for  payments  based on a cost per
acre or mile of land under management.

        For the year ended  December 31, 1996,  19% of its revenues were derived
from governmental customers as compared to 34% for 1995.  Governmental customers
which  formerly  provided  aquatic or  vegetation  management  services  through
government  employees have accounted for a significant  portion of the Company's
revenues.  It is anticipated that a substantial  portion of the Company's future
revenues will be derived from  governmental  and  quasi-governmental  customers.
Government contracts are subject to special risks,  including delays in funding;
lengthy   review   processes  for  awarding   contracts;   non-renewal;   delay,
termination,  reduction or  modification of contracts in the event of changes in
the government's policies or as a result of budgetary constraints; and increased
or unexpected costs resulting in losses.

        Historically,  the Company  has been  dependent  on a limited  number of
contracts  for a  significant  portion  of its  revenues.  For the  years  ended
December 31, 1996 and 1995,  the Company's  five largest  customers with whom it
has annual contracts  accounted for approximately 6.5% and 21.2%,  respectively,
of the  Company's  revenues.  In 1995,  Northern Palm Beach County Water Control
District,  the customer with which the Company has the largest annual  contract,
accounted for  approximately  14.0% of the Company's  revenues while in 1996, it
only  accounted  for 2.2% of the total  revenues  for 1996.  For the year  ended
December  31,  1996,  the Company has  broadened  its  customer  base and no one
customer accounts for more than 5% of the Company's total revenues.


                                    - 12 -


<PAGE>



        There  can be no  assurance  that the  Company  will  obtain  additional
contracts for projects similar in scope to those  previously  obtained or retain
existing  customers or attract and retain new customers or that the Company will
not remain largely dependent on non-recurring  contracts with a limited customer
base, which will constitute a significant portion of the Company's revenues.

INSURANCE AND BONDING

        The Company  carries  insurance  coverage  which the  Company  considers
sufficient  to meet  applicable  regulatory  and  customer  requirements  and to
protect the Company's assets and operations.  The Company's  insurance  coverage
currently includes $2 million of comprehensive  general liability insurance,  up
to $1  million  of  pollution  liability  insurance  and $8  million  of  excess
liability  insurance.  The  Company  attempts to operate in a  professional  and
prudent  manner  and  to  reduce  its  liability  risks  through  specific  risk
management efforts,  including employee training.  Nevertheless,  a partially or
completely  uninsured claim against the Company, if successful and of sufficient
magnitude, could have a material adverse effect on the Company and its financial
condition. In addition, the inability to obtain insurance of the type and in the
amounts  required  could impair the Company's  ability to obtain new  contracts,
which are, in certain  instances,  conditioned upon the availability of adequate
insurance coverage.

        The aquatic  and  industrial  vegetation  management  business  involves
potentially significant risks of statutory, contractual and common law liability
for  environmental  damage and  personal  injury.  The  Company,  and in certain
instances,  its  officers,  directors  and  employees,  may be subject to claims
arising from the Company's  on-site or off-site  services,  including  chemicals
used in its operations,  and  environmental  contamination  by the Company,  its
contracted  transporters  or disposal  site  operators.  All such persons may be
liable for site investigation,  site cleanup costs and natural resource damages,
which costs could be substantial,  regardless of whether they exercised due care
and complied with all relevant laws and  regulations.  There can be no assurance
that the Company will not face claims  resulting in  substantial  liability  for
which the Company is uninsured,  that hazardous  substances or materials are not
or will not be present at the Company's  facilities or that the Company will not
incur liability for environmental impairment.

        The  Company  is  required,  in  most  instances,  to  post  bid  and/or
performance  bonds in  connection  with  contracts or projects  with  government
entities and, to a lesser extent, private sector customers. To date, the Company
has been able to obtain bonds in amounts of up to  approximately  $4 million per
bond.  However,  there is no  assurance  that this will  continue.  The  Company
anticipates  that in the  future it will  continue  to be  required  to post bid
and/or   performance  bonds  in  connection  with  contracts  or  projects  with
government entities and, to an increasing extent,  private sector customers.  In
addition,  new or proposed legislation in various  jurisdictions require or will
require the posting of substantial  bonds or require other financial  assurances
with respect to particular projects.  There can be no assurance that the Company
will be able to obtain bonds in the amounts required.

                                    - 13 -


<PAGE>



MARKETING

        To date, marketing has principally been conducted through the efforts of
the Company's management and sales personnel. The Company uses various marketing
methods,  including direct mailings,  in-person solicitation,  print advertising
and  participation  in trade  shows  and  conventions,  and  periodically  mails
attractive,  full-color  sales brochures and advertises in trade  journals.  The
Company's  sales  force  consist  of  approximately   sixteen  people,  who  are
responsible for soliciting  potential  customers in their respective  geographic
markets,  receive  salaries  plus a  percentage  of gross  profits  derived from
Company services. The Company also obtains customers through recommendations and
referrals from existing  customers and environmental  engineers and consultants.
The Company's  executive officers devote significant time and effort to maintain
continuing customer relationships.

        The  Company  typically  obtains  private and public  contracts  for its
services  through the process of competitive  bidding.  The Company's  marketing
efforts  include  subscribing  to several bid reporting  services and monitoring
trade  journals  and other  industry  sources for bid  solicitations  by various
entities,  including government authorities and related  instrumentalities,  and
responding to such bid  solicitations,  which include requests for proposals and
requests  for  qualifications.   In  response  to  a  request  for  proposal  or
qualification,  the  soliciting  entity  generally  requires a written  response
within a set period of time. Generally, in the case of a request for a proposal,
a bidder  submits a proposal  detailing its  qualifications,  the services to be
provided and the cost of the services to the soliciting entity which then, based
on its  evaluation  of the  proposals  submitted,  awards  the  contract  to the
successful  bidder.  Generally,  in the case of a request for  qualification,  a
bidder submits a response  describing its  experience  and  qualifications,  the
soliciting entity then selects the bidder believed to be the most qualified, and
then  negotiates  all the  terms  of the  contract,  including  the  cost of the
services.

        The Company believes that accurate bidding is important to the Company's
business.  Accordingly,  the Company utilizes a computerized  bidding system and
engages  personnel  at  potential  sites  to  determine  cost  factors  used  in
submitting bids.  Public contracts are usually  longer-term (two to three years)
and may  periodically  be put up for bid even though the  Company  has  provided
quality services and has formed a strong relationship with the customer. While a
bid price is an important  factor in obtaining  contracts,  the Company believes
that potential customers also consider reputation, experience, safety record and
the  financial  condition  of  bidders  in  awarding  contracts.  Because of its
familiarity  with the  nature of the  contracts  and the basis on which they are
awarded,  the Company is often able to retain contracts that are put up for bid.
In the past, the Company has been able to retain  approximately 85% of contracts
which  fall into this  category.  However,  there can be no  assurance  that the
Company  will  continue  to be  successful  in  having  its bids  accepted.  The
competitive  bidding  process  is  typically  lengthy  and often  results in the
expenditure of significant  sums and allocation of resources in connection  with
bids that may be  rejected.  Additionally,  inherent in this process is the risk
that actual  performance  costs may exceed the  projected  costs,  especially in
relation to disputes on the  performance  of services,  upon which the submitted
bids or contract prices are based.

                                    - 14 -


<PAGE>


COMPETITION

        The aquatic and vegetation  management  industry is highly  competitive.
The Company faces  competition  from several  hundred  companies  throughout the
Sunbelt States.  In recent years,  government  authorities  have  implemented an
extensive regulatory framework directed toward alleviating various environmental
problems.   The  complex  nature  of  government   regulation  has  resulted  in
significantly  increased  sophistication  and costs of  aquatic  and  industrial
vegetation management,  handling and disposal methods, facilities and equipment.
Consequently,  the  industry  has  become  increasingly  capital  intensive  and
competitive.

        The  Company  believes  that the  principal  competitive  factors in the
aquatic and industrial vegetation management industry are reputation,  technical
proficiency,  managerial expertise, financial assurance capability (particularly
as it relates to  bonding),  price and  breadth of services  offered,  including
documentation   capabilities.   With  its   internal   growth   and  its  recent
acquisitions,  the  Company is  currently  the  largest  commercial  provider of
aquatic and vegetation management services in the United States. With its highly
credible  track  record,  substantial  bonding and insurance  capabilities,  its
investment  in managerial  expertise,  equipment  and  computerized  operations,
management  believes  that  the  Company  does  have a  competitive  edge in the
business. The Company has developed a customized software package which provides
individual job budgets,  branch work schedules,  integrated customer service and
sales activity tracking and collaborative  communications.  All these allows the
Company to provide  quality  service,  improve  efficiency and costs control and
provide  competitive  yet  profitable  bids.  In  addition,  the Company is also
committed to purchasing highly  specialized  proprietary  equipment to remain in
the forefront of technology.  This equipment is intended to be used for weed and
algae control both in water and on land ('amphibian' in nature). They may result
in high efficiency and accuracy including the reduction of the cost of labor per
acre of weed control,  allowing the Company to use the finest treatment products
for its customers and projects.

        Competition in the aquatic and industrial vegetation management industry
is,  however,  expected to increase in the  foreseeable  future.  A  significant
number of aquatic management projects continue to be performed "in house" by the
major water management  districts,  many of which may have substantially greater
financial and other resources than the Company.  The Company also expects that a
significant  number  of new  market  entrants  will  seek to bid on new  aquatic
management  projects  for the  Everglades.  There can be no  assurance  that the
Company will be able to compete successfully in its markets.

SUPPLIERS AND SUBCONTRACTORS

        The Company is dependent on third-party  suppliers and manufacturers for
all of its  requirements of algicides and herbicides,  fish and aeration systems






                                    - 15 -


<PAGE>


used in its aquatic management  business.  Although the Company purchases all of
these supplies from numerous suppliers and believes that alternative  sources of
supply are available, failure by such suppliers and manufacturers to continue to
supply the Company with products on commercially reasonable terms, or at all, in
the absence of readily available  alternate sources,  would adversely affect the
Company's  ability to deliver  products  and  provide  services  on a timely and
competitive  basis. The Company is dependent on the ability of its suppliers and
manufacturers,   among  other  things,  to  satisfy  performance,   quality  and
regulatory  specifications  and  dedicate  sufficient  production  capacity  for
supplies  within  scheduled  delivery  times.  The  Company  does  not  maintain
contracts  with any of its suppliers or  manufacturers  and  purchases  supplies
pursuant to purchase  orders placed from time to time in the ordinary  course of
business.  In  addition,  the Company  currently  does not own or lease  certain
specialized  equipment,  including  mechanical  harvesting  or certain  planting
equipment and is dependent upon third-party  subcontractors to provide necessary
equipment, know-how,  transportation and other facilities on a project basis. In
the event  such  subcontractors  were to become  unavailable  to the  Company at
acceptable  cost levels,  or at all, the Company's  business could be materially
adversely affected.

GOVERNMENT REGULATION

        The aquatic and industrial  vegetation  management  services business is
subject to extensive and frequently  changing federal,  state and local laws and
substantial regulation under these laws by governmental agencies,  including the
United States Environmental  Protection Agency (the "EPA") and the United States
Occupational  Safety and Health  Administration  ("OSHA").  Among other  things,
these regulatory  authorities  impose  requirements which regulate the handling,
transportation  and disposal of hazardous  and  non-hazardous  materials and the
health and safety of workers, and require the Company and, in certain instances,
its employees,  to obtain and maintain  licenses and permits in connection  with
its  operations.   This  extensive   regulatory  framework  imposes  significant
compliance burdens and risks on the Company. The Company is currently subject to
the  requirements  of the Resource  Conservation  and  Recovery Act of 1976,  as
amended,  the Federal  Water  Pollution  Control  Act,  as amended,  the Federal
Insecticide,  Fungicide,  and Rodenticide  Act, the Florida Weed Control Act and
the  Occupational  Safety and Health Act of 1970.  The following is a summary of
these  regulations  and other  material  governmental  regulations  which may be
applicable to the Company.

        The Federal Water Pollution Control Act, as amended by the Federal Water
Pollution  Control  Act  Amendments  of 1979  and the  Clear  Water  Act of 1977
(collectively  "CWA"),  create the federal  statutory scheme for water pollution
control and  management.  The  principal  objective of the CWA is to restore and
maintain the  integrity of the nation's  waters.  In addition,  the CWA provides
for: (I) the development of pollutant discharge standards and limitations;  (ii)
a permit  and  licensing  system to enforce  these  discharge  standards;  (iii)
federal  funding to assist in the  construction  of publicly owned and privately
owned treatment  works;  and (iv) research and development of pollution  control
technologies and strategies.






                                    - 16 -


<PAGE>



        Congress  also created the federal Safe  Drinking  Water Act ("SDWA") to
ensure the quality and safety of drinking water supplies. To protect underground
sources  of  drinking  water  from  contamination,  SDWA  regulates  underground
injection  wells used for waste  disposal and  establishes a permit  program for
such  practices.  The SDWA also  establishes  procedures for the development and
implementation  of programs for aquifer  protection  areas located  within areas
designated as source aquifers for drinking water.

        Even  though  the  EPA  has  nationwide   authority  to  implement  CWA,
authorized  states  may  implement  various  aspects of the  National  Pollutant
Discharge  Elimination System ("NPDES") and pretreatment  programs,  among other
areas of  responsibility.  In  addition to the option of  administering  the CWA
under  authority  delegated by the EPA, states may develop their own regulations
for water pollution control, which generally parallel federal CWA requirements.

        As a complement  to the regular  NPDES  program,  the United States Army
Corps of  Engineers  must  issue a special  permit  (commonly  referred  to as a
Section 404 permit)  prior to the  discharge of  dredge-and-fill  material  into
navigable waters of the United States, including "wetlands" as defined under the
CWA. As a condition of obtaining such dredge-and-fill  permits, the permittee is
required to mitigate the impacts of such dredge-and-fill activities (often times
by creating new wetlands), resulting in "no net loss" of wetlands or an increase
in  wetlands  areas.  As is the  case in  Florida,  many  states  implement  the
dredge-and-fill  permit criteria under a consolidated federal and state program.
The Company  from time to time may be engaged in wetlands  mitigation  projects,
which may subject the Company to the  provisions  of the CWA and its  permitting
programs.

        Originally  adopted in 1947,  the Federal  Insecticide,  Fungicide,  and
Rodenticide Act ("FIFRA") constitutes the federal regulatory framework governing
pesticides,  including  algicides  and  herbicides.  FIFRA  imposes a variety of
licensing, permitting, classification, and registration requirements, along with
various  constraints  imposed  upon  the  application,   use,  and  handling  of
pesticides.  FIFRA  mandates that all restricted use of pesticides be applied by
or under the direct  supervision  of an applicator  certified  only under FIFRA.
Although  FIFRA dictates  certification  for  applications  of restricted use of
pesticides,  many states,  including Florida,  require the certification  and/or
registration  of commercial  applicators  for  applications  of both general and
restricted use pesticides.

        FIFRA  expressly  authorizes  states  to  regulate  the sale or use of a
federally registered pesticide or device under certain circumstances, but defers
to state regulations employing stricter standards.  A state may also require the
registration of federally  registered  pesticides for additional uses consistent
with special local needs. As a general rule,  state laws  regulating  pesticides
parallel the federal  scheme.  Many states  supplement the federal  requirements
with their own regulations.

        The Toxic  Substance  Control Act of 1975  ("TSCA")  gives the EPA broad
authority to regulate the manufacture, processing, distribution in commerce, use
and disposal of chemical substances and mixtures. The EPA may require testing of


                                    - 17 -


<PAGE>


chemical  substances  that may  present  an  unreasonable  risk to health or the
environment. If testing reveals an unreasonable risk, the EPA must take steps to
reduce the risk.  Options available to the EPA range from labeling  requirements
prohibiting manufacture of the harmful chemical to mandating the manner in which
it must be disposed.  The Company from time to time may be engaged in the future
to remediate certain  contaminated  sites, which may involve the use or disposal
of chemical  substances and mixtures.  To the extent that the Company handles in
the future those chemical substances and mixtures regulated by TSCA, the Company
could be subject to liability under TSCA. The Company does not anticipate that a
material portion of its environmental  remediation activities in the future will
consist of the  remediation  of sites  requiring the use or disposal of chemical
substances or materials regulated by TSCA.

        The  Florida  Aquatic  Weed  Control  Act  ("FAWCA")   creates  a  state
regulatory  framework  for  the  preservation  and  maintenance  of the  state's
waterways.  Under FAWCA, no person or public agency shall  eradicate,  remove or
otherwise  alter any aquatic  weeds or plants in waters of the state  unless the
Department of Environmental  Protection  ("DEP") or its designee issues a permit
or the  activity is  exempted.  The Florida  Legislature  also  established  the
Florida  Nonindigenous  Aquatic  Control  Act,  which  is  designed  to  control
nonindigenous  aquatic  plants  primarily by means of maintenance  programs.  In
connection with its aquatic management activities, the Company is subject to the
permitting criteria of FAWCA and the Florida  Nonindigenous Aquatic Control Act,
which the Company does not anticipate will have a material impact on its aquatic
management business.

        The  Company  may also be subject  to a variety  of  environment-related
worker and community safety laws. The Occupational Safety and Health Act of 1970
("OSHA")  mandates general  requirements for safe work places for all employees.
In particular,  OSHA calls for special  procedures and measures for the handling
of  certain  hazardous  and  toxic  substances.  In  addition,  specific  safety
standards  have  been  promulgated  for  workplaces  engaged  in the  treatment,
disposal or storage of hazardous waste.  Moreover,  under the Federal  Emergency
Planning and Right-to- Know Act of 1986, facilities handling specified extremely
hazardous  materials must notify local  emergency  planning  committees of their
activities and comply with the provisions of local emergency plans. Requirements
under state law, in some  circumstances,  may mandate  additional  measures  for
facilities handling specified extremely dangerous materials.

        The  Company  believes  that it is in  substantial  compliance  with all
material federal,  state and local laws and regulations governing its operations
and has obtained all material  licenses and permits  necessary for the operation
of its  business.  However,  amendments  to existing  statutes and  regulations,
adoption of new statutes and  regulations  and the Company's  expansion into new
jurisdictions and aquatic and vegetation  management  services could require the
Company  to  continually  alter  methods  of  operations  at costs that could be
substantial.  There  can be no  assurance  that the  Company  will be able,  for
financial or other reasons,  to comply with  applicable  laws,  regulations  and
permitting  requirements,  particularly  as it seeks to enter into new  markets.
Failure to comply with  applicable  laws,  rules or  regulations  or  permitting
requirements  could subject the Company to civil  remedies,  including fines and
injunctions, as well as possible criminal sanctions, which would have a material
adverse effect on the Company.



                                    - 18 -

<PAGE>


        Notwithstanding the burdens of compliance, the Company believes that its
business  prospects  are  significantly  enhanced  by the  continuing  stringent
enforcement of the comprehensive  regulatory  framework by government  agencies.
Any significant relaxation of the regulatory  requirements governing the aquatic
and vegetation  management  services  industry  could also adversely  affect the
Company.

PERMITS AND LICENSES

        The Company and, in certain  instances,  its  employees  are required to
obtain and maintain licenses and permits in connection with its operations.  The
Company's  employees currently hold the necessary permits for application of the
algicides  and  herbicides  utilized by the  Company in its  aquatic  management
business.  The  Company  is  required  to obtain  permits  from  state and local
governments for the harvesting and planting of aquatic plants in connection with
its wetlands  planting  activities on a project  basis.  The Company may also be
required  to  obtain  surface  water  permits  in  connection  with its  aquatic
management  activities on a project basis depending on the nature of the body of
water.

        The Company  anticipates that it will be required to obtain and maintain
additional  licenses  in  geographic  areas in which it  intends  to expand  its
operations.  The  Company  believes,  based  upon the level of  training  of its
employees and past experience,  that it will be able to obtain all such required
licenses, although there is no assurance that it will be able to do so.

EMPLOYEES

        As of March 12, 1997, the Company had  approximately 150 employees other
than  executives,  all of  whom  are  full-time  employees,  which  includes  30
administrative staff, 12 branch managers, 13 sales personnel, 75 applicators and
20 laborers.  The Company is not currently a party to any collective  bargaining
agreement. The Company believes that its employee relations are satisfactory.

Discontinued Operations

        The  Company's  Board of Directors in November  1995  approved a plan to
dispose  of the  environmental  remediation  business  segment  in  view  of the
continued  losses  of  the  environmental   remediation  services  division  and
operational  problems  associated  with it. In 1996,  management has implemented
various  cost-cutting  measures  including  the  reduction of officers and other
personnel,  the  sale  of  under-utilized  equipment  and the  consolidation  of
accounting and  administrative  functions.  The Company's  remediation  services
which are being discontinued include remediation of petroleum  contaminated soil
and ground  water and the  removal,  disposal and  installation  of  underground
petroleum storage tanks and fuel dispensing systems.






                                    - 19 -


<PAGE>


        On April 25, 1996, the Company sold  substantially all of the assets and
liabilities of HES to Heart Environmental  Services,  Inc. (the "Buyer"),  a New
Jersey  corporation  for  a  total   consideration  of  $1,907,021.   The  total
consideration  comprises (I) $681,000 in cash, (ii) a three-year promissory note
of $600,000 (the " Promissory Note") issued by the Buyer, bearing interest at 9%
per annum and  collaterized  by the pledge of 499 shares of the  Buyer's  Common
Stock  pursuant to a Stock Pledge  Agreement,  (iii) the  cancellation  of total
obligations  due to H&H  Investments  Corporation,  Mr.  Eugene  M. Haas and Mr.
Robert E. Haas (collectively known as the "Haas Shareholders") which amounted to
$626,021.  The Company originally  incurred these obligations in connection with
the HES  acquisition  in February 1995. As a result of the HES sale, the Company
has agreed not to pursue any claims against the Haas  Shareholders in connection
with the Haas  acquisition  in February  1995.  All of the above items have been
satisfied with the exception of (ii)  pertaining to the  Promissory  Note. As of
December 31, 1996, the Company  determined  that there will be a  collectibility
problem in relation to the  Promissory  Note and as a result,  a full  valuation
allowance has been made.

        In relation to FUPTC,  the Company has not been  successful in finding a
buyer for it and the net book values of the remaining  assets of FUPTC have been
written down to its net realizable  values.  As at December 31, 1996,  FUPTC has
fulfilled all of its remaining contractual obligations.  All equipment have been
sold  on a  piece-meal  basis  and  the  net  liabilities  of  the  discontinued
environmental  remediation  entities  consist  mainly  of  accounts  receivable,
accounts  payable and amounts payable to Robert A. Radler,  the former President
of the  Company,  under a  settlement  agreement  entered  into in 1996 with the
Company.  (See  Part  III,  Item 10:  Employment  Agreements).  The  Company  is
continuing  its  collection  efforts for the remaining  accounts  receivables in
relation to its discontinued  operations so as to settle the remaining  accounts
payable.

Item 2. Description of Property
        -----------------------

        The  Company   maintains  a  corporate   headquarters  for  its  aquatic
management and environmental remediation businesses, consisting of approximately
17,350  square  feet,  located in Fort  Lauderdale,  Florida,  under a five-year
four-month  lease which commenced on January 1, 1994. The Company has the option
to extend the term of the lease for an  additional  five  years.  The  Company's
annual  lease  payments  for  the  remaining  two  years  of the  lease  will be
approximately  $89,790 and  $93,370.  Thereafter,  the  Company's  annual  lease
payments will increase by 5% each year. In addition to its lease  payments,  the
Company is required to pay a proportionate share of the operating  expenses,  as
defined in the lease to include,  among other  things,  property  taxes,  hazard
insurance and all public utility  services aside from electric,  incurred by the
lessor in connection with its management and maintenance of the property subject
to the lease. Under the terms of the lease, the Company's operating expenses may
not increase by more than 5% each year.




                                    - 20 -


<PAGE>


        In addition to its  corporate  headquarters,  the Company  conducts  its
aquatic and  industrial  vegetation  management  business  out of the  following
branch offices:

        The  Company's   office  in  West  Palm  Beach,   Florida   consists  of
approximately  3,450  square  feet,  under a two-year  lease which  commenced on
September  23,  1992.  The  Company  has  extended  the lease for an  additional
three-year term, including the rental of additional space of approximately 1,150
square  feet.  The Company  has the option to renew the lease for an  additional
year. Annual lease payment is approximately  $35,200,  which amounts include the
cost of property  taxes,  hazard  insurance,  and public  utility  services  but
exclude the cost of maintaining  exterior  walls,  roof areas and the structural
integrity  of the leased  building,  a portion of which costs the Company may be
assessed to pay.

        The Company rents an approximately  3,200 square foot office in Orlando,
Florida under a three-year  one-month lease which commenced on June 1, 1994. The
Company  has the  option to extend the term of the lease for an  additional  two
years.  The  Company's  annual  lease  payments for the three years of the lease
(excluding  the first  month) are  approximately  $17,440,  $17,965 and $18,500,
excluding taxes, insurance and utilities.

        The  Company's  office in Sarasota,  Florida  consists of  approximately
4,000 square feet.  The Company  leases this office under a one-year lease which
commenced on January 1, 1997.  The Company has the option to renew the lease for
four  additional  one-year  terms.  The annual  lease  payment is $24,000  which
excludes taxes, insurance and utilities.

        The Company  rents an  approximately  4,500 square foot office in Tampa,
Florida  under a  five-year  lease  effective  May 1, 1995.  The Company has the
option  to  extend  the term of the  lease  for an  additional  two  years.  The
Company's  annual lease  payment is $24,000  except for the first year where the
rent is  specifically  waived for a period of five months which amount  includes
water  services,  but excludes the cost of all other  public  utility  services,
insurance, taxes and maintenance.

        The  Company's  office in Fort  Myers,  Florida is  approximately  4,200
square foot in size and is under a two-year lease which commenced on December 1,
1995.  The annual  lease  payment  is $19,200  excluding  taxes,  insurance  and
utilities.  The Company  has the option to renew the lease for three  additional
one-year terms.

        On March 1996, the Company entered into a lease for approximately  2,625
square feet of space in Jacksonville, Florida, with a term of one year effective
April 1,  1996.  The  Company  has the  option  to renew  the  lease  for  three
additional  one-year  terms.  The  Company's  annual  lease  payment is $13,200,
excluding taxes, insurance and utilities.

        The  Company's  office in  Myrtle  Beach,  South  Carolina  consists  of
approximately  2,000  square  feet and is leased  on a month to month  basis for
approximately $600 per month.




                                    - 21 -


<PAGE>


        The Company's office in Tempe,  Arizona,  is approximately  5,900 square
feet in size and is under a month to month  lease  which  commenced  December 7,
1996.  The monthly lease payment is $2,000 in addition to all expenses  borne by
triple net lease terms,  including,  but not limited to, real estate taxes.  The
Company  intends  to enter  into a two year  lease  agreement  including  yearly
renewal options,  with a monthly lease payment of approximately  $3,250 for this
office.

        In connection with the GPI Acquisition, the Company entered into a month
to month lease for approximately  2,800 square feet of space in Athens,  Georgia
at a monthly lease payment of $1,000.


Item 4. Submission of Matters to a Vote of Security-Holders
        ---------------------------------------------------
 
        None.


































                                     - 22 -


<PAGE>



                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

         The  Company's  Common  Stock and  Warrants  are  quoted on the  NASDAQ
National Market System under the symbols "AQUX" and "AQUXW",  respectively.  The
following  table sets forth,  for the period since the first quarter ended March
31,  1995,  the high and low closing  sales  prices for the Common Stock and the
Warrants as reported by NASDAQ.


                                           Common Stock          Warrants
                                         -----------------  ------------------
                                          High      Low       High      Low
                                         -------  --------  --------  --------

1995
----                                         
First Quarter . . . . . . . . . . . . .  7-1/4     6-1/2     2-1/8     1-15/32

Second Quarter . . . . . . . . . . . . . 7-3/8     5-1/2     2-1/4     1

Third Quarter . . . . . . . . . . . . .  8-1/8     6-1/2     2-1/2     1-5/8

Fourth Quarter . . . . . . . . . . . . . 8-1/16    6-5/8     2-1/2     1-3/4

1996
----
First Quarter . . . . . . . . . . . . .  6-7/8     3-1/4     2         11/16

Second Quarter . . . . . . . . . . . . . 5-1/4     4-1/4     1-1/8     11/16

Third Quarter . . . . . . . . . . . . .  5-13/16   4-1/2     1         1/2

Fourth Quarter . . . . . . . . . . . . . 6-3/8     4-11/16   1-1/8     1/2

1997
----
First Quarter (through March 12, 1997) . 8         5-15/16   2-1/2     15/16


        As of March 12,  1997,  there were 42 record  holders  of the  Company's
Common Stock.  There are in excess of 1,009  beneficial  owners of the Company's
Common Stock.

        The Company has not paid any cash  dividends  on its Common  Stock other
than S corporation  dividends prior to the IPO and does not currently  intend to







                                    - 23 -

<PAGE>


declare or pay cash dividends in the foreseeable  future. The Company intends to
retain any earnings that may be generated to provide funds for the operation and
expansion of its business. In addition, certain of the Company's loan agreements
with its lenders prohibit the Company from paying dividends.


Item 6. Management's Discussion and Analysis of Financial  Condition and Results
        ------------------------------------------------------------------------
        of Operations
        -------------

        The  following  management's  discussion  and  analysis  relates  to the
financial condition and results of operations of the Company for the years ended
December  31, 1996 and 1995 after  giving  effect to the  Company's  merger with
Green Pastures,  Inc. ("GPI") on December 31, 1996, which was accounted for as a
pooling-of-interests.

OVERVIEW

      The Company is currently  the largest  provider of aquatic and  industrial
vegetation management services in the United States.  Besides Florida,  Georgia,
North and South Carolina,  the Company has begun providing  services in Arizona,
Alabama and Tennessee.  The Company's  operations have grown significantly since
1994  as  a  result  of  internal  growth  and  the  selective  acquisition  and
consolidation  of privately  held aquatic and industrial  vegetation  management
companies with limited  geographic  service areas and market shares. The Company
continues to adopt a growth strategy which includes the acquisition of companies
offering similar services to its core business, eliminating duplicative expenses
and  integrating  the  acquired  operations  into its  existing  business.  Such
acquisitions  have been  accomplished  through the  purchase of the  outstanding
stock or  assets  of the  acquired  entities  for  cash,  notes,  shares  of the
Company's common stock, or a combination thereof.

      On June 7, 1996,  the Company  acquired  Aquatic and Right of Way Control,
Inc.  ("ARC") for $1,500,000 which was paid by the issuance of 270,000 shares of
the Company's  common stock and $150,000 was paid in cash.  With annual revenues
of approximately $1,350,000,  ARC is a leading provider of industrial vegetation
and utility right of way  management  services in Florida,  Georgia and Alabama.
These services include weed control and growth  regulation in right of way areas
adjacent to distribution and transmission  power lines. In 1996, the Company has
begun to  create a niche  for  itself in the  industrial  vegetation  management
business,  with  the  ARC  acquisition  providing  the  springboard  from  which
marketing efforts are being targeted at electric and power utilities,  telephone
and railroad companies, transportation departments and industrial sites.

      On December 7, 1996,  the Company  completed  the  acquisition  of Aquatic
Dynamics, Inc. ("ADI") for $1,000,000,  of  which  $750,000 was  paid by the is-
suance of 133,333 shares of the Company's common stock, $200,000 was paid by the
issuance of an instalment  note and $50,000 was paid in cash.  This  acquisition
marks the  Company's  entry into the  Southwest  market for  aquatic  vegetation
management services.  Through this  acquisition,  the Company acquired a leading


                                    - 24 -


<PAGE>



provider of aquatic management  services throughout Arizona and the southwestern
United  States  with  annual  revenues  of  approximately  $1,600,000  and whose
experience  and  services  span the gamut of  surface  water  management  needs,
including  residential,   commercial,   industrial  and  governmental  projects,
irrigation  and  effluent  reuse water  systems,  lake and pond  management  and
ongoing waterway maintenance.

      On December 31, 1996,  the Company made its third  acquisition  in 1996 by
acquiring  GPI for $600,000  which was paid by the issuance of 96,000  shares of
the Company's  common stock.  Through this  acquisition,  the Company acquired a
provider of roadside  vegetation  management  services  throughout  the state of
Georgia,   with  annual   revenues  of   approximately   $960,000   and  thereby
strategically broadens its expansion in the south of United States.

      On October 31, 1995, the Company acquired  substantially all of the assets
and  assumed  certain  of the  liabilities,  of  AmerAquatic,  Inc.,  a  Florida
corporation  ("AmerAquatic"),  pursuant  to  the  terms  of  an  Asset  Purchase
Agreement,  dated as of  October  19,  1995,  by and  among  EWM,  the  Company,
AmerAquatic and Thomas Latta and C. Elroy Timer,  the principal  shareholders of
AmerAquatic.  The  aggregate  purchase  price  paid  by EWM for  the  assets  of
AmerAquatic was $4,291,084,  subject to adjustment under certain  circumstances,
of which (i)  $3,791,084 was paid in cash and (ii) $500,000 was paid through the
issuance by EWM of a seven-month  promissory note bearing  interest at a rate of
9.75% per annum,  which  note is  guaranteed  by the  Company.  AmerAquatic  was
engaged in the business of providing lake management services, including aquatic
and  terrestrial  weed and  algae  control,  melaleuca  and other  exotic  plant
control,  wetland and upland  restoration and other related services.  They were
the  Company's  largest  competitor  in this business in Florida with over 1,000
customers.  The AmerAquatic  Acquisition expanded the Company's geographic reach
into  northern  Georgia,  North  Carolina and South  Carolina and  initiated the
Company's  penetration  into its second  strategic  market,  the South  Atlantic
states.  The  Company is  continuing  to operate  the lake  management  business
previously conducted by AmerAquatic as part of ALWT.

      The proforma  combined  results of operations of the Company assuming that
the ARC, ADI and AmerAquatic  acquisitions were completed on January 1, 1995 are
as follows:

                                          Pro Forma       Pro Forma
                                            1995              1996
                                       ------------     ------------

Revenues                               $ 12,825,618     $ 13,419,446

Net (loss) income                      $   (405,507)    $    450,391

Net (loss) income per share            $      (0.11)    $       0.11







                                    - 25 -

<PAGE>


The proforma  results combine the historical  operating  results of GPI, ADI and
GPI and are not  necessarily  indicative  of operating  results which would have
occurred if these  acquisitions had been operated by current  management  during
the  periods  presented  as  these  amounts  do not  reflect  the  full  network
optimization  and the  synergistic  effect on  operating,  selling,  general and
administrative expenses.

RESULTS OF OPERATIONS

CONTINUING OPERATIONS - AQUATIC & INDUSTRIAL VEGETATION MANAGEMENT BUSINESS
---------------------------------------------------------------------------

REVENUES

      Total service revenue  increased by  approximately  $4,498,000,  or 64.5%,
from  approximately  $6,970,000 in 1995 to  $11,468,000 in 1996. The increase in
revenues was  primarily  attributable  to an increase in the number of recurring
and non-recurring aquatic and industrial  vegetation management contracts.  This
was brought  about by the  expansion of its customer  base in Florida,  Georgia,
North and South Carolina, Alabama and Arizona as a result of intensive marketing
efforts and acquisitions.  Much of the internal growth in revenues resulted from
an increasing trend towards governmental and private outsourcing and the growing
need to comply with environmental laws and regulations. In addition, the Company
has embarked on an aggressive expansion strategy through proactive consolidation
of aquatic and vegetation  management  companies.  The  acquisitions in 1996 has
contributed approximately $1,243,000 to the total increase in revenues.

      Approximately  76.7% of the total  revenues were derived from the business
of aquatic weed, algae and plant control which accounted for approximately 67.4%
of the  increased  revenues.  Revenues  from  industrial  vegetation  management
services comprised 17.3% of total revenues for 1996, accounting for 22.8% of the
increase in revenues for 1996.  Revenues from industrial  vegetation  management
services  are  expected to  contribute  increasingly  to the  Company's  overall
revenues in the next few years.

COST OF SERVICES AND GROSS MARGINS

      Costs of services  increased by approximately  $2,852,000,  or 78.5%, from
approximately $3,631,000 in 1995 to $6,483,000 in 1996. The increase in costs of
services was mainly  attributable to increased  chemical,  labor,  insurance and
fuel costs which was directly a result of the Company's expanding operations. As
a percentage of revenues, cost of services have increased from 52.1% for 1995 to
56.5% for 1996.  The reduced gross margin was due  primarily to higher  chemical
and labor  costs  as a result of the  particularly  hot summer which was further
aggravated by a lower than normal rainfall  experienced in Florida in 1996. This
caused an exceptionally  rapid growth of algae and aquatic weeds. In addition, a
higher mix of industrial  vegetation  management  contracts acquired for 1996 as
compared to 1995 also contributed to the lower gross margin.  For 1996, revenues
from industrial vegetation management services comprised 17.3% of total revenues
as  compared to  13.8%  for  1995.   Gross margins  for   industrial  vegetation
management contracts are generally lower that the aquatic vegetation  management
contracts as they involve a higher usage of chemicals.


                                     - 26 -


<PAGE>





SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

      Selling,  general and  administrative  expenses decreased by approximately
$697,000, or 17.0%, from approximately $4,095,000 in 1995 to $3,398,000 in 1996.
This decrease was mainly  attributable to reductions in consulting fees incurred
for  financial  advisory  services  relating to the  evaluation  and sourcing of
financing arrangements for proposed  acquisitions,  professional fees and travel
and  lodging  expenses  associated  with  due  diligence  work  carried  out for
potential acquisitions which were not consummated. In addition, the streamlining
of corporate  operations also resulted in the reduction of payroll costs,  legal
fees and public relations expenses.  As a percentage of revenues,  such expenses
have  decreased  from 58.7% in 1995 to 29.6% in 1996 due  primarily  to the cost
control measures taken with respect to the Company's corporate functions and the
operating  efficiencies  and economies of scale  achieved  following the various
acquisitions in 1996 and 1995 and internal growth experienced by the Company.

      Depreciation  and  amortization   expenses  increased  from  approximately
$304,000 in 1995 to $721,000 in 1996. As a percentage of revenues,  depreciation
and amortization expenses have increased from 4.4% in 1995 to 6.3% in 1996. This
increase  reflected  a full year's  depreciation  of the  equipment  acquired in
connection  with  the  AmerAquatic  acquisition  in  1995  and the  purchase  of
additional  application equipment in 1996 as a result of the Company's expanding
operations.  The increase in amortization expense related to the amortization of
intangibles  acquired  from  the  acquisitions  in  1995  and  1996  as  well as
amortization  of unearned  compensation  relating to the  issuance of options as
compensation for certain financial consulting services rendered in 1996.

INTEREST INCOME

      Interest income decreased by approximately  $157,000,  from  approximately
$218,000  in 1995 to  $61,000  in 1996.  The  decrease  in  interest  income was
consistent with the lower average balance of marketable  securities held in 1996
as compared to 1995.

INTEREST EXPENSE

      Interest expense increased by approximately  $509,000,  from approximately
$174,000 in 1995 to $683,000 in 1996,  primarily as a result of the 12.5% Senior
Secured Note of  $5,000,000  issued in October  1995 to finance the  AmerAquatic
acquisition.

INCOME FROM CONTINUING OPERATIONS

      Income from continuing operations increased by approximately $886,000 from
a loss of  approximately  $642,000  in 1995 to a net income of $244,000 in 1996.
The  increase  in   income   from  continuing  operations  was due to  increased


                                    - 27 -


<PAGE>


revenues,  improved  utilization  of its  fixed  administrative  costs  and  the
elimination  of certain  nonrecurring  expenditures  from 1995. No provision for
income  taxes  was  required  in  view  of  the  Company's  net  operating  loss
carryforwards.

SEASONALITY

         The Company's  results of  operations  are not  materially  affected by
seasonal  trends.  However,  the  Company's  cost of  services  for  aquatic and
industrial  vegetation  management  services  are  higher  during the spring and
summer months when aquatic weeds,  algae and exotic plants grow at a much faster
rate than during the fall and winter  months.  As a result of such higher growth
rates, the Company is required to use increased  amounts of chemicals to control
weeds,  algae and exotic  plants  and to incur  additional  overtime  for hourly
employees.  Higher costs could adversely affect the Company's profit margins and
results of operations during such periods. However, the Company believes that in
the future,  its results may reflect quarterly  fluctuations  resulting from the
different climatic conditions of the locations of its customers.

OUTLOOK

       Management believes that the aquatic and industrial vegetation management
industry is expected to grow  substantially  over the next few years because of:
(I) the continued outsourcing of maintenance  contracts of utilities,  railroads
and government agencies which were previously conducted by internal public works
personnel;  (ii) the growth in the number of golf courses and condominiums which
require frequent perennial  maintenance of its lakes; (iii) environmental issues
reaching  mainstream  acceptance,  thus  reducing  barriers  to  businesses  and
individuals  utilizing  maintenance  services  even for  predominantly  cosmetic
reasons; and (iv) new legislation mandating increasingly stringent environmental
regulations.

      The Company,  through internal growth and its aggressive acquisition plan,
is  currently  the largest  provider of  aquatic-related  vegetation  management
services  in the  Southeastern  United  States.  The  Company  will seek to take
advantage of the growth  potential of the industry which includes  making future
acquisitions  of  several  privately-held  waterway  and  vegetation  management
companies  throughout  the Sunbelt  states  which are  compatible  with its core
business, eliminating duplicate expenses and integrating the acquired operations
into  the  existing   business.   Management   believes  that  the  industry  is
particularly  well suited for  acquisitions as it is made up of numerous smaller
companies which are virtually  identical.  A larger entity would be able to take
advantage  of (i)  economies  of scale;  (ii)  increased  insurance  and bonding
capacities;  (iii) decentralized  branch offices which reduce operating costs by
reducing transit time to job sites and increase  employee  efficiency;  and (iv)
opportunities to service larger contracts that have  traditionally been serviced
in-house.

      Although the Company believes that there is significant demand for aquatic
and vegetation  management services,  the industry is emerging with a relatively
limited  operating  history.  As such,  demand  and  market  acceptance  for the
Company's services are subject to a high level of uncertainty.


                                    - 28 -


<PAGE>



The  Company's  growth  prospects  will be largely  dependent  on its ability to
achieve  greater  penetration  in  existing  markets and new markets and also on
continued  favorable  regulatory  environments.  In  addition,  there  can be no
assurance  that   additional   financing  can  be  obtained  to  finance  future
acquisitions  or that the Company can  successfully  integrate into its existing
operations any future acquisitions.  The costs of additional financing, together
with its inability to integrate future  acquisitions into its existing business,
would  have a  material  adverse  effect  on the  financial  performance  of the
Company, especially when the capital investment is significant.

      The Company anticipates that selling,  general and administrative expenses
will  increase  in 1997 as a result of the  planned  growth in the  systems  and
personnel  necessary to support the expanded  scope of the Company's  operations
and to  establish  the  required  infrastructure  to  assimilate  the  increased
operations  from  internal  growth  and  future  acquisitions.  The  Company  is
currently in the process of converting  its  information  systems to better meet
the increasing information requirements of the business. Selling and promotional
expenses  are  also  expected  to  increase  in 1997 as a  result  of  increased
marketing efforts especially in relation to the industrial vegetation management
services and the increased  geographic  distribution  of the customer  base. The
Company  anticipates that this increased level of  infrastructure  spending will
have a negative impact on the Company's results of operations for 1997 and it is
expected  that the Company will incur  operating  losses in the first quarter of
1997. The Company regards these  expenditures as critical to the future business
success of the Company.

LIQUIDITY AND CAPITAL RESOURCES

CONTINUING OPERATIONS
---------------------

Working Capital

      Working capital (excluding net liabilities of discontinued operations) was
approximately  $1,384,000  at December  31,  1995 as  compared to  approximately
$1,140,000  as at  December  31,  1996.  The  decrease  in  working  capital  of
approximately  $244,000 was due primarily to the  liquidation  of the marketable
securities and the refund of income taxes.

      As of December 31, 1996,  accounts  receivable  increased by approximately
$64,000 as compared to 1995.  This was in line with the  increased  revenues for
1996 as  compared  to 1995 as a result of  internal  growth  and the ARC and ADI
acquisitions.  The  Company's  accounts  receivable  as a percentage of revenues
decreased  to 9.3% in 1996 from  14.3% in 1995 and this was due to the  improved
collection period for the accounts  receivable from 39 days at December 31, 1995
to 32 days at December 31, 1996.  The incidence of bad debts  experienced by the
Company has been  negligible  and the Company  believes  that the  allowance for
doubtful  accounts of approximately  $89,000 at December 31, 1996 is adequate to
cover anticipated losses. Of the Company's total accounts receivable at December
31, 1995 and 1996,  approximately $239,000 (23.9%) and $336,000 (31.6%) were due
from  five  customers,  respectively.  The  increase was primarily due to larger


                                    - 29 -


<PAGE>



aquatic and industrial  contracts secured in 1996 as compared to 1995. Delays in
collection  or  uncollectibility  of accounts  receivable  could have an adverse
impact on the Company's liquidity and working capital position.

      During 1996,  the Company  received a refund of income taxes  amounting to
approximately  $606,000 mainly as a result of the carryback of the net operating
losses incurred in 1995 against prior years' income.

      At December 31, 1996, the Company has loan  agreements with SunTrust Bank,
Miami, N.A. ("SunTrust") which provides for borrowings under a revolving line of
credit of up to  $750,000,  a 15- year loan in the  principal  amount of $94,144
collaterized  by certain real  property,  and  equipment  loans in the principal
amounts of $90,624. At December 31, 1996, an aggregate of approximately $512,000
was outstanding under the loan agreements with SunTrust,  of which approximately
$404,415 was outstanding under the line of credit, $85,634 was outstanding under
the 15-year loan and $21,538 was outstanding under the equipment loans. Advances
under the line of credit are based on certain  borrowing  formulas  relating  to
eligible accounts receivable.  Accounts  receivables of discontinued  operations
are pledged as  collateral  for the line of credit but cannot be used as part of
the borrowing base under the line.  Interest accrues at 1.5% above prime for the
line of credit  and the  facility  expires  on March 31,  1997.  The  Company is
currently in the process of establishing a new line credit with another bank.

CASH FLOWS FROM OPERATING ACTIVITIES

      The  Company  used   approximately   $2,099,000  in  cash  from  operating
activities  for the year ended December 31, 1995 as compared to cash provided by
operating  activities of approximately  $349,000 for the year ended December 31,
1996.  Of this  total net cash  provided  by  operating  activities,  continuing
operations  generated net cash of  approximately  $1,223,000  for the year ended
December  31,  1996 as  compared to net cash used by  continuing  operations  of
approximately  $2,026,000  for  1995.  The  increase  in net cash  generated  by
operating  activities  of the  continuing  operations  was due  primarily  to an
increase in income from continuing operations, the improvement in the collection
period for accounts receivable and the refund of income taxes.

CASH FLOWS FROM INVESTING ACTIVITIES

      Net cash provided by investing  activities of  continuing  operations  was
approximately $31,000 in 1996, which related mainly to proceeds from the sale of
marketable   securities   and   equipment  and  was  partly  offset  by  capital
expenditures of approximately  $874,000. The increase in capital expenditures in
1996  as  compared  to 1995  was  due to  additional  purchases  of  application
equipment and computers which were in line with the expansion of operations.  As
of December 31, 1996, the Company has capital  commitments to purchase forty-six
specialized   application   vehicles  known  as  "Spra-Buggies"  over  the  next
twenty-two  months at a current  purchase  price of  approximately  $27,000  per
vehicle. The Company is currently seeking to establish equipment financing lines
of credit with various commercial  equipment  financing companies for a total of
approximately $2,000,000.





                                    - 30 -


<PAGE>





      The  cash  outlay  for the  acquisitions  completed  in 1996  has not been
significant as the acquisitions  were primarily  financed by the issuance of the
Company's  common stock.  The increase in intangible  assets for 1996 was due to
the intangibles  acquired as a result of the ARC and ADI acquisitions  which are
being amortized over 15-25 years.

CASH FLOWS FROM FINANCING ACTIVITIES

      The Company  repaid a total of  approximately  $847,000 of its  borrowings
relating  to its  continuing  operations  during  1996  and  this  included  the
repayment  of the  promissory  note of $500,000  issued in  connection  with the
AmerAquatic acquisition in October 1995. In April 1996, the Company entered into
a sale  and  leaseback  capital  lease  agreement,  for a  principal  amount  of
$300,000, with a commercial equipment financing company to refinance some of the
capital expenditures for application equipment.

      During 1996, the Company completed four equity private placements totaling
437,500 shares of the common stock of the Company at a price of $4 per share for
a total cash consideration of $1,750,000.  Of the total number of shares issued,
125,000  shares were issued to Mr.  Jeffrey T. Katz,  a director of the Company.
The proceeds from these equity  placements  have  primarily been used to finance
working capital, repayment of debt and capital expenditures.

      The proceeds from other  borrowings in 1995 related mainly to the proceeds
from the  issuance of a 12.5%  Senior  Secured Note due February 28, 1996 in the
principal  amount of $5,000,000 to The Equitable Life  Assurance  Society of the
United States for the financing of the AmerAquatic acquisition in October 1995.

      In November 1996, the Company issued to various private  investors a total
of 350,000  stock  options  immediately  exercisable  for the purchase of common
stock of the Company at an  exercise  price of $5 per share.  In February  1997,
50,000 stock options were exercised by an investor and the Company issued 50,000
shares of the common stock of the Company for an  aggregate  amount of $250,000.
The proceeds  from these  equity  placements  will  primarily be used to finance
working capital and future acquisitions.

      The Company  continues  to pursue  private debt or equity  offerings  with
potential   investors  and  increases  in  credit   facilities   with  financial
institutions  in  order to fund  the  continued  expansion  of its  aquatic  and
industrial  vegetation  management business in 1997 both through internal growth
and  acquisitions.  To the  extent  that the  Company  is unable to obtain  this
financing  or  financing   available   through  the  conversion  of  outstanding
redeemable  warrants  from the  initial  public  offering,  the  Company  may be
required to curtail its expansion activities.







                                    - 31 -


<PAGE>


DISCONTINUED OPERATIONS - ENVIRONMENTAL REMEDIATION BUSINESS

      In January 1996, the Company refinanced substantially all of its equipment
in relation to its  remediation  segment with USL Capital  Corporation  ("USL").
Using the proceeds  from the USL loan and the proceeds from the  liquidation  of
marketable securities,  the Company repaid all advances made to the discontinued
operations  under the previous  line of credit with SunTrust  which  amounted to
approximately  $818,000 and the long-term  loan of $1,975,000 to SunTrust  which
was used to finance the acquisition of HES in 1995.

      In March 1996,  the Company  entered into an agreement with SunTrust for a
one-year extension to February 10, 1997 of a loan of $760,000 (the "FUPTC Loan")
advanced  under the a revolving  line of credit for FUPTC relating to a specific
remediation project. In July 1996, the entire outstanding loan was repaid, so as
to reduce  interest  expense,  using  primarily  the proceeds from the refund of
income taxes.

      On April 25, 1996,  the Company sold  substantially  all of the assets and
liabilities of HES to Heart Environmental  Services,  Inc. (the "Buyer"),  a New
Jersey  corporation  for  a  total   consideration  of  $1,907,021.   The  total
consideration  comprises (I) $681,000 in cash, (ii) a three-year promissory note
of $600,000 (the " Promissory Note") issued by the Buyer, bearing interest at 9%
per annum and  collaterized  by the pledge of 499 shares of the  Buyer's  Common
Stock  pursuant to a Stock Pledge  Agreement,  (iii) the  cancellation  of total
obligations  due to H&H  Investments  Corporation,  Mr.  Eugene  M. Haas and Mr.
Robert E. Haas (collectively known as the "Haas Shareholders") which amounted to
$626,021.  The Company originally  incurred these obligations in connection with
the HES  acquisition  in February 1995. As a result of the HES sale, the Company
has agreed not to pursue any claims against the Haas  Shareholders in connection
with the Haas acquisition in February 1995. As at December 31, 1996, the Company
has determined  that there will be a  collectibility  problem in relation to the
Promissory Note and as a result,  a full valuation  allowance has been made. The
net gain on disposal of HES was approximately $716,000.

      The  proceeds  from the HES sale have been used to repay a portion  of the
loan from USL Capital  which  amounted to $405,722  and this  includes  $391,044
principal  and $14,678  interest  payments.  The  proceeds  were also used for a
principal  repayment of the FUPTC Loan in the amount of $100,000 in May 1996 and
to settle certain remaining liabilities of HES.

      During the year ended December 31, 1996, the Company  incurred losses from
discontinued operations of approximately  $758,000.  Additional losses were also
incurred due to the negative job- cost variances  relating to the fulfillment of
remaining   contractual   services  for  Florida   Underground   Petroleum  Tank
Contractors,  Inc.  ("FUPTC)  and the  provision  of legal fees  relating to the
collection of outstanding accounts receivables. The Company has also been unable
to find a buyer  for FUPTC and the net book  values of the  remaining  assets of
FUPTC have been written  down to its net  realizable  value.  As of December 31,






                                    - 32 -


<PAGE>


1996,  FUPTC has fulfilled all of its remaining  contracts.  All equipment  have
been sold on a  piece-meal  basis and the net  liabilities  of the  discontinued
environmental  remediation  business  consist  mainly of  accounts  receivables,
accounts  payable and amounts payable to Robert A. Radler,  the former President
of the  Company,  under a  settlement  agreement  entered  into in 1996 with the
Company. (See Part III, Item 10: Employment Agreements).

      In 1996, the Company has been vigorously continuing its collection efforts
in order to improve the cash flows of its  remediation  segment until  disposal.
Gross accounts  receivable for the  remediation  segment,  excluding a long-term
receivable  of  $1,048,222  at December 31, 1995 and  $1,269,909 at December 31,
1996,  has  decreased  by  $3,353,300  from  $3,661,354  at December 31, 1995 to
$308,054  at  December  31,  1996.   Collections   accounted  for  approximately
$1,400,000.  The remainder of the decrease was mainly due to the transfer of the
uncollected  portion  of the  accounts  receivable  of  HES  which  amounted  to
approximately  $1,188,000  back to Mr.  Eugene M. Haas and Mr.  Robert E.  Haas,
pursuant to the Haas  Purchase  Agreement  dated as of February 28, 1995 and the
sale of the  receivables  of HES in April 1996 which  amounted to $565,909.  The
Company is continuing its collection efforts for the remaining receivables so as
to settle the remaining accounts payable of its remediation segment.

      In partial  settlement of the funds extended to FUPTC for the repayment of
its loans with SunTrust and for its working  capital  requirements  in 1996, the
Company  has   reclassified  a  long-term   receivable  of  FUPTC  amounting  to
$1,269,909.  The receivable  related to an  environmental  remediation  contract
entered  into  in  August  1994   between   FUPTC  and   Riverfront   Associates
("Riverfront") for remediation and clean-up services (the "Riverfront  Project")
performed  in  connection  with  contamination   associated  with  an  abandoned
petroleum  storage tank system at  Riverfront's  property.  The State of Florida
Department  of  Environmental   Protection   ("DEP")  had  determined  that  the
Riverfront Project was eligible for a State-funded  clean-up under the Abandoned
Tank Restoration  Program and the work was thus performed in accordance with the
County  Department  of  Environmental  Resources  Management  approved  Phase  I
Remedial Action Plan for the Riverfront Project. The work was fully completed in
1996 and the  Company  has filed a  reimbursement  application  with DEP seeking
reimbursement  from DEP with respect to the work  performed.  The contract  with
Riverfront  also provides that Riverfront be responsible for paying the interest
on the  outstanding  amount  owed  to  FUPTC  with  effect  from  the  date  the
application for  reimbursement  is filed with DEP, at prime plus 1.5% per month.
Included  in the  Riverfront  receivable  outstanding  at  December  31, 1996 is
approximately  $60,000 of accrued  interest.  The contract with  Riverfront also
provides  that if the funds of DEP are  insufficient  to  reimburse  FUPTC for a
period of twenty-four months after submittal of the reimbursement application to
DEP,  Riverfront shall be responsible for the payment of the outstanding balance
in ten monthly  instalments,  subject to certain conditions.  As of December 31,
1996,  the Company  believes that it will receive full repayment of the balances
owed for the  Riverfront  Project as it has complied with the  conditions of the
Riverfront  contract and the  reimbursement  program;  however,  there can be no
assurance that DEP will allow all costs claimed in the reimbursement application
and that Riverfront will make payment for the shortfall.






                                    - 33 -

<PAGE>



RECENT ACCOUNTING PRONOUNCEMENTS

      The Company has adopted the  Statement of Financial  Accounting  Standards
("SFAS") No. 121,  "Accounting  for the Impairment of Long-Lived  Assets and for
Long-Lived  Assets to be Disposed Of". This statement  requires that  long-lived
assets  and  certain  intangibles  which  are held and  used by the  Company  be
reviewed  for  impairment.  There was no effect  on the  Company's  Consolidated
Financial Statements as a result of adopting SFAS No. 121 in 1996.

      The  Company  has  adopted  the  disclosure  provisions  of SFAS No.  123,
"Accounting  for   Stock-Based   Compensation"   in  1996.  This   pronouncement
establishes   financial  accounting  and  reporting  standards  for  stock-based
employee compensation plans. It encourages,  but does not require,  companies to
recognize  compensation  expense  for grants of stock,  stock  options and other
equity  instruments  to  employees  based on new fair  value  accounting  rules.
Companies that choose not to adopt the new fair value  accounting  rules will be
required to disclose  pro forma net income and  earnings per share under the new
method. See Note 10 to the Consolidated Financial Statements.

IMPACT OF INFLATION

      The Company has not been materially affected by inflation.


Item 7.  Financial Statements
         --------------------
 
      See "Index to Consolidated  Financial Statements" for a description of the
financial statements included in this Form 10-KSB.


























                                     - 34 -

<PAGE>



                                    PART III

Item 9.  Directors,   Executive  Officers,   Promoters   and   Control  Persons;
         -----------------------------------------------------------------------
         Compliance with Section 16(a) of the Exchange Act
         -------------------------------------------------

EXECUTIVE OFFICERS, DIRECTORS AND SIGNIFICANT EMPLOYEES

         The  executive  officers,  directors and  significant  employees of the
Company are as follows:


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

Andrew P. Chesler........   30   Chairman of the Board, Chief Executive Officer,
                                 President and Treasurer
Helen Chia...............   33   Chief Financial Officer and Secretary
Abraham S. Fischler......   69   Director
Fred S. Katz.............   58   Director
Allen H. Stern...........   38   Director
Jeffrey T. Katz..........   29   Director
William E. Lloyd.........   52   Vice President, Marketing/Special Projects
Joseph J. Campolong......   30   Vice President, Production
Robert Craig Smith.......   32   Vice President, Sales

         ANDREW P. CHESLER has served as Chairman of the Board,  Chief Executive
Officer, President and Treasurer since February 1996. Mr. Chesler co-founded the
Company and has been  Executive  Vice  President of the Company since June 1993.
Mr. Chesler also co-founded ALWT and has been President, Chief Operating Officer
and a director  since October 1990.  Mr. Chesler is also the President of ALWTA,
the Company's  subsidiary  for its western  operations.  From January 1988 until
October 1990, Mr. Chesler  served  Florida  Waterway as a Regional  Manager and,
ultimately, as the Vice President of Sales.

         HELEN CHIA has served as the Company's  Chief  Financial  Officer since
January  1996.  Ms. Chia was  appointed as Secretary for the Company in February
1996.  She joined the  Company in April  1995 as  Corporate  Controller  for the
Company. From February 1992 to December 1994, she served as Corporate Controller
for Milk  Products  Holdings  (SEA) Pte Ltd, a  Singapore-based  company with an
annual sales of approximately  $500 million,  whose principal business is in the
trading of dairy products  through its eight  subsidiaries  and nine  associates
operating  throughout  Southeast Asia, South Africa and the Indian subcontinent.
From January 1986 to December 1991, she was with the public  accounting  firm of
KPMG Peat Marwick.





                                    - 35 -


<PAGE>

         ABRAHAM S. FISCHLER has been a director of the Company since  September
1994.  Since  July  1992,  Mr.  Fischler  has been  President  Emeritus  of Nova
University, Fort Lauderdale,  Florida. From July 1970 to July 1992, Mr. Fischler
served as President of Nova University.

         FRED S. KATZ has been a director of the Company  since  November  1994.
Mr. Katz has been Managing  Director of Whale Securities Co., L.P. for more than
the past five years.  Mr. Katz has been a director of UNSI Corp.  since 1992. He
has  been  Chairman  of  the  Board  and  Chief  Executive  Officer  of  Cyclone
Incorporated, a manufacturer of cyclone fences, since December 1994.

         ALLEN H. STERN was  appointed  as  director  of the Company in February
1996. Mr. Stern is currently a Senior Vice President with the Corporate  Finance
Department of Dabney Resnick, Inc., a Beverly Hills, California-based investment
bank and has been with Dabney  Resnick,  Inc. since 1993. From 1987 to 1993, Mr.
Stern was Senior Vice President in Binswanger Company,  where he was the founder
of the Corporate  Finance Real Estate  Department.  From 1980 to 1986, Mr. Stern
was in leveraged  leasing and equipment  project finance with First NH Resources
and Bank New England Leasing.

         JEFFREY T. KATZ was appointed as director of the Company in March 1996.
Mr. Katz is currently  the  President,  Chief  Executive  Officer and founder of
Blueberry  Intermodal  Inc.,  a chassis  leasing  company  founded in 1995 which
leases  chassis  for newly  designed  "large-spec"containers  for  international
shipping and has operations in the Continental  United States. In 1991, Mr. Katz
was the  co-founder  of  Porter  Capital  Management,  a  hedge  fund  based  in
Sausalito, California and continues currently as a limited partner. Between 1989
to 1991,  Mr. Katz was in the  securities  industry on the Pacific Stock Options
Exchange with Adler, Coleman & Co. and Casey Securities, Inc.

         WILLIAM E. LLOYD joined the Company in November 1995 as Vice President,
Marketing/Special  Projects.  He is also the Chief  Operating  Officer of ALWTA.
From 1981 to 1995, Mr. Lloyd was  Vice-President  of AmerAquatic,  Inc. Prior to
his tenure at  AmerAquatic,  he was President of Lakes and Waterways  Management
Services, a subsidiary of The 3M Company from 1978 and 1980.

         JOSEPH J.  CAMPOLONG,  Vice  President,  Production,  has been with the
Company  since  June  1990 and has been  instrumental  in the  expansion  of the
Company's  production unit. His current  responsibility is the management of all
production activities in the Southeastern United States.
Additionally, he is the Chief Compliance Officer for the Company.

         ROBERT CRAIG SMITH was been with the Company since 1990.  Mr. Smith has
been and is directly  involved in the sales growth of the Company's  aquatic and
vegetation management operations throughout Florida and the South Eastern United
States.  Mr.  Smith is  currently  responsible  for the  developing  new  client
business,  maintaining  existing  customer  relations and  overseeing  all sales
representatives of the branch offices.






                                    - 36 -

<PAGE>



ELECTION OF DIRECTORS AND EXECUTIVE OFFICERS

         The Company's  officers are elected  annually by the Board of Directors
and serve at the discretion of the Board of Directors.  The Company's  directors
hold  office  until the next  annual  meeting of  stockholders  and until  their
successors have been duly elected and qualified.

         In connection  with the IPO, the Company  agreed with Whale  Securities
Co., L.P., who acted as the  underwriter  (the  "Underwriter"),  for a period of
five  years,  to  nominate  and use its best  efforts to elect a designee of the
Underwriter  as a director of the Company.  In November  1994,  the  Underwriter
exercised this right and named Fred S. Katz as its designee.

COMMITTEES OF THE BOARD OF DIRECTORS

         The Company has four  committees,  an Audit  Committee,  a Compensation
Committee,  an Employee  Stock  Option  Committee  and a Directors  Stock Option
Committee.  The  members of the Audit  Committee  consist of Andrew P.  Chesler,
Abraham S.  Fischler  and Fred S. Katz.  The  principal  functions  of the Audit
Committee are to recommend the annual  appointment of the Company's  independent
auditors, to consult and review with the Company's auditors concerning the scope
of the audit and the  results of their  examination,  to review and  approve any
material accounting policy changes affecting the Company's operating results and
to review the Company's internal control procedures.

         The Compensation  Committee,  comprising  Abraham S. Fischler,  Alan H.
Stern and Jeffrey T. Katz, reviews and recommends  compensation and benefits for
the  executives of the Company.  The  Directors  Stock Option  Committee,  which
consists solely of Andrew P. Chesler,  administers the Company's Directors Stock
Option Plans.

         The Employee Stock Option  Committee,  which consists solely of outside
directors  ineligible to  participate  in the Company's  discretionary  employee
stock  programs,  namely Alan H. Stern and Jeffrey T. Katz,  has the function of
administering  the grant of stock options to employees,  including  officers and
directors who are also employees of the Company,  under the Company's  Employees
Stock Option Plan.

COMPENSATION OF DIRECTORS

         The Company pays  directors  who are not employees of the Company a fee
of $250 per  meeting  of the  Board,  and  reimburses  all  directors  for their
expenses in connection  with their  activities  as directors of the Company.  In
1995, the Company also paid Mr. Trent  consulting  fees of $9,750.  Directors of
the Company who are also employees of the Company do not receive receive options
under the Company's  Directors  Stock Option Plan (the  "Directors  Plan").  The
Directors  Plan was  amended in May 1996 ("the  Amended and  Restated  Directors
Stock Option Plan") to effect the following changes:  (i) to increase the number
of shares  available  for  issuance  thereunder  from  50,000  shares to 250,000


                                    - 37 -


<PAGE>


shares;  (ii) the Directors  Stock Option  Committee  will have the authority to
determine the annual amount of options to be granted to a non-employee director;
(iii) all options granted shall be exercisable in two equal  instalments each on
the first and second  anniversary  dates  following the date of the grants;  and
(iv) any unexercised portion of the options shall automatically terminate on the
date the  optionee  ceases to be a director  of the  Company  except  upon death
whereupon the options will expire within sixty days. This amended Directors Plan
is subject to the written  consent of the holders of not less than a majority of
the  Company's  outstanding  stock as at December 31, 1996 and the filing of the
written consent with the Secretary of the Company in accordance with Section 228
of the Delaware  General  Corporation  Law. Any options granted  pursuant to the
Directors  Plan have a term of five years and have an option  price equal to the
fair market value of the Company's Common Stock on the date of grant.

          During 1994 and 1995,  in  accordance  with the  Directors  Plan,  the
Company  granted a total of 15,000  options to purchase  15,000 shares of Common
Stock to  non-employee  directors.  During 1996,  under the Amended and Restated
Directors  Stock,  a total of 85,000  options to purchase  85,000  shares of the
Company's  common  stock at an exercise  price of $3.88 were granted to the four
non-employee directors of the Company, subject to stockholder approval.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

         Section  16(a) of the  Securities  Exchange  Act of 1934  requires  the
Company's  directors and executive  officers,  and persons who own more than ten
percent  of the  outstanding  Common  Stock,  to file  with the  Securities  and
Exchange  Commission  (the "SEC")  initial  reports of  ownership  on Form 3 and
reports of changes in  ownership  of Common  Stock on Forms 4 or 5. Such persons
are  required by SEC  regulation  to furnish the Company with copies of all such
reports they file.

         Based solely on its review of the copies of such  reports  furnished to
the Company or written  representations that no other reports were required, the
Company  believes that all Section 16(a) filing  requirements  applicable to its
officers, directors and greater than ten percent beneficial owners were complied
with during the year ended December 31, 1996.


Item 10. Executive Compensation.
         ----------------------
 
SUMMARY COMPENSATION TABLE

      The following  compensation  table sets forth,  for the three fiscal years
ended December 31, 1994, 1995 and 1996, the cash and certain other  compensation
paid by the Company to Andrew P. Chesler, the Company's Chief Executive Officer,
and the Company's  previous two executive  officers whose  compensation for 1995
and 1994 exceeded $100,000  (collectively,  the "Named Executive Officers").  No
other  executive  officer had an annual salary in excess of $100,000 during such
years.




                                    - 38 -


<PAGE>

                                                                      Long-Term 
                                                                    Compensation
                                  Annual Compensation                  Awards
                                -----------------------            -------------
                                                       Other Annual    
                                      Salary     Bonus Compensation Options/SARS
Name and Principal
       Position                 Year    ($)        ($)      ($)       (#)
--------------------------------------------------------------------------------

Andrew P. Chesler                                
  Chairman of the Board         1994  $157,665      -       (1)     
  Chief Executive Officer       1995  $170,000      -       (1)       20,000(2)
  President and Treasurer       1996  $176,000   $20,000    -         60,000(3)
                                                                     100,000(4)
                                                                      50,000(5)
                                      
Alan H. Chesler                 1994  $ 94,000      -       (1)         -
  Former Chairman of the Board, 1995  $170,000      -       (1)         -
  Secretary and Treasurer       1996      -         -       (1)         -
                                      
Robert Radler                   1994  $154,361      -       (1)         -
  Former President              1995  $170,000      -       (1)         -
                                1996      -         -       -           -


_____________________

(1) Represents certain perquisites, the value of which did not exceed the lesser
    of  $50,000  or  ten  percent  of  the  Named   Executive   Officer's   cash
    compensation.
(2) Represents options granted under the Company's Employee Stock Option Plan at
    an exercise price of $5.00 per share,  the initial public  offering price of
    the Common Stock.
(3) Represents options granted under the Company's Employee Stock Option Plan at
    an exercise price of $3.88 per share.
(4) Represents options granted under the Company's Employee Stock Option Plan at
    an exercise price of $5.13 per share.
(5) Represents options granted under the Company's Employee Stock Option Plan at
    an exercise price of $7.50 per share.

EMPLOYMENT AGREEMENTS

      In June 1993,  the Company  entered into five-year  employment  agreements
with each of Alan H. Chesler,  Robert A. Radler and Andrew P. Chesler, which are
automatically  renewable  and provide for initial  annual base  compensation  of








                                    - 39 -


<PAGE>


$94,000,  $150,000 and $150,000,  respectively,  and such increases in such base
compensation  and  bonuses  as the  Board of  Directors  may  from  time to time
determine. The employment agreements provide for employment on a full-time basis
(except for the Company's agreement with Alan H. Chesler,  which requires him to
devote  at  least  75% of his  business  time to the  Company),  and  contain  a
provision that the employee will not compete or engage in a business competitive
with the  current or  anticipated  business  of the  Company for the term of the
agreement and for one year  thereafter if the executive is terminated  for cause
or the executive  terminates  his  employment.  The employment  agreements  also
provide  that  the  executive  or  the  Company  can  terminate  the  employment
agreement, without cause, upon sixty days notice. If the executive is terminated
for  cause,  as defined  in each  employment  agreement,  the  executive  is not
entitled to receive severance pay. If the executive is terminated without cause,
he is entitled to receive his then current  salary for the remaining term of the
employment agreement.

      In February  1996, the annual base salaries for Alan H. Chesler and Robert
A.  Radler were  reduced to $127,500  and  $158,000,  respectively.  In the same
month, both Alan H. Chesler and Robert A. Radler resigned as executive  officers
of the Company.  However,  they agreed to provide outside consulting services to
the Company.

      In April 1996,  both  Mr.Alan H. Chesler and Mr.  Robert A. Radler  ceased
providing any consulting  services to the Company.  It was mutually  agreed with
Mr.  Alan H.  Chesler  that  his  employment  agreement  with  the  Company  was
terminated.  However,  in order to maintain the base compensation for Mr. Radler
at the current level,  the Company entered into a settlement  agreement with him
to continue his compensation  until June 1998 subject to certain  conditions and
obligations by Mr. Radler.

OPTIONS GRANTS TABLE

    The following  table sets forth  information  concerning  the grant of stock
options to Mr.  Andrew P. Chesler  during the year ended  December 31, 1996.  No
stock appreciation rights were granted.


               Options Granted in the Year Ended December 31, 1996
--------------------------------------------------------------------------------
                                        % of Total Option   
                            Number of  Granted to Employees  Exercise  
                             Options    in the Year Ended   Price per Expiration
          Name             Granted (1)  December 31, 1996     Share      Date
-------------------------  -----------  -----------------   --------  ----------

Andrew P. Chesler . . . .     60,000          10.5           $3.88       3/8/06
                             100,000          17.5           $5.13      11/1/06
                              50,000           8.8           $7.50      11/1/06
                            ---------        ------           
                             210,000          36.8           
                            ---------        ------
________________________

(1) Total number of options  granted during the year ended December 31, 1996 was
    570,000.
                                     - 40 -


<PAGE>



(2) Options granted in 1996 are pursuant to the Company's  Employee Stock Option
    Plan, of which 150,000  options  granted in November 1996 are subject to the
    stockholder approval to increase the number of shares available for issuance
    pursuant to the said plan.  Options  granted under the Employee Stock Option
    Plan have a term of ten years and vest over a  five-year  period at the rate
    of 20% each year. However,  the Employee Stock Option Committee,  may in its
    sole discretion, accelerate the exercise of any employee options.

AGGREGATED FISCAL YEAR-END OPTION VALUE TABLE

      The following table sets forth certain information  concerning unexercised
stock  options held by Mr.  Andrew P. Chesler as of December 31, 1996.  No stock
options  were  exercised by him during the period  ended  December 31, 1996.  No
stock appreciation rights were granted or are outstanding.

<TABLE>
<CAPTION>

                              Number of Unexercised Options  Value of Unexercised In-the-Money
                                Held at December 31, 1996    Options at December 31, 1996(1)
                            ------------------------------   ----------------------------
           Name              Exercisable   Unexercisable      Exercisable   Unexercisable
--------------------------- ------------- ---------------    ------------- --------------

<S>                             <C>            <C>             <C>            <C>     
Andrew P. Chesler..........     8,000          222,000         $10,000        $269,200

</TABLE>

______________________

(1) The closing  sale price of the Common Stock on December 31, 1996 as reported
    by NASDAQ was $6.25 per share.  Value is calculated by  multiplying  (a) the
    difference  between $6.25 and the option exercise price by (b) the number of
    shares of Common Stock underlying the option.

LONG-TERM INCENTIVE AND PENSION PLANS

        The Company does not have any long-term incentive or pension plans


Item 11. Security Ownership of Certain Beneficial Owners and Management.
         --------------------------------------------------------------

         The  following  table sets forth,  as of March 12, 1997,  the number of
shares of Common Stock which were owned  beneficially  by (i) each person who is
known by the Company to own beneficially  more than 5% of its Common Stock, (ii)
each director, (iii) each executive officer and (iv) all directors and executive
officers as a group:







                                     - 41 -


<PAGE>

                                                                      Percentage
                                                                          of    
                                                                     Outstanding
           Name and Address of                 Amount and Nature of     Shares
           Beneficial Owner(1)                Beneficial Ownership(2)   Owned(2)
------------------------------------------   ------------------------- ---------

Directors                                                    

Andrew P. Chesler.........................           752,283(3)           17.8%
Jeffrey T. Katz...........................           143,000(4)            3.4
Fred S. Katz..............................             7,500(5)            0.2
Abraham S. Fischler.......................            20,000(6)            0.5
Allen H. Stern............................               ---(7)            ---

Other Executive Officer

Helen Chia................................             5,000(8)            0.1
All directors and executive officers
   as a group (six persons)...............           927,783(3)-(8)       21.9

Beneficial Stockholders (5%)

Shulman & Associates .....................           699,782(9)           16.6
The Equitable Life Assurance Society of
    the United States  ...................           351,197(10)           8.3
Dabney Resnick Imperial, L.L.C............           336,349(11)           8.0
Ray A. and Shirley J. Spirnock ...........           270,000(12)           6.4

____________________________________

(1)  Unless  otherwise  indicated,  the  address  of  each  beneficial  owner is
     Aquagenix, Inc., 6500 N.W. 15th Avenue, Fort Lauderdale, Florida 33309.
(2)  A person is deemed to be the  beneficial  owner of  securities  that can be
     acquired by such person  within 60 days from the date hereof upon  exercise
     of options and warrants.  Each beneficial owner's  percentage  ownership is
     determined  by assuming  that  options and  warrants  that are held by such
     person (but not those held by any other  person)  and that are  exercisable
     within 60 days from the date hereof have been exercised.
(3)  Includes (i) 1,600 shares of Common Stock held by Mr.  Chesler's wife, (ii)
     12,195  shares of Common  Stock  subject to an option  granted to Robert A.
     Radler, and (v) 20,000 shares of Common Stock held pursuant to the grant of
     stock options. Does not include (vi) 60,000 shares of Common Stock issuable
     upon the exercise of options  granted to Mr.  Chesler  under the  Company's
     Employee  Stock Option Plan (the  "Plan"),  which options are not presently
     exercisable  and (vii)  150,000  shares of Common Stock  issuable  upon the
     exercise of options  granted to Mr. Chesler in November 1996 under the same







                                    - 42 -


<PAGE>


     Plan, subject to the approval by the stockholders to increase the amount of
     shares available for issuance  pursuant to the said Plan, which options are
     not presently exercisable.
(4)  Represents (i) 141,000 shares of Common Stock,  (ii) 2,000 shares  issuable
     upon the  exercise  of  Warrants of the  Company.  Does not include  10,000
     shares of Common Stock  issuable  under the Company's  Amended and Restated
     Directors  Stock  Option  Plan,  subject to the  approval by the  Company's
     stockholders of such Amended and Restated Plan, which options are presently
     not exercisable.
(5)  Includes 7,500 shares of Common Stock issuable upon the exercise of options
     granted to Mr. Katz under the Company's  Directors  Stock Option Plan. Does
     not include 40,000 shares of Common Stock issuable undthe Company's Amended
     and Restated  Directors  Stock Option Plan,  subject to the approval by the
     Company's   stockholders   of  such  Amended  and  Restated   Plan,   which
     optionspresently not exercisable.
(6)  Represents  (i)  12,500  shares of Common  Stock,  (ii) 7,500  shares  held
     pursuant to the grant of stock  options.  Does not include 12,500 shares of
     Common Stock  issuable under the Company's  Amended and Restated  Directors
     Stock Option Plan, subject to the approval by the Company's stockholders of
     such  Amended  and  Restated   Plan,   which   options  are  presently  not
     exercisable.
(7)  Does not include 10,000 shares of Common Stock issuable under the Company's
     Amended and Restated  Directors Stock Option Plan,  subject to the approval
     by the  Company's  stockholders  of such Amended and Restated  Plan,  which
     options are presently not exercisable.
(8)  Includes 5,000 shares of Common Stock issuable upon the exercise of options
     granted to Ms. Chia under the Company's  Employee  Stock Option Plan.  Does
     not include (i) 20,000  shares of Common  Stock  pursuant to stock  options
     granted under the same Plan,  which options are  notpresently  exercisable;
     and (ii)  20,000  shares of Common  Stock  issuable  upon the  exercise  of
     options  granted to Ms. Chia in November 1996 under the same Plan,  subject
     to the  approval  by the  stockholders  to  increase  the  amount of shares
     available  for issuance  pursuant to the said Plan,  which  options are not
     presently exercisable.
(9)  Represents (i) 174,782 shares of Common Stock held; and (ii) 525,000 shares
     of Common  Stock  issuable  upon the  exercise of options  granted  under a
     Consulting and  Acquisition  Management  Agreement,  dated as of January 7,
     1997.
(10) Represents  warrants  to  purchase an  aggregate  of 351,197  shares of the
     Company's  Common Stock pursuant to an Amended and Restated  Senior Secured
     Note and  Warrant  Purchase  Agreement,  dated as of  December  15, 1995 in
     relation to the funding of the acquisition of AmerAquatic,  Inc. in October
     1995.
(11) Represents  warrants  to  purchase an  aggregate  of 336,349  shares of the
     Company's  Common Stock pursuant to certain warrant  agreements in relation
     to the provision of financial consulting services.
(12) Represents  shares of Common Stock issued  pursuant to the terms of a Stock
     Purchase  Agreement,  dated  as of June 7,  1996,  for the  acquisition  of
     Aquatic and Right of Way Control, Inc.




                                    - 43 -


<PAGE>



Item 12. Certain Relationships and Related Transactions.
         ----------------------------------------------
GUARANTEES

         In 1996, the revolving line of credit with SunTrust has been personally
guaranteed  by Alan H.  Chesler,  Andrew P.  Chesler and Robert A.  Radler.  The
Company  anticipates  that  no  further  personal  guarantees  of the  Company's
indebtedness by its executive officers will be granted in any future borrowings.

INDEMNIFICATION AGREEMENTS

         The Company has entered into  indemnification  agreements  with each of
its executive officers and directors pursuant to which the Company has agreed to
indemnify each such person for all expenses and liabilities,  including criminal
monetary judgments,  penalties and fines,  incurred by such person in connection
with any criminal or civil action  brought or threatened  against such person by
reason of such person  being or having been an officer,  director or employee of
the Company or its subsidiaries.  In order to be entitled to  indemnification by
the  Company,  such  person  must have acted in good faith and in a manner  such
person  believed to be in the best interests of the Company and, with respect to
criminal  actions,  such person must have had no reasonable cause to believe his
conduct was unlawful.

TRANSACTIONS WITH AFFILIATES

         In December 1993,  Alan H. Chesler and Andrew P. Chesler granted Robert
A. Radler six-year options to purchase 24,390 and 12,195 shares of Common Stock,
respectively,  at an exercise price of $3.28 per share. As of December 31, 1996,
these options remain unexercised.

         In March 1996,  Alan H.  Chesler  granted  Andrew P.  Chesler an option
until April 9, 1996, to purchase  435,000 shares of Common Stock. The option was
exercised  by Andrew P.  Chesler.  Alan H.  Chesler  is the  father of Andrew P.
Chesler.

         During  the  year  ended  December  31,  1996,  the  Company   obtained
investment  banking services from Dabney Resnick Imperial L.L.C.  Allen H. Stern
is the Senior Vice President with the  corporation.  In November 1996, the Board
of Directors  approved  the  issuance of 100,000  warrants and a cash payment of
$125,000 to Dabney Resnick Imperial L.L.C. as compensation for future investment
banking services rendered by the corporation. These warrants have a term of five
years and are  exercisable  at $4.88 per  share.  The  compensation  expense  of
$200,000 in  relation to these  warrants  have been  computed  based on the fair
value of these  warrants  on the date of the grant and is being  amortized  over
three years.

         The Board of Directors  also  approved  the  issuance of 100,000  stock
options to First Taconic  Capital as  compensation  for  investment  banking and






                                    - 44 -


<PAGE>


staffing services rendered for the year ended December 31, 1996. Fred S. Katz is
a  partner  of the  firm.  These  options  have a term  of six  months  and  are
exercisable at $5.00 per share. The compensation  expense of $56,000 in relation
to these  warrants have been computed  based on the fair value of these warrants
on the date of the grant.















































                                    - 45 -


<PAGE>



                                    PART IV

Item 13. Exhibits, Lists and Reports on Form 8-K.
         ---------------------------------------

         (a)    Exhibits:

                (I)     General

       Exhibit                           Description
       -------                           -----------

         3.1      Amended  and  Restated  Certificate  of  Incorporation  of the
                  Company(1)

         3.2      Bylaws of the Company(1)

         4.1      Form of Common Stock Certificate(1)

         4.2      Revised  Form of Warrant  Agreement  between  the  Company and
                  American Stock Transfer & Trust Company(1)

         4.3      Revised Form of Warrant  Agreement between the Company and the
                  Underwriter   (including  the  form  of  Underwriters  Warrant
                  Certificate)(1)

         10.1     Stock Option Plan of the Company(1)(2)

         10.2     Directors Stock Option Plan of the Company(1)(2)

         10.3     Employment Agreement,  dated June 1, 1993, between the Company
                  and Alan H. Chesler, and form of amendment thereto(1)(2)

         10.4     Employment Agreement,  dated June 1, 1993, between the Company
                  and Robert A. Radler, and form of amendment thereto(1)(2)

         10.5     Employment Agreement,  dated June 1, 1993, between the Company
                  and Andrew P. Chesler, and form of amendment thereto(1)(2)

         10.6     Non-competition  agreement,  dated November 19, 1991,  between
                  the Company and David Green(1)

         10.7     Form of Indemnification Agreement between the Company and each
                  of the Company's Directors and Executive Officers(1)(2)

         10.9     Credit  Agreement,   dated  October  30,  1992,   between  Sun
                  Bank/Miami,   N.A.  and  Florida  Underground  Petroleum  Tank
                  Contractors, Inc. ("FUPTC")(1)





                                     - 46 -


<PAGE>



         10.10    First  Amendment  to Credit  Agreement,  dated August 5, 1993,
                  between Sun Bank/Miami, N.A. and FUPTC(1)

         10.11    Second  Amendment to Credit  Agreement,  dated as of March 14,
                  1994, between Sun Bank/Miami, N.A. and FUPTC(1)

         10.12    Guaranty  Agreements,   dated  August  5,  1993,  between  Sun
                  Bank/Miami, N.A. and each of Alan H. Chesler, Robert A. Radler
                  and Donald H. Shaffer, Jr.(1)

         10.13    Security Agreement,  dated October 30, 1992, from FUPTC to Sun
                  Bank/Miami, N.A.(1)

         10.14    Negative Pledge,  dated October 29, 1993, from Alan H. Chesler
                  to Sun Bank/Miami, N.A.(1)

         10.20    Lease,  dated  October 2, 1992,  between  Palm Beach  Commerce
                  Center Associates, Ltd. and ALWT(1)

         10.22    Lease,  dated  November 14, 1991,  between John Hancock Mutual
                  Life Insurance Co. and ALWT(1)

         10.23    Lease,  dated March 9, 1992,  between  Lawrence  Danielle  and
                  FUPTC(1)

         10.24    Lease,  dated November 30, 1993, between Franklin S. Davis and
                  the Company(1)

         10.25    Assignment  of Mortgage  Note and  Security  Agreement,  dated
                  October 19, 1990, between Alan H. Chesler and ALWT(1)

         10.26    Bill of Sale, dated October 19, 1990, between Florida Waterway
                  Management, Inc. ("FWM") and ALWT(1)

         10.27    Assumption Agreement, dated October 19, 1990, between ALWT and
                  FWM(1)

         10.28    Asset Purchase Agreement,  dated June 14, 1991, between FUPTC,
                  Don & Sons  Equipment  Rental,  Inc.  ("Don & Sons") and South
                  Florida Tank Disposal, Inc. ("South Florida Tank")(1)

         10.29    Form of  Consultation/Non-Competition  Agreement,  dated  June
                  1991, between Donald H. Shaffer, Betty Shaffer and FUPTC(1)






                                     - 47 -


<PAGE>



         10.30    Form of Escrow Agreement, dated June 1991, between Don & Sons,
                  South Florida Tank,  FUPTC,  Donald H.  Shaffer,  Jr.,  Robert
                  Radler and Alan H. Chesler(1)

         10.31    Form  of Note  from  FUPTC  to Don & Sons  and  South  Florida
                  Tank(1)

         10.32    Form of Security  Agreement,  dated June 1991,  between FUPTC,
                  Donald H. Shaffer,  Jr., Robert A. Radler, Alan H. Chesler and
                  Donald  H.  Shaffer,  Betty  Shaffer,  Don & Sons,  and  South
                  Florida Tank(1)

         10.33    Form of Agreement for Set Off, dated June 1991,  between Don &
                  Sons, South Florida Tank and FUPTC(1)

         10.34    Agreement  regarding  substitution  of  Common  Stock  of  the
                  Company for Common  Stock of FUPTC as  collateral  for certain
                  obligations of the former shareholders of FUPTC, dated May 25,
                  1993,  between the Company,  Alan H.  Chesler,  FUPTC,  Robert
                  Radler,  Donald Shaffer,  Jr., Betty Shaffer,  Don & Sons, and
                  Donald Shaffer, Sr.(1)

         10.35    Stock Acquisition  Agreement,  dated June 2, 1993, between the
                  Company and the shareholders of ALWT(1)

         10.36    Stock Acquisition  Agreement,  dated June 2, 1993, between the
                  Company and the shareholders of FUPTC(1)

         10.37    Subscription  Agreement,  dated  June  2,  1993,  between  the
                  Company and Gary Krulik, M.D. and Stephanie Krulik(1)

         10.38    Waterway  restoration  contract,  dated July 13, 1992, between
                  Greater Orlando Aviation Authority and ALWT(1)

         10.39    Waterway/wetlands  maintenance  contract,  dated  August 1992,
                  between  Northern Palm Beach County Water Control District and
                  ALWT(1)

         10.40    Fueling  Facility  Demolition  Subcontract  Agreement,   dated
                  February 11, 1993,  between Blasland,  Bouck & Lee of Florida,
                  Inc. and FUPTC(1)

         10.41    Rehabilitation Subcontract Agreement, dated December 15, 1992,
                  between Gurr & Associates, Inc. and FUPTC(1)

         10.42    Credit  Agreement,  dated as of June  10,  1994,  between  Sun
                  Bank/Miami, N.A. and ALWT(1)





                                     - 48 -


<PAGE>



         10.43    Security  Agreement,  dated as of June 10, 1994,  from ALWT to
                  Sun Bank/Miami, N.A.(1)

         10.44    Guaranty  Agreement,  dated as of June 10,  1994,  between Sun
                  Bank/Miami,  N.A. and Alan  Chesler,  Andrew  Chesler,  Robert
                  Radler and the Company(1)

         10.45    Third  Amendment to Credit  Agreement,  dated as of October 5,
                  1994, between SunBank/Miami, N.A. and FUPTC (4)

         10.46    Loan  Agreement,  dated  as  of  February  10,  1995,  between
                  SunBank/Miami, N.A. and FUPTC (4)

         10.47    Security  Agreement,  dated as of February 10,  1995,  between
                  SunBank/Miami, N.A. and FUPTC (4)

         10.48    Guaranty  Agreement,  dated as of February 10,  1995,  between
                  SunBank/Miami, N.A. and the Company (4)

         10.49    Guaranty  Agreements,  dated  February  10,  1995  by  Alan H.
                  Chesler,  Robert A. Radler and Andrew P. Chesler,  in favor of
                  SunBank/Miami, N.A. (4)

         10.50    Revolving Loan and Security  Agreement dated February 28, 1995
                  between Midlantic Bank, N.A. and Haas Environmental  Services,
                  Inc. (4)

         10.51    Continuing  Guaranty dated February 28, 1995 by the Company in
                  favor of Midlantic Bank, N.A. (4)

         10.52    Asset  Purchase  Agreement,  dated as of February 28, 1995, by
                  and  among  the   Company,   HES   Acquisition   Corp.,   Haas
                  Environmental  Services,  Inc.,  Eugene M. Haas and  Robert E.
                  Haas(3)

         10.53    Asset  Purchase  Agreement,  dated as of November 23, 1994, by
                  and between ALWT and Mitigation Services, Inc. (4)

         10.54    Promissory  Note,  dated February 27, 1995, of HES Acquisition
                  Corp.  in the principal  amount of  $1,975,000  payable to the
                  order of SunBank/Miami, N.A. (4)

         10.55    Business  Lease,  dated  November 29,  1994,  between ALWT and
                  Phillips Highway Land Trust (4)

         10.56    Revolving  Loan and Security  Agreement,  dated as of April 5,
                  1995 between Midlantic Bank, N.A. and HES (5)





                                     - 49 -


<PAGE>



         10.57    Promissory Note and Security  Agreement,  dated as of February
                  13, 1995 between SunBank/Miami, N.A. and ALWT (5)

         10.58    Credit Agreement, Security Agreement and Revolving Credit Note
                  dated as of August 11, 1995, between  SunBank/Miami,  N.A. and
                  the Company re: Exhibit 10.1 (6)

         10.59    Senior Secured Note and Warrant Purchase Agreement dated as of
                  October 31, 1995, between The Equitable Life Assurance Society
                  of the United  States  (the  "Purchaser")  and the Company re:
                  Exhibit 10.1 (7)

         10.60    Warrant  Agreement  dated as of October 31, 1995,  between the
                  Purchaser and the Company re: Exhibit 10.2 (7)

         10.61    Subordination  Agreement  dated as of October 31, 1995, by the
                  Purchaser  and the Company in favor of SunTrust,  Miami,  N.A.
                  re: Exhibit 10.3 (7)

         10.62    Letter  Agreement,  dated as of  August  18,  1995,  among H&H
                  Investments,  Inc.,  Robert E.  Haas,  Inc.,  Eugene M.  Haas,
                  Robert E. Haas, the Company and HES re: Exhibit 10.4 (7)

         10.63    Compliance Agreement,  dated as of September 12, 1995, between
                  the  U.S.  Environmental  Protection  Agency,  ALWT,  Alan  H.
                  Chesler and Andrew P. Chesler re: Exhibit 10.5 (7)

         10.64    Asset Purchase Agreement,  dated as of October 19, 1995, among
                  the  Company,  ALWT,  AmerAquatic,  Inc.,  Thomas Latta and C.
                  Elroy Timmer re: Exhibit 10.6 (7)

         10.65    Lake and canal  aquatic  weed  control  and marsh  maintenance
                  contract, dated April 1995, between Northern Palm Beach County
                  Water Control District and ALWT/AmerAquatic, Inc. (8)

         10.66    Lease,   dated  April  10,  1995,   between  Tampa  Industrial
                  Developers, Ltd. and the Company d/b/a ALWT and FUPTC (8)

         10.67    Lease,  dated November 1, 1995, between Manny Schwartz , Steve
                  Schwartz and ALWT (8)

         10.68    Lease,  dated  December 1, 1995,  between  Charles C. Souders,
                  Shirley A. Souders and ALWT (8)

         10.69    Asset  Purchase  Agreement,  dated as of November 17, 1995, by
                  and between ALWT and L&L Mosquito & Pest Control, Inc. (8)







                                     - 50 -


<PAGE>



         10.70    Amended and Restated Senior Secured Note and Warrant  Purchase
                  Agreement  dated as of December 15, 1995 between the Purchaser
                  and the Company (8)

         10.71    Warrant  Agreement dated as of December 15, 1995,  between the
                  Purchaser and the Company (8)

         10.72    Security  Agreement dated as of December 15, 1995, between the
                  Purchaser and the Company (8)

         10.73    Subordination  Agreement dated as of December 15, 1995, by the
                  Purchaser  and the Company in favor of SunTrust  Bank,  Miami,
                  N.A. (8)

         10.74    Security  Agreement dated as of December 28, 1995, between USL
                  Capital Corporation and the Company, FUPTC and HES (8)

         10.75    Commitment Letter dated as of March 13, 1996, between SunTrust
                  Bank, Miami, N.A. and the Company (8)

         10.76    Asset Purchase  Agreement,  dated as of April 25, 1996, by and
                  between Heart  Environmental  Services,  Inc.,  H&H Investment
                  Corporation,  Eugene M. Haas,  Robert E.  Haas,  Haas Sand and
                  Gravel, Inc. HES and the Company (9)

         10.77    First Amendment to Credit Agreement, Revolving Credit Note and
                  Reaffirmation and Ratification of Guaranty  Agreements,  dated
                  March 29, 1996  between  SunTrust  Bank,  Miami,  N.A. and the
                  Company (9)

         10.78    Amendment  to Loan  Agreement,  Amended  Promissory  Note  and
                  Reaffirmation and Ratification of Guaranty  Agreements,  dated
                  as of March 29, 1996 between  SunTrust Bank,  Miami,  N.A. and
                  FUPTC (9)

         10.79    Contract between South Florida Water  Management  District and
                  ALWT, dated as of February 6, 1996 (9)

         10.80    Amendment  to  Senior   Secured  Note  and  Warrant   Purchase
                  Agreement between the Company and The Equitable Life Assurance
                  Society of the United  States,  dated as of December  15, 1995
                  (9)

         10.81    Stock  Exchange  Agreement,  dated as of June 7, 1996,  by and
                  among the Company,  ARC and Ray Spirnock and Shirley Spirnock,
                  the shareholders of ARC (10)







                                     - 51 -


<PAGE>



         10.82    Subscription  Agreement,  dated  June 12,  1996,  between  the
                  Company and Mr. Jeffrey T. Katz (11)

         10.83    Subscription  Agreement,  dated  June 27,  1996,  between  the
                  Company and Tarragona Fund, Inc. (11)

         10.84    Subscription  Agreement,  dated  June 27,  1996,  between  the
                  Company and Alpha Atlas Fund, Ltd. (11)

         10.85    Agreement and Plan of Merger, dated as of December 7, 1996, by
                  and among the Company,  Aquagenix Governmental Services, Inc.,
                  ADI and Pat Church and Stephen Church, the shareholders of ADI
                  (12)

         10.86    Stock  Exchange  Agreement,  dated as of December 31, 1996, by
                  and among the  Company,  GPI and Garry Seitz and Jan P. Seitz,
                  the Selling Shareholders (13)

         10.87    Option  Agreement,  dated as of November 1, 1996,  between the
                  Company and Mr. Jon Kilik

         10.88    Option  Agreement,  dated as of November 1, 1996,  between the
                  Company and Mr. Perry Trebatch

         10.89    Option  Agreement,  dated as of November 1, 1996,  between the
                  Company and First Taconic Capital Corporation

         10.90    Warrant  Agreement,  dated as of October 15, 1996, between the
                  Company,  Dabney Resnick,  Inc. and Aquagenix Warrant Holdings
                  II

         10.91    Consulting and Acquisition  Management Agreement,  dated as of
                  January 7, 1997, between the Company and Shulman & Associates,
                  Inc.

         16.1     Letter from Bernstein, Patchen, Gold & Wolfson, P.A. regarding
                  change in independent auditors (1)

         23.1     Consent of Coopers & Lybrand, L.L.P.

         27.1     Financial Data Schedule

         21.1     Subsidiaries of the Company 

____________________


(1)   Incorporated by reference to the exhibit of the same number filed with the
      Company's Registration Statement on Form SB-2 (No. 33-78956-A).





                                    - 52 -

<PAGE>



(2)   Management contract or compensation plan.
(3)   Incorporated by reference to Exhibit 2 filed with the Company's  Report on
      Form 8-K dated February 28, 1995.
(4)   Incorporated by reference to the exhibit of the same number filed with the
      Company's  Annual Report on Form 10-KSB for the fiscal year ended December
      31, 1994.
(5)   Incorporated by reference to the exhibit of the same number filed with the
      Company's  Quarterly  Report on Form 10-QSB for the quarterly period ended
      March 31, 1995.
(6)   Incorporated by reference to the exhibit as indicated which was filed with
      the Company's  Quarterly  Report on Form 10-QSB for the  quarterly  period
      ended June 30, 1995.
(7)   Incorporated by reference to the exhibit as indicated which was filed with
      the Company's  Quarterly  Report on Form 10-QSB for the  quarterly  period
      ended September 30, 1995.
(8)   Incorporated by reference to the exhibit of the same number filed with the
      Company's  Annual Report on Form 10-KSB for the fiscal year ended December
      31, 1995.
(9)   Incorporated by reference to the exhibit of the same number filed with the
      Company's  Quarterly  Report on Form 10-QSB for the quarterly period ended
      March 31, 1996.
(10)  Incorporated  by  reference  to the exhibit of the same  number  which was
      filed with the Company's Report on Form 8-K dated June 7, 1996.
(11)  Incorporated  by  reference  to the exhibit of the same  number  which was
      filed with the Company's Report on Form 8-K dated June 12, 1996.
(12)  Incorporated  by reference to exhibit 2 which was filed with the Company's
      Report on Form 8-K dated December 7, 1996.
(13)  Incorporated  by reference to exhibit 2 which was filed with the Company's
      Report on Form 8-K dated December 31, 1996.

      (b)   REPORTS ON FORM 8-K:

            During the last quarter of 1996 fiscal year,  the Company  filed the
            following reports on Form 8-K:

            (I)   Current  Report  on Form 8-K  dated  December  7,  1996  which
                  reported the Company's acquisition of ADI.

            (ii)  Current  Report  on Form 8-K dated  December  31,  1996  which
                  reported the Company's acquisition of GPI.












                                    - 53 -


<PAGE>

                                  SIGNATURES

      In accordance  with Section 13 or 15(d) of the Securities  Exchange Act of
1934,  the  Company  has  caused  this  report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                           AQUAGENIX, INC.



DATE:  March 24, 1997                  By:  /s/ Andrew P. Chesler
                                       -----------------------------------------
                                       Andrew P. Chesler, Chairman of the Board,
                                       Chief  Executive  Officer,  President and
                                       Treasurer



      In accordance  with the Securities  Exchange Act of 1934,  this report has
been signed below by the  following  persons on behalf of the Company and in the
capacities and on the dates indicated:


DATE:   March 24, 1996                 /s/ Andrew P. Chesler
                                      ------------------------------------------
                                      Andrew  P. Chesler, Chairman of the Board,
                                      Chief  Executive  Officer,  President  and
                                      Treasurer (Principal Executive Officer)


DATE:   March 24, 1996                  /s/ Helen Chia
                                      ------------------------------------------
                                      Helen  Chia,  Chief  Financial Officer and
                                      Secretary     (Principal    Financial  and
                                      Accounting Officer)


DATE:   March 24, 1996                  /s/ Abraham S. Fischler
                                      ------------------------------------------
                                      Abraham S. Fischler, Director


DATE:   March 24, 1996                  /s/ Fred S. Katz
                                      ------------------------------------------
                                      Fred S. Katz, Director


DATE:   March 24, 1996                  /s/ Allen H. Stern
                                      ------------------------------------------
                                      Allen H. Stern, Director


DATE:   March 24, 1996                  /s/ Jeffrey T. Katz
                                      ------------------------------------------
                                      Jeffrey T. Katz, Director

                                    - 54 -

<PAGE>









                        AQUAGENIX, INC. AND SUBSIDIARIES





                        CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995


















<PAGE>


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                  
                                                                            
                                                                            
                                                                            
                                                                            
                                                                      Pages 
                                                                            
Report of Independent Accountants                                      F-1  
                                                                            
Aquagenix, Inc. and Subsidiaries Financial Statements:                      
     Consolidated Balance Sheets                                       F-2  
     Consolidated Statements of Operations                             F-3  
     Consolidated Statements of Stockholders' Equity                   F-4  
     Consolidated Statements of Cash Flows                             F-5  
     Notes to Consolidated Financial Statements                        F-6     

























<PAGE>






REPORT OF INDEPENDENT ACCOUNTANTS



To the Stockholders and
Directors of Aquagenix, Inc. and Subsidiaries



We have audited the accompanying  consolidated balance sheets of Aquagenix, Inc.
and Subsidiaries as of December 31, 1996 and 1995, and the related  consolidated
statements of  operations,  stockholders'  equity,  and cash flows for the years
then ended.  These financial  statements are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated  financial position of Aquagenix,  Inc.
and Subsidiaries as of December 31, 1996 and 1995, and the  consolidated  result
of their  operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.



COOPERS & LYBRAND L.L.P.





Fort Lauderdale, Florida
March 15, 1997






                                      F-1
<PAGE>

                         AQUAGENIX, INC & SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                December 31,   December 31,
                                                                    1996           1995
      ASSETS                                                    ------------    ------------
<S>                                                            <C>             <C>   
Current assets:
     Cash and cash equivalents                                 $    890,731    $    720,888
     Marketable securities                                          158,492         639,095
     Accounts receivable, net of allowance for doubtful
       accounts of $88,541 and $40,632, respectively              1,064,151         999,817
     Income tax receivable                                                0         618,003
     Inventories                                                    339,114         370,497
     Prepaid expenses and other                                     490,740         286,149
                                                               ------------    ------------
          Total current assets                                    2,943,228       3,634,449

Accounts receivable, non-current                                  1,269,909       1,048,222
Property and equipment, net                                       2,450,154       1,845,835
Intangible assets, net                                            4,946,027       3,222,013
Deferred financing costs, net                                       154,276         146,875
Other assets                                                        267,233          93,239
                                                               ------------    ------------

          Total assets                                         $ 12,030,827    $  9,990,633
                                                               ============    ============
     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Short term borrowings - acquisitions                      $    200,000    $    500,000
     Borrowings under credit agreement                              404,415         552,317
     Current maturities of long-term debt                           166,168         219,380
     Accounts payable                                               709,870         567,076
     Net liabilities of discontinued operations                     350,076       1,497,772
     Other current liabilities                                      322,582         411,438
                                                               ------------    ------------

          Total current liabilities                               2,153,111       3,747,983

Long-term debt, net of current maturities                         5,326,769       5,054,739
                                                               ------------    ------------

          Total liabilities                                       7,479,880       8,802,722
                                                               ------------    ------------
Commitments (Note 10)

Stockholders' equity:
     Preferred stock, par value $.01, 1,000,000 shares
           authorized, no shares issued and outstanding                   0               0
     Common stock, par value $.01, 10,000,000 shares
           authorized, 4,163,391 and 3,306,367 shares issued
           and outstanding, respectively                             41,634          33,064
     Additional paid-in capital                                  12,671,620       8,438,035
     Accumulated deficit                                         (7,938,330)     (7,332,385)
     Unearned compensation                                         (230,058)              0
     Unrealized gain on securities                                    6,081          49,197
                                                               ------------    ------------

          Total stockholders' equity                              4,550,947       1,187,911
                                                               ------------    ------------

          Total liabilities and stockholders' equity           $ 12,030,827    $  9,990,633
                                                               ============    ============
</TABLE>

                  The accompanying notes are an integral part
                    of the Consolidated Financial Statements

                                      F-2

<PAGE>

                         AQUAGENIX, INC. & SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                        Year Ended
                                                                        December 31,
                                                                   1996             1995
                                                               ------------    ------------
<S>                                                            <C>             <C>         
Revenues - Continuing operations                               $ 11,467,830    $  6,969,953
                                                               ------------    ------------
Costs and expenses:
     Costs of services                                            6,482,852       3,630,781
     Selling, general and administrative                          3,398,152       4,094,747
     Depreciation and amortization                                  721,144         304,425
                                                               ------------    ------------

          Total costs and expenses                               10,602,148       8,029,953
                                                               ------------    ------------

           Operating income (loss)                                  865,682      (1,060,000)

Interest income                                                      61,065         217,713
Interest expense                                                   (683,049)       (173,921)
                                                               ------------    ------------

Income (loss) from continuing operations before income taxes        243,698      (1,016,208)

Income tax benefit                                                        0        (374,350)
                                                               ------------    ------------

Income (loss) from continuing operations                            243,698        (641,858)

Discontinued operations:
     Loss from operations of environmental remediation                    0      (2,437,614)
                 business segment, net of income taxes
     Estimated phase-out losses from environmental
                 remediation segment                               (758,332)     (4,882,138)
                                                               ------------    ------------

Net loss                                                       $   (514,634)   $ (7,961,610)
                                                               ============    ============

Earnings (loss) per weighted average common shares:
      Continuing operations                                    $       0.06    $      (0.20)
      Discontinued operations                                         (0.20)          (2.24)
                                                               ------------    ------------
      Net loss per common share                                $      (0.14)   $      (2.44)
                                                               ============    ============

Weighted average common shares outstanding                        3,701,144       3,262,768
                                                               ============    ============

</TABLE>











                  The accompanying notes are an integral part
                    of the Consolidated Financial Statements

                                      F-3


<PAGE>

<TABLE>
<CAPTION>
                                                      AQUAGENIX, INC & SUBSIDIARIES

                                             CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                             for the years ended December 31, 1996 and 1995

                                                                                  Retained
                                                                    Additional    Earnings                 Unrealized     Total
                                               Common Stock           Paid-In   (Accumulated    Unearned     Gain on   Stockholders'
                                           Shares        Amount       Capital      Deficit)   Compensation  Securities    Equity
                                           ---------   --------   ------------  ------------  ----------   ---------  ------------
<S>                                        <C>         <C>        <C>           <C>           <C>          <C>        <C>         
Balances, January 1, 1995                  3,063,500   $ 30,635   $  6,580,937  $   686,187   $        -   $       -  $  7,297,759

Issuance of common stock                     236,467      2,365      1,670,635            -            -           -     1,673,000

Exercise of stock options                      6,400         64         31,936            -            -           -        32,000

Unrealized gain on securities                      -          -              -            -            -      49,197        49,197

Warrants issued in connection with
   12.5% senior secured note                       -          -        154,527            -            -           -       154,527

Dividends paid to "S" corporation                  -          -              -      (56,962)           -           -       (56,962)

Net loss                                           -          -              -    (7,961,610)          -           -    (7,961,610)
                                           ---------   --------   ------------  ------------  ----------   ---------  ------------

Balances, December 31, 1995                3,306,367     33,064      8,438,035    (7,332,385)          -      49,197     1,187,911

Issuance of common stock for cash            437,500      4,375      1,745,625            -            -           -     1,750,000

Issuance of common stock for acquisitions    403,333      4,033      2,095,967            -            -           -     2,100,000

Common stock, stock options and warrants
   issued in connection with financial 
   consulting services                        16,191        162        391,993            -     (392,155)          -             -

Amortization of unearned compensation              -          -              -            -      162,097           -       162,097

Change in unrealized gain on securities            -          -              -            -            -     (43,116)      (43,116)

Dividends paid to "S" corporation                  -          -              -      (91,311)           -           -       (91,311)

Net loss                                           -          -              -     (514,634)           -           -      (514,634)
                                           ---------   --------   ------------  ------------  ----------   ---------  ------------

Balances, December 31, 1996                4,163,391   $ 41,634   $ 12,671,620  $ (7,938,330) $ (230,058)  $   6,081  $  4,550,947
                                           =========   ========   ============  ============  ==========   =========  ============

































                                  The accompanying notes are an integral part of the Consolidated Financial Statements

</TABLE>
                                                                  F-4


<PAGE>
                         AQUAGENIX, INC. & SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 for the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>

                                                                   1996           1995
                                                                -----------    -----------
<S>                                                             <C>            <C>    
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                                   $  (514,634)   $(7,961,610)
     Adjustments to reconcile net loss to net cash
       used in operating activities:
       Depreciation and amortization                                721,144        304,425
       (Gain) loss on sale of property and equipment                 (3,933)        21,304
       Loss (gain) on sale of securities                                 55        (25,875)
       Provision for doubtful accounts                              107,433         37,575
       Discontinued operations                                     (115,386)     7,246,546
       Net change in operating assets and liabilities               154,368     (1,721,392)
                                                                -----------    -----------

          Net cash provided by (used in) operating activities       349,047     (2,099,027)
                                                                -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Proceeds from sale of marketable securities                    651,685      1,956,738
     Proceeds from sale of property and equipment                   336,096         27,015
     Proceeds from sale of assets of discontinued operations      2,916,663        191,992
     Cash paid for acquisitions, net of cash acquired               (82,798)    (4,038,421)
     Purchase of property and equipment                            (873,704)      (388,256)
                                                                -----------    -----------

          Net cash provided by (used in) investing activities     2,947,942     (2,250,932)
                                                                -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Net proceeds under credit agreements                                 0        534,817
     Payment of credit agreements                                  (147,902)             0
     Payment of notes payable and long-term debt                   (699,319)      (236,909)
     Payment of debt obligations of discontinued operations      (3,949,451)      (413,910)
     Deferred financing costs                                       (30,616)      (146,875)
     Net proceeds from other borrowings                              41,453      5,051,656
     Distribution to stockholder                                    (91,311)       (56,962)
     Issuance of common stock                                     1,750,000         32,000
                                                                -----------    -----------

          Net cash (used in) provided by financing activities    (3,127,146)     4,763,817
                                                                -----------    -----------
CASH AND CASH EQUIVALENTS:
Increase                                                            169,843        413,858
Beginning balance                                                   720,888        307,030
                                                                -----------    -----------

Ending balance                                                  $   890,731    $   720,888
                                                                ===========    ===========

Supplemental disclosures of cash flow information:
       Interest paid                                            $   575,487    $    94,908
                                                                ===========    ===========
       Income taxes refunded (paid)                             $   605,951    $  (153,251)
                                                                ===========    ===========
</TABLE>





                  The accompanying notes are an integral part
                    of the Consolidated Financial Statements

                                      F-5

<PAGE>


AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   ORGANIZATION AND NATURE OF BUSINESS:

     Aquagenix,  Inc.  and  subsidiaries  (the  "Company")  provide a variety of
     aquatic and industrial  vegetation management services to both governmental
     and commercial customers in Florida, Arizona, Alabama, Georgia,  Tennessee,
     North  Carolina  and  South  Carolina.   The  Company's  customers  consist
     primarily of utilities, golf courses, country clubs, real estate owners and
     developers,   homeowner/condominium  associations,   municipalities,  state
     government and taxing districts.  The majority of its customers have annual
     contracts which provide for monthly  payments.  In 1996 and 1995,  revenues
     from governmental  customers were approximately 19% and 34%,  respectively.
     During  1996 and 1995,  five  customers  with whom the  Company  has annual
     contracts represented approximately 19% and 21% of revenues, respectively.

     In November  1995,  the  Company's  Board of  Directors  approved a plan to
     discontinue the  environmental  remediation  business segment  conducted by
     certain  subsidiaries in view of continued operating losses and in order to
     focus  future  resources  on the  expansion  of the  Company's  aquatic and
     vegetation segment.  Accordingly, the environmental remediation segment has
     been reflected as discontinued operations, see Note 16.

     The aquatic and  industrial  vegetation  management  business is subject to
     extensive and frequently changing federal, state and local laws.



2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     BASIS OF CONSOLIDATION

     The consolidated  financial  statements include the operations,  assets and
     liabilities  of  Aquagenix,   Inc.  and   subsidiaries.   All   significant
     intercompany accounts and transactions have been eliminated.

     ACCOUNTING ESTIMATES

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

     CASH AND CASH EQUIVALENTS

     The Company considers highly liquid investments  purchased with an original
     maturity  of  three  months  or less to be cash  equivalents.  The  Company
     maintains  its cash in demand  deposit and  overnight  repurchase  accounts
     which, at times, may exceed federally insured limits.


                                      F-6

<PAGE>


AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
    

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

     MARKETABLE SECURITIES

     Marketable  securities are classified as available for sale and are carried
     at fair value,  with  unrealized  gains and losses,  reported as a separate
     component of  stockholders'  equity.  Fair value is  determined by the most
     recently  traded price of the security at the balance sheet date.  Realized
     gains and losses are included in earnings using the specific identification
     method for determining the cost of securities sold.

     Marketable   securities   consist  of  corporate   stocks,   mutual  funds,
     mortgage-backed  securities  as of December  31,  1996 and U.S.  government
     securities due within one year as of December 31, 1995.

     REVENUE RECOGNITION

     Revenue from the aquatic and industrial  vegetation management services are
     generally  billed  monthly and  recognized  in the same month  services are
     provided. Progress billings in accounts receivable exclude retentions until
     such  amounts are due in  accordance  with  contract  terms.  Revenue  from
     certain  aquatic  and  industrial   vegetation   management  contracts  are
     recognized  on  the  percentage  of  completion  method,  measured  by  the
     percentage  that costs  incurred to date bear to estimated  total costs for
     each contract.  This method is used because  management  considers expended
     costs to be the best available measure of progress on these contracts.

     The length of the  Company's  contracts  varies but is typically  less than
     three months.  Provisions for estimated losses on uncompleted contracts are
     made in the period in which such losses are determined.

     INVENTORIES

     Inventories,  consisting  primarily of chemicals,  parts and supplies,  are
     valued at the lower of cost or market.  Cost is determined by the first in,
     first out (FIFO) method.

     PROPERTY AND EQUIPMENT

     Property  and  equipment is stated at cost less  accumulated  depreciation.
     Maintenance  and repairs are charged to expense when incurred;  betterments
     are capitalized.  Depreciation is calculated using the straight-line method
     over the  estimated  useful lives of the property and equipment or over the
     lease term for  leasehold  improvements.  Lives range from 5 to 31.5 years.
     Upon  sale or  retirement,  the cost of the  property  and  equipment,  and
     related  accumulated  depreciation,  are eliminated from the accounts.  Any
     resulting gains or losses are reflected in earnings for the period.


                                      F-7

<PAGE>
AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

     INTANGIBLE ASSETS

     Intangible  assets  consist  principally  of contract  rights and  goodwill
     arising from business  acquisitions.  Contract rights,  which represent the
     value  associated with recurring  service  contracts,  is amortized over 15
     years. Goodwill, which represents the excess of the purchase price over the
     estimated   fair  value  of  net  assets   acquired,   is  amortized  on  a
     straight-line  method over a period of primarily 25 years. Other intangible
     assets  include  covenants  not  to  compete,   deferred   acquisition  and
     organization costs, which are being amortized on a straight line basis over
     their estimated useful lives, ranging from 5 to 25 years.

     The Company  periodically  reviews the  carrying  values of the  intangible
     assets  and  impairments  are  recognized  in  operating  results  when the
     undiscounted  value of expected  future  operating cash flows to be derived
     from such intangible assets is less than their carrying value. Based on its
     review,  the Company  does not believe that an  impairment  has occurred or
     that an  adjustment  to its  estimated  recovery  periods  is  required  at
     December 31, 1996.

     DEFERRED FINANCING COSTS

     Deferred  financing  costs  are  amortized  over  the  life of the  related
     indebtedness using the interest method.

     INCOME TAXES

     Deferred tax assets and liabilities are determined  based on the difference
     between the  financial  statement  and tax basis of assets and  liabilities
     using enacted tax rates in effect for the year in which the differences are
     expected  to  reverse.  Deferred  tax assets are also  established  for the
     future tax benefits of operating loss carryforwards.  A valuation allowance
     is provided when it is more likely than not that some portion or all of the
     deferred tax assets will not be realized.

     FAIR VALUE OF FINANCIAL INSTRUMENTS

     The  carrying  amounts of cash and cash  equivalents,  and  investments  in
     marketable  securities  approximates  fair  value  due  to the  short  term
     maturities  of these items.  The  carrying  amounts of the  long-term  debt
     approximates  fair value because the interest rates on the  instruments are
     comparable to current market rates.

     RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION

     Certain  reclassification  have been made to the 1995 financial  statements
     and related notes to conform with the 1996 presentation.


                                      F-8

<PAGE>
AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

     NEW ACCOUNTING STANDARDS

     During  1996,  the  Company  adopted  Statement  of  Financial   Accounting
     Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation". This
     pronouncement  establishes financial accounting and reporting standards for
     stock-based compensation. It encourages, but does not require, companies to
     recognize compensation expense for grants of stock, stock options and other
     equity  instruments to employees based on new fair value accounting  rules.
     Such treatment is required for non-employee stock-based  compensation.  The
     Company  has  chosen  to  continue  to  account  for  employee  stock-based
     compensation  using the  intrinsic  value method  prescribed  in Accounting
     Principles   Board  Opinion  No.  25,   "Accounting  for  Stock  Issued  to
     Employees". Accordingly, compensation expense for employee stock options or
     warrants is measured as the  difference  between the quoted market price of
     the  Company's  stock at the date of grant and the amount the employee must
     pay to acquire the stock. SFAS 123 requires  companies electing to continue
     using the intrinsic value method to make certain pro forma disclosures (see
     Note 11).

     During 1996, the Company also implemented SFAS No. 121, "Accounting for the
     Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed
     Of". This statement requires that long-lived assets and certain intangibles
     to be held  and  used by the  Company  be  reviewed  for  impairment.  This
     pronouncement did not have a material impact on the financial statements of
     the Company.

     NET LOSS PER COMMON SHARE

     Net loss per common share is computed using the weighted  average number of
     shares outstanding.  Common share equivalents  resulting from stock options
     and warrants to purchase  common  stock have not been  included in the loss
     per common share computation since their effect would be anti-dilutive.

     In February  1997,  SFAS No.  128,  "Earnings  Per Share" was issued  which
     established  new standards for computing and presenting  earnings per share
     ("EPS").  The Statement  replaces the  presentation of primary EPS and will
     require a dual  presentation  of basic and  diluted  EPS on the face of the
     income  statement.  SFAS 128 is  effective  beginning  in  fiscal  1998 and
     requires  restatement of all prior-period  EPS data presented.  The Company
     has not yet determined  the impact,  if any, that adoption of SFAS 128 will
     have on the Company's financial statements.










                                      F-9
<PAGE>


AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

3.   ACQUISITIONS:

     On December 31, 1996, the Company acquired 100% of the common stock of Good
     Shepherd,  Inc. d/b/a Green Pastures,  Inc.  ("GPI") in exchange for 96,000
     shares of the Company's  common stock with an aggregate  value of $600,000.
     The merger was accounted for as a pooling of interests and accordingly, the
     accompanying  financial  statements  have  been  restated  to  include  the
     accounts of GPI for all periods prior to the merger.  Separate  results for
     the combining  entities for the years ended  December 31, 1996 and 1995 are
     as follows:


                                                                             
                                                          1995          1996
                                                     -----------    -----------
    Revenues:
      Company                                        $ 10,507,890   $ 6,208,905
      GPI                                                 959,940       761,048
                                                     ------------   -----------

                                                     $ 11,467,830   $ 6,969,953
                                                     ============   ===========


    Net loss:
      Company                                        $   (642,663) $ (8,001,746)
      GPI                                                 128,029        40,136
                                                     ------------  ------------

                                                     $   (514,634) $ (7,961,610)
                                                     ============  ============ 


     On  December  7, 1996,  the Company  acquired  100% of the common  stock of
     Aquatic Dynamics, Inc. ("ADI") for $1,000,000. The purchase price consisted
     of (i) 133,333 shares of the Company's common stock with an aggregate value
     of  $750,000;  (ii)  $200,000  promissory  note payable on January 15, 1997
     bearing  interest  at 7%;  and  (iii)  $50,000  in cash.  The  Company  has
     accounted for the  transaction  using the purchase method of accounting and
     accordingly,  the  operating  results  of ADI  have  been  included  in the
     consolidated  results  of  operations  since  the date of  acquisition.  In
     connection with the transaction,  the Company recorded intangible contracts
     rights and goodwill of approximately $450,000 and $100,000, respectively.

     On June 7, 1996,  the Company  acquired 100% of the common stock of Aquatic
     and Right of Way Control,  Inc. ("ARC") for $1,500,000.  The purchase price
     consisted of 270,000 shares of the Company's common stock with an aggregate
     value of $1,350,000 and $150,000 in cash. The Company has accounted for the
     transaction  using the purchase method of accounting and  accordingly,  the
     operating results of ARC have been included in the consolidated  results of
     operations   since  the  date  of  acquisition.   In  connection  with  the
     transaction,  the Company recorded intangible contracts rights and goodwill
     of approximately $1,000,000 and $346,000, respectively.


                                      F-10

<PAGE>

AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

3.   ACQUISITIONS, CONTINUED:

     In October 1995, the Company acquired  substantially  all of the assets and
     assumed certain of the liabilities of AmerAquatic, Inc. ("AmerAquatic") for
     approximately $4.3 million, of which $500,000 was paid by the issuance of a
     promissory note to the former shareholders of AmerAquatic and the remaining
     balance of  approximately  $3.8  million was paid in cash.  The Company has
     accounted for the  transaction  using the purchase method of accounting and
     accordingly, the operating results of AmerAquatic have been included in the
     consolidated  results  of  operations  since  the date of  acquisition.  In
     connection  with  the  transaction,   the  Company  recorded   goodwill  of
     approximately $2.7 million.

     The following  unaudited pro forma information for the years ended December
     31, 1996 and 1995  combines the  historical  results of  operations  of the
     Company,  ADI, ARC and AmerAquatic as if the  acquisitions  had occurred on
     January 1, 1995. The proforma results do not necessarily  represent results
     which  would  have  occurred  if the  acquisition  had  taken  place at the
     beginning  of the period and the  acquirees  had been  operated  by current
     management  during the periods  presented,  nor are they  indicative of the
     results of future consolidated operations.

                                                           1996        1995
                                                       -----------  -----------
    Revenues                                           $13,419,446  $12,825,618

    Income (loss) from continuing operations               450,391     (405,507)
    
    Income (loss) per share from continuing operations         .11         (.11)


4.   ACCOUNTS RECEIVABLE, NON-CURRENT

     In August  1994,  Florida  Underground  Petroleum  Tank  Contractors,  Inc.
     ("FUPTC"), a wholly-owned subsidiary of the Company presently classified as
     a  discontinued  operation  (see Note 16),  entered  into a  contract  with
     Riverfront Associates  ("Riverfront") for remediation and clean-up services
     (the "Riverfront  Project") relative to an abandoned petroleum storage tank
     system at Riverfront's  property.  The work was fully completed in 1996 and
     the Company has filed a reimbursement application with the State of Florida
     Department of  Environmental  Protection  ("DEP") under the Abandoned  Tank
     Restoration  Program.  In light of  delays  associated  with DEP  review of
     reimbursement applications, the Company does not expect payment until 1998.

     The contract with Riverfront provides that if funds of DEP are insufficient
     to reimburse  FUPTC for a period of twenty-four  months after  submittal of
     the reimbursement  application to DEP,  Riverfront shall be responsible for
     the payment of the outstanding balance in ten monthly installments, subject
     to certain conditions.

     During  1996,  the  Company   reclassified  this  account  receivable  from
     discontinued  operations in partial  settlement of funds  extended to FUPTC
     for the repayment of loans and working capital requirements.

                                      F-11

<PAGE>

AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

5.   PROPERTY AND EQUIPMENT:

     Property and equipment consist of the following:

                                                              DECEMBER 31,
                                                      ------------------------- 
                                                          1996          1995
                                                      -----------   -----------

     Condominium                                      $   126,802   $   126,802
     Machinery and equipment                            1,934,489     1,481,073
     Machinery and equipment under capital lease          300,000             0
     Vehicles                                             527,095       396,226
     Office equipment                                     542,327       352,191
     Leasehold improvements                               206,443        98,031
                                                      -----------   -----------
                                                 
                                                        3,637,156     2,454,323
                                                 
     Accumulated depreciation and amortization         (1,187,002)     (608,488)
                                                      -----------   -----------
                                                      $ 2,450,154   $ 1,845,835
                                                      ===========   ===========
                                                       

6.   INTANGIBLE ASSETS:

     Intangible assets consist of the following:
                                                              DECEMBER 31,
                                                      ------------------------- 
                                                          1996          1995
                                                      -----------   -----------
     Goodwill                                         $ 3,338,679   $ 2,892,651
     Covenants not to compete                             339,000       339,000
     Deferred acquisition costs                           120,262        80,615
     Intangible contract rights                         1,526,000        76,000
     Organization costs                                    26,724        26,724
                                                      -----------   -----------
                                                        5,350,665     3,414,990
                                                                              
     Accumulated amortization                            (404,638)     (192,977)
                                                      -----------   -----------
                                                
                                                      $ 4,946,027   $ 3,222,013
                                                      ===========   ===========

7.   SHORT-TERM BORROWINGS - ACQUISITIONS:

     Short-term  borrowings -  acquisitions  represent  notes payable  issued to
     sellers  in  connection  with  the ADI and  AmerAquatic  acquisitions.  The
     balance of $200,000  as of December  31, 1996 was issued as part of the ADI
     acquisition, bears interest at 7% and matured January 15, 1997. The balance
     of $500,000 as of December  31, 1995 was issued as part of the  AmerAquatic
     acquisition, bore interest at 9.75% and matured May 31, 1996.

                                      F-12

<PAGE>

AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

8.   CREDIT AGREEMENT:

     The Company has a credit agreement which provides for aggregate  borrowings
     of up to $750,000.  Interest is payable on the  outstanding  balance at the
     bank's  prime rate plus 1% (9.75% and 9.5% at  December  31, 1996 and 1995,
     respectively).  Any unpaid  principal and accrued  interest is due no later
     than March 31, 1997. This agreement is  collateralized by substantially all
     of the Company's assets.  The terms of the agreement  require,  among other
     provisions,  for the Company to  maintain  certain  covenants,  including a
     requirement that the Company maintain minimum levels of net worth and other
     financial  ratios.  The  Company  expects  to pay off  this  obligation  at
     maturity with the proceeds of private  placements  of the Company's  common
     stock.



9.   LONG-TERM DEBT:

     Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                         --------------------------- 
                                                                            1996            1995
                                                                         ----------      -----------
<S>                                                                      <C>            <C>   
      Note payable - bearing interest at 1% above the prime rate,
      interest is payable monthly, the principal matures February
      13, 2010, collateralized by a condominium.                         $    85,634    $     91,910

      Note payable in  connection  with the  purchases of assets,
      bearing interest at 7%, requiring monthly payments of
      principal and interest through December 1, 1999                         75,641          98,754

      $5,000,000, net of discount, 12.5% senior secured note due
      October 31, 2003. Interest is payable quarterly.  The note is
      collateralized by a second security interest in all of the
      Company's assets.                                                    4,868,008        4,845,473

      Vehicle and equipment notes to banks and financial institutions,
      bearing interest at rates ranging from 7.50% to 12.95%, principal
      payable in varying installments through 1998                           173,897          201,598

      Various notes payable to financial institutions bearing interest
      at rates ranging from 9.02% to 10% (fully repaid in 1996).                   0           36,384

      Equipment  obligation under capital leases, 11.15%, expiring April
      2000.                                                                  289,757                0
                                                                          ----------      -----------
  
                                                                           5,492,937        5,274,119

      Less current maturities                                               (166,168)        (219,380)
                                                                         -----------      -----------
      Total long-term debt                                               $ 5,326,769      $ 5,054,739
                                                                         ===========      ===========
</TABLE>








                                      F-13

<PAGE>

9.   LONG-TERM DEBT, CONTINUED:

     Aggregate maturities of long-term debt are as follows:

     December 31,
     ------------

       1997                                                        $   166,168
       1998                                                            152,750
       1999                                                            165,861
       2000                                                             77,508
       2001                                                              8,389
       Thereafter                                                    4,922,261
                                                                   -----------
    
                                                                   $ 5,492,937
                                                                   ===========

     The Company funded the cash portion of the purchase price for the assets of
     AmerAquatic from the proceeds of the issuance and sale of (i) the Company's
     12.5% senior  secured note due  February  28, 1996  ("Bridge  Note") in the
     principal  amount of $5,000,000  and (ii) warrants  ("Bridge  Warrants") to
     purchase an  aggregate  of 168,166  shares of the  Company's  common  stock
     pursuant to a senior  secured  note and warrant  purchase  agreement  dated
     October 31, 1995. In December 1995, the Company issued 12.5% senior secured
     notes due October 31, 2003 with a principal of  $5,000,000  and warrants to
     purchase an  aggregate of 351,197  shares of the  Company's  common  stock,
     subject to adjustment under certain circumstances,  in substitution for the
     Bridge Note and the Bridge  Warrants,  respectively.  All bridge  financing
     costs  totaling  approximately  $517,000 were charged to operations  during
     1995.

     The Company has  allocated a portion of the proceeds  from the 12.5% senior
     secured  note  between the note and the 351,197  warrants  issued  based on
     their relative fair value, at the time of issuance. The amount attributable
     to the warrants was $154,527 which has been reflected as additional paid-in
     capital.  The original issue  discount of $154,527 is being  amortized over
     the term of the note.  As of December  31, 1996 and 1995,  the  unamortized
     discount amounts to $131,992 and $154,527, respectively.

     The senior  secured note and warrant  purchase  agreement  contain  various
     covenants which provide for, among other things,  established levels of net
     worth, debt coverage, and capital expenditure.










                                      F-14

<PAGE>

AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

10.  LEASE AND OTHER COMMITMENTS:

     The Company is obligated under  noncancelable  operating leases for various
     branch   locations,   vehicles  and  equipment.   Total  rent  expense  was
     approximately  $473,600 and $389,300 for the years ended  December 31, 1996
     and 1995,  respectively.  As of December 31, 1996,  future  minimum  annual
     lease payments under the operating leases were as follows:

     December 31,
     ------------

        1997                                             $  514,000
        1998                                                360,000
        1999                                                222,000
        2000                                                 91,000
                                                         -----------

                                                         $1,187,000
                                                         ===========

     In  connection  with the  AmerAquatic  acquisition,  the Company  agreed to
     purchase a minimum of sixty specialized  vehicles known as  "Spra-Buggies",
     over a period of three years commencing on October 31, 1995 for an original
     purchase  price of $25,000 each.  As of December 31, 1996,  the Company has
     remaining capital  commitments to purchase forty-six  Spra-Buggies over the
     next twenty-two months.


11.  EMPLOYEE STOCK-BASED COMPENSATION:

     The  Company  has a Stock  Option  Plan (the  "Stock  Option  Plan")  and a
     Directors  Stock Option Plan (the  "Director's  Plan")  (collectively,  the
     "Plans").  The Plans  were  amended in May 1996 to  increase  the number of
     shares available for issuance  thereunder from 550,000 to 1,250,000 shares,
     subject to  shareholders'  approval.  The Plans are designed to serve as an
     incentive for retaining qualified and competent employees and directors.

     The Company's Board of Directors,  or a committee thereof,  administers and
     interprets the Stock Option Plan and is authorized,  in its discretion,  to
     grant  options  thereunder  to  all  eligible  employees  of  the  Company,
     including officers and directors (whether or not employees) of the Company.
     The Stock Option Plan  provides for the granting of both  "incentive  stock
     options" and "nonstatutory stock options". Options can be granted under the
     Stock  Option  Plan on such terms and at such prices as  determined  by the
     Board of  Directors,  or a committee  thereof,  except that, in the case of
     incentive  stock options,  the per share exercise price of options will not
     be less  than the fair  market  value  of the  common  stock on the date of
     grant.  In  the  case  of  an  incentive  stock  option  granted  to a  10%
     stockholder,  the per share  exercise  price  will not be less than 110% of
     such fair market  value.  The  aggregate  fair  market  value of the shares
     covered by  incentive  stock  options  granted  under the Plans that become
     exercisable by a grantee for the first time in any calendar year is subject
     to a $100,000 limit.

                                      F-15

<PAGE>

AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

11.  EMPLOYEE STOCK-BASED COMPENSATION, CONTINUED:

     Only  nonemployee  directors  are  eligible  to receive  options  under the
     Director's  Plan.  The  Director's  Plan provides for the  Directors  Stock
     Option  Committee to  determine  the annual  amount of stock  options to be
     granted to each nonemployee director.

     Options  granted under the Stock Option Plan will be exercisable  after the
     period or periods specified in the option  agreement.  The Committee may in
     its  sole  discretion  accelerate  the  date on  which  any  option  may be
     exercised.  Options  granted  under  the  Director's  Plan are  exercisable
     commencing  one year after date of grant.  Options  granted under the Plans
     are not  exercisable  after the  expiration  of ten years  from the date of
     grant and are non transferable other than by will or by the laws of descent
     and  distribution.  The Plans also  authorize  the Company to make loans to
     optionees to enable them to exercise their options.

     The Company recognizes  compensation  expense for options granted under the
     Plans  based on the  difference  between  the  quoted  market  price of the
     Company's  stock at the date of grant and the amount the employee  must pay
     to acquire the stock. No compensation cost has been recognized for employee
     stock options. Had compensation cost for the Plans been determined based on
     the fair value at the date of grant for 1996 and 1995  awards  under  those
     Plans, consistent with the method prescribed by SFAS 123, the Company's net
     loss and net loss per share in 1996  would have been  increased  to the pro
     forma amounts indicated below:


     Pro forma net loss:
       As reported                                          $   (514,634)
       Pro forma                                              (1,206,057)
     

     Pro forma net loss per share:
       As reported                                          $      (0.14) 
       Pro forma                                                   (0.33)


     The fair value of each  option  grant under the Plans is  estimated  on the
     date of  grant  using  the  Black-Scholes  option-pricing  model  with  the
     following  weighted  average  assumptions used for grants in 1996 and 1995,
     respectively:  no dividend yield for both years; expected volatility of the
     underlying  stock of 35%;  risk-free  interest  rates ranging from 5.43% to
     6.79%  covering  the related  option  periods;  and  expected  lives of the
     options of 8 to 10 years based on the related option periods.







                                      F-16

<PAGE>

AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

11.  EMPLOYEE STOCK-BASED COMPENSATION, CONTINUED:

     A summary of the status of the Plans as of December 31, 1996 and 1995,  and
     changes during the years then ended is presented below:

<TABLE>
<CAPTION>
                                                  1996                     1995
                                       -------------------------  ----------------------
                                                        Weighted               Weighted
                                                        Average                Average
                                                        Exercise               Exercise
                                            Shares        Price     Shares      Price
                                        ------------    --------  ----------   -------- 
<S>                                         <C>         <C>          <C>       <C>     
     Outstanding at beginning of year       234,350     $   5.17     238,250   $   5.04
     Granted                                655,000         4.18      60,000       7.13
     Exercised                                    0                   (6,400)      5.00
     Cancelled                             (167,620)        4.82     (57,500)      5.00
                                        ------------    --------  ----------   -------- 

     Outstanding at end of year             721,730         4.60     234,350       6.17
                                          =========     ========  ==========   ========

     Options exercisable at year-end         53,820                   43,750

     Weighted-average fair value of
         options granted during the year  $    2.44               $     2.18
</TABLE>

12.  NON-EMPLOYEE STOCK-BASED COMPENSATION:

     During 1996,  the Company  issued 16,191  shares of common  stock,  100,000
     options to purchase  common stock and 131,484  warrants to purchase  common
     stock to various  parties  affiliated with certain  Company  directors,  as
     consideration  for financial  consulting  services.  The stock options were
     immediately  exercisable  at an exercise price of $5 per option with a term
     of six months.  The  warrants  were  also immediately exercisable at $4.88-
     $6.50 per warrant with a term of 5-6 years.

     The Company  recognized  unearned  compensation for the common stock issued
     based upon the fair value of the Company's common stock and for the options
     and warrants based upon the fair value  methodologies of SFAS 123, see Note
     2. The fair value of each option or warrant grant was estimated on the date
     of grant using the  Black-Scholes  option-pricing  model with the following
     weighted average assumptions: no dividend yield; expected volatility of the
     underlying stock 35%;  risk-free interest rate of 6.2% covering the related
     option or warrant periods; and expected lives of the options or warrants of
     .5-6 years.  Total  unearned  compensation  amounted to $392,155,  of which
     $162,097  was  amortized  during  1996 and  included  in  depreciation  and
     amortization.




                                      F-17

<PAGE>

AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

12.  NON-EMPLOYEE STOCK-BASED COMPENSATION, CONTINUED:

     During 1995, the Company entered into various  agreements whereby it agreed
     to issue  656,062  warrants  immediately  exercisable  for the  purchase of
     common  stock at  exercise  prices  ranging  from $6.50 to $7.71 per share.
     These issuances  include 351,197  warrants  related to the Company's senior
     secured  note which were valued at $154,527,  see Note 9. During 1995,  the
     Company also granted to consultants 15,000 options to purchase common stock
     at a price of $7.125 per share with a term of five years.

     As of December  31,  1996,  a total of 90,000  options are  outstanding  to
     consultants at a weighted average exercise price of $6.15.

13.  STOCKHOLDERS' EQUITY:

     During 1996, the Company completed four equity private placements  totaling
     437,500  shares of common stock at a price of $4 per share for a total cash
     consideration  of  $1,750,000.  Of the  total,  125,000  were  issued  to a
     director of the Company.

     During November 1996, the Company also issued stock  subscriptions,  in the
     form of stock  options,  to issue 350,000  shares of common stock at $5 per
     share,  the then fair market value of the  Company's  common  stock.  Stock
     options for 150,000  shares and 200,000  shares expire on February 28, 1997
     and October 31, 1998, respectively.  The stock options expiring on February
     28, 1997 have been or are in the process of being exercised.

     In  connection  with its initial  public  offering in September  1994,  the
     Company issued 1,250,000  redeemable  warrants which entitle the registered
     holders to purchase one share of common stock at a price of $6.00,  subject
     to  adjustment in certain  circumstances,  until  September  12, 1999.  The
     warrants are  redeemable  by the  Company,  upon notice of not less than 30
     days,  at a price of $.10 per warrant,  provided that the closing bid price
     of the common stock on all 20 trading days ending on the third day prior to
     the day the Company gives notice has been at least 130% ($7.80) of the then
     effective exercise price of the warrants.

     Also, in connection  with the initial public  offering,  the Company issued
     437,500 warrants  immediately  exercisable for the purchase of common stock
     to the  underwriter  at an exercise  price  ranging  from $.17 to $8.25 per
     share.









                                      F-18


<PAGE>

AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED




14.  CASH FLOW INFORMATION:

     The net  changes in  operating  assets and  liabilities,  net of effects of
     acquisitions, in the accompanying statements of cash flows are as follows:


                                                      Years ended December 31,
                                                   ----------------------------
                                                       1996             1995    
                                                   -----------      -----------
     
     (Increase) decrease in:
       Accounts receivable                         $    45,851      $  (534,285)
       Income tax receivable                           618,003         (601,978)
       Inventories                                      43,642          (24,402)
       Prepaid expenses and other                     (161,393)          62,242
       Accounts receivable, non-current               (221,987)        (982,419)
       Other assets                                   (167,885)         (34,590)
   
     Increase (decrease) in:
       Accounts payable                                 17,620          378,829
       Other current liabilities                       (19,483)         292,811
       Deferred income taxes                                 0          (40,100)
       Fine payable                                          0         (237,500)
                                                   -----------      -----------
     
                                                   $   154,368      $(1,721,392)
                                                   ===========      ===========


     During 1996 and 1995,  the Company  issued  notes  payable for $200,000 and
     $500,000,  respectively,  as  payment  of part of the  purchase  price  for
     certain  acquisitions  (see Note 3). In addition,  during 1995, the Company
     entered  into note  payable  agreements  for  insurance  policies  totaling
     $110,250.

     During 1996,  the Company  recorded  equipment  under capital leases in the
     amount of $300,000.












                                      F-19

<PAGE>

AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


15.  INCOME TAXES:

     The income tax benefit is comprised of the following:

                                               1996               1995    
                                            ---------          ---------- 
                                                                          
      Continuing operations                 $       0          $(374,350) 
      Discontinued operations                       0           (103,425) 
                                            ---------          ---------  
                                                                          
      Income tax benefit                    $       0          $(477,475) 
                                            =========          =========  
                                                                          
      Current:                                                            
           Federal                          $       0          $(437,675) 
           State                                    0                  0  
                                            ---------          ---------  
                                                                          
                                                    0           (437,675) 
                                            ---------          ---------  
      Deferred:                                                           
           Federal                                  0            (40,100) 
           State                                    0                  0  
                                            ---------          ---------  
                                                                          
                                                    0            (40,100) 
                                            ---------          ---------  
                                                                          
      Income tax benefit                    $       0          $(477,775) 
                                            =========          =========  


     The  following  table  summarizes  the  differences  between the  Company's
     effective  tax  rate  for  financial  statement  purposes  and the  Federal
     statutory rate for continuing operations:

                                                        1996          1995
                                                       --------      ---------
      Income tax benefit at Federal statutory rate    $(180,122)     $(359,157)

      State taxes benefit net of Federal benefit              0        (38,345)

      Change in valuation allowance                     111,933              0

      Permanent differences, net                         68,189         23,152
                                                       --------      ---------

      Income tax benefit                              $       0      $(374,350)
                                                      =========      =========

                                      F-20

<PAGE>

AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED



15.  INCOME TAXES,  CONTINUED:

     The components of the net deferred tax assets (liabilities) are as follows:


                                                           1996        1995
                                                      -----------    -----------

     
      Deferred tax assets:                                                     
        Allowance for doubtful assets                $    69,282    $   134,212 
        Estimated loss from discontinued operations      121,873      1,518,725 
        Net operating losses                           2,722,818        995,929 
        Other, net                                       136,477         36,993 
                                                     -----------    ----------- 
                                                             
                   Total deferred tax assets           3,050,450      2,685,859 
                                                     -----------    ----------- 
                                              
      Deferred tax liabilities:                              
       Property and equipment                           (103,526)      (169,513)
       Customer contracts                               (571,181)       (20,764)
                                                     -----------    ----------- 
                                                                                
                  Total deferred tax liabilities        (674,707)      (190,277)
                                                     -----------    ----------- 
                                                           
      Net deferred tax assets                          2,375,743      2,495,582 
                                                                                
      Valuation allowance                             (2,375,743)    (2,495,582)
                                                     -----------    ----------- 
                                                                                
      Net deferred tax liabilities                   $         0    $         0 
                                                     ===========    =========== 
      


     The Company has a net operating loss  carryforward  of  approximately  $8.6
     million which expires from 2001 to 2012. The Company has determined,  based
     on the  Company's  earnings,  that it is more likely than not that deferred
     tax assets will not be realized and therefore,  a full valuation  allowance
     has been provided.








                                      F-21

<PAGE>

AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

16.  DISCONTINUED OPERATIONS:

     In November  1995,  the  Company's  Board of  Directors  approved a plan to
     dispose of the environmental  remediation  business segment which comprised
     the activities of two subsidiaries,  FUPTC and Haas Environmental Services,
     Inc.  ("HES").  The results of the environmental  remediation  segment have
     been reported  separately as  discontinued  operations in the  accompanying
     consolidated statements of operations.

     During 1995, the Company  provided for estimated  losses on disposal of the
     discontinued  operations in the amount of  approximately  $4,882,000  which
     included a provision  for  anticipated  operating  losses of  approximately
     $1,544,000 prior to disposal and the write-off of the unamortized  goodwill
     relating to the acquisition of HES approximating  $2,792,000.  During 1996,
     the Company  provided  for  additional  losses on disposal in the amount of
     approximately   $1,475,000  for  higher  than  anticipated  losses  in  the
     fulfillment of remaining contractual obligations of FUPTC and HES and legal
     fees relating to the collection of accounts receivable.  In April 1996, the
     Company sold  substantially  all of the net assets of HES for approximately
     $1.9 million,  including a $600,000 three-year  promissory note. During the
     fourth  quarter of 1996,  the Company  elected to provide a full  valuation
     allowance   against  the  promissory  note  in  light  of  concerns  as  to
     collectibility.  After consideration of the provision,  the net gain on the
     disposal of HES totaled approximately $716,000.

     HES was originally  formed to consummate the February,  1995 acquisition of
     substantially all of the net assets of Haas  Environmental  Services,  Inc.
     ("Haas") for  approximately  $4.9 million.  The purchase  price was paid in
     cash,  the  issuance  of a  promissory  note,  the  assumption  of  certain
     liabilities  and the issuance by the Company of 219,082  escrowed shares of
     common stock.  In August 1995,  the Company  entered into an agreement with
     the former shareholders of Haas whereby their employment was terminated. In
     consideration of their termination,  the Company agreed to pay $250,000 and
     to disburse all escrowed  shares in January 1997. The Company  recognized a
     charge to  earnings  in 1995 of  approximately  $775,000  related  to these
     shares.  In February 1996, the original purchase of Haas and the promissory
     note issued in that connection were reduced by  approximately  $1.2 million
     reflecting  the  return  to the  seller  of  certain  uncollected  accounts
     receivable.














                                      F-22

<PAGE>

AQUAGENIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

16.  DISCONTINUED OPERATIONS, CONTINUED:

     Summarized  1995  operating  results  for  discontinued  operations  are as
     follows:
 
            Net revenues                        $    7,361,223
                                                ==============
            Operating loss                      $  (2,194,982)
                                                ==============

            Loss before income taxes               (2,541,039)
            Income tax benefit                       (103,425)
                                                --------------

            Loss from discontinued operations   $  (2,437,614)
                                                ==============
  
     Operating  results of the discontinued  operations  include  allocations of
     overhead and interest  expense from the parent company.  For 1996 and 1995,
     overhead expense of approximately $770,000 and $474,000,  respectively, was
     allocated based on specific  identification  of those costs incurred by the
     parent  company  on behalf of its  remediation  subsidiaries  which are not
     expected to be incurred by continuing  operations after the disposal of the
     remediation  segment.  For 1996 and 1995, interest expense of approximately
     $60,000  and  $224,000,  respectively,  was  also  allocated  based on debt
     incurred to finance the discontinued operations and to acquire HES.

     The net liabilities of the discontinued  operations as of December 31, 1996
     and 1995, have been  segregated in the  accompanying  consolidated  balance
     sheets.  The components of the net liabilities of  discontinued  operations
     are as follows:

<TABLE>
<CAPTION>
                                                                            1996           1995
                                                                        -----------    -----------
<S>                                                                     <C>            <C>
     Assets:                                                                                      
          Marketable securities                                         $         0    $ 2,100,000
          Accounts receivable, net of allowance for doubtful accounts       217,182      3,345,323
          Inventories                                                             0        105,876
          Prepaid expenses and deposits                                       6,480        109,271
          Property and equipment, net                                        42,924      1,229,667
          Intangibles, net of accumulated amortization                            0        378,805
                                                                        -----------    -----------
                                                                                                  
     Total assets                                                           266,586      7,268,942
                                                                        -----------    -----------
     Liabilities:                                                                                 
          Notes and loans payable                                            25,000      3,922,045
          Borrowings under credit agreement                                       0      1,576,956
          Accounts payable                                                  226,402      1,250,337
          Accrued expenses                                                   46,970        473,555
          Provision for phase-out losses and discontinuation expenses       318,290      1,543,821
                                                                        -----------    -----------
                                                                                                  
     Total liabilities                                                      616,662      8,766,714
                                                                        -----------    -----------
                                                                                                  
     Net liabilities of discontinued operations                         $  (350,076)   $(1,497,772)
                                                                        ===========    ===========
</TABLE>


                                      F-23