UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                               Washington, DC 20549
                               --------------------

                                    FORM 10-K/A
                                  Amendment No. 2

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

                        For the fiscal year ended December 31, 1996

                              Commission file number 0-25998

                            WASTE SYSTEMS INTERNATIONAL, INC.
                         (formerly BioSafe International, Inc.)
                  (Exact name of registrant as specified in its charter)
                                  --------------------

     Delaware                                                    95-4203626
         (State or other jurisdiction of                       (I.R.S. Employer
          incorporation or organization)                     Identification No.)

          10 Fawcett Street
   Cambridge, Massachusetts                                          02138
        (Address of principal executive offices)                  (Zip Code)

                                    (617) 497-4500
                                Fax (617) 497-6355
                 (Registrant's telephone number, including area code)
                                 --------------------

       Securities registered pursuant to Section 12(b) of the Act: None

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

                               Common Stock, $.001 par value per share
                               Series A Warrants
                               Series C Warrants
                               Series D Warrants
                               Series E Warrants
                               Placement Agent Warrants

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

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

         As of March 26,  1997,  the  market  value of the  voting  stock of the
Registrant held by non-affiliates of the Registrant was $ 5,519,553.

         The number of shares of the Registrant's  common stock, par value $.001
per share, outstanding as of March 26, 1997 was 17,662,569.


<PAGE>


                              TABLE OF CONTENTS

Explanatory Note:  This is amendment No. 2 to Form 10-K Filed with the 
                   Securities and Exchange Commission for the year ended
                   December 31, 1996.

                                                                           PAGE
                                                                           ---- 
PART I                                                                       1

         Item 1.    Business                                                 1
         Item 2.    Is unchanged
         Item 3.    Is unchanged
         Item 4.    Submission of Matters to a Vote of Security Holders     11

PART II                                                                     12

         Item 5.    Market For Registrant's Common Equity and Related 
                    Stockholder Matters                                     12
         Item 6.    Selected Financial Data                                 14
         Item 7.    Management's Discussion and Analysis of Financial 
                    Condition and Results of Operations                     15
         Item 8.    Financial Statements and Supplementary Data             22
         Item 9.    Is unchanged

PART III

         Item 10.   Directors and Executive Officers                        22
         Item 11.   Executive Compensation                                  24
         Item 12.   Security Ownership of Certain Beneficial Owners and
                    Management                                              28
         Item 13.   Is unchanged

PART IV                                                                     31

         Item 14.   Exhibits, Financial Statement Schedules, and Reports on
                    Form 8-K                                                31

Signatures





<PAGE>





                                                        



         This Annual Report on Form 10-K/A contains  forward-looking  statements
within the meaning of Section 27A of the  Securities Act of 1933 and Section 21E
of the  Securities  Exchange Act of 1934.  The  Company's  actual  results could
differ  materially  from  those  set  forth in the  forward-looking  statements.
Certain  factors that might cause such a difference are discussed in the section
entitled  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of  Operations--Certain  Factors  Affecting Future Operating  Results of
this Form 10-K/A.

                                                        PART I
Item 1.  Business

         Waste  Systems   International,   Inc.   (formerly  known  as  "BioSafe
International,  Inc." and  referred  to herein as the  "Company"  or "WSI") is a
nonhazardous  solid waste management  services company  currently engaged in the
business of  rehabilitating  landfills to permit their continued  operation with
increased  capacity in an  environmentally  sound manner,  referred to by WSI as
"landfill  remodeling",  and landfill operation.  WSI has developed technologies
for handling of waste materials for use in landfill remodeling.

         The Company, in January 1997, through an 80% owned subsidiary,  entered
the waste  collection  business in the State of Vermont as its initial  step and
new focus to develop  fully  integrated  solid waste  management  operations  in
markets  where it  believes  it can  maximize  utilization  of Company  owned or
operated   landfills  through  such  integration.   An  integrated  solid  waste
management services company offers disposal, collection,  transfer and recycling
services.  Accordingly,  the Company is in the initial  stages of  investigating
potential  acquisitions of waste collection and transfer  operations which would
be integrated with current or future landfill  remodeling or operation projects.
No binding  agreements or understanding for any such acquisitions  exist at this
time and no assurance can be given that the Company will be able to complete any
such acquisitions.

         As discussed above, WSI is focusing its resources and activities on the
development  of  an  integrated  solid  waste  management  business.   With  the
implementation  of  Subtitle D  Regulations  (as  defined  herein) and a growing
scarcity of urban-center  disposal sites, solid waste disposal continues to move
further  out from  these  urban  centers.  The  Company  believes  that  through
utilization of its landfill  remodeling  process, it will be able to acquire and
develop landfill capacity in or near urban metropolitan  areas. On an integrated
basis,  the Company believes that this may provide a geographical and logistical
competitive  advantage  to the extent  that the  Company's  operations  are more
centrally  located as compared to its competitors with operations  extending out
greater distances from disposal sites.

         Prior  to  March  27,  1996,  WSI had been  actively  developing  other
technologies with potential application in a number of business areas, including
the  manufacture of useful  materials  from tires and other recycled  materials,
contaminated  soil  cleanup and  recycling,  industrial  sludge  disposal,  size
reduction  equipment  design  and  manufacture  (collectively,   the  "Ancillary
Technologies"), and Major Sports Fantasies, Inc.("MSF"), a business unrelated to
the environmental industry.  Since March 27, 1996, the Company has not allocated
its resources or activities to the development or commercial exploitation of the
Ancillary  Technologies  or  MSF.  See  "Business  -  Discontinued   Operations,
Restructuring   and   Management   Change."  The  Company   believes   that  the
restructuring,  which is now substantially  complete,  will allow the Company to
improve  significantly  its  operating  profitability  in  the  future  and  has
positioned   the   Company   to   pursue   successfully   additional   expansion
opportunities. See "Business - Recapitalization".

         The  Company,  however,  is  currently  maintaining  ownership  of  its
infectious  medical  waste  disposal  technology,  which is fully  developed and
requires  no further  development  costs,  which is outside the  Company's  core
landfill  remodeling  and  operations  business.  See  "Business - Medical Waste
Technology License"

         The Company has acquired,  through a joint venture in which the Company
has an 80%  interest,  a landfill  located in  Moretown,  Vermont.  The  current
estimated available new capacity at this landfill,  excluding remodeling,  is in
excess of 1 million tons. On September 30, 1996, the Company  received its final
permit from the Vermont  Department of Natural Resources to commence  operations
at the  landfill at an average of 350 tons per  day("TPD").  On October 7, 1996,
the Company  began  operations at the landfill  which is currently  operating at
approximately 150 - 200 TPD. The Company  anticipates the operating level of the
landfill  to increase  to  approximately  200 - 250 TPD by the end of the second
quarter of 1997. The Company intends to operate the landfill at that level until
the Company  permits  and  constructs  its next cell,  at which time the Company
expects to increase the operating level to full capacity.

         On July  24,  1994,  WSI  entered  into a  contract  with  the  Town of
Fairhaven,  Massachusetts  to remodel the Town's  existing 26 acre landfill.  On
June 22, 1995, the Company commenced operations and began accepting waste at the
landfill utilizing existing capacity.  On October 11, 1995, a Major Modification
Permit   was   issued  by  the   Massachusetts   Department   of   Environmental
Protection("DEP")  including  an  Authorization  to  Construct  and  remodel the

                                       1
<PAGE>

initial cell at the landfill.  Since then, the Company has completed  remodeling
and  constructed  an initial cell at the landfill,  and on August 12, 1996,  the
Company received final  authorization from the DEP to operate the cell under the
Town's  existing  permit at 150 TPD. On November 8, 1995,  an action was brought
against various parties including the Company relating to the remodeling permits
at the Fairhaven  landfill  seeking among other things to appeal the permit that
had been  issued  for  remodeling  the  landfill.  See "Legal  Proceedings".  On
September 9, 1996, pursuant to the Massachusetts  Administrative Procedures Act,
the action  was heard by a Bristol  County  Superior  Court  Judge.  As of March
26,1997,  a ruling has not been issued.  The Company,  until the outcome of this
litigation is determined,  has ceased making additional  capital  investments in
this project and has operated the landfill at a reduced  capacity.  Based on the
extensive  delays and additional  operating costs to the project because of this
litigation and  engineering  impacts of delays  associated  with the litigation,
resulting in the current  uncertainty of the long-term economic viability of the
project,  the Company has decided to  write-off  its capital  investment  in the
project through December 31, 1996 of $6,342,196. Included in the $6,342,196 is a
reserve of $500,000 for  additional  litigation  and ongoing  site  construction
costs.  When the litigation is resolved,  the Company at that time will reassess
the continued feasibility of the project.

         WSI  is  actively   pursuing   additional   opportunities  in  landfill
remodeling  and  operations  and  is  involved  in  various  stages  of  project
evaluation or  acquisition.  At the present time, in addition to the projects in
Moretown, Vermont and Fairhaven,  Massachusetts, WSI is developing the following
potential projects:

                  The Company and the Town of South Hadley,  Massachusetts  have
entered into a contract that provides for WSI to operate and remodel an existing
26-acre landfill in South Hadley. The Company is currently in the initial stages
of permitting this project and anticipates  beginning  operations and generating
revenues at this site by the end of 1998 or early 1999.

         The Company and the Town of Buckland, Massachusetts have entered into a
contract  that  provides  for WSI to operate  and  remodel an  existing  10-acre
landfill  in  Buckland.  The  Company  and the Town of  Buckland  are  currently
reviewing available options for proceeding with this project.

         Each of these projects is subject to various  financing and operational
uncertainties,   which  are  more  fully  discussed  under   "Business--Landfill
Remodeling" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Certain Factors Affecting Future Operating Results."

         WSI is a Delaware  corporation with its principal  executive offices at
10 Fawcett Street, Cambridge, Massachusetts 02138. Its telephone number is (617)
497-4500.

Company Background and Reorganizations

         The Company was incorporated in Nevada in 1989 as Zoe Capital Corp. and
had no  operations  until March 29,  1995.  On that date,  the Company  acquired
BioSafe,  Inc.,  (BioSafe),  a  Delaware  corporation,  through a merger  with a
subsidiary of the Company (the "Acquisition"),  and changed its name to "BioSafe
International,  Inc." BioSafe,  Inc. was incorporated in Delaware in April 1990.
Pursuant to an  Agreement  and Plan of Merger  dated March 17,  1995,  among the
Company and BioSafe,  Inc., a subsidiary of the Company and certain shareholders
of the Company,  all persons  serving as  directors  and officers of the Company
resigned  upon the  consummation  of the  Acquisition.  The  persons  serving as
directors and officers of BioSafe  immediately  prior to the consummation of the
Acquisition were elected to the same offices with the Company and retained their
positions as directors and officers of BioSafe,  Inc.. Prior to the Acquisition,
neither  BioSafe  nor any  affiliate  of BioSafe  had an interest in Zoe Capital
Corp.  On October  27,  1997,  the  Company  changed  its name to Waste  Systems
International,  Inc. from BioSafe  International,  Inc. and changed its state of
incorporation to Delaware from Nevada.

Discontinued Operations, Restructuring and Management Change

         On  March  27,  1996,  the  Company  announced  its  intention  to take
meaningful  actions  to  conserve  cash  and  working  capital,   including  the
restructuring of the Company's  operations to focus its resources and activities
on its core business of landfill  remodeling  and  operation.  On that date, the
Company ceased operations at its technology center in Woburn,  Massachusetts and
discharged all employees and  consultants  previously  engaged in developing the
Ancillary  Technologies,  and MSF. In addition,  the Company  discharged certain
employees  involved in the  Company's  core  landfill  remodeling  and operation
business,   including  administrative,   marketing  and  sales,  and  operations
employees.  No  substantial  revenues were received from the  technology  center
operations and MSF activities.

         The  Company,  however,  is  currently  maintaining  ownership  of  its
infectious  medical  waste  disposal  technology,  which is fully  developed and
requires  no further  development  costs,  which is outside the  Company's  core
landfill  remodeling  and  operations  business.  See  "Business - Medical Waste
Technology License"

                                       2
<PAGE>

         On March 27, 1996,  Dr.  Richard H. Rosen  resigned from the offices of
Chairman of the Board, President,  Chief Executive Officer, and Treasurer of the
Company  and  all  of  its  subsidiaries  and  affiliates.  See  Item  3  "Legal
Proceedings".  The Board of Directors  named  Philip  Strauss,  Chief  Operating
Officer, to the additional positions of Chief Executive Officer and President of
the Company.  On June 24, 1996 Philip  Strauss was also elected  Chairman of the
Board of the Company.

Recapitalization

         The Company believes that the restructuring, which is now substantially
complete,  will  allow  the  Company  to  improve  significantly  its  operating
profitability   in  the  future  and  has   positioned  the  Company  to  pursue
successfully  additional  expansion   opportunities.   The  ultimate  successful
completion  of the  Company's  restructuring  is  dependent  upon the  Company's
ability  to raise  substantial  additional  capital  and to  achieve  a level of
revenues  adequate to support the Company's  cost  structure.  Accordingly,  the
Company is in the process of  preparing a  recapitalization  plan and intends to
seek to  finalize  and  implement`  this plan by June 30,  1997.  In view of the
current  financial  condition of the  Company,  the  recapitalization  plan , if
successful, is likely to result in substantial dilution to existing shareholders
through the issuance of  convertible  or other equity  securities at a depressed
market price.

Industry Background

         The Company's  strategy  responds to the highly  fragmented and rapidly
consolidating nature of the solid waste industry.  More stringent  environmental
regulations and increased  demand for additional  services such as recycling are
dramatically  increasing the capital and management  expertise needed to compete
and survive in the  industry.  It has become  prohibitively  expensive  for many
private companies and especially  municipal waste management  organizations,  to
bring their operations into compliance with today's standards. As a result, many
of these operators are considering alternatives such as privatization and or the
sale or merger of their  operations.  According to financial  analyst reports on
the solid waste  industry,  only about  one-third  of the  industry is currently
managed by publicly-traded  companies. The remaining two-thirds provide numerous
privatization,  partnership or acquisition  opportunities  for public  companies
with easier access to capital.

         Achieving  safer and more  efficient  disposal and  management of solid
waste is an  increasingly  pressing  problem  for the solid waste  industry.  Of
particular  importance to WSI's landfill  remodeling business are policies being
implemented by the U.S.  Environmental  Protection Agency ("U.S. EPA") and State
environmental  regulatory  authorities  that are  compelling the closure of most
existing unlined landfills throughout the country. Today there are slightly more
than 3,000 operating  landfills  across the United States.  In 1988,  there were
more than 8,000.  At the same time, the Clean Air Act Amendments of 1990 require
the imposition of stringent limitations on the emission of toxic substances into
the atmosphere from  incinerators,  further  limiting the available  options for
disposal of solid waste.

         Several categories of materials handling and size reduction  technology
are of particular  importance in solid waste disposal and management.  Materials
handling  technology  is critical  because of the large volume of the  materials
involved in most waste  streams and the need to achieve  separation  into usable
and/or recyclable  components.  Size reduction  technology is useful in order to
convert  all  material  to be  processed  to a  uniform  size  so that it can be
efficiently handled and effectively processed.

         The solid waste disposal  industry offers  opportunities  for a company
with engineering  technology,  know-how, and experience to apply technologies to
particular  disposal problems.  Substantial effort is required to understand the
materials that are involved in the waste stream and its economic context, and to
develop an effective  strategy for dealing with those materials.  If this can be
accomplished  successfully,  WSI believes that it will  generally be possible to
structure  profitable projects where the Company can play an ongoing role in the
implementation and management of the solution on a revenue-producing basis.




WSI Technology and Strategy

         Prior to  March  27,  1996,  WSI had  focused  on the  development  and
implementation  of proprietary  processes  which offered  practical  benefits to
entities faced with meeting regulatory restrictions on the handling and disposal
of waste,  including  reductions  in capital and operating  costs,  recycling of
recyclable  materials,  and reductions of environmental  risk. WSI has developed
technology in two important areas of waste  processing,  materials  handling and
size  reduction.  These  technologies  are central to WSI's landfill  remodeling
process,  which enables existing landfill materials to be handled efficiently in
a continuous process.

                                       3
<PAGE>

         As previously  discussed,  WSI is currently  focusing its resources and
activities on the development of an integrated solid waste management  business.
The  Company  believes  that  through  utilization  of its  landfill  remodeling
process,  it will be able to acquire  and develop  landfill  capacity in or near
urban metropolitan areas. On an integrated basis, the Company believes that this
may provide a geographical  and logistical  competitive  advantage to the extent
that the  Company's  operations  are more  centrally  located as compared to its
competitors with operations extending out greater distances from disposal sites.

         The key elements of the Company's strategy are to:

                  1) identify  landfills  in or near an urban  metropolitan  
         centers that meet the  Company's  criteria for landfill remodeling or 
         acquisition;

                  2) in the  region  around  each of its  landfills,  develop an
         integrated  solid  waste  management  operation,  including  collection
         operations  and  transfer  stations,  through  strategically  sound and
         financially  accretive  acquisitions  and  internal  growth,  to secure
         long-term stable waste and cash flows; and

                  3)  consolidate and optimize the integrated operations

This  strategy is intended to enable the Company to continue to grow through new
projects, acquisitions and internal growth.

Landfill Remodeling

         Municipal  waste at  landfills,  even if it has been in place  for many
years,  typically  contains a large amount of low density,  bulky  material.  By
processing  and recycling this material  through WSI's soil  separation and size
reduction  equipment,  it is possible to recapture  approximately  40-80% of the
landfills original capacity,  based on the Company's feasibility studies and its
initial  remodeling work at the Fairhaven  landfill to date. First, an area of a
landfill  is  excavated  and  processed,  then  the  landfill  can be  lined  in
accordance  with current  environmental  standards.  At that time,  the site can
receive municipal solid waste and the reprocessed remaining landfill waste.

         As this  procedure  continues  through the entire site,  it is expected
that (a) the  entire  landfill  can be  brought  into  compliance  with  current
applicable environmental regulations; (b) the useful life of the landfill can be
extended  as a result of the  volume  reduction  of the waste and in effect  the
creation of  substantial  new  capacity,  which  represents  an  opportunity  to
generate  revenues from tipping fees for many additional years; and (c) the high
cost of  closing  down a  landfill  in  compliance  with  current  environmental
regulations  can be  deferred  for years  into the  future  and can be  financed
through a sinking  fund  funded  by a share of the  tipping  fees for the use of
landfill  capacity  that is  charged  for new  waste  which is  accepted  at the
landfill  (referred  to as  "tipping  fees").  The  economic  life of a landfill
depends  upon the  amount of waste per day that the  landfill  is  permitted  to
accept,  the site  conditions and relevant  regulations  governing the geometric
configuration  of the landfill,  and the amount of additional  space that can be
created through remodeling  considering the nature of the material found in that
particular landfill.

         The  Company's  approach to landfill  remodeling  is based on extensive
professional   experience  of  its  engineering  personnel  in  connection  with
materials handling and size reduction  technologies,  including field testing of
the technologies used by the Company. In connection with any particular landfill
remodeling  project,   the  Company  conducts  extensive   feasibility  studies,
including core samples of existing landfill  content,  to serve as the basis for
projected volume reduction and new landfill capacity.  At this time, the Company
has developed  significant  experience through initial remodeling  activities at
the Fairhaven  landfill.  In developing its landfill  remodeling  strategy,  the
Company has consulted  extensively with State regulatory  authorities in various
states having  permitting  and regulatory  authority  over  landfills  which the
Company is evaluating for possible remodeling.

         The economics of this proposed solution to the above described landfill
problems  will  vary  from  location  to  location  based  upon  the  particular
circumstances  of a project,  and no assurance can be given that the utilization
of WSI's landfill  remodeling  technology can achieve cost effective  results at
any particular landfill.

         Moretown, Vermont Landfill Project

         Although  the  Company's  landfill  remodeling  plans  generally  focus
primarily on the performance of landfill remodeling and operation under contract
to the  landfill  owners,  in the case of the  Moretown  project the Company has


                                       4
<PAGE>

decided  to  acquire  an  interest  in  a  landfill.  On  July  5,  1995,  Waste
Professionals of Vermont,  Inc. ("WPV"), a corporation 80% owned by the Company,
acquired the property of the Moretown,  Vermont landfill,  together with certain
related assets.  The Moretown landfill was acquired from an entity in bankruptcy
which had  owned  the real  estate  on which  the  landfill  had been  operating
pursuant  to a lease.  The Company  has  permitted  the first cell and is in the
process of permitting  the second cell of the landfill in Moretown.  The current
estimated  available space at the landfill is  approximately 1 million tons. The
Company  intends to complete and operate the  landfill.  In the future,  at such
time as additional capacity can be utilized,  the Company may seek to expand the
landfill's capacity by remodeling.

         On or about  March  31,1997  the  Company  expects  to close a  project
financing of $1 million for  additional  development  costs and working  capital
requirements  of the Moretown  landfill  project from a local bank. No assurance
can be given that such  financing can be obtained on terms  satisfactory  to the
Company.  The Company's  indirect  ownership of the Moretown landfill involves a
greater  degree of  exposure  to  potential  environmental  liabilities  than is
involved  with  the  Fairhaven  landfill  project  and  other  planned  landfill
remodeling  projects,  although  the  Company  believes  that the actual risk is
manageable on the basis of its engineering and economic  feasibility studies and
its operating plans for the Moretown landfill.

         Fairhaven Landfill Project

         On  July  24,  1994  WSI  entered  into a  contract  with  the  Town of
Fairhaven,  Massachusetts  to remodel the Town's  existing 26 acre landfill.  On
June 22, 1995, the Company commenced operations and began accepting waste at the
landfill utilizing existing capacity.  On October 11, 1995, a Major Modification
Permit   was   issued  by  the   Massachusetts   Department   of   Environmental
Protection("DEP")  including  an  Authorization  to  Construct  and  remodel the
initial cell at the landfill.  Since then, the Company has completed  remodeling
and  constructed  an initial  cell at the  landfill,  and on August 12, 1996 the
Company received final  authorization from the DEP to operate the cell under the
Town's  existing  permit at 150 TPD.  On  November 8, 1995 an action was brought
against various parties including the Company relating to the remodeling permits
at the Fairhaven  landfill  seeking among other things to appeal the permit that
had been  issued  for  remodeling  the  landfill.  See "Legal  Proceedings".  On
September 9, 1996, pursuant to the Massachusetts  Administrative Procedures Act,
the action  was heard by a Bristol  County  Superior  Court  Judge.  As of March
26,1997,  a ruling has not been issued.  The Company,  until the outcome of this
litigation is determined,  has ceased making additional  capital  investments in
this project and has operated the landfill at a reduced  capacity.  Based on the
extensive  delays and additional  operating costs to the project because of this
litigation and  engineering  impacts of delays  associated  with the litigation,
resulting in the current  uncertainty of the long-term economic viability of the
project,  the Company has decided to  write-off  its capital  investment  in the
project through December 31, 1996 of $6,342,196. Included in the $6,342,196 is a
reserve of $500,000 for  additional  litigation  and ongoing  site  construction
costs.  When the litigation is resolved,  the Company at that time will reassess
the continued feasibility of the project.

         Other Landfill Remodeling Projects

         At  the  present   time,   in  addition  to  operations  in  Fairhaven,
Massachusetts and Moretown, Vermont, WSI is developing the following projects:

         South Hadley,  Massachusetts.  One of the Company's  landfill  projects
involves a landfill located on a 26-acre parcel in the Town of South Hadley, for
which WSI and the Town  entered  into an operation  and  remodeling  contract on
August 22,  1995.  The Town of South  Hadley will retain full  ownership  of the
landfill.  The Company is currently  in the initial  stages of  permitting  this
project and  anticipates  beginning  operations and generating  revenues at this
site by the end of 1998 or early 1999.

         Buckland,  Massachusetts.  The Company entered into a contract with the
Town of Buckland,  Massachusetts  in November 1995, under which WSI will operate
and remodel the Buckland  community  landfill.  The Town of Buckland will retain
full  ownership  of the  landfill.  The  Company  and the Town of  Buckland  are
currently reviewing available options for proceeding with this project.


Medical Waste Technology License

         On February 9, 1996,  the Company  entered into a licensing and royalty
agreement with ScotSafe Limited (ScotSafe),  a Glasgow,  Scotland based company,
for the exclusive  rights to use WSI's  continuous  flow auger  ("CFA")  medical
waste  processing  technology in the British  Isles and Ireland.  On November 6,
1996 the Company and ScotSafe  expanded  their  licensing  agreement  throughout
Europe.  The  initial  licensing  agreement  contemplated  that  ScotSafe  would
establish as many as nine CFA plants,  each of which would result in  additional
licensing fees to BioSafe.  In accordance  with the agreement,  WSI will provide


                                       5
<PAGE>

technical  assistance in connection  with these  facilities  including  facility
design, installation,  testing and training. In addition to royalty payments for
each plant,  ScotSafe has agreed to pay WSI for consulting  and other  services,
and will reimburse the Company for its out-of-pocket  expenses and disbursements
in  connection  with these  services.  As of  December  1996,  the  Company  has
completed  two  plants  for  ScotSafe  under this  agreement  and has  generated
approximately  $1,000,000 in gross revenues. The royalty per plant is payable on
a monthly basis over a two year period.

Markets and Competition

         The  solid  waste  management  industry  presents  a broad  variety  of
opportunities,  and it is difficult to characterize the market in general terms.
Likewise,  the competitive  environment is evolving rapidly, as new problems are
identified  and new  technologies  and approaches are developed for dealing with
them.  WSI faces  competition  or potential  competition  from a large number of
companies,  many of which have substantially greater resources than the Company.
The Company believes that its engineering  technology,  know-how, and experience
represent  potential  competitive  advantages.  In  certain  circumstances,  the
Company's  marketing approach may require it to expend significant  resources in
preliminary  phases of a project before there is any assurance that a project is
feasible or that the  Company's  proposal  will be accepted,  which  necessarily
entails certain financial risks.

         At the  present  time the  Fairhaven  landfill  remodeling  project  is
believed to be the largest project of its kind in the United States. The Company
has developed  significant  experience  through the operation of this project to
date.  There have been some small  landfill  mining  demonstration  projects  in
Massachusetts, Florida, New York, and Pennsylvania. Landfill mining differs from
landfill  remodeling in that landfill mining's principal purposes are to reclaim
recyclables  and to reduce the  footprint of the landfill to reduce and/or delay
closure and post closure costs.  WSI is not aware of any major company  involved
in  either  landfill  mining  or  remodeling  at this  time.  WSI  expects  that
significant  competition  is likely to develop as the benefits of the remodeling
approach become more widely known, and that some potential  competitors may have
significantly greater resources than BioSafe. WSI has obtained patent protection
for aspects of its remodeling  technology.  No assurance can be given,  however,
that  competitors  may not be able to successfully  challenge WSI's patents,  or
develop landfill remodeling technologies which avoid these patents.

Environmental Regulation

         The Company and its  customers  are subject to  extensive  and evolving
environmental  laws and  regulations  that  have been  enacted  in  response  to
technological  advances and increased concern over environmental  issues.  These
regulations are  administered  by the U.S. EPA and various other federal,  state
and local  environmental,  transportation  and health and safety  agencies.  The
Company believes that to a significant extent such laws and regulations have the
effect of enhancing the potential market in which the Company operates,  because
the Company seeks to attract customers by offering them economical  solutions to
regulatory  problems.  On the other hand, such laws and regulations  represent a
potential constraint on the Company's operation of projects for its customers or
for its own account.

         In order to develop  and  operate a landfill  or a landfill  remodeling
project,  the Company must go through several  governmental review processes and
obtain one or more permits and often zoning or other land use  approvals.  These
permits and zoning or land use approvals  are  difficult  and time  consuming to
obtain and may be  opposed by various  local  elected  officials  and  citizens'
groups. Once obtained,  operating permits generally must be periodically renewed
and are subject to modification and revocation by the issuing agency.

         The  Company's  remodeling  and  operation of  landfills  subject it to
certain operational, monitoring, site maintenance, closure and post-closure, and
financial  assurance  obligations which change from time to time and which could
give rise to increased  capital  expenditures and operating  costs,  although in
landfill projects  undertaken for  municipalities or other customers the Company
will seek to establish  contractual  arrangements  under which the customer will
assume the risk of any additional capital expenditure  requirements arising from
regulatory   requirements.   In  connection   with  the  Company's   preliminary
development   of  landfill   remodeling   projects,   the  Company  will  expend
considerable  time,  effort and money in complying with the governmental  review
and permitting  process  necessary to remodel and increase the capacity of these
landfills.  Governmental  authorities have the power to enforce  compliance with
these laws and regulations and to obtain injunctions or impose civil or criminal
penalties  in the case of  violations.  Failure to correct  the  problems to the
satisfaction  of the  authorities  could lead to  curtailed  operations  or even
closure of a landfill.

         The  principal  federal,  state,  and local  statutes  and  regulations
applicable to the Company's operations are as follows:

         The Resource  Conservation and Recovery Act of 1976. RCRA regulates the
generation,  treatment, storage, handling,  transportation and disposal of solid
waste and  requires  states to develop  programs to ensure the safe  disposal of
solid  waste.   RCRA  divides  solid  waste  into  two  groups,   hazardous  and


                                       6
<PAGE>

nonhazardous.  Wastes are generally  classified as hazardous  wastes if they (i)
either  (a) are  specifically  included  on a list of  hazardous  wastes  or (b)
exhibit  certain  hazardous   characteristics  and  (ii)  are  not  specifically
designated  as  nonhazardous.  Wastes  classified  as  hazardous  under RCRA are
subject to much stricter  regulation  than wastes  classified  as  nonhazardous.
Among the wastes that are  specifically  designated  as  nonhazardous  waste are
household waste and special waste.  These wastes,  which will be accepted at the
Company's  landfills,  may contain  substances  that may be as toxic or prove to
cause contamination as some wastes classified and regulated as hazardous.

         In October  1991,  the U.S.  EPA  adopted new  regulations  pursuant to
Subtitle D of RCRA (the "Subtitle D Regulations").  These new regulations became
generally  effective in October 1993 (except for certain MSW landfills accepting
less than 100 TPD,  as to which the  effective  date was April 9, 1994,  and new
financial  assurance  requirements,  which become  effective  April 9, 1997) and
include location  restrictions,  facility design standards,  operating criteria,
closure  and  post-closure   requirements,   financial  assurance  requirements,
groundwater  monitoring  requirements,  groundwater  remediation  standards  and
corrective action requirements.  In addition, these regulations require that new
landfill units meet more stringent liner design criteria  (typically,  composite
soil and  synthetic  liners or two or more  synthetic  liners)  designed to keep
leachate out of groundwater and have extensive  collection systems to carry away
leachate  for  treatment  prior to  disposal.  Groundwater  wells  must  also be
installed  at  virtually  all  landfills  to monitor  groundwater  quality.  The
regulations also require,  where threshold test levels are present, that methane
gas  generated at landfills be  controlled in a manner that protect human health
and the environment.  Each state is required to revise its landfill  regulations
to meet these requirements or such requirements,  will be automatically  imposed
upon it by the U.S.  EPA.  Each state is also  required to adopt and implement a
permit program or other  appropriate  system to ensure that landfills within the
state  comply with the  Subtitle D criteria.  Many states have  already  adopted
regulations  or programs as stringent as or more  stringent  than the Subtitle D
Regulations, which were first proposed in August 1988.

         The Federal Water  Pollution  Control Act (the "Clean Water Act").  The
Clean Water Act establishes  rules regulating the discharge of pollutants from a
variety of sources,  including  solid waste disposal  sites,  into waters of the
United States. If runoff or collected  leachate from the Company's  landfills is
discharged into a water of the United States,  the Clean Water Act would require
the Company to apply for and obtain a discharge  permit,  conduct  sampling  and
monitoring and, under certain  circumstances,  reduce the quantity of pollutants
in such discharge. Also, virtually all landfills are required to comply with the
new federal  storm water  regulations,  which are  designed to prevent  possibly
contaminated  storm  water from  flowing  into  surface  waters.  The Company is
working with the appropriate  regulatory  agencies to ensure that its facilities
are in compliance with Clean Water Act requirements,  particularly as they apply
to treatment and discharge of leachate and storm water.  The Company has secured
or has applied for the required  discharge  permits under the Clean Water Act or
comparable  state-delegated  programs. To ensure compliance with the Clean Water
Act  pretreatment and discharge  requirements,  the Company has either installed
wastewater  treatment  systems  at its  facilities  to  treat  its  effluent  to
acceptable  levels  before  discharge  or  has  arranged  (or is  arranging)  to
discharge its effluent to municipal wastewater treatment facilities.

         The Comprehensive Environmental Response,  Compensation,  and Liability
Act of 1980  ("Superfund"  or "CERCLA").  CERCLA  established  a regulatory  and
remedial  program  intended  to provide  for the  investigation  and  cleanup of
facilities  from  which  there  has been,  or is  threatened,  a release  of any
hazardous  substance  into  the  environment.  CERCLA's  primary  mechanism  for
remedying  such  problems is to impose  strict joint and several  liability  for
cleanup of facilities on current owners and operators of the site, former owners
and  operators  of  the  site  at the  time  of the  disposal  of the  hazardous
substances,  as well  as the  generators  of the  hazardous  substances  and the
transporters  who  arranged  for  disposal or  transportation  of the  hazardous
substances.   The  costs  of  CERCLA  investigation  and  cleanup  can  be  very
substantial.  Liability  under  CERCLA  does not depend  upon the  existence  or
disposal of "hazardous waste" but can also be founded upon the existence of even
very small  amounts of the numerous  "hazardous  substances"  listed by the EPA,
many of which can be found in household  waste.  If the Company were to be found
to be a responsible  party for a CERCLA cleanup,  either at one of the Company's
owned or  operated  facilities  has been stored or  disposed  of, the  enforcing
agency could hold the Company  completely  responsible for all investigative and
remedial  costs even if others may also be liable.  CERCLA also  authorized  the
imposition  of a lien in  favor of the  United  States  upon  all real  property
subject to or affected  by a remedial  action for all costs for which a party is
liable.  The  Company's  ability to obtain  reimbursement  from others for their
allocable share of such costs would be limited by the Company's  ability to find
other responsible  parties and prove the extent of their  responsibility  and by
the financial resources of such other parties. In the past, legislation has been
introduced in Congress to limit the liability of municipalities and others under
CERCLA as generators and  transporters of municipal  solid waste.  Although such
legislation  has not  been  enacted,  if it were to  pass  it  would  limit  the
Company's  ability  to seek full  contribution  from  municipalities  for CERCLA
cleanup costs even if the hazardous substances that were released and caused the
need  for  cleanup  at one of the  Company's  facilities  were  generated  by or
transported to the facility by a municipality.

                                       7
<PAGE>

         The Clean Air Act. The Clean Air Act provides for  regulation,  through
state implementation of federal requirements,  of the emission of air pollutants
from  certain  landfills  based upon the date of the landfill  construction  and
volume per year of  emissions  of  regulated  pollutants.  The EPA has  recently
promulgated new source performance standards regulating air emissions of certain
regulated  pollutants (methane and non-methane organic compounds) from municipal
solid  waste  landfills.  The EPA may also  issue  regulations  controlling  the
emissions of particular  regulated air  pollutants  from  municipal  solid waste
landfills. Landfills located in areas with air pollution problems may be subject
to even more  extensive  air  pollution  controls and emission  limitations.  In
addition,  the EPA has issued  standards  regulating  the removal,  handling and
disposal of asbestos-containing materials.

         Each  of the  federal  statutes  described  above  contains  provisions
authorizing,  under certain  circumstances,  the bringing of lawsuits by private
citizens to enforce the provisions of the statutes.

         The  Hazardous  Materials  Transportation  Act. The  transportation  of
hazardous waste is regulated both by the EPA pursuant to RCRA and by the federal
Department  of  Transportation  ("DOT")  pursuant  to  the  Hazardous  Materials
Transportation Act ("HMTA").  Pursuant to the HMTA, DOT has enacted  regulations
governing the transport of hazardous  waste.  These  regulations  govern,  among
other things,  packaging of the hazardous waste during  transport,  labeling and
marking requirements, and reporting of and response to spills of hazardous waste
during  transport.  In addition,  under both the HMTA and RCRA,  transporters of
hazardous waste must comply with manifest and record keeping requirements, which
are designed to ensure that a shipment of hazardous waste is properly identified
and can be  tracked  from its  point of  generation  to point of  disposal  at a
permitted hazardous waste treatment, storage or disposal facility.

         The  Occupational  Safety  and  Health  Act  of  1970  ("OSHA").   OSHA
authorizes  the  Occupational  Safety and Health  Administration  to  promulgate
occupational   safety  and  health  standards.   Various  of  those  promulgated
standards, including standards for notices of hazards, safety in excavation, and
the handling of asbestos, may apply to certain of the Company's operations. OSHA
regulations set forth  requirements for the training of employees  handling,  or
who may be exposed in the workplace to,  concentrations  of  asbestos-containing
materials that exceed  specified  action levels.  The OSHA  regulations also set
standards for employee protection,  including medical  surveillance,  the use of
respirators,  protective  clothing and  decontamination  units,  during asbestos
demolition, removal or encapsulation as well as its storage,  transportation and
disposal.  In addition,  OSHA specifies a maximum permissible exposure level for
airborne  asbestos in the  workplace.  The company has no direct  involvement in
asbestos removal or abatement projects.

         State  and  Local  Regulation.  Each  state in which  the  Company  now
operates or may  operate in the future has laws and  regulations  governing  the
generation,  storage, treatment, handling,  transportation and disposal of solid
and hazardous  waste,  water and air pollution  and, in most cases,  the citing,
design,  operation,   maintenance,   closure  and  post-closure  maintenance  of
landfills  and  transfer  stations.  In  addition,   many  states  have  adopted
"Superfund"  statutes  comparable  to, and in some cases  more  stringent  than,
CERCLA.  These statutes impose  requirements  for  investigation  and cleanup of
contaminated  sites and  liability  for costs and damages  associated  with such
sites,  and some  provide  for the  imposition  of liens  on  property  owned by
responsible  parties.  Furthermore,  many  municipalities  also have ordinances,
local laws and regulations  affecting Company  operations.  These include zoning
and health  measures that limit solid waste  management  activities to specified
sites or activities,  flow control  provisions that direct the delivery of solid
wastes to specific facilities, laws that grant the right to establish franchises
for  collection  services  and  then put out for bid for the  right  to  provide
collection  services,  and bans or other  restrictions  on the movement of solid
wastes into a municipality.

         Certain  permits and approvals may limit the types of waste that may be
accepted  at a  landfill  or the  quantity  of waste that may be  accepted  at a
landfill during a given time period. In addition, certain permits and approvals,
as well as  certain  state  and  local  regulations,  may  limit a  landfill  to
accepting  waste that  originates  from  specified  geographic  areas or seek to
restrict the importation of out-of-state waste or otherwise discriminate against
out-of-state waste.  Generally,  restrictions on the importation of out-of-state
waste  have  not  withstood  judicial  challenge.   However,   proposed  federal
legislation   would  allow  individual   states  to  prohibit  the  disposal  of
out-of-state  waste or to limit the amount of  out-of-state  waste that could be
imported for disposal and would require states, under certain circumstances,  to
reduce  the  amounts  of waste  exported  to other  states.  If this or  similar
legislation is enacted, states in which the Company operates landfills could act
to limit or prohibit the importation of out-of-state  waste.  Such state actions
could adversely  affect landfills within those states that receive a significant
portion of waste originating from out-of-state. The Company has not accepted any
out-of-state waste at its Moretown landfill.

         In addition,  certain  states and  localities may for economic or other
reasons  restrict the  exportation of waste from their  jurisdiction  or require
that a  specified  amount of waste be  disposed of at  facilities  within  their
jurisdiction.  Recently,  the United States Supreme Court held unconstitutional,
and therefore  invalid, a local ordinance that sought to impose flow controls on
taking waste out of the locality. However, certain state and local jurisdictions
continue to seek to enforce such restrictions and, in certain cases, the Company


                                       8
<PAGE>

may elect not to challenge such restrictions based upon various  considerations.
In addition, the aforementioned  proposed federal legislation would allow states
and localities to impose certain flow control  restrictions.  These restrictions
could result in the volume of waste going to landfills  being reduced in certain
areas, which may adversely affect the Company's ability to operate its landfills
at their full capacity and/or affect the prices that can be charged for landfill
disposal services.

         There has been an  increasing  trend at the  state  and local  level to
mandate and encourage  waste  reduction at the source and waste recycling and to
prohibit the disposal of certain types of solid wastes,  such as yard wastes, in
landfills.  The enactment of regulations reducing the volume and types of wastes
available for transport to and disposal in landfills  could affect the Company's
ability to operate its facilities at their full capacity.

         The Company  believes that it is in compliance with federal,  state and
local regulations based on the following;  the Company's internal review process
has not  identified  any non  compliance  and the Company has not  received  any
verbal or written notification from any governmental agency to the contrary.

Limits on Insurance

         The Company has obtained  environmental  impairment liability insurance
covering  claims for sudden or gradual  onset of  environmental  damage.  If the
Company  were to incur  liability  for  environmental  damage  in  excess of its
insurance  limits,  its financial  condition  could be adversely  affected.  The
Company  carries  a  comprehensive  general  liability  insurance  policy  which
management  considers adequate at this time to protect its assets and operations
from other risks.

Employees

         As of March 26, 1997,  WSI had  approximately  27 full time  employees.
WSIbelieves  its future success will depend in part on its continued  ability to
recruit and retain highly qualified technical and managerial personnel.

         WSI's employees are not subject to any collective bargaining agreement.
WSI considers its relations with its employees to be good.

Item 4.  Submission of Matters to a Vote of Security Holders

         On  February  14,  1997,   the  Company  held  a  special   meeting  of
stockholders to approve the change of the Company's state of incorporation  from
Nevada to Delaware, including changing its name to "Waste Systems International,
Inc." through a merger of the Company into a wholly-owned subsidiary. As of that
date a quorum was not present and the meeting has been adjourned until April 18,
1997. On October 24, 1997, the Company held its annual  meeting of  stockholders
and voted to change its name to Waste Systems  International,  Inc. from BioSafe
International,  Inc.  and changed its state of  incorporation  to Delaware  from
Nevada effective October 27, 1997. There were 31,237,007 votes cast for, 195,855
votes cast against, 215,510 abstaining and 7,229,615 not voted.


                                       9
<PAGE>







                                     PART II

Item 5.  Market For Registrant's Common Equity and Related Stockholder Matters

         The Common Stock has been quoted on the NASDAQ  Small-Cap  Market under
the symbol "WSII" since  November 14, 1995 and previously had been quoted in the
NASD  Over-the-Counter  market since March 29, 1995. Prior to that date,  49,496
shares of Common Stock had been issued and registered pursuant to a registration
statement  under the  Securities  Act of 1933 as amended,  and were eligible for
resale  without  restriction,  although no active trading market existed for the
Company's  Common Stock.  On March 26, 1997, the reported last sale price of the
Common Stock on the NASDAQ Small-Cap Market was $.3125 per share, and there were
307 holders of record of Common  Stock.  The Company has not paid  dividends and
has no present  intention to pay dividends.  The following  table sets forth the
high and low bid information of the Common Stock for the periods indicated.

                                           High             Low
       Quarter Ended                       Closing Bid      Closing Ask
           1995
       -------------                       ------------     ------------
      March 31(1)                             $3.65
      June 30                                 $8.50            $7.50
      September 30                            $8.00            $4.87
      December 31                             $7.63            $4.06

             1996
             ----                        
      March 31                                $3.12            $2.62
      June 30                                 $2.25            $3.18
      September 30                            $1.50            $1.31
      December 31                             $0.75            $0.56

         (1)  As adjusted to reflect a 1 for 73.083 reverse stock split effected
              on March 29, 1995

         In March and April of 1995, the Company  issued in a private  placement
         Units  consisting  of (a) an aggregate  of  4,510,000  shares of Common
         Stock and (b) Series D Warrants to purchase an  aggregate  of 2,255,000
         shares  of Common  Stock at $4.75 per  share,  for  total  proceeds  of
         $9,022,510. Simultaneously, the Company issued 558,578 shares of Common
         Stock upon conversion of the convertible notes issued in November 1994.
         These issuances were made to unaffiliated investors and was exempt from
         registration under Regulation D.

         Also in March 1995,  the Company  issued to U.S.  Sachem  Financial  
         Consultants  L.P. and Liviakis  Financial Communications,  Inc. an  
         aggregate  of  1,090,000  shares of Common  Stock and  warrants to 
         purchase  720,000 shares of Common  Stock at $2.30 per  share in  
         consideration  of  investment  banking  and  financial  public 
         relations services.  These issuances were exempt from registration 
         under Setion 4(2) of the Securities Act.

         Also in March 1995,  the Company  issued an aggregate of 237,500 shares
         of Common Stock upon conversion of outstanding  shares of its Preferred
         Stock.  This  issuance  was made to  existing  security  holders of the
         Company under Section 3(a)(9) of the Securities Act.

         During the balance of 1995,  the Company  sold an  aggregate of 133,705
         shares of Common  Stock  upon  exercise  of  outstanding  Warrants  for
         aggregate  proceeds  of  $325,896.  These  issuances  were  exempt from
         registration   under  Regulation  D  and  under  Section  4(2)  of  the
         Securities Act.

         Also during the balance of 1995, the Company  issued 20,000  additional
         shares of Common Stock to Liviakis Financial  Communications,  Inc. for
         consulting  services.  This issuance was exempt from registration under
         Section 4(2) of the Securities Act.

         In June 1996,  the Company  issued an aggregate of 3,304,744  shares of
         Common  Stock  in  a  private  placement  for  aggregate   proceeds  of
         $6,411,200.  This issuance was made to  unaffiliated  investors and was
         exempt from registration under Regulation D.

         In July 1996,  the Company  issued an aggregate of 1,569,960  shares of
         Common Stock to holders of outstanding  Convertible  Subordinated Notes
         of  the  Company  which  had  previously  been  issued  in an  overseas
         offering,  pursuant to  conversion  of such Notes.  This  issuance  was
         exempt from registration under Section 3(a)(9) of the Securities Act.

                                       10
<PAGE>

         Also in 1996,  the  Company  issued an  aggregate  of 51,635  shares of
         Common Stock to holders of outstanding  warrants for aggregate proceeds
         of $118,075 upon exercise of such warrants. These issuances were exempt
         from registration under Regulation D and Section 4(2) of the Securities
         Act.

         In November  1996, the Company issued an aggregate of 145,455 shares of
         Common Stock to LandTech,  Inc. in settlement of an outstanding account
         payable of the  Company.  This  issuance  was exempt from  registration
         under Section 4(2) of the Securities Act.

         In June of 1996, the Company  closed an offering to overseas  investors
         under  Regulation S of the  Securities  Act of 3,304,744  shares of its
         common stock for $1.94 per share with gross proceeds of $6,411,200. The
         purchasers   were  non  U.S.   persons  and  were  primarily   existing
         institutional   WSI   shareholders   and   internationally   recognized
         environmental mutual funds. The funds were used to fund operations.

         In 1996,  the Company issued 7,875 shares of its common stock for $1.50
         per share less a 50% discount,  due to  restrictions  on the sale.  The
         shares were issued as director fees compensation.

         Also in 1996,  the Company  issued  10,000  shares of Common  Stock for
         $2.25 per share less a 50% discount,  due to  restrictions on the sale.
         The shares were issued as director fees compensation.

         Also in 1996, 6,562 options were exercised at $2.00 per share.




                                       11
<PAGE>





Item 6. Selected Financial Data
<TABLE>

                                       WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
                                            ( A DEVELOPMENT STAGE COMPANY )
<CAPTION>

                                             SELECTED FINANCIAL DATA ( 1 )
                        (in thousands except for outstanding shares and earnings per share data)


                                                                     Fiscal Year Ended
 
                                                      ----------------------------------------------------------------------------

                                                          Dec. 31,        Dec. 31,        Dec. 31,        Dec. 31,        Dec. 31,
                                                            1996           1995            1994            1993            1992    
                                                      ------------    ------------    ------------    ------------    ------------

Statement of Operations Data:
<S>                                                   <C>             <C>             <C>             <C>             <C>    

Revenues
 Landfill revenues                                    $      1,496           1,344            --              --              --

Cost of landfill operations
 Operating expenses                                            921             766            --              --              --
 Write off of landfill costs                                 6,652
 Depreciation                                                  370              72            --              --              --
                                                      ------------    ------------    ------------    ------------    ------------
   Total cost of landfill operations                         7,943             838            --              --              --
                                                      ------------    ------------    ------------    ------------    ------------

     Gross profit (loss)                                    (6,447)            506            --              --              --

Selling, general and administrative expenses                 2,443           3,286           1,485             936             561
Amortization of prepaid consulting fees                        834             500            --              --              --
Restructuring                                                1,741            --              --              --              --
                                                      ------------    ------------    ------------    ------------    ------------

     Income (loss) from operations                         (11,465)         (3,280)         (1,485)           (936)           (561)
                                                      ------------    ------------    ------------    ------------    ------------

Other income (expense)
   Royalty and other income                                    923             865           1,850           1,300             835
   Interest income                                             178             289              14              27              54
   Interest and financing expense                           (1,182)           (471)           (166)           (125)           (116)
   Equity in loss of affiliate                                 (96)
   Gain on sale of assets                                     --              --               223            --              --
   Write-off of accounts and notes receivable                    0          (2,975)           --              --              --
   Loss on investment in marketable securities                   0             (91)             (9)           --              --
   Write-off of assets                                         (22)           --              --              --              (211)
                                                      ------------    ------------    ------------    ------------    ------------
     Total other income (expense)                             (199)         (2,383)          1,912           1,202             562
                                                      ------------    ------------    ------------    ------------    ------------

Income (loss) before income taxes, minority
interest and discontinued operatio                         (11,664)         (5,663)            427             266               1

Federal and state income taxes                                 (23)           (109)            185             103            --
                                                      ------------    ------------    ------------    ------------    ------------

     Net income (loss) before minority interest
        and discontinued operations                        (11,641)         (5,554)            242             163               1

Minority interest                                              (12)             13            --              --              --
                                                      ------------    ------------    ------------    ------------    ------------

     Net Income (loss) from continuing operations          (11,629)         (5,567)            242             163               1

Discontinued operations                                     (2,261)         (2,304)           --              --              --
                                                      ------------    ------------    ------------    ------------    ------------

     Net Income (loss)                                     (13,890)         (7,871)            242             163               1

Preferred stock dividend                                         0              10             108            --
                                                      ------------    ------------    ------------    ------------    ------------

     Net income (loss) available for
       common shareholders                            $    (13,890)         (7,881)            134             163               1
                                                      ============    ============    ============    ============    ============

Earnings (loss) per share:      
     Income (loss) from continu$ng operations         $      (0.82)          (0.58)           0.03            0.04            0.00
     Discontinued operations                                 (0.16)          (0.24)           0.00            0.00            0.00
                                                      ------------    ------------    ------------    ------------    ------------
     Earnings (loss) per share $                      $      (0.98)          (0.82)           0.03            0.04            0.00
                                                      ============    ============    ============    ============    ============

     Weighted average number of shares used in
        computation of earnings (loss) per share        14,174,207       9,664,046       4,498,635       3,645,903       3,522,094

Balance Sheet Data (at period end):

     Working capital                                  $     (4,508)          2,393             659             (88)         (1,778)
     Total assets                                     $     16,858          23,508           4,369           1,289             979
     Long-term debt, less current maturties           $      9,450          12,266           1,263             505            --
     Total stockholder's equity (deficit)             $     (1,849)          3,292             597            (403)         (1,730)
</TABLE>




                                       12
<PAGE>



Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

         This Annual  Report on Form 10-K  contains  forward-looking  statements
within the meaning of Section 27A of the  Securities Act of 1933 and Section 21E
of the  Securities  Exchange Act of 1934.  The  Company's  actual  results could
differ  materially  from  those  set  forth in the  forward-looking  statements.
Certain  factors that might cause such a difference  are discussed  herein.  See
"Certain Factors Affecting Future Operating Results".

         The Company was  incorporated  in 1989 as Zoe Capital Corp.  and had no
operations  until March 29, 1995. On that date,  the Company  acquired  BioSafe,
Inc., a Delaware corporation, through a merger with a subsidiary of the Company,
and the Company changed its name to "BioSafe International, Inc." On October 27,
1997,  the Company  changed its name to Waste Systems  International,  Inc. from
BioSafe  International,  Inc. and changed its state of incorporation to Delaware
from Nevada.

         WSI is a nonhazardous solid waste management services company currently
engaged in the business of  rehabilitating  landfills to permit their  continued
operation with increased capacity in an environmentally  sound manner,  referred
to by WSI as "landfill  remodeling",  and landfill operation.  WSI has developed
technologies for the handling of waste materials for use in landfill remodeling.

         The Company, in January 1997, through an 80% owned subsidiary,  entered
the waste  collection  business in the State of Vermont as its initial  step and
new focus to develop  fully  integrated  solid waste  management  operations  in
markets  where it  believes  it can  maximize  utilization  of Company  owned or
operated   landfills  through  such  integration.   An  integrated  solid  waste
management services company offers disposal, collection,  transfer and recycling
services.  Accordingly,  the Company is in the initial  stages of  investigating
potential  acquisitions of waste collection and transfer  operations which would
be integrated with current or future landfill  remodeling or operation projects.
No binding  agreements or understanding for any such acquisitions  exist at this
time and no assurance can be given that the Company will be able to complete any
such acquisitions.

         As discussed above, WSI is focusing its resources and activities on the
development  of  an  integrated  solid  waste  management  business.   With  the
implementation  of  Subtitle  D  Regulations(as  defined  herein)  and a growing
scarcity of urban-center  disposal sites, solid waste disposal continues to move
further  out from  these  urban  centers.  The  Company  believes  that  through
utilization of its landfill  remodeling  process, it will be able to acquire and
develop landfill capacity in or near urban metropolitan  areas. On an integrated
basis,  the Company believes that this may provide a geographical and logistical
competitive advantage to the extent that Company's operations are more centrally
located as compared to its  competitors  with  operations  extending  out longer
distances from disposal sites.

         Prior  to  March  27,  1996,  WSI had been  actively  developing  other
technologies with potential application in a number of business areas, including
the  manufacture of useful  materials  from tires and other recycled  materials,
contaminated  soil  cleanup and  recycling,  industrial  sludge  disposal,  size
reduction  equipment  design  and  manufacture  (collectively,   the  "Ancillary
Technologies"), and Major Sports Fantasies, Inc.("MSF"), a business unrelated to
the environmental industry.  Since March 27, 1996, the Company has not allocated
its resources or activities to the development or commercial exploitation of the
Ancillary  Technologies  or  MSF.  See  "Business  -  Discontinued   Operations,
Restructuring   and   Management   Change."  The  Company   believes   that  the
restructuring,  which is now substantially  complete,  will allow the Company to
improve  significantly  its  operating  profitability  in  the  future  and  has
positioned   the   Company   to   pursue   successfully   additional   expansion
opportunities. See "Business - Recapitalization".

         The  Company,  however,  is  currently  maintaining  ownership  of  its
infectious  medical  waste  disposal  technology,  which is fully  developed and
requires  no further  development  costs,  which is outside the  Company's  core
landfill  remodeling  and  operations  business.  See  "Business - Medical Waste
Technology License"




                                       13
<PAGE>



Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

Financial Position

         WSI had $265,000 in cash as of December 31, 1996.  This  represented  a
decrease of $4,972,000  over December 31, 1995.  Working  capital as of December
31, 1996,  was  ($4,508,000),  a decrease of $6,901,000  over December 31, 1995.
This  decrease was primarily due to the use of cash to fund the net loss for the
year ended December 31, 1996, capital costs associated with landfill development
projects,  and the restructuring  and discontinued  operations costs the Company
incurred,  partially  offset by the net $5.8  million in equity that the Company
raised  on June  28,  1996.  See  Notes  3, 4, 7, 9,  10,  14,  15 and 18 to the
Consolidated Financial Statements presented in Item 8.

         During  the  year  ended  December  31,  1996,   the  Company   devoted
substantial resources to various project development and related activities. See
"Business  -  Landfill  Remodeling"  in  Item 1 and  Note 7 to the  Consolidated
Financial  Statements  presented in Item 8. Additions to property and equipment,
primarily related to landfill remodeling and operation activities, of $7,228,000
were made during the year ended December 31, 1996 including  equipment  purchase
costs of $1,157,000.

Results of Operations

         Landfill  revenues for the year ended  December  31, 1996  consisted of
$1,496,000  received  from  operation of the  Fairhaven  landfill,  and from the
Moretown landfill which commenced operations on October 7, 1996.

         Through the first quarter of 1995,  substantially  all of WSI's revenue
had been attributable to the sale and licensing of WSI's medical waste treatment
technologies to BioMedical Waste Systems,  Inc. ("Biomed").  On August 31, 1995,
the Company terminated its agreement with Biomed in most territories as a result
of Biomed's  failure to make required  payments.  See Note 3 to the Consolidated
Financial Statements presented in Item 8.

         In February  1996,  the Company  entered into a licensing  and services
agreement with ScotSafe Limited  ("ScotSafe"),  a Glasgow,  Scotland company for
the exclusive  rights to use the Company's  continuous  feed auger medical waste
processing  technology  in the British  Isles and  Ireland.  The Company  earned
royalties and consulting fees of approximately  $1,000,000 during the year ended
December 31, 1996 from the completion of two medical waste treatment  facilities
by  ScotSafe  during  this  period.  See  Note 3 to the  Consolidated  Financial
Statements presented in Item 8.

         On  March  27,  1996,  the  Company  announced  its  intention  to take
meaningful   action  to  conserve  cash  and  working  capital,   including  the
restructuring of the Company's  operations to focus its resources and activities
on its core  business of  landfill  remodeling  and  operation.  See  "Business,
Discontinued Operations,  Restructuring and Management Change" and Note 4 to the
Consolidated  Financial  Statements presented in Item 8. The Company expects the
restructuring and related discontinued operations to result in annual savings in
excess of $3.0 million.

         For the year ended December 31, 1996, the net loss was ($13,890,000) as
compared to a net loss of ($7,871,000)  during the year ended December 31, 1995.
The net loss  for the year  ended  December  31,  1996  primarily  consisted  of
$1,742,000 in restructuring,  $2,261,000 related to discontinued operations, the
write off of $6,652,000 in landfill  development costs,  primarily consisting of
the  Fairhaven  landfill(See  Note 7 to the  Consolidated  Financial  Statements
included in Item 8), an increase of $710,000 in interest  expense and  financing
costs,  partially  offset by operating  income from the  Fairhaven  and Moretown
landfill projects, and revenues from the ScotSafe agreement.

         Selling,   general  and  administrative  expenses  consist  of  project
development  activities,  marketing and sales costs, salaries and benefits,  and
legal,  accounting and other professional fees, and other administrative  costs.
These costs totaled $2,443,000 for the year ended December 31, 1996, as compared
to $3,287,000 for the year ended December 31, 1995. This  represented a decrease
of $844,000  which was primarily the result of the  restructuring  undertaken on
March 27, 1996. See Note 4 to the Consolidated  Financial Statements included in
Item 8.

         In  addition,  on March 29, 1995,  the Company  entered into a two-year
agreement with Liviakis Financial  Communications,  Inc.  ("Liviakis"),  whereby
Liviakis would provide  ongoing  assistance and  consultation  to the Company on
matters  concerning  mergers  and  acquisitions,   corporate  finance,  investor
relations and financial  public  relations.  As compensation  for services to be
rendered by Liviakis, the Company issued 890,000 unregistered, restricted shares
of Common Stock. As a result,  on March 29, 1995, the Company recorded a prepaid
asset of $1,335,000.  The Company was amortizing this expense over the two years
of the Agreement,  at a rate of $167,000 per quarter, or a total of $501,000 for
the years  ended  December  31,  1996 and 1995.  See Note 8 to the  Consolidated
Financial  Statements  presented  in Item 8. On  December  18,  1996 the Company
terminated its consulting  agreement  with  Liviakis,  As a result,  the Company
expensed the remaining prepaid consulting fees in the amount of $333,750.

                                       14
<PAGE>

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994

Financial Position

         WSI had $5,237,000 in cash as of December 31, 1995. This represented an
increase of $5,066,000  over December 31, 1994.  Working  capital as of December
31, 1995 was $2.393,000,  an increase of $1,734,000 over December 31, 1994. This
increase was largely due to the raising of net proceeds of $19,038,000 in equity
and long-term  debt during the year ended  December 31, 1995. See Notes 3, 7, 9,
10, 14, 15 and 18 to the Consolidated Financial Statements presented in Item 8.

         During  the  year  ended  December  31,  1995,   the  Company   devoted
substantial resources to various project development and related activities. See
"Business  -  Landfill  Remodeling"  in  Item 1 and  Note 7 to the  Consolidated
Financial  Statements  presented  in Item 8.  Additions  to project  development
costs, primarily related to landfill remodeling, of $11,843,000 were made during
the  year  ended  December  31,  1995,  including  equipment  purchase  costs of
$2,246,000.

         On August 1, 1995, WSI terminated the BioMedical Waste Systems,  Inc. 
("BioMed")  technology license for WSI's patented  continuous  flow auger  
"CFA")  medical  waste  processing  technology  in most  territories  as a 
result of BioMed's  failure to make required  payments.  Accordingly,  the 
Company  wrote off as  uncollectible  the  outstandingaccounts  and  notes  
receivable  balances  of  $2,975,000  from  BioMed.  See  Note  3 to the  
Consolidated  Financial Statements included in Item 8.
 .
Results of Operations

         Through the first quarter of 1995,  substantially  all of WSI's revenue
had been attributable to the sale and licensing of WSI's medical waste treatment
technologies  to BioMed.  Revenues  recorded  during the year ended December 31,
1995,  consisted of $1,344,000 received from operation of the Fairhaven landfill
project which  commenced on June 22, 1995, as well as revenues from BioMed.  For
the year ended December 31, 1995, the net loss was ($7,871,000),  as compared to
net income of $241,000  during the year ended  December 31, 1994.  This decrease
was  primarily due to the  write-off of the accounts and notes  receivable  from
BioMed of $2,975,001,  the increased level of the Company's selling, general and
administrative  expenses,  the nonrecurring charges of $2,304,000 related to the
discontinuance of certain  operations (see Note 4 to the Consolidated  Financial
Statements presented in Item 8), and an increase of $306,000 in interest expense
and  financing  costs,  primarily  related  to the  Fairhaven  landfill  and the
convertible debenture issued in the fourth quarter of 1995 (see Notes 7 and 9 to
the Consolidated  Financial Statements presented in Item 8), partially offset by
net operating income from the Fairhaven landfill project

         Selling,   general  and  administrative  expenses  consist  of  project
development  activities,  marketing and sales costs, salaries and benefits,  and
legal,  accounting and other professional fees, and other administrative  costs.
These costs  totaled  $3,287,000  for the year ended  December  31,  1995.  This
represented an increase of 121% compared to the $1,485,000  incurred  during the
year ended  December 31, 1994.  The increase was primarily  associated  with the
development,  marketing and sales of WSI's landfill remodeling  technology,  the
Ancillary Technologies, MSF, and financing activities.

Environmental and Regulatory Matters

         The  Company  and  its   customers   operate  in  a  highly   regulated
environment,  and in general the Company's landfill remodeling projects, such as
the Fairhaven  landfill,  will be required to have  federal,  state and/or local
government permits and approvals. See "Business--Environmental  Regulation." Any
of  these  permits  or  approvals  may  be  subject  to  denial,  revocation  or
modification  under various  circumstances.  In addition,  if new  environmental
legislation  or regulations  are enacted or existing  legislation or regulations
are amended or are interpreted or enforced differently, WSI or its customers may
be required to obtain additional operating permits or approvals. There can be no
assurance that WSI will meet all of the applicable regulatory requirements.  Any
delay in obtaining  required  permits or approvals  will tend to cause delays in
the Company's ability to obtain bond or other project  financings,  resulting in
increases  in the  Company's  needs  to  invest  capital  in  projects  prior to
obtaining  financing,  and will also tend to reduce project returns by deferring
the  receipt of project  revenues.  In the event that the Company is required to
cancel any  planned  project  as a result of the  inability  to obtain  required
permits or other regulatory impediments,  the Company may lose any investment it
has made in the project up to that point,  and in the case of the  Fairhaven and
Moretown  landfill  projects,  have a material  adverse  effect on the Company's
financial condition and results of operations.

                                       15
<PAGE>

         To the extent  possible,  the Company intends to conduct its operations
in such a manner as to minimize the impact of environmental  issues on operating
results.  As a general matter,  the Company will seek to avoid projects in which
it would be required  to handle or dispose of  hazardous  waste,  although it is
prepared  to  consider  projects  that may involve  some  cleanup of  previously
existing  hazardous waste,  subject to controls designed to minimize exposure to
risk of  liability  and to assure an  economic  return  from the  activity.  The
Company's  landfill  projects  will involve the  installation  and  operation of
extensive environmental monitoring systems to enable the Company to identify and
deal with any potential environmental problems,  which systems have already been
implemented  at the  Fairhaven  and  Moretown  landfill  projects.  The  cost of
installing  these systems will be included in the Company's total  investment in
the project.  The Company's contract for the Fairhaven landfill project requires
the Town, as owner of the landfill,  to pay for the ultimate cost of closing the
landfill,  and provides for a set-aside of a part of the Town's share of project
revenues to establish a sinking fund for payment of closure  costs,  so that the
Company will not be required to establish  any  reserves for this  purpose.  The
Company  intends to  implement  similar  arrangements  for closure  costs in its
agreements  for other  landfill  projects which it may enter into in the future.
The Company's  ownership of the Moretown landfill through its subsidiary,  Waste
Professionals  of  Vermont,  Inc.,  involves  a greater  degree of  exposure  to
potential  environmental  liabilities  than is involved with landfills  operated
under a management contract. In conjunction with the acquisition of the Moretown
project, the Company recorded $1.5 million in estimated closure and post-closure
costs based on engineering estimates of the current condition of the landfill.
See Note 12 to the Consolidated Financial Statements presented in Item 8.

Certain Factors Affecting Future Operating Results

         Initial  Commercialization  Stage;  Limited Operating History. To date,
although WSI has conducted significant testing of methods and processes based on
its size reduction and materials handling technology, and has gained substantial
experience in  connection  with the  development  and operation of the Fairhaven
landfill project to date, WSI has not yet carried through a landfill  remodeling
project  to  completion.  Final  development  and  operation  may be  subject to
engineering and construction  problems such as cost overruns and start up delays
resulting from technical or mechanical problems,  unfavorable  conditions in the
equipment or labor market,  or  environmental  permitting  and other  regulatory
problems,  as well as other possible adverse factors.  There can be no assurance
that WSI will be successful in developing and implementing  commercial  landfill
remodeling  projects,  or that any such development can be accomplished  without
excessive cost or delay.

         Operating  Losses  and  Accumulated  Deficit;   Uncertainty  of  Future
Profitability. WSI had an accumulated operating deficit at December 31, 1996, of
$23,217,000  on  revenues  of  $2,840,000.  In fiscal  years 1995 and 1996,  the
Company  suffered net losses of $7,870,000  and  $13,889,000,  respectively,  on
revenues  of  $1,344,000  and  $1,495,000,  respectively.  Prospects  for future
profitability are heavily dependent on the success of WSI's landfill  remodeling
and  operation  projects,  and its  ability to build an  integrated  solid waste
management company.  There can be no assurance that WSI will generate sufficient
revenue to be profitable or, if profitable,  to maintain profitability in future
years.  The  Independent  Auditors'  Report  of KPMG Peat  Marwick  LLP from the
Company's  Annual  Report on Form 10-K for the fiscal  year ended  December  31,
1996,  states that "the Company must raise  substantial  additional  capital and
must  achieve  a level of  revenues  adequate  to  support  the  Company's  cost
structure,  which  raises  substantial  doubt  about the  Company's  ability  to
continue as a going  concern." The  insolvency  of the Company  could  adversely
affect  certain of its  contracts.  For  instance,  Section 6.2 of the Company's
contract  with  ScotSsafe  Limited  ("ScotSafe"),  dated as of February 6, 1996,
allows  ScotSafe to  terminate  the  contract  at its option upon the  Company's
insolvency.

         Risks of Limited  Liquidity.  The  Company  has  limited  liquidity  in
relation to its short-term capital  commitments and operating cash requirements.
The Company's  ability to satisfy its commitments and operating  requirements is
dependent on a number of pending  financing  activities which are not assured of
successful completion. Any failure of the Company to obtain sufficient financing
in the  short run  would  have a  materially  adverse  effect  on the  Company's
financial condition and operations.

         Future Capital will be Required.  WSI will require substantial funds to
complete  and  bring  to  commercial  viability  all  of its  currently  planned
projects.


         Potential  Environmental  Liability and Adverse Effect of Environmental
Regulation. WSI's business exposes it to the risk that it will be held liable if
harmful substances escape into the environment as a result of its operations and
cause  damages or injuries.  Moreover,  federal,  state and local  environmental
legislation  and  regulations  require   substantial   expenditures  and  impose
significant   liabilities  for   noncompliance.   See   "Business--Environmental
Regulation" in Item 1.

                                       16
<PAGE>

         Potential  Adverse  Community  Relations.   The  potential  exists  for
unexpected delays,  costs and litigation resulting from community resistance and
concerns relating to specific projects in various communities.

         Unpredictability of Patent Protection and Proprietary Technology. WSI's
success depends, in part, on its ability to obtain and enforce patents, maintain
trade secret protection and operate without infringing on the proprietary rights
of third parties.  While WSI has been issued a U.S.  patent and certain  related
foreign  patents  on  certain  of its  size  reduction  and  materials  handling
technology  with  particular  reference  to landfill  remodeling  and on its CFA
medical waste treatment  system,  there can be no assurance that others will not
independently develop similar or superior  technologies,  duplicate any of WSI's
processes or design around any processes on which WSI has or may obtain patents.
In addition,  it is possible that third parties may have or acquire licenses for
other  technology  that WSI may use or  desire  to use,  so that WSI may need to
acquire  licenses  to, or to contest  the  validity  of,  such  patents of third
parties relating to WSI's technology. There can be no assurance that any license
required under such patents would be made available to WSI on acceptable  terms,
if at all, or that WSI would  prevail in any such context.  Moreover,  WSI could
incur  substantial  costs in defending itself in suits brought against WSI or in
bringing suits against other parties related to patent matters.

         In addition  to patent  protection,  WSI also relies on trade  secrets,
proprietary   know~how   and   technology   which  it  seeks  to  protect,   and
confidentiality  agreements with its  collaborators,  employees and consultants.
There can be no  assurance  that these  agreements  and other steps taken by WSI
will be  effective  to protect  WSI's  technology  against  unauthorized  use by
others.

Liquidity and Capital Resources

         To date, WSI has financed its activities primarily through the issuance
of equity  securities  and debt,  including  convertible  notes and common stock
warrants. As previously mentioned, from inception through December 31, 1996, the
Company has raised cumulative net proceeds of approximately  $26,000,000 through
private  placements of equity  securities and the issuance of long-term debt. As
of  December  31,  1996,  as further  indicated  on the report of the  Company's
Independent  Accountants,  the Company needed to raise additional funds in order
to  sustain  operations.  The  Company is in the  process of seeking  additional
capital  through debt and equity  placements.  If the Company is  successful  in
raising  additional  capital  to meet  existing  commitments  and and to support
additional  capital  investments,  the Company  intends to pursue and develop an
integrated solid waste management  company and increase its landfill  remodeling
business.  There can be no assurances that  additional debt or equity  financing
will be available or available on terms  acceptable  to the Company.  Failure of
the Company to obtain required financing in the short term could have a material
adverse effect on the Company's financial condition and operation.

         The Company has acquired,  through a joint venture in which the Company
has an 80%  interest,  a landfill  located in  Moretown,  Vermont.  The  current
estimated available new capacity at this landfill,  excluding remodeling,  is in
excess of 1 million tons.  On September 30, 1996 the Company  received its final
permit from the Vermont  Department of Natural Resources to commence  operations
at the landfill at an average of 350 tons per day("TPD"). On October 7, 1996 the
Company  began  operations  at  the  landfill  and  is  currently  operating  at
approximately 150 - 200 TPD. The Company  anticipates the operating level of the
landfill  to increase  to  approximately  200 - 250 TPD by the end of the second
quarter of 1997. The Company intends to operate the landfill at that level until
the Company  permits  and  constructs  its next cell,  at which time the Company
expects to increase the operating level to full capacity.

         The Company's  total  investment in the Moretown  landfill  project was
approximately  $6.7 million at December 31, 1996. The Company estimates that the
total cost to WPV of  completing  the  Moretown  landfill  project  as  planned,
including  the cost of  completing  the landfill and its  remodeling,  including
amounts invested to date, will be approximately $20.0 million. On or about March
31,1997,  the  Company  expects to close a project  financing  of $1 million for
additional  development  costs and working capital  requirements of the Moretown
landfill  project from a local bank, See Note 18 to the  Consolidated  Financial
Statements  presented in Item 8. No assurance  can be given that such  financing
can be obtained on terms satisfactory to the Company.



         On  July  24,  1994  WSI  entered  into a  contract  with  the  Town of
Fairhaven,  Massachusetts  to remodel the Town's  existing 26 acre landfill.  On
June 22, 1995, the Company commenced operations and began accepting waste at the
landfill utilizing existing capacity.  On October 11, 1995, a Major Modification
Permit   was   issued  by  the   Massachusetts   Department   of   Environmental
Protection("DEP")  including  an  Authorization  to  Construct  and  remodel the
initial cell at the landfill.  Since then, the Company has completed  remodeling
and  constructed  an initial cell at the landfill,  and on August 12, 1996,  the
Company received final  authorization from the DEP to operate the cell under the
Town's  current  existing  permit at 150 TPD. On November 8, 1995, an action was


                                       17
<PAGE>

brought against various parties including the Company relating to the remodeling
permits at the  Fairhaven  landfill  seeking  among  other  things to appeal the
permit  that  had  been  issued  for   remodeling   the  landfill.   See  "Legal
Proceedings". On September 9, 1996, pursuant to the Massachusetts Administrative
Procedures  Act, the action was heard by a Bristol County  Superior Court Judge.
As of March  26,1997,  a ruling  has not been  issued.  The  Company,  until the
outcome of this litigation is determined,  has ceased making additional  capital
investments in this project and has operated the landfill at a reduced capacity.
Based on the  extensive  delays and  additional  operating  costs to the project
because of this litigation and engineering impacts of delays associated with the
litigation,  resulting  in the current  uncertainty  of the  long-term  economic
viability  of the  project,  the Company has  decided to  write-off  its capital
investment in the project through December 31, 1996, of $6,342,196.  Included in
the  $6,342,196 is a reserve of $500,000 for  additional  litigation and ongoing
site construction  costs.  When the litigation is resolved,  the Company at that
time will reassess the continued feasibility of the project.

         The  Company  has been  chosen to  remodel  additional  landfills  in  
Massachusetts.  See  "Business--Landfill Remodeling--Other Landfill Remodeling 
Projects."

         If the  Company is  successful  in raising  additional  capital to meet
existing commitments and to support additional capital investments,  the Company
intends to pursue and increase its landfill  remodeling and operation  business,
and develop an integrated solid waste management company, therefore dramatically
increasing its capital  requirements during the next few years.  Typically,  the
Company expects to be required to incur substantial  capital costs in connection
with feasibility studies,  contracting,  permitting and initial development, and
other due diligence costs ranging from $500,000 up to $2.0 million, for any such
landfill  remodeling or operation  project in the initial phases of the project.
After  completion of these initial  phases,  the Company will  generally seek to
obtain  project-level  financing to  recapture a part of its initial  investment
from such project  financing.  The Company will  therefore be required to commit
substantial  capital resources from internal sources in the case of any landfill
remodeling or operation  project prior to being able to obtain outside financing
or to derive material operating revenues from the project.

         To the extent practicable,  the Company seeks in its projects to retain
the flexibility to defer scheduled capital  investments.  For example, the total
investments required for a landfill project as described above assume completion
of landfill  remodeling  over the entire site. The Company may stage  remodeling
investments  over an extended  period of time while still  collecting  projected
project revenues from the utilization of existing space.

         In summary,  the Company's  total  investment  required to complete its
Moretown,  Vermont landfill project,  in addition to amounts already invested as
of December 31, 1996,  will be  approximately  $13 million,  subject to possible
cost  overruns  which  cannot be  predicted.  Furthermore,  feasibility  studies
required  under  the  Company's  contracts  with the Towns of South  Hadley  and
Buckland are expected to cost  approximately  $1 million,  and if these projects
are  determined  to be feasible,  substantial  investments,  comparable to those
required for the Company's other landfill  remodeling projects would be required
to complete the projects.  The Company has under  discussion  and  negotiation a
number of additional  landfill remodeling or operation projects or acquisitions,
and any  contracts  resulting  from these  discussions  and  negotiations  would
increase the  Company's  capital  requirements  accordingly.  In  addition,  the
Company  requires cash to fund its corporate staff and other overhead  expenses,
which may grow  significantly as the Company expands the scope of its operations
including the  development  of an  integrated  solid waste  management  company.
Although the Company has recently  begun  receiving cash revenues from operation
of the Moretown landfill, the Company will require additional financing in order
to satisfy its  existing and pending  commitments.  The  Company's  alternatives
under  consideration in this regard include the raising of additional  equity or
long-term debt financing, see Item 1, "Business - Recapitalization", and certain
prospects for bank financing in relation to specific  projects.  There can be no
assurance  that all or any of these  financing  plans and  expectations  will be
realized.  Failure of the Company to obtain required financing in the short term
could have a materially adverse effect on the Company's  financial condition and
operations.

Inflation

         WSI does not believe its operations  have been  materially  affected by
inflation.


                                       18
<PAGE>







Item 8.  Financial Statements and Supplementary Data


                WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                    Index to Consolidated Financial Statements


                                                                        Page

Independent Auditors' Report                                                F-1

Consolidated Balance Sheets at December 31, 1996 and 1995            F-2 to F-3

Consolidated  Statements  of Operations  for the years ended  
     December 31, 1996, 1995 and 1994 and for the period from 
     April 23, 1990 (inception) through December 31, 1996                   F-4

Consolidated  Statements  of Cash Flows for the years ended  
     December  31, 1996, 1995 and 1994 and for the period from 
     April 23, 1990 (inception) through December 31, 1996            F-5 to F-6

Consolidated  Statements of  Stockholders'  Equity (Deficit) 
     for the years ended December 31, 1996, 1995 and 1994 and 
     for the period from April 23, 1990 (inception) through 
     December 31, 1996                                              F-7 to F-12

Notes to Consolidated Financial Statements                         F-13 to F-35




All Schedules have been omitted as they are inapplicable or not required, or the
information has been included in the consolidated financial statements or in the
notes thereto


                                       19
<PAGE>









                          Independent Auditors' Report


The Board of Directors
Waste Systems International, Inc.:


We have audited the  accompanying  consolidated  balance sheets of Waste Systems
International,  Inc. (a Delaware  Corporation)  and  subsidiaries (a Development
Stage  Company) as of December 31, 1996 and 1995,  and the related  consolidated
statements of operations,  stockholders'  equity  (deficit),  and cash flows for
each of the years in the three-year  period ended December 31, 1996, and for the
period  from  April 23,  1990  (inception)  through  December  31,  1996.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
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  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
consolidated  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 Waste Systems
International,  Inc.  and  subsidiaries  (a  Development  Stage  Company)  as of
December 31, 1996 and 1995, and the consolidated results of their operations and
their cash flows for each of the years in the  three-year  period ended December
31, 1996, and for the period from April 23, 1990  (inception)  through  December
31, 1996, in conformity with generally accepted accounting principles.

The  consolidated  financial  statements have been prepared  assuming that Waste
Systems  International,  Inc. will continue as a going concern.  As discussed in
note  1 to  the  consolidated  financial  statements,  the  Company  must  raise
substantial  additional capital and must achieve a level of revenues adequate to
support the Company's cost structure,  which raises  substantial doubt about its
ability to continue as a going concern.  The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.




                                                         KPMG Peat Marwick LLP


Boston, Massachusetts
March 28, 1997


                                      F-1
<PAGE>

<TABLE>


                        WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                               (A Development Stage Company)
                                Consolidated Balance Sheets

<CAPTION>



                                                   December 31,    December 31,
                  Assets                               1996            1995
                  ------                           ------------    ------------

<S>                                               <C>             <C>    
Current assets:
   Cash                                           $     264,776   $   5,237,064
   Accounts and notes receivable, net (Note 3)        1,158,677       2,047,065
   Assets held for sale (Note 4)                        275,000            --
   Prepaid expenses and other current assets            499,000         515,558
                                                   ------------    ------------

      Total current assets                            2,197,453       7,799,687

Accounts and notes receivable (Note 3)                  451,169            --
Assets held for sale (Note 4)                             --            505,980
Restricted cash and securities                        1,210,017         187,500
Due from former employee (Note 5)                       500,000         385,425
Property and equipment, net (Note 7)                 11,705,712      12,503,091
Deferred financing costs                                664,105       1,182,251
Other assets                                            129,634          99,772
Investment in Affiliate (Note 6)                          --             10,029
Prepaid consulting fees (Note 8)                          --            834,375
                                                   ------------    ------------
      Total assets                                $  16,858,090   $  23,508,110
                                                   ============    ============

See accompanying notes to consolidated financial statements.
</TABLE>


<PAGE>
<TABLE>


                        WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                               (A Development Stage Company)
                                Consolidated Balance Sheets

<CAPTION>



                                                                 December 31,    December 31,
  Liabilities and Stockholders' Equity                               1996            1995
  ------------------------------------                          ------------    ------------

<S>                                                             <C>             <C>  
Current liabilities:
   Current portion of long-term debt and notes payable (Note 9) $   2,165,378   $   1,526,188
   Accounts payable                                                 1,529,076       2,483,510
   Accrued expenses (Notes 7, 10 and 13)                            1,225,715         698,538
   Restructuring and current liabilities related to
    discontinued operations (Note 4)                                1,785,097         622,624
   Income and franchise taxes payable (Note 11)                        --              75,535
                                                                 ------------    ------------

   Total current liabilities                                        6,705,266       5,406,395


Long-term debt and notes payable (Note 9)                           9,450,373      12,266,003
Landfill closure and post-closure costs (Notes 7 and 12)            1,520,000       1,500,000
                                                                 ------------    ------------
   Total liabilities                                               17,675,639      19,172,398
                                                                 ------------    ------------

Commitments and Contingencies (Note 13)

Minority interest                                                   1,031,456       1,044,111
                                                                 ------------    ------------

Stockholders' equity (deficit): (Notes 14, 15, 16 and 18)
   Common stock, $.001 par value. Authorized
   100,000,000 shares; 16,802,569 and
   11,706,338 shares issued and outstanding
   at December 31, 1996 and December 31, 1995,
   respectively                                                        16,802          11,706
Additional paid-in capital                                         21,351,280      12,607,210
Deficit accumulated during the development stage                 (23,217,087)     (9,327,315)
                                                                 ------------    ------------
   Total stockholders' equity (deficit)                           (1,849,005)       3,291,601
                                                                 ------------    ------------

   Total liabilities and stockholders' equity (deficit)         $ 16,858,090    $  23,508,110
                                                                 ============    ============


See accompanying notes to consolidated financial statements.



</TABLE>


<PAGE>
<TABLE>

                        WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                               (A Development Stage Company)
                                Consolidated Statements of Operations

<CAPTION>
                                                                                                                   
                                                                                                                     Period from    
                                                                                                                    April 23, 1990  
                                                                                                                    (inception) to
                                                                              Years ended December 31,               December, 31
                                                                      ------------------------------------------------------------- 
                                                                            1996          1995          1994            1996
<S>                                                                   <C>           <C>           <C>             <C>               
Landfill Revenues                                                     $   1,495,606 $   1,344,397          --    $    2,840,003
                                                                      ------------- ------------- -------------   -------------

Cost of landfill operations:
   Operating expenses                                                       920,553       766,012          --         1,686,565
   Depreciation and amortization of landfill costs                          369,785        71,649          --           441,434
   Write-off of landfill development costs (Note 7)                       6,652,075          --            --         6,652,075
                                                                      ------------- ------------- -------------   -------------
      Total cost of landfill operations                                   7,942,413       837,661          --         8,780,074
                                                                      ------------- ------------- -------------   -------------

      Gross profit                                                       (6,446,807)      506,736          --        (5,940,071)

Selling, general and administrative expenses                              2,442,816     3,286,680     1,484,554      10,468,503
Amortization of prepaid consulting fees                                     834,375       500,625          --         1,335,000
Restructuring (Note 4)                                                    1,741,729          --            --         1,741,729
                                                                      ------------- ------------- -------------   -------------

      Income (loss) from operations                                     (11,465,727)   (3,280,569)   (1,484,554)    (19,485,303)
                                                                      ------------- ------------- -------------   -------------

Other income (expense):
   Royalty and other income, net (Note 3)                                   922,703       865,220     1,850,000       5,847,922
   Interest income                                                          178,224       289,145        13,708         562,154
   Gain on sale of assets                                                      --            --         222,728         222,728
   Interest expense and financing costs                                  (1,182,118)     (471,763)     (166,085)     (2,210,302)
   Equity in loss of affiliate (Note 6)                                     (96,144)         --            --           (96,144)
   Write-off of accounts and notes receivable (Note 3)                         --      (2,975,001)         --        (2,975,001)
   Loss on investment in marketable securities                                 --         (90,625)       (9,375)       (100,000)
   Write-off of assets                                                      (21,858)         --            --          (263,403)
                                                                      ------------- ------------- -------------   -------------
      Total other income (expense)                                         (199,193)   (2,383,024)    1,910,976         987,954
                                                                      ------------- ------------- -------------   -------------

      Income (loss) before income taxes , minority interest
         and discontinued operations                                    (11,664,920)   (5,663,593)      426,422     (18,497,349)

Federal and state income tax expense (benefit) (Note 11)                    (23,456)     (109,465)      185,000         154,579

                                                                      ------------- ------------- -------------   -------------
      Income (loss) before minority interest   
         and discontinued operations                                    (11,641,464)   (5,554,128)      241,422     (18,651,928)

Minority interest                                                           (12,655)       13,016          --               361
                                                                      ------------- ------------- -------------   -------------

      Income (loss) from continuing operations                          (11,628,809)   (5,567,144)      241,422     (18,652,289)

Discontinued operations (Note 4)                                         (2,260,963)   (2,303,835)         --        (4,564,798)
                                                                      ------------- ------------- -------------   -------------

      Net income (loss)                                                 (13,889,772)   (7,870,979)      241,422  $  (23,217,087)
                                                                                                                  =============

Preferred stock dividend                                                       --           9,500       107,834
                                                                      ------------- ------------- ------------- 
      Net income (loss) available for                               
         common shareholders                                          $ (13,889,772)   (7,880,479)      133,588
                                                                      ============= ============= ============= 

Net income (loss) per share:
   Income (loss) from continuing operations                           $       (0.82)        (0.58)         0.03
   Discontinued operations                                                    (0.16)        (0.24)         --
                                                                       ------------- ------------- -------------

   Net income (loss) per share                                        $       (0.98)        (0.82)         0.03
                                                                       ============= ============= =============


Weighted average number of shares used in
   computation of net income (loss) per share                             14,174,207     9,664,046     4,498,635


See accompanying notes to consolidated financial statements.

</TABLE>


<PAGE>
<TABLE>


                        WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                               (A Development Stage Company)
                           Consolidated Statements of Cash Flows
<CAPTION>

                                                                                                                               
                                                                                                                     Period from    
                                                                                                                    April 23, 1990  
                                                                                                                    (inception) to
                                                                              Years ended December 31,               December, 31
                                                                      ------------------------------------------------------------- 
                                                                            1996          1995          1994            1996
<S>                                                                   <C>            <C>          <C>            <C>       
Cash flows from operating activities:
   Net income (loss)                                                  $ (13,889,772) $(7,870,979) $     241,422  $ (23,217,087)
   Adjustments to reconcile net income (loss) to
    net cash used by operating activities:
      Discontinued operations                                             2,260,963     2,303,835          --        4,564,798
      Depreciation and amortization                                       1,556,380       689,186         8,770      2,369,773
      Deferred income taxes                                                    --        (185,000)      185,000           --
      Loss on investment in marketable securities                              --          90,625         9,375        100,000
      Equity on loss in affiliate                                            96,144          --            --           96,144
      Minority interest                                                     (12,655)       13,016          --              361
      Allowance for doubtful accounts - non -trade                             --         334,926          --          334,926
      Allowance for doubtful accounts - trade                                10,000        12,500          --           22,500
      Write-off of accounts and notes receivable                               --       2,975,001          --        2,975,001
      Issuance of common stock for services                                  17,157       303,300        80,000        400,457
      Write-off of landfill development costs                             6,652,075          --            --        6,652,075
      Write-off of assets                                                    21,858          --            --          263,404
      Changes in assets and liabilities:
         Accounts and notes receivable                                      375,519    (1,695,436)   (1,329,770)    (3,228,692)
         Prepaid expenses and other current assets                           16,558      (512,653)       14,595       (499,000)
         Accounts payable                                                (1,253,507)    2,157,252       507,637      1,763,527
         Accrued expenses                                                   845,629       129,163        78,005      1,194,347
         Income and franchise taxes payable                                 (75,535)      (22,470)       (4,495)          --
         Deferred income                                                       --            --            --         (500,000)
                                                                       ------------- -------------  ------------- -------------
      Net cash used by continuing operations                             (3,379,186)   (1,277,734)     (209,461)    (6,707,466)
      Net cash used by discontinued operations                             (560,377)   (1,689,906)         --       (2,250,283)
                                                                       ------------- -------------  ------------- -------------
         Net cash used by operating activities                           (3,939,563)   (2,967,640)     (209,461)    (8,957,749)
                                                                       ------------- -------------  ------------- -------------
Cash flows from investing activities: 
   Assets held for sale                                                     127,500      (402,500)         --         (275,000)
   Restricted cash and securities                                        (1,022,517)     (187,500)         --       (1,210,017)
   Receivable from One, Three, Six, Inc.                                       --            --        (800,000)      (800,000)
   Investment in affiliate                                                  (86,115)      (10,029)         --          (96,144)
   Construction in progress                                              (5,199,493)   (8,699,803)     (634,094)   (14,609,398)
   Future landfill development projects                                    (467,855)     (324,752)      (21,725)      (814,332)
   Operating equipment at landfills                                        (669,263)      (31,814)         --         (701,077)
   Other property and equipment                                            (262,053)     (693,008)     (135,726)    (1,219,711)
   Patents                                                                  (35,261)      (20,795)      (15,253)       (98,646)
   Other assets                                                             (26,162)      (12,316)       18,765        (60,704)
   Licenses and permits                                                        --            --            --          (78,807)
                                                                       ------------- -------------  ------------- -------------
      Net cash provided (used) by investing activities                   (7,641,219)  (10,382,517)   (1,588,033)   (19,963,836)
                                                                       ------------- -------------  ------------- -------------
Cash flows from financing activities:
   Deferred financing and registration costs                                (86,074)   (1,216,480)      (27,416)    (1,503,866)
   Net borrowings and advances
      from stockholders and related parties                                (114,575)     (662,072)       72,269        266,806
   Repayments of notes payable and long-term debt                          (426,734)   (1,000,984)      (93,580)    (1,621,298)
   Borrowings from notes payable and long-term debt                       1,117,982       568,271       980,500      3,366,407
   Issuance of subordinated notes payable                                      --      11,225,000       900,000     12,405,000
   Repayments of subordinated notes payable                                    --        (490,000)     (300,000)      (790,000)
   Minority interest                                                      1,031,095          --       1,031,095
   Net proceeds from issuance of common stock                             6,117,895     8,970,998       841,229     16,449,551
   Redemption of preferred stock                                               --            --        (300,000)      (300,000)
   Preferred stock dividends                                                   --          (9,500)     (107,834)      (117,334)
                                                                      ------------- -------------  ------------- -------------
      Net cash provided by financing activities                           6,608,494    18,416,328     1,965,168     29,186,361
                                                                      ------------- -------------  ------------- -------------
Increase (decrease) in cash                                              (4,972,288)    5,066,171       167,674        264,776
Cash, beginning of period                                                 5,237,064       170,893         3,219           --
                                                                      ------------- -------------  ------------- -------------
Cash, end of period                                                   $     264,776 $   5,237,064 $     170,893  $     264,776
                                                                      ============= =============  ============= =============


See accompanying notes to consolidated financial statements.

</TABLE>





                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements


Supplemental disclosures of cash flow information:

     During the years ended December 31, 1996,  1995 and 1994,  cash paid for 
     interest was  $1,201,864,  $221,458,  and $192,243, respectively.

Supplemental disclosures of noncash activities:

     In 1991, 1992, 1993 and 1994, the Company issued 270,750, 1,075,125, 62,310
     and 20,000  shares of common stock for no cash  consideration.  Shares were
     granted to related  parties,  including  stockholders,  and  outsiders  for
     various investment considerations and consulting services.

     In 1992,  the Company  sold  certain  technology  and entered  into various
     royalty  agreements  in  exchange  for a note  receivable  in the amount of
     $500,000.

     In 1993,  the  Company  acquired  assets of $20,498  under a capital  lease
     obligation.

     In 1993, the Company issued 7,750 shares of preferred stock in exchange for
     retirement of $775,000 of debt.

     In 1994, the Company  exchanged  $240,000 of subordinated  notes payable 
     and $5,952 of accrued interest for 61,488 shares of common stock.

     In 1994,  the Company  received a note for  $450,000 in payment of accounts
     receivable  and  issued a note  payable  for  $57,394  in  satisfaction  of
     accounts payable.

     As part of the  merger on March  29,  1995,  all of the  4,750  outstanding
     shares of $100 par value preferred stock were converted into 237,500 shares
     of common stock of the Company, the Company converted 1,100 units of $1,000
     face amount 10% convertible  subordinated  notes plus accrued interest into
     558,578 shares of common stock, the Company issued 200,000 shares of common
     stock, and charged to stockholder's equity at $2.00 per share, to US Sachem
     LP for investment  banking  services,  the Company issued 890,000 shares of
     common stock,  and recorded as prepaid  consulting fees at $1.50 per share,
     to Liviakis  Financial  Communications,  Inc. to provide ongoing assistance
     and consultation to the Company. See Notes 8, 14 and 15.

     In 1995, in  connection  with the  acquisition  of Waste  Professionals  of
     Vermont, Inc., the Company recorded a receivable for the purchase of rights
     to $850,000 in escrow  funds held by the State of Vermont  (see Note 3) and
     provided  for  $1,500,000  for  estimated  closure and  post-closure  costs
     existing at acquisition. See Note 12.

     In 1996 and 1995,  the Company acquired  assets of $683,777 and $1,148,516,
     respectively,  under  capital lease obligations.

     In 1996, the Company exchanged $2,850,000 of convertible  subordinated debt
     and $27,425 of accrued  interest for 1,569,960  shares of common stock. See
     Note 9.

See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>

                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements




(1)   Business Combination and Nature of Operations

      Waste Systems International,  Inc. (a Delaware Corporation) (the "Company"
         or "BioSafe"),  (formerly Zoe Capital,  Corp.),  is a Development Stage
         Company.  The Company is a nonhazardous  solid waste management company
         currently engaged in the business of rehabilitating landfills to permit
         their continued operation with increased capacity in an environmentally
         sound  manner,  referred to by BioSafe as  "landfill  remodeling",  and
         landfill operation.

      Prior to March 27, 1996,  the Company had been actively  developing  other
         technologies with potential  application in a number of business areas.
         On  March  27,  1996,  the  Company  announced  its  intention  to take
         meaningful  actions to  conserve  cash and working  capital,  including
         restructuring  the  Company's  operations  to focus its  resources  and
         activities on its core business of landfill  remodeling  and operation.
         See  Note 4 for  discussion  of  nonrecurring  charges  related  to the
         restructuring and discontinued operations.

      The Company has generated limited revenue since its  organization  and has
         been engaged in activities  such as project  development,  engineering,
         permitting,  and marketing and sales efforts. The Company will continue
         to seek out landfill  remodeling  and operating  landfill  projects for
         investment  and  will  require  substantial  additional  funds to fully
         develop and bring to commercial  viability all of its currently planned
         projects. Successful completion of the Company's development program is
         dependent on raising  substantial  additional  capital and  achieving a
         level of revenues adequate to support the Company's cost structure.

      There  can  be no  assurance  that  the  Company  will  be  successful  in
         developing  and  implementing   commercial   landfill   remodeling  and
         operation  projects,  or that any such  development can be accomplished
         without excessive cost or delay.

(2)   Summary of Significant Accounting Policies

      Basis for Presentation
      Theaccompanying  consolidated financial statements include the accounts of
         the Company and its subsidiaries. All significant intercompany accounts
         and transactions have been eliminated in consolidation.

      Minority interest consists of 20% of Waste Professionals of Vermont, Inc.

      Revenue Recognition
      TheCompany's  revenues  from its landfill  operations  consist of disposal
         fees (known as tipping  fees)  charged to  customers.  Tipping fees are
         recognized  as  revenue  based on the  volume or weight of solid  waste
         disposed of at the  Company's  operated or owned  landfill  sites.  The
         daily volume of waste disposed at the Company's disposal facilities may
         vary according to market and weather conditions.

      The Company recognizes  royalty revenue from its medical waste  technology
         business  based on the terms of the  license  agreements  as plants are
         completed and for consulting services when rendered.

      Cost of Landfill Operations
      Cost of operations  includes direct labor,  fuel,  equipment  maintenance,
         insurance,  depreciation  and  amortization  of  equipment  and project
         development  costs,  accruals  for  ongoing  closure  and  post-closure
         regulatory   compliance  (for  landfills  owned),   and  other  routine


                                       F-13
<PAGE>
                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements

         maintenance   and  operating   costs   directly   related  to  landfill
         operations.  Also  included  in the  cost of  landfill  operations  are
         payments  made to the Towns in which  each  landfill  is located in the
         form of "Host Town Fees" and  "Closure  Fees" (for  landfills  operated
         under  management  contracts),  which are  negotiated on a rate per ton
         basis as part of the contract with the Town. In such Towns, the Town is
         responsible  for the  closure  and  post-closure  costs  related to the
         landfill.

      Landfill Closure and Post-Closure Costs
      The Company estimates  and  accrues  closure  and  post-closure  costs for
         landfills  owned or  acquired on a  unit-of-production  basis over each
         facility's  estimated remaining airspace capacity.  The Company records
         reserves,  as  necessary,  as a  component  of the  purchase  price  of
         facilities acquired,  in acquisitions  accounted for under the purchase
         method, when the acquisition is consummated.

      Property and Equipment
      Capitalization  of landfill  development  costs begins with the signing of
         landfill  management  contracts for facilities  operated by the Company
         that  are  not  owned,  or upon  determination  by the  Company  of the
         economic  feasibility or extended useful life of each landfill acquired
         as a result of  comprehensive  engineering and  profitability  studies.
         Capital costs include acquisition, engineering, legal, and other direct
         costs  associated with the permitting and development of new landfills,
         expansions at existing landfills, and cell development. These costs are
         capitalized  pending  receipt  of all  necessary  operating  permits or
         commencement of operations.

      Interest is  capitalized  on landfill  costs related to  permitting,  site
         preparation,  and  facility  construction  during the period that these
         assets are  undergoing  activities  necessary  for their  intended use.
         Interest costs of $42,014 and $82,195 were capitalized  during 1996 and
         1995, respectively.

      Landfill   project    development    costs   are   amortized   using   the
         unit-of-production method, which is calculated using the total units of
         airspace  filled  during  the  year  in  relation  to  total  estimated
         permitted  airspace  capacity.  The determination of airspace usage and
         remaining   airspace   capacity  is  an  essential   component  in  the
         amortization calculation.  The determination is performed by conducting
         annual  topography  surveys of the  Company's  landfill  facilities  to
         determine remaining airspace capacity in each landfill. The surveys are
         reviewed by the Company's consulting engineers,  the Company's internal
         operating and  engineering  staff,  and its  financial  and  accounting
         staff.  Current year-end  remaining  airspace capacity is compared with
         prior year-end  remaining  airspace capacity to determine the amount of
         airspace used during the current year.  The result is compared  against
         the  airspace  consumption  figures  used during the  current  year for
         accounting  purposes to ensure  proper  recording  of the  amortization
         provision.   The  reevaluation   process  did  not  impact  results  of
         operations for any years presented.

      The Company performs  assessments for each landfill of the  recoverability
         of capitalized costs which requires considerable judgment by management
         with respect to certain external  factors,  including,  but not limited
         to, anticipated future revenues, estimated economic life and changes in
         environmental  regulation.  It is the Company's  policy to periodically
         review and evaluate that the benefits  associated  with these costs are
         expected to be realized and therefore  capitalization  and depletion is
         justified.  Capitalized costs related to landfill development for which
         no future economic benefit is determined by the Company are expensed in
         the period in which such determination is made.

                                      F-14
<PAGE>
                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements


      All other property  and  equipment  are stated at cost.  Depreciation  and
         amortization  is  provided  using  the  straight-line  method  over the
         estimated useful lives of the respective assets as follows:

                  Buildings, facilities and improvements         10 to 30 years
                  Vehicles and equipment                          5 to 10 years

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

      Cash and Cash Equivalents
      All short-term investments  which have an original  maturity of 90 days or
         less are considered to be cash equivalents.

      Restricted Cash and Securities
      Restricted Cash and Securites  consist  principally of funds or securities
         deposited  in  connection  with  landfill   closure  and   post-closure
         obligations.   Amounts  are   principally   invested  in  fixed  income
         securities  of  federal,  state and  local  governmental  entities  and
         financial institutions.  The Company considers its landfill closure and
         post-closure  investments to be held to maturity.  Substantially all of
         these  investments  mature  within one year.  The market value of these
         investments  approximates  their  aggregate  cost basis at December 31,
         1996.

      Prepaid Consulting Fees
      Prepaid  consulting fees are amortized on a  straight-line  basis over the
         term of the related consulting agreement.

      Deferred Financing Costs
      Deferred financing  costs are amortized on a straight-line  basis over the
         life of the related notes payable or debt.

      Income Taxes
      Effective  January 1, 1993,  WSI became a C  corporation  for  Federal and
         state income tax  purposes.  Previously,  WSI had elected  Subchapter S
         status.

      WSI has adopted  the  provisions  of  Statement  of  Financial  Accounting
         Standards No. 109,  Accounting for Income Taxes ("SFAS 109").  SFAS 109
         requires  recognition  of deferred tax  liabilities  and assets for the
         estimated future tax consequences  attributable to differences  between
         the  financial  statement  carrying  amounts  of  existing  assets  and
         liabilities  and their  respective tax bases.  Measurements of deferred
         tax  liabilities  and assets are based upon  provisions  of enacted tax
         laws and the  effects  of future  changes  in tax laws or rates are not
         anticipated.

      Earnings Per Share
      Primary earnings per common share are based on the weighted average number
         of  common  shares  and  dilutive   common  stock   equivalent   shares
         outstanding  during each period.  Fully diluted earnings per share have
         been  omitted  since they are either the same as primary  earnings  per
         share or are anti-dilutive.

                                      F-15
<PAGE>
                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements

      Fair Value of Financial Instruments
      The carrying amounts of cash, accounts  receivable, accounts payable,  and
         accrued expenses  approximates fair value because of the short maturity
         of these items.  The carrying  amount of debt,  notes and balances with
         bank  lines of credit  with  interest  rates  related to the prime rate
         approximate  fair value  because  the  interest  rates  change with the
         market  interest  rates.  Other  debt  approximates  fair  value as the
         interest rates charged  approximate  the Company's  external  borrowing
         rate.

      Reclassifications
      Certain amounts in prior year financial  statements have been reclassified
to conform to the 1996 presentation.

      New Accounting Pronouncements
      In 1995 the Financial  Accounting  Standards Board issued  Statement Of 
         Financial Accounting Standards No. 121, Accounting  for the  Impairment
         of  Long-Lived  Assets to be Disposed Of, (SFAS No. 121).  SFAS No. 121
         sets forth  standards for  recognition  and  measurement of impairment 
         of long-lived  assets.  The adoption of SFAS No. 121 did not have a 
         material effect on the Company's consolidated financial statements in 
        1996.

      In 1995 the Financial  Accounting  Standards  Board issued FASB  Statement
         123,  "Accounting  for Stock-Based  Compensation"  (SFAS 123) where the
         fair value of stock options is determined using an option pricing model
         and included in operations. As permitted under SFAS 123 the Company has
         elected to continue to follow  Accounting  Principles Board Opinion No.
         25,  "Accounting  for Stock Issued to  Employees"  (APB 25) and related
         interpretations  in accounting  for its employee stock options where no
         compensation  expense is  recognized  on employee  stock options if the
         exercise  price  equals  the  market  price  at the date of  grant.  As
         required under SFAS 123, pro forma information regarding net income and
         earning (loss) per share is disclosed as if SFAS 123 had been adopted.

 (3)  Accounts and Notes Receivable

      Accounts and notes receivable consist of the following:
                                                                   December 31,
                                                         1996              1995

         Trade                                $       353,862      $    352,524
         ScotSafe Limited                             719,703            78,000
         One, Three, Six, Inc.                        400,000           400,000
         State of Vermont                              -                850,000
         Interest                                      -                151,041
         Other                                        158,781           447,646
                                                 ------------      ------------
                                                    1,632,346         2,279,211
         Allowance for doubtful accounts              (22,500)         (232,146)
                                                 ------------      ------------
                                                    1,609,846         2,047,065
              Less current portion                  1,158,677         2,047,065
                                                 ------------      ------------

                       Long-term portion      $       451,169      $        -
                                                 ============      ============
         


                                      F-16
<PAGE>
                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements

      Trade
      On July  31,  1995,  the  Company  entered  into  a  contract  with  Waste
         Management of Rhode Island,  Inc. ("WMRI").  The contract requires WMRI
         to provide a fixed annual quantity of waste,  approximately  95% of the
         available annual permitted capacity of the Fairhaven landfill for seven
         years.  At December  31,  1996 and 1995,  the balance due from WMRI was
         $4,500 and $130,500, or .1% and 45%,  respectively,  of the total trade
         accounts receivable balance.  For the years ended December 31, 1996 and
         1995, revenues from WMRI were approximately  $387,800 and $586,000,  or
         26% and 44%, repectively of landfill revenues.

      ScotSafe Limited
      On February 9, 1996,  the  Company  entered  into a licensing  and royalty
         agreement with ScotSafe Limited (ScotSafe),  a Glasgow,  Scotland based
         company,  for the exclusive  rights to use WSI's  continuous flow auger
         ("CFA")  medical waste  processing  technology in the British Isles and
         Ireland.  On November 6, 1996, the Company and ScotSafe  expanded their
         licensing agreement  throughout Europe. The initial licensing agreement
         contemplated  that ScotSafe would establish as many as nine CFA plants,
         each of which would  result in  additional  licensing  fees to WSI . In
         accordance with the agreement, WSI will provide technical assistance in
         connection   with   these   facilities   including   facility   design,
         installation, testing and training. In addition to royalty payments for
         each plant,  ScotSafe  has agreed to pay WSI for  consulting  and other
         services, and will reimburse the Company for its out-of-pocket expenses
         and  disbursements  in connection with these  services.  As of December
         1996,  the Company has  completed  two plants for  ScotSafe  under this
         agreement and has generated approximately  $1,000,000 in gross revenues
         in 1996. The royalty per plant is payable on a monthly basis over a two
         year period.

      One, Three, Six, Inc.
      During 1994,  WSI made a refundable  deposit for the option to purchase 80
         percent of the common stock of Shred Pax Corporation (now known as One,
         Three,  Six,  Inc.) ("OTS"),  a manufacturer  of shredding and grinding
         equipment.  The option  expired on March 31, 1994,  but was extended by
         WSI under the option  agreement  which in turn  resulted in the deposit
         being  used to  purchase  16  percent  of OTS  common  stock.  OTS sold
         substantially  all of its assets to a third  party on August 31,  1994,
         and adopted a plan of liquidation. Pursuant to the plan of liquidation,
         the Company  had the right to receive its share of the net  proceeds of
         liquidation  upon  completion  of  winding up the  affairs of OTS.  The
         Company  recognized  a gain of $222,728 in 1994 from this  transaction.
         During 1996, the Company  entered into litigation with OTS to settle on
         monies due the Company under OTS's plan of  liquidation.  See Note 13 -
         Commitments and Contingencies.

      State of Vermont
      In connection with the acquisition of a landfill in Moretown, Vermont, the
         Company  purchased  the rights to  certain  funds held by the State for
         closure  and  post-closure  costs which were set aside in escrow by the
         prior owner to obtain a landfill operating permit. The Company actually
         realized  approximately  $400,000  from this amount  after the State of
         Vermont's  Agency of Natural  Resources and  Department of Taxes offset
         claims against the previous bankrupt owner of the landfill.

      BioMedical Waste Systems, Inc.
      The Company  had  previously   licensed  its  medical   waste   processing
         technology to BioMedical Waste Systems, Inc. ("BioMed"). As a result of
         the financial,  legal and operating difficulties experienced by BioMed,
         BioMed did not pay the Company the outstanding amounts owed at July 31,
         1995,  and the Company  elected to terminate the  technology  agreement
         with BioMed  effective  August 1, 1995. As a result of the termination,

                                      F-17
<PAGE>
                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements

         BioMed was no longer  contractually  obligated to repay the outstanding
         accounts  receivable balance to the Company,  and the outstanding March
         31,  1995  balance  of  $2,575,000,  as  well as the  outstanding  note
         receivable  balance of  $400,000,  was written off as of June 30, 1995.
         The Company  recognized  revenues  under the  technology  agreement  of
         $1,850,000  and  $1,300,000  in the years ended  December  31, 1994 and
         1993,  respectively,  and $725,000 in the quarter ended March 31, 1995,
         and ceased accruing  revenues  thereafter.  The Company's medical waste
         technology was then relicensed to ScotSafe in the European territory.

(4)   Restructuring of Operations, Discontinued Operations and Assets Held 
      for Sale

      On March 27, 1996, the Company  announced its intention to take meaningful
         action  to  conserve   cash  and   working   capital,   including   the
         restructuring  of the  Company's  operations to focus its resources and
         activities on its core business of landfill  remodeling  and operation.
         Also on that date,  Dr.  Richard H. Rosen  ("Rosen")  resigned from the
         offices  of  Chairman  of the  Board  of  Directors,  President,  Chief
         Executive  Officer,  and  Treasurer  of  the  Company  and  all  of its
         subsidiaries  and affiliates  (See Note 5 - Due from Former  Employee).
         The Board of Directors named Philip Strauss,  Chief Operating  Officer,
         to the additional  positions of Chief Executive Officer,  and President
         of the  Company,  and on June 24,  1996 the Company  also named  Philip
         Strauss, Chairman of the Board of Directors.

      Restructuring of Operations
      During  the  year  ended   December   31,  1996,   the  Company   recorded
         restructuring   charges  of  $1,741,729  for  costs   associated   with
         management's plan to focus on the core business of landfill  remodeling
         and operation.  These costs included  accruals for employee  severance,
         non-cancelable  lease  commitments,  professional  fees and  litigation
         costs. The  restructuring  plan is expected to result in annual savings
         in excess of $1.0  million.  As of  December  31,  1996,  a reserve  of
         $175,000 has been recorded for additional  estimated  costs to complete
         the  restructuring.  At  December  31,  1996 and 1995,  the Company has
         reserves and liabilities  associated with  restructuring  activities of
         approximatley $1,415,000 and $0, respectivley.

      Discontinued Operations
      On March 27, 1996,  as part of the  announced  restructuring,  the Company
         ceased  operations at its technology  center in Woburn,  Massachusetts,
         and  discharged  all employees and  consultants  previously  engaged in
         developing   technologies  with  potential  application  in  activities
         including  the  manufacture  of useful  materials  from tires and other
         recycled materials, contaminated soil cleanup and recycling, industrial
         sludge disposal,  size reduction  equipment design and manufacture (the
         "Ancillary Technologies"),  and Major Sports Fantasies, Inc. ("MSF"), a
         business  unrelated  to  the  environmental  industry.  No  substantial
         revenues  were received from the  technology  center  operations or MSF
         activities.

      The expenses associated with operating the Ancillary  Technologies and MSF
         for all periods presented are reported in the accompanying reclassified
         consolidated statements of operations and cash flows under discontinued
         operations. The charge for discontinued operations relates primarily to
         losses from operations and the costs associated with the termination of
         these  operations.  There  were no  material  asset  sales  from  these
         operations  and no interest costs or general  corporate  overhead costs
         have been allocated to discontinued  operations. . At December 31, 1996
         and 1995,  the Company has  reserves  and  liabilites  associated  with
         discontinued operations of approximatley $370,000 and $0, respectively.

                                      F-18
<PAGE>

                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements

      Assets Held for Sale
      During the fourth  quarter of 1995, the Company  recorded a  non-recurring
         charge to 1995 earnings of approximately $1.3 million primarily related
         to the write-down of the assets of the discontinued operations to their
         then estimated net realizable  value.  During 1996 the Company recorded
         an additional  charge of $2,260,963 to reduce the carrying value of the
         assets to their net realizable value and to complete the discontinuance
         of the Anciliary Technologies and MSF operations. No income tax expense
         or benefit was  recognized  due to the  Company's  net  operating  loss
         carryforwards.  As a result of discontinuance of these operations,  the
         Company  expects annual savings in excess of $2.0 million.  The Company
         expects to dispose of the remaining assets held for resale during 1997.
         As of December  31, 1996 a reserve of $125,000  has been  recorded  for
         additional  estimated  costs to complete the disposal of the  Ancillary
         Technologies and MSF in 1997.


 (5)  Due From Former Employee

      In July 1996, the Company commenced arbitration proceedings against Rosen,
         former Chairman,  Chief Executive Officer and President of the Company,
         seeking to  recover  amounts,  excluding  interest,  which the  Company
         believes  it was owed by  Rosen.  This  action  was  undertaken  at the
         direction of the Board of Directors  following  its receipt of a report
         by a special committee which had been appointed to investigate  Rosen's
         financial  dealings with the Company.  The Special  Committee  retained
         independent  counsel  in  connection  with  its  investigation.   Rosen
         resigned  from all offices with the Company on March 27, 1996.  Amounts
         which the  Company  sought to  recover  included  among  other  things,
         unreimbursed   advances   and  amounts   which  the  Company   believed
         constituted  improper  expense  reimbursements  and payments of Company
         funds for personal benefit.

      An arbitration  hearing was  completed on October 25, 1996.  On January 2,
         1997, the arbitrator  issued the Award of Arbitration,  directing Rosen
         to pay $780,160,  excluding interest and litigation costs, for breaches
         by Rosen of his  employment  agreement  with the Company "in failing to
         discharge in good faith the duties of his  positions and failing to act
         under the  direction  of the Board of  Directors"  of the  Company.  On
         February  25,  1997  the   Middlesex   Superior   Court  in  Cambridge,
         Massachusetts confirmed the arbitration award and entered the judgement
         against Rosen.  No assurance can be given that the Company will be able
         to collect any amounts awarded in arbitration.  The Company is carrying
         on its  December  31,  1996  consolidated  balance  sheet an  amount of
         $500,000 due from Rosen,  but the Company's other claims and additional
         advances have not been reflected on the balance sheet at this time.


(6)   Investment in Affiliate

      In December 1995, the Company  entered an agreement to form WSI Europe PLC
         to introduce the Company's landfill  remodeling  technology  throughout
         Europe and certain other  territories.  Subsequent to the restructuring
         announced by the Company on March 27, 1996,  the Company  determined it
         was best to  terminate  this  agreement  in  order to focus  all of its
         attention   and   resources  on  the   successful   completion  of  the
         restructuring of the Company's domestic operations.

                                      F-19
<PAGE>
                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements


(7)   Property and Equipment

      Property and equipment are stated at cost and consist of the following;

                                                         December 31,
                                                     1996            1995

                                           ------------------------------------
         Landfills - owned                 $      7,937,307    $      5,152,750
         Landfills - operated                       -                 3,774,659
         Landfill development projects              427,357             269,381

         Machinery and equipment                  2,673,505           2,285,142
         Buildings, facilities and improvements     792,255             552,060
         Other property and equipment               330,746             702,821
                                           ----------------    ----------------
                                                 12,161,170          12,736,813
         Less accumulated depreciation and 
           amortization                            (455,458)           (233,722)
                                           ----------------    ----------------

         Property and Equipment net        $     11,705,712    $     12,503,091
                                           ================    ================

      Town of Fairhaven
      On July 24, 1994,  WSI entered into a contract with the Town of Fairhaven,
         Massachusetts to remodel the Town's existing 26 acre landfill.  On June
         22, 1995, the Company commenced operations and began accepting waste at
         the landfill utilizing  existing capacity.  Since then, the Company has
         remodeled  and  constructed  an initial  cell at the  landfill,  and on
         August 12, 1996,  the Company  received  final  authorization  from the
         Massachusetts  Department  of  Environmental  Protection to operate the
         cell under the Town's current  existing  permit at 150 TPD. On November
         8, 1995, an action was brought against  various  parties  including the
         Company relating to the Fairhaven  landfill.  See Note 13 - Commitments
         and Contingencies.  On September 9, 1996, pursuant to the Massachusetts
         Administrative Procedures Act, the action was heard by a Bristol County
         Superior  Court  Judge.  As of March 26,  1997,  a ruling  has not been
         issued.   The  Company,   until  the  outcome  of  this  litigation  is
         determined,  has ceased making additional  capital  investments in this
         project and has operated the landfill at a reduced  capacity.  Based on
         the  extensive  delays and  additional  operating  costs to the project
         because of this litigation and engineering impacts of delays associated
         with  the  litigation,  resulting  in the  current  uncertainty  of the
         long-term economic viability of the project, the Company has decided to
         write-off its capital investment in the project at December 31, 1996 of
         $6,342,196.  Included in the  $6,342,196  is a reserve of $500,000  for
         additional  litigation and ongoing site  construction  costs.  When the
         litigation  is  resolved,  the Company at that time will  reassess  the
         continued feasibility of the project.

      The contract requires  the  Company  to pay a "Host Town Fee" of $2.00 per
         ton or 5% of the  tipping  fees for  solid  waste  and $3.00 per ton to
         contribute  to the Town's  closure and  post-closure  costs,  excluding
         waste from the Town and waste for  "beneficial  reuse." The term of the
         Company's agreement with the Town of Fairhaven is twenty years.

      Acquisition of Landfill in Moretown, Vermont
      In May 1995, the Company  submitted a successful bid through the Company's
         80%-owned subsidiary,  Waste Professionals of Vermont, Inc. ("WPV"), to
         purchase a landfill located in Moretown,  Vermont,  and certain related
         assets at an auction  conducted by the United States  Bankruptcy  Court
         for the  District of Vermont.  On June 2, 1995,  the  Bankruptcy  Court
         entered its order  authorizing  and directing the sale of this landfill
         and certain related assets to WPV, which transaction  closed on July 5,
         1995.
                                      F-20
<PAGE>
                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements

      On September 9, 1996 the Company received its Full  Certification from the
         Vermont  Department of Natural Resources (VDNR) to commence  operations
         at  the  Moretown  landfill  using  available  capacity  and  to  begin
         construction  of Cell One,  Phase II.  The Act 250 Land Use  Permit was
         received on  September  30, 1996 which  enabled the Company to commence
         operations  at an  average  of 350 tons of waste per day.  The  Company
         commenced  operation at the landfill on October 7, 1996.  Revenues from
         October 7, 1996 through December 31, 1996 were $338,225.

      In October,  1996,  the Company signed a host town agreement with the Town
         of Moretown,  Vermont which requires the Company to pay a host town fee
         of  $2.00  per ton  plus  an  annual  CPI  increase.  The  term of this
         agreement is for five years.

      The Company's  ownership  of  the  landfill  through  its  subsidiary  WPV
         involves  a  greater  degree of  exposure  to  potential  environmental
         liabilities than is involved with landfills operated under a management
         contract.  In conjunction  with the  acquisition,  the Company recorded
         $1.5  million in  estimated  closure  and  post-closure  costs based on
         engineering  estimates of the current  condition of the  landfill.  See
         Note 12.

(8)   Consulting Agreement

      On March 29,  1995,  contemporaneous  with the merger  (see Note 15),  the
         Company  entered  into a two year  agreement  with  Liviakis  Financial
         Communications,  Inc.  ("Liviakis"),  whereby  Liviakis  would  provide
         ongoing   assistance  and   consultation  to  the  Company  on  matters
         concerning  mergers  and  acquisitions,   corporate  finance,  investor
         relations and financial public relations.  As compensation for services
         to be rendered by Liviakis,  the Company issued Liviakis 890,000 shares
         of the Company's  common  stock.  As a result,  on March 29, 1995,  the
         Company  recorded  a prepaid  asset of  $1,335,000  representing  a 25%
         discount  from the  private  placement  share  value  since,  under the
         agreement,  the Liviakis  shares are  restricted and may not be sold or
         transferred  without  the  Company's  consent  before  March 29,  1997.
         Amortization  of prepaid  consulting  fees for each of the years  ended
         December 31, 1996 and 1995 was $500,625.

      On December 18, 1996, the Company terminated its Consulting Agreement with
         Liviakis.  As a result,  the Company  expensed  the  remaining  prepaid
         consulting  fees in the amount of $333,750.  As part of the termination
         agreement,  the Company  released all restrictions on the resale of the
         stock held by Liviakis.




                                      F-21
<PAGE>


                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements




(9)   Long-term Debt and Notes Payable

      Long-term debt and notes payable consists of:

                                                            December 31,

                                                      1996              1995

                                               -------------------------------- 
         Capital leases and equipment notes
            payable                         $       1,589,989    $    1,022,377
         FDIC                                         511,093           511,093
         Boston Private Bank                          150,733           211,065
         Mortgages                                    195,372           200,037
         One, Three, Six, Inc.                        400,000           400,000
         Other notes payable                          243,564            72,619
         Convertible subordinated debt              8,525,000        11,375,000
                                               --------------      ------------
                                                   11,615,751        13,792,191
         Less current portion                       2,165,378         1,526,188
                                               --------------    --------------
                       Long-term portion     $      9,450,373    $   12,266,003
                                               ==============    ==============


      Maturity of Long Term Debt and Notes Payable, Excluding Capital Leases and
      Equipment  Notes Payable

      Scheduled maturities of long-term debt and notes payable are as follows:

      Payments due in the year ending December 31,
                 1997                                   $       1,334,638
                 1998                                             133,410
                 1999                                               7,309
                 2000                                           8,382,964
                 2001                                               8,958
                 Thereafter                                       158,483
                                                           --------------

                                                        $      10,025,762

      Capital Leases and Equipment Notes Payable
      The Company leases  certain  facilities,  equipment,  and  vehicles  under
         agreements  which are  classified  as capital  leases.  Leased  capital
         assets included in property are as follows:

                                                           December 31,
                                                      1996             1995
                                             ---------------------------------  
         Buildings                         $          56,250     $      56,250
         Machinery and equipment                   2,378,560         1,360,560
                                              --------------     -------------
                                                   2,434,810         1,416,810
         Accumulated amortization                   (202,714)          (58,966)
                                              ---------------    -------------
                                           $       2,232,096     $   1,357,844
                                              ===============    =============

                                      F-22
<PAGE>

                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements

      Future  minimum  lease  payments,  by  year  and in the  aggregate,  under
         non-cancelable  capital  leases and  operating  leases with  initial or
         remaining  terms  of one  year or  more at  December  31,  1996  are as
         follows:

                                                     Capital          Operating
                                                     Leases            Leases
    Payments due in the year ending December 31,
              1997                            $     1,028,972      $     76,116
              1998                                    320,194            74,102
              1999                                    317,089                -
              2000                                    219,604                -
                                                  ------------     ------------ 
                    Total minimum lease payments    1,885,859      $    150,218
                                                                   ============
                    Amounts representing interest     295,870
                                                  ------------
                    Present value of net minimum 
                      lease payments                1,589,989
                    Less current portion              830,740
                         Long-term portion    $       759,249
                                                  ============

      The  Company's  rental  expense for  operating  leases was  $293,766,  
         $292,492,  and $66,648 for the years ended December 31, 1996, 1995 
          and 1994, respectively.

      The Company has  reclassified   approximately  $380,785  and  $582,000  of
         capitalized lease obligations to current since it was not in compliance
         with  certain  financial  covenants  at  December  31,  1996 and  1995,
         respectively.

      Bank Debt
      During 1994, the Company renegotiated its existing FDIC line of credit and
         extended  the due  date on the  note to May 1,  1997.  Interest  is due
         monthly  at prime plus 1.5 (9.75%  and 10.% at  December  31,  1996 and
         1995, respectively). The debt is secured by the Company's assets.

      During 1994,  the Company  entered into a term loan  agreement with Boston
         Private  Bank and  borrowed  $300,000.  The note is  payable in monthly
         installments  of $6,667,  plus  interest at prime plus 2.0% (10.25% and
         10.5% at December 31, 1996 and 1995, repectively) through June 6, 1998.
         The debt is secured by the Company's assets and the principal residence
         of Rosen and  Marguerite  Piret,  wife of Rosen,  See Note 5 - Due From
         Former Employee.

      Mortgages
      Mortgage  notes  are  secured  by the  respective  assets,  and are due in
         various amounts through 2015.

      One, Three, Six, Inc.
      In 1994, the Company received $400,000 in the form of a note as an advance
         against  the  initial  distribution  of  proceeds  from the sale of the
         assets of OTS. The note, which bears interest at 10% payable quarterly,
         was due in March,  1996. During 1996, the Company entered litigation to
         settle monies due the Company under OTS's plan of liquidation, See Note
         13 - Commitments and Contingencies.

                                      F-23
<PAGE>
                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements


      Convertible Subordinated Debt
      The Company issued a three-year $150,000 Convertible  Subordinated Note to
         an investor in August 1994. The note may be converted into common stock
         at the  option of the  holder at the rate of one share of common  stock
         for each $2.44 in outstanding principal and interest.

      On October  6  and  12,  and  November  7,  1995,  the  Company  closed  a
         "Regulation  S" offering of  $11,225,000  in  convertible  subordinated
         notes  and  warrants  to  overseas  investors,  which  resulted  in net
         proceeds to the Company of $10,085,587.  The offering  consisted of 449
         units.  Each unit sold for $25,000,  and  consisted of one  convertible
         subordinated note ("Note") along with Series F Warrants ("Warrants") to
         purchase  shares of Common Stock at a price of $2.44.  The Notes mature
         on September 30, 2000, and bear interest at 10%, payable quarterly. The
         Notes are convertible  into Common Stock at $1.84 per share.  The Notes
         are callable at the option of the Company at any time after  October 6,
         1996, if the closing sale price of the Common Stock has exceeded $10.00
         per  share  for a  period  of 20  consecutive  trading  days  prior  to
         redemption notice. The Warrants expire on September 30, 1998. The Notes
         and Warrants have not been registered  under the Securities Act and may
         not be  sold in the  United  States  without  such  registration  or an
         applicable  exemption from the requirement of registration.  Under most
         circumstances,  resales  in the  United  States of Notes and  shares of
         Common Stock acquired on conversion of Notes or exercise of Warrants is
         exempt from registration under prevailing interpretations of Regulation
         S. In connection with the offering, the Company issued to the Placement
         Agent  warrants to purchase up to 701,563 shares of Common Stock at $10
         per share.  These  warrants were  subsequently  exchanged  into 350,000
         warrants at $3.50 as part of a subsequent  financing in June 1996,  see
         Note 15 - Common Stock.

      Through  December  31, 1996,  $2,850,000  of notes plus $27,425 of accrued
         interest have been converted into 1,569,960 shares of common stock.

      Stockholders and Related Parties
      On March 31, 1995, all notes payable to  stockholders  and related parties
         were  repaid.  Interest  expense on notes to  stockholders  and related
         parties for years ended  December 31, 1995, and 1994 amounted to $2,701
         and $16,733, respectively.

(10) Accrued Expenses

      Accrued expenses consisted of the following:
                                                            December 31,
                                                          1996           1995
                                                   ---------------------------  

         Interest                              $       242,185   $    209,631
         Professional and consulting fees              237,399        421,500
         Fairhaven landfill reserve (See Note 7)       500,000          -
         Litigation settlement (See Note 13)           125,000          -
         Salaries and wages                                 -          37,809
         Insurance                                          -          25,345
         Other                                         121,131          4,253
                                                   ------------   ------------

                                               $     1,225,715   $    698,538
                                                   ============   ============
                                       F-24

<PAGE>
                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements

(11) Income Taxes

      As discussed  in Note 2,  effective  January 1, 1993,  the Company  became
         taxable as a C  Corporation  for Federal and State income tax purposes.
         The Company has adopted SFAS 109. The cumulative  effect of this change
         in accounting for income taxes was not material.

      Income tax expense (benefit) consists of:

                                          Current       Deferred          Total
                                          -------       --------          -----
          Year ended December 31, 1996:
               Federal                 $      -       $      -       $      -
               State                      (23,456)           -          (23,456)
                                      -----------------------------------------

                                       $  (23,456)    $      -       $  (23,456)
                                      =========================================


         Year ended December 31, 1995:
              Federal                 $       -     $  (141,358)   $   (141,358)
              State                       75,535        (43,642)         31,893
                                      -----------------------------------------

                                      $   75,535    $  (185,000)   $   (109,465)
                                      =========================================

         Year ended December 31, 1994:
              Federal                 $       -     $    141,358   $    141,358
              State                         -             43,642         43,642
                                      -----------------------------------------

                                      $       -     $    185,000   $    185,000
                                      =========================================


      A  reconciliation  between  federal  income tax expense  (benefit)  at the
         statutory  rate and the Company's  federal tax expense  (benefit) is as
         follows for the year ended December 31:

                                         1996             1995           1994
                                         ----             ----           ----

         Statutory Federal      
            income tax (benefit)$    (4,717,894) $     (2,708,925) $    144,983
         State taxes, net of 
            Federal income tax 
            benefit                  (1,210,466)         (704,604)       35,211
         Valuation allowance          5,898,245         3,294,764            -
         Other                            6,659             9,300         4,806
                                ---------------  ----------------  ------------
                                $       (23,456) $       (109,465) $    185,000
                                 ===============  ================  ===========

      The tax effects of temporary  differences  between financial statement and
         tax accounting that gave rise to significant  portions of the Company's
         net deferred tax assets and  deferred tax  liabilities  at December 31,
         1996 and 1995 are presented below.




                                      F-25
<PAGE>

                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements

                                                      1996             1995
                                                      ----             ----

         Deferred tax assets:
              Accounts receivable               $       9,788    $      116,001
              Inventories                               -                80,899
              Long-term contracts                       -               191,559
              Property and equipment                  236,323            12,990
              Other accrued liabilities                 -               174,370
              Operating loss and credit 
                 carryforwards                      8,946,898         2,953,174
                                                -------------    --------------
                    Gross deferred tax assets       9,193,009         3,528,993
                    Less: valuation allowance      (9,193,009)       (3,294,764)
                                               --------------   ---------------
                    Net deferred tax assets             -               234,229
                                                -------------    --------------
         Deferred tax liabilities:
              Deferred income and capitalized costs     -               234,229
                                                -------------    --------------
                    Total deferred tax liabilities      -               234,229
                                                -------------    --------------

                    Net deferred tax liability  $       -        $        -
                                                =============    ==============

      At December 31, 1996, the Company has net operating loss carryforwards for
         Federal  income tax  purposes of  approximately  $21 million  which are
         available to offset future federal  taxable  income,  if any, and which
         expire through December 31, 2011. The Company's  ability to utilize its
         existing net operating loss carryforwards,  under certain circumstances
         may be  limited  if there is  change in  ownership  of the  Company  of
         greater than 50% within a three-year period.

 (12) Landfill Closure and Post-Closure Costs

      Landfills are typically  developed in a series of cells,  each of which is
         constructed,  filled, and capped in sequence over the operating life of
         the  landfill.  When the cell is filled and the  operating  life of the
         landfill is over,  the final cell must be capped,  the entire site must
         be closed and post-closure  care and monitoring  activities  begin. The
         Company will have material financial  obligations relating to the final
         closure and post-closure costs of each landfill the Company owns.

      The Company has estimated as of December  31,  1996,  that the total costs
         for final closure and  post-closure of Cell I at the Moretown,  Vermont
         landfill,   including  capping  costs,  cap  maintenance,   groundwater
         monitoring, methane gas monitoring, and leachate treatment and disposal
         for up to 30 years after closure, is approximately $2.1 million.  Based
         upon the  capacity  of Cell I under the  current  permit  and  existing
         conditions of the landfill at acquisition,  approximately  $1.5 million
         has been accrued for at December 31, 1996.

      The Company bases its estimates  for these  accruals on  respective  State
         regulatory requirements, including input from its internal and external
         consulting  engineers and  interpretations of current  requirements and
         proposed regulatory changes. The closure and post-closure  requirements
         are  established   under  the  standards  of  the  U.S.   Environmental
         Protection  Agency's  Subtitle D regulations as implemented and applied
         on a state-by-state basis.

      The determination of airspace usage and remaining airspace  capacity is an
         essential  component  in the  calculation  of closure and  post-closure
         accruals. See Note 2, significant accounting policies.

                                      F-26
<PAGE>

                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements

(13) Commitments and Contingencies

      Landfill related activities
      In the normal  course of its  business,  and as a result of the  extensive
         governmental  regulation  of the  solid  waste  industry,  the  Company
         periodically may become subject to various judicial and  administrative
         proceedings  involving  federal,  state,  or local  agencies.  In these
         proceedings,  the agency may seek to impose  fines on the Company or to
         revoke or deny renewal of an operating permit held by the Company. From
         time to time,  the Company also may be subjected to actions  brought by
         citizens'  groups in connection with the permitting of its landfills or
         transfer  stations,  or alleging  violations of the permits pursuant to
         which the Company  operates.  Certain  federal and state  environmental
         laws  impose  strict  liability  on the  Company  for such  matters  as
         contamination  of water supplies or the improper  disposal of hazardous
         waste.  The  Company's  operation of  landfills  subjects it to certain
         operational,  monitoring,  site  maintenance,  closure and post-closure
         obligations which could give rise to increased costs for monitoring and
         corrective  measures.  See Note 12 - Landfill  Closure and Post Closure
         Costs.

      The Company has  obtained  environmental  impairment  liability  insurance
         covering claims for sudden or gradual onset of environmental damage. If
         the Company were to incur liability for environmental  damage in excess
         of its insurance  limits,  its financial  condition  could be adversely
         affected.   The  Company  carries  a  comprehensive  general  liability
         insurance  policy which management  considers  adequate at this time to
         protect its assets and operations from other risks.

      None of the Company's landfills are currently connected with the Superfund
         National Priorities List or potentially responsible party issues.

      Employment Contracts
      The Company has  entered  into an  employment  agreement  with  one of its
         senior   executives.   The  agreement  provides  for  employment  until
         terminated by either party at an annual salary of $150,000.

      Legal Matters
      The Company is party to pending legal proceedings and claims. Although the
         outcome  of such  proceedings  and  claims  cannot be  determined  with
         certainty,  the Company's  management,  after consultation with outside
         legal counsel, is of the opinion that the expected final outcome should
         not have a material adverse effect on the Company's financial position,
         results of operations or liquidity, and are summarized as follows:

      a) In July 1996, the Company commenced arbitration proceedings against Dr.
         Richard Rosen (Rosen),  former  Chairman,  Chief Executive  Officer and
         President  of  the  Company,  seeking  to  recover  amounts,  excluding
         interest,  which the Company believes it was owed by Rosen. This action
         was undertaken at the direction of the Board of Directors following its
         receipt of a report by a special  committee which had been appointed to
         investigate  Rosen's financial  dealings with the Company.  The Special
         Committee   retained   independent   counsel  in  connection  with  its
         investigation.  Rosen  resigned  from all  offices  with the Company on
         March 27, 1996.  Amounts which the Company  sought to recover  included
         unreimbursed   advances   and  amounts   which  the  Company   believed
         constituted  improper  expense  reimbursements  and payments of Company
         funds for personal benefit.

      An arbitration  hearing was  completed on October 25, 1996.  On January 2,
         1997, the arbitrator issued the Award of Arbitrator, directing Rosen to
         pay $780,160,  excluding interest and litigation costs, for breaches by

                                      F-27
<PAGE>
                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements

         Rosen of his  employment  agreement  with the  Company  "in  failing to
         discharge in good faith the duties of his  positions and failing to act
         under  the  direction  of the Board of  Directors  of the  Company.  On
         February  25,  1997  the   Middlesex   Superior   Court  in  Cambridge,
         Massachusetts  confirmed the arbitration award and entered the judgment
         against Rosen.  No assurance can be given that the Company will be able
         to collect any amounts awarded in arbitration.  The Company is carrying
         on its  December  31,  1996  balance  sheet an  amount of  $500,000  in
         unreimbursed  advances due from Rosen,  but the Company's  other claims
         and additional advances have not been reflected on the balance sheet at
         this time.

      b) Susan  Allua,  et al.  v.  Massachusetts  Department  of  Environmental
         Protection, Town of Fairhaven and BioSafe, Inc. Two cases involving the
         same  parties  were  brought  in  Bristol  Superior  Court  by  sixteen
         residents of Fairhaven, Massachusetts who reside in the vicinity of the
         landfill owned by the Town of Fairhaven (the "Landfill") which is being
         remodeled  and  operated by the  Company.  The first case  commenced on
         November 8, 1995. In that case,  Plaintiffs appealed a permit issued by
         the  Massachusetts  Department of Environmental  Protection (the "DEP")
         authorizing the  construction of a component of the remodeling  project
         (the  "Authorization  to  Construct"  or "ATC").  Plaintiffs  also have
         brought  claims  alleging  that  the  DEP  violated  the  Massachusetts
         Environmental  Policy  Act in  issuing  the  ATO  (the  "MEPA  Claim").
         Further,  Plaintiffs have brought common law claims against the Company
         for  nuisance,  trespass  and strict  liability  based  principally  on
         alleged  dust  and  odor   conditions   resulting  from  the  Company's
         excavation  activities at the Landfill.  The Company is contesting  all
         claims,  and is receiving the  cooperation of the Town of Fairhaven and
         the DEP in  opposing  the claims in which those  parties are  involved.
         Pursuant to the  Massachusetts  Administrative  Procedures Act, the ATO
         Appeal was heard by a Bristol County  Superior  Court Judge.  The Court
         had a hearing on the Permit  Appeal on September  5, 1996,  but has not
         yet announced its findings.

      The Company believes that the Plaintiffs' stated grounds in the ATC appeal
         are  without  merit  and that the ATC will be upheld as a result of the
         hearing. However, if the DEP's granting of the permit were reversed the
         Company's plans with respect to the Fairhaven landfill project would be
         materially adversely affected.  The ATC permit remains in effect during
         the pendency of the appeal.

      Previously on January 12, 1996,  the Company filed a motion to dismiss the
         MEPA Claims.  The Town and DEP have filed a similar  motion.  The Court
         heard oral  argument on the motions to dismiss on April 9, 1996. On May
         1, 1996, the Court issued a decision on the motions to dismiss in favor
         of WSI and the Town, dismissing the MEPA claims in their entirety.

      Plaintiffs' common law claims for nuisance,  trespass and strict liability
         are based principally on allege dust and odor conditions resulting from
         the Company's  excavation  activities at the Fairhaven  Landfill during
         the summer  and early fall of 1995.  The  Company is  pursuing  factual
         discovery with regards to these claims.  If the Plaintiffs pursue these
         claims  after  disposition  of the ATC appeal,  a period of  additional
         discovery  and other  pre-trial  proceedings  would take place prior to
         trial on the merits.

      The second case was commenced  September 9, 1996.  In that case,  the same
         Plaintiffs  appealed  a  permit  issued  by  the  DEP  authorizing  the
         operation of a component of the remodeled landfill (the  "Authorization
         to  Operate"  or "ATO").  The  plaintiffs  challenge  to the ATO raises
         issues similar, and in some instances identical, to those raised in the
         ATC appeal.  Accordingly, as a legal or practical matter, a decision in
         the ATC appeal may resolve the ATO appeal, and this case is essentially
         on hold pending the outcome of the ATC appeal.  As with the ATC permit,
         the ATO permit remains in effect during the pendency of the appeal.
                                      F-28
<PAGE>
                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements

      c) During 1994,  the Company  made a refundable  deposit for the option to
         purchase 80 percent of the common stock of Shred Pax  Corporation  (now
         known as One, Three, Six, Inc.)("OTS"), a manufacturer of shredding and
         grinding  equipment.  The  option  expired  on March  31,  1994 but was
         extended  by the  Company  under  the  option  agreement  which in turn
         resulted in the deposit being used to purchase 16 percent of OTS common
         stock.  OTS sold  substantially  all of its assets to a third  party on
         August 31, 1994, and adopted a plan to liquidate  OTS.  Pursuant to the
         plan of liquidation,  the Company had the right to receive its share of
         the net  proceeds  of  liquidation  upon  completion  of winding up the
         affairs of OTS.

      In December 1994, the Company  received  $400,000 in the form of a note as
         an advance  against the initial  distribution of proceeds from the sale
         of the assets of OTS. In September  1996,  OTS filed a lawsuit  against
         the Company in the Circuit Court of DuPage  County,  Illinois,  seeking
         recovery of $433,000 in principal and interest  allegedly due under the
         promissory note. Pursuant to a confession-of-judgment  provision in the
         promissory  note, on or about September 26, 1996, OTS obtained an order
         of  judgment  in its favor  for the  amount at issue  plus  costs.  The
         Company   contended   that  OTS   obtained  the   promissory   note  by
         misrepresentations  and had violated the Company's rights as a minority
         stockholder.  The Company filed the necessary  paperwork to re-open the
         judgment and to assert its affirmative defenses and counterclaims. By a
         Complaint filed October 17, 1996, in Massachusetts  Superior Court, OTS
         commenced  proceedings to enforce the judgment  entered by the Illinois
         Court.

      In early March 1997, the parties  entered into an agreement to settle both
         the  Illinois  and  Massachusetts  actions,  and they  have  both  been
         dismissed with  prejudice.  As part of the  settlement,  in addition to
         general releases, the Company exchanged its 16% interest in OTS for all
         claims under the note.

      d) On or about August 1, 1996,  the Company  became aware that it had been
         joined as a defendant  in a lawsuit  pending in the State of Vermont in
         Washington  Superior Court,  Docket No. 579-10-95 Wncv,  Caption Stuart
         Savage, John Savage, Adelle Savage and Andrew R Field, Trustee v. Major
         Sport  Fantasies,  Inc.  a Vermont  Corporation,  Robert  Dowdell,  Jr.
         BioSafe, Inc. and Major Sports Fantasies, Inc., a Delaware Corporation,
         (the "Vermont  Litigation").  The Plaintiff sought damages in an amount
         in excess of $480,000, plus punitive damages, attorneys' fees and court
         costs.  On or about  August 1, 1996,  the Company also learned that the
         Plaintiffs  had obtained an attachment , in the amount of $850,000,  on
         the Company's  property known as the WPV Solid Waste Facility,  located
         on Route 2, Moretown, Vermont (the "Attachment").

      On March 26,  1997,  the Company  settled the  Vermont  Litigation  on the
         following  terms:  The  Company  will  deliver  to the  Plaintiffs  (a)
         $35,000,  (b) a note in the amount of $225,000 and (c) general releases
         of, and covenants not to sue, the Plaintiffs;  in exchange, the Company
         received  (a)  general   release  and  covenants  not  to  sue  by  the
         plaintiffs,  (b) discharge of the Attachment,  and (c) dismissal of the
         Vermont Litigation.

      e) The  Company   currently   has  ongoing   four   complaints   with  the
         Massachusetts  Commission  Against  Discrimination,  principally as the
         result  of  actions  of the  Company's  ex-operator  of  the  Fairhaven
         landfill, Gary Rogers. The Company is not in a position to evaluate the
         likelihood  that damages or other  relief will be awarded,  or that the
         amount of damages awarded could be material.  The Company has set up an
         estimated reserve of $125,000 for litigation costs for these matters as
         of December 31, 1996.

                                      F-29
<PAGE>
                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements

 (14) Preferred Stock

      In 1993,  the Company  issued  7,750 shares of newly  created  Series A 8%
         preferred stock to related and unrelated  parties,  in exchange for the
         retirement of $775,000 of debt.

      During 1994,  the  Company  redeemed  from a principal  stockholder  3,000
         shares of preferred stock for a purchase price of $300,000.

      On March 29, 1995 all outstanding shares of preferred stock were converted
into 237,500 shares of common stock.

(15) Common Stock

      During 1993, the Company issued 280,000 shares and received gross proceeds
of $420,000.

      During 1994, the Company  circulated a private  placement  memorandum that
         raised  gross  proceeds of  $1,025,000  through the issuance of 256,250
         shares of common stock at a price of $4.00 per share (before adjustment
         for the 1.75 to 1 stock split).

      On December 1, 1994, the Company converted  240,000 of subordinated  notes
         payable and $5,952 accrued interest into 61,488 shares of common stock.

      During 1991, 1992, 1993, and 1994, the Company issued 270,750,  1,075,125,
         62,310 and 20,000 shares of common stock, respectively, in exchange for
         various investment considerations and consulting services. No value was
         assigned by the  Company to the shares that were issued in 1991,  1992,
         and 1993 since,  at the time of issuance,  the Company had not sold any
         stock since  inception and the Company had a substantial  stockholders'
         deficit.  The 1994 shares were recorded at a current value of $4.00 per
         share (before adjustment for the 1.75-to-1 stock split).

      From January 1 through March 29, 1995, the Company issued 2,450 shares for
         employee  bonuses,  31,500 shares in exchange for Directors'  fees, and
         11,250  shares  for  consulting  services  at $4.00 per  share  (before
         adjustment for the 1.75 to 1 stock split).

      On February 1, 1995,  WSI closed a private  placement  of 1,100 units with
         net proceeds of $997,250.  Each unit  consisted of a $1,000 face amount
         10% convertible  subordinated  note, a Series C Warrant to purchase 500
         shares of Common  Stock at $2.00 per  share,  and a Series D Warrant to
         purchase 500 shares of Common Stock at $4.75 per share. The convertible
         notes and all accrued  interest were then converted into 558,578 shares
         of the Company's  Common Stock on March 29, 1995, as part of the merger
         transaction described below.

      On February 17, 1995, WSI began  offering units  consisting of four shares
         of Common  Stock  with a Series D Warrant  to  purchase  two  shares of
         Common Stock at $4.75 a share. Contemporaneous with the merger on March
         29, 1995,  described  below,  WSI  completed an initial  closing of its
         private  placement with gross proceeds of $4.0 million from the sale of
         500,000  units at $8.00 per unit.  After the merger,  on April 18, 1995
         and April 24, 1995,  the Company  closed an aggregate of  $5,000,000 in
         additional  gross  proceeds with respect to the private  placement from
         the sale of 625,000 units at $8.00 per unit.
                                      F-30
<PAGE>

      In March,  1995, the Company issued warrants to purchase 114,625 shares at
         $2.29  per  share and  50,000  shares  at $3.50  per  share to  certain
         investors  for  investment  considerations  and  professional  services
         rendered.

      On March 29, 1995, the Company  acquired BioSafe in a merger accounted for
         as a reverse recapitalization.  The acquisition was consummated through
         an exchange  of shares of the Company for an equal  number of shares of
         BioSafe. To accomplish this, the stockholders of the Company approved a
         1 for 73.083  reverse  stock  split while the  stockholders  of BioSafe
         approved a 1.75 to 1 forward stock split. Since stockholders of BioSafe
         received  the  majority  stock of the  resulting  combined  enterprise,
         management of BioSafe became management of the combined enterprise. The
         name of the Company was then changed from Zoe Capital  Corp. to BioSafe
         International, Inc. The financial statements presented treat BioSafe as
         the surviving entity in the combination.  The financial  statements for
         December 31, 1994 and prior periods exclude BioSafe International, Inc.
         since such financial statements are not material.

      As part  of  the  merger  agreement,  all  of the  outstanding  shares  of
         BioSafe's  Preferred  Stock (total of 4,750 shares with $100 par value)
         were converted  into 237,500 shares of Common Stock of the Company.  On
         March  29,  1995,  the  Company  also  issued to the  existing  BioSafe
         stockholders  Series E Warrants  on a  pro-rata  basis to  purchase  an
         aggregate of 500,000  shares of the  Company's  Common Stock at $3.50 a
         share.

      The Company has the right to accelerate  the expiration of the Warrants in
         the event that the  average  market  price of the  Common  Stock for 20
         consecutive trading days exceeds $4.625 per share in the case of Series
         A Warrants and $5.75 per share in the case of Series C Warrants, Series
         D  Warrants  and  Series E  Warrants.  In the  event  that the  Company
         accelerates  the  expiration  of any  Warrants,  the  holders  of  such
         Warrants would be permitted to exercise the Warrants during a period of
         not less than 20 days following notice of such event.

      On March 30, 1995, the Company issued three-year  non-callable Warrants to
         purchase  720,000  shares of the  Company's  Common  Stock at $2.30 per
         share and  200,000  shares of  Common  Stock,  issued  and  charged  to
         stockholder's   equity  at  $2.00  per   share,   to   Capital   Growth
         International,  Inc.  ("Capital Growth") as compensation for investment
         banking services  rendered in connection with the private placement and
         the merger.

      On March 30, 1995,  the Company  issued 890,000 shares of Common Stock and
         recorded the issuance as prepaid consulting expense at $1.50 per share,
         to Liviakis Financial Communications,  Inc. in conjunction with the two
         year  consulting  agreement  described  more  fully  in Note 8 to these
         consolidated financial statements.

      The Company used a portion of the  proceeds  from the  merger and  private
         placement to repay notes  payable,  notes payable to  stockholders  and
         related parties and subordinated notes payable.

      On November 6, 1995, the SEC declared effective the Company's registration
         Statement  on Form S-1  relating  to the  resale  by  certain  security
         holders of up to 16,606,356  shares of Common Stock,  122,719  Series A
         Warrants and 550,000  Series C Warrants,  2,800,000  Series D Warrants,
         and 500,000 Series E Warrants. The Company did not receive any proceeds
         from the sale of shares of Common  Stock or  Warrants  from the selling
         security  holders.  The Company will receive proceeds from the issuance
         of  Secondary  Warrant  Stock  when,  and if, any of the  Warrants  are
         exercised by the warrant holders.
                                      F-31
<PAGE>
                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements

      On June 28,  1996,  the Company  closed an offering to overseas  investors
         under Regulation S of the Securities Act of  approximately  3.3 million
         shares of common  stock at  approximately  $2.00 per share  raising net
         proceeds of  approximately  $5.9 million.  The purchasers  were all non
         U.S. persons and were primarily existing institutional WSI shareholders
         and internationally recognized environmental mutual funds. These shares
         have not been  registered  under the Securities Act and may not be sold
         in  the  United  States  without  such  registration  or an  applicable
         exemption from the requirement of registration.

      In 1996 and 1995 the Company issued additional warrants to purchase common
         stock in connection with various financing transactions.

(16) Stock Options

      Employee Stock Option Plan

      On March 27,  1995,  the WSI 1993  Stock  Option  Plan was  assumed by the
         Company,  adjusted  to  reflect  the  1.75 to 1 stock  split.  The Plan
         provides for the issuance of options to purchase up to 1,500,000 shares
         of  Common  Stock  to  employees,  directors,  and  consultants  of the
         Company.  Options granted under the Plan may be either  Incentive Stock
         options or  Non-Qualified  Stock Options for purposes of federal income
         tax law. Options are generally subject to vesting over a period of four
         years  from the date of grant and are  exercisable  only to the  extent
         vested from time to time,  although  certain  options have provided for
         earlier  vesting.  The selection of  individuals  to receive  awards of
         options  under the Plan and the amount and terms of such  awards may be
         determined by the Board of Directors of the Company or an Administering
         Committee appointed by the Board of Directors.

      As of December  31,  1996,  options to purchase  806,000  shares of Common
         Stock had been  granted and  options to  purchase  up to an  additional
         694,000  shares  remained  available for grant.  The per share weighted
         average fair value of stock  options  granted  during 1996 and 1995 was
         approximately  $.82 and $2.15,  respectively,  using the Black  Scholes
         option-price  model with the following  weighted  average  assumptions:
         volativity,  30%; expected dividend yield, 0%; risk free interest rate,
         5.3%; and expected life, 5 years.

      The Company applies  APB Opinion No. 25 in  accounting  for stock  options
         and,  accordingly,  no  compensation  cost  has  been  recorded  in the
         financial statements.  If the Company had determined compensation costs
         based on the fair value of its stock  options at their grant date under
         SFAS No.  123,  the  Company's  net  losses in 1996 and 1995 would have
         increased to the amounts shown below.

                                                      1996              1995
                                                      ----              ----

                Net loss - as reported         $ (13,889,772)      $ (7,870,979)
                         - pro forma           $ (14,334,772)      $ (8,303,479)
                       
                Net loss per share - as reported   $ (0.98)          $ (0.82)
                                   - pro forma     $ (1.01)          $ (0.86)

      Proforma net income  reflects only the effects of options  granted in 1996
         and 1995. Therefore, it does not reflect the full effect of calculating
         the cost of  stock  options  under  SFAS No.  123  because  the cost of
         options issued prior to January 1, 1995 is not considered. As a result,
         it may not be  representative  of the pro forma  effects  on  operating
         results that will be disclosed in future years.
                                      F-33
<PAGE>
                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements

      Changes in options and option shares under the plan during the  respective
years were as follows:

                                   1996                           1995

                       Weighted ave.                  Weighted ave.
                       exercise price     Number      exercise price     Number
                        per share         of shares   per share        of shares
  Options outstanding, 
    beginning of year      $6.19           619,125       $2.00          555,625
  Options granted          $2.25           741,250       $5.50          287,500

  Options exercised        $2.00             6,562                         -
  Options canceled         $3.83           547,813       $2.00          224,000
                                        ----------                    ---------
  Options outstanding, 
    end of year            $2.23           806,000       $6.19          619,125
  Shares reserved for future grants        694,000                      880,875
                                        ----------                    ---------

  Total options in the plan              1,500,000                    1,500,000
                                        ==========                    =========

  Options exercisable, 
    end of year            $2.23           511,125       $2.00          147,656
                                         ==========                   =========

Options outstanding at December 31, 1996 and market value at date of grant
   were as follows:

                                   Number         Price
                                   of shares      per share              Amount
                                   ---------      ---------              ------
         Year of grant:
              1994                    47,250       $ 2.00       $        94,500
              1995                    17,500       $ 2.00                35,000
              1996                   741,250       $ 2.25             1,667,813
                                  ----------                       ------------

                                     806,000                    $     1,797,313
                                  ==========                       ============

      Non - Employee Directors Stock Option Plan

      On June 24, 1996,  WSI adopted the 1995 Stock Option Plan for Non Employee
         Directors.  The plan  entitles  each Director to receive a grant of Non
         Qualified  Options to purchase  10,000 shares of the  Company's  Common
         Stock for each  calendar  year of service as a director  of the Company
         commencing January 1, 1996. Each such option is subject to vesting at a
         rate of 2,500  shares for each year that the holder  remains a Director
         of the Company.





                                      F-33
<PAGE>


                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements




      In 1994  options to purchase  43,750  shares of Common  Stock were granted
         outside of the Option  Plan to a director.  Fifty  percent of these are
         exercisable at $2.00 per share at December 31, 1996.

      Changes in options and option shares under the plan during the  respective
          years were as follows:


                                   1996                           1995
                       ----------------------------   --------------------------
                       Weighted ave.                  Weighted ave.
                       exercise price     Number      exercise price     Number
                        per share         of shares   per share        of shares
                       -------------     ----------   ---------------  ---------
  Options outstanding, 
    beginning of year      $2.00            43,750       $2.00           43,750
  Options granted          $3.56            53,334         -               -   
  Options exercised          -                -            -               -
  Options canceled           -                -            -               -   
                                         ----------                    ---------
  Options outstanding,           
    end of year            $2.86            97,084       $2.00           43,750
                                        ===========                    =========
  Options exercisable, 
    end of year            $2.59            35,208       $2.00           10,937
                                         ==========                    =========

Options outstanding at December 31, 1996 and market value at date of grant
   were as follows:

                                   Number         Price
                                   of shares      per share              Amount
                                   ---------      ---------              ------
         Year of grant:
              1994                    43,750       $ 2.00       $        87,500
              1995                    40,000       $ 3.91               156,400
              1996                    13,334       $ 2.56                34,135
                                  ----------                       ------------
                                      97,084                    $       278,035
                                  ==========                       ============





 (17) Related Party Transactions

      During the years ended  December 31, 1996,  1995 and 1994 the Company paid
         and accrued investment  advisory fees of $29,430,  $45,936 and $45,740,
         respectively,  to Newbury,  Piret & Company,  Inc., a Company  owned by
         Marguerite A. Piret, a stockholder,  ex-director of the Company and the
         wife of Rosen, See Note 5 - Due From Former Employee.

      As part of the merger  discussed  in Note 15, the Company  entered  into a
         one-year    investment    banking   agreement   with   Capital   Growth
         International, Inc. at $4,500 per month, which expired in March, 1996.

 (18) Subsequent Events

      In January 1997, the Company closed a private  placement of 860,000 shares
         of common stock at $.50 per share with net proceeds of $430,000.  These
         shares have not been registered under the Securities Act and may not be
         sold in the United States  without such  registration  or an applicable
         exemption from the requirement of registration.

                                      
                                      F-34
<PAGE>


                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

                             (A Development Stage Company)

                      Notes to Consolidated Financial Statements


      On or about March 31, 1997, the Company's subsidiary,  Waste Professionals
         of Vermont,  Inc.("WPV")  expects to close a $1 million  term loan with
         The Howard Bank of Burlington,  Vermont. The term of the loan is for 36
         months with an initial  rate of 15%.  The initial rate shall be reduced
         when the Company raises additional equity as outlined in the agreement.
         The loan is primarily secured by a first mortgage on WPV's landfill and
         the  royalties  due the  Company  under its  licensing  agreement  with
         ScotSafe (See Note - 3), and is guaranteed by the Company.




                                      F-35
<PAGE>


                                                
PART III

Item 10.  Directors and Executive Officers

Information Regarding Directors and Executive Officers
------------------------------------------------------

                  The following table and  biographical  descriptions  set forth
certain  information  as of March 31, 1997,  unless  otherwise  specified,  with
respect to the directors and the executive officers who are not directors, based
on information furnished to the Company by each director and officer.

                     Directors and Executive Officers
                     --------------------------------
                                                                    Amount and  
                               Directors                            Nature of
                              or Officers   Beneficial Ownership      Percent
Name                      Age   Since       of Common Stock          of Class
-------------------------------------------------------------------------------
Richard S. Golob          45    1996           21,355                 *
Jay Matulich              43    1995           17,500                 *
William B. Philipbar      71    1996            1,667                 *
Daniel J. Shannon         62    1994           46,250                 *
Barry D. Simmons          57    1990          217,875               1.2%
Philip W. Strauss         48    1995          250,000               1.4%
B.G. Taylor               72    1990          222,875               1.2%
Robert Rivkin             38    1994          250,875               1.4%
Joseph Motzkin            53    1996           30,000                 *


* Less than one percent.

                  Jay J.  Matulich.  Since  1994,  Mr.  Matulich  has been a 
Senior  Vice-President  of Capital  Growth International L.L.C.,  formerly U.S. 
Sachem Financial Consultants,  L.P. ("Capital Growth"). From May 1990 to October
1994, Mr. Matulich was a Vice President of Gruntal & Co.,  Incorporated,  
investment bankers.  Mr. Matulich was elected to the Board of Directors in March
1995  pursuant  to an  agreement  between  the  Company  and Capital Growth,  in
connection with Capital Growth's role as placement agent for certain securities 
of the Company.

                  Philip W. Strauss. Mr. Strauss has been the Chief Executive 
Officer and President  since March 27, 1996 and previously had been Executive 
Vice President and Chief Operating Officer of the Company since September 1995. 
He has 24 years of experience in project,  business and corporate  development. 
Mr. Strauss was co-founder of BioMedical Waste Systems,  Inc., a publicly-held  
waste management firm,  where he served as Executive  Vice  President  from its 
inception in 1987 until May 1992 and as a Director from inception until 
May 1993.

                  Richard S. Golob. Mr. Golob has been a Director of the Company
since May 8, 1996.  He is  President  of World  Information  Systems,  a private
consulting and publishing company in the environmental  industry.  Through World
Information Systems and his two newsletters,  Hazardous  Materials  Intelligence
Report and Oil Pollution Bulletin,  Mr. Golob provides  information and advisory
services to  environmental  companies  on business  development,  marketing  and
financing.  He is  also  founder  and  chairman  of the  Environmental  Business
Conferences,   which  provides  biannual  forums  for   environmental   business
executives to discuss  critical  business  issues.  He served as a member of the
Environmental  Advisory Board of Charles River Partnership IV, a venture capital
fund that invests in the environmental industry.

                                      20
<PAGE>

                  William B.  Philipbar.  Mr.  Philipbar  has been a Director of
the Company  since May 8, 1996. He has been a director of Matlack Systems,  Inc.
and  Rollins  Leasing  Corp.  since  1993.  He has also been  serving as a
director  of Rollins  Environmental  Services,  Inc.  since 1972.  Until 1995 he
was also a director  of Charles  River Ventures, a company that he continues to 
serve as an advisor.

                                      21
<PAGE>

                  Daniel J.  Shannon.  Mr.  Shannon has been a Director of the  
Company  since 1994.  He is a certified public  accountant  with  experience  in
public  and  private  finance,  public  service,  health  care,  and  pension 
management.  Mr. Shannon is currently  Director of LaSalle Street  Capital  
Management,  Ltd. ("LaSalle  Capital"),  a subsidiary of LaSalle National Trust,
a financial  institution  headquartered  in Chicago,  Illinois.  Mr.  Shannon's
duties as Director of LaSalle  Capital are  primarily  those of an advisor to 
clients in the  marketing  of  investment products.

                  Barry  D.  Simmons,  MD.  Dr.  Simmons  has been a  Director  
of the  Company  since  1990.  He is an orthopedic  surgeon  and has been  
associated  with  Brigham  Orthopedic  Associates,  Inc.  at the Brigham and 
Women's Hospital since 1974. Dr. Simmons has been the Chief,  Hand Surgery  
Service,  at the Brigham and Women's Hospital since 1982. In 1985,  Dr.  Simmons
was appointed an Associate  Clinical  Professor of Orthopedic  Surgery at 
Harvard  Medical School,  and in that same year, he began his association with 
Waterville  Valley Medical  Associates,  Inc. situated at the Waterville Valley 
Ski Area.

                  B.G.  Taylor.  Mr.  Taylor has been a Director of the Company 
since 1990.  He is a private  investor and was President and Chief Operating  
Officer of The Halliburton  Services Company and Executive Vice President of The
Halliburton Company.  Mr. Taylor has over 40 years of diverse operating 
experience in large organizations.

Senior Executive Officers Who Are Not Directors

                  Robert Rivkin. Mr. Rivkin, a Certified Public Accountant,  has
been Vice President of WSI since July 1994, Chief Financial  Officer since March
1995, Secretary since May 1995 and Treasurer since June 1996. From 1989 to 1994,
Mr.  Rivkin was a  principal  at The  Envirovision  Group Inc.,  a full  service
environmental  engineering,  consulting and  contracting  company,  where he was
responsible for marketing and strategic  planning,  finance and overall business
management. Previously, Mr. Rivkin practiced public accounting in New York where
he specialized in mergers and acquisitions, IPO's and SEC reporting.

                  Joseph E.  Motzkin.  Mr.  Motzkin has been a Vice President of
WSI since  August 1996.  From 1994 to 1996, he was a General Manager at Prins  
Recycling  Corporation,  where he operated  landfills,  established  recycling
programs,  and directed sales programs and customer  service  activities.  From 
1989 to 1994, he was a General Manager for Laidlaw Waste  Systems,  where he was
responsible  for their New England  operations.  Mr. Motzkin has 26 years of
experience in the solid waste management business.

The Board of Directors and Its Committees
-----------------------------------------

Board of Directors

                  The Company is currently  managed by a  seven-member  Board of
Directors, a majority of whom are independent of the Company's management.  Each
director  will hold  office  for the term to which he is  elected  and until his
successor is duly elected and qualified.

                  The Board of  Directors  held 10 meetings  during  fiscal year
1996.  Each of the  directors  attended  at least  75% of the  total  number  of
meetings of the Board of Directors and of the committees of the Company of which
he was a member.
                                      F-21 
<PAGE>

                  The  Board of  Directors  has  appointed  an Audit  Committee,
Compensation Committee and an Executive Committee.

                  Compensation  Committee.  The  Compensation  Committee,  which
consisted  of Messrs.  Matulich  and  Simmons as of  December  31,  1996,  makes
recommendations and exercises all powers of the Board of Directors in connection
with certain compensation matters,  including incentive compensation and benefit
plans. The Compensation Committee administers, and has authority to grant awards
under,  the Waste  Systems  International,  Inc. 1995 Stock Option and Incentive
Plan (the "Plan") to the employee  directors  and  management of the Company and
its  subsidiaries and other key employees.  The  Compensation  Committee met one
time in 1996.

         Executive Committee.  The Executive Committee,  which consists of 
Messrs.  Strauss,  Golob, and Philipbar,  is authorized  to manage and direct 
the affairs of the Company  between  meetings of the Board of  Directors,  
subject to limitations  imposed by applicable law and other  resolutions of the 
Board of Directors.  The Executive  Committee met six times in 1996.

                  Audit Committee.  The Audit Committee which currently consists
of Messrs.  Matulich,  Philipbar  and Shannon,  is empowered to recommend to the
Board the  appointment of the Company's  independent  public  accountants and to
periodically  meet  with such  accountants  to  discuss  their  fees,  audit and
non-audit services, and the internal controls and audit results for the Company.
The Audit  Committee  also is  empowered to meet with the  Company's  accounting
personnel to review accounting policies and reports. The Audit Committee met one
time during 1996.

Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------

             Section 16(a) of the Exchange Act requires the Company's  executive
officers and directors,  and persons who own more than 10% of a registered class
of the Company's equity securities,  to file reports of ownership and changes in
ownership with the SEC and the Nasdaq Small-Cap Market. Officers,  directors and
greater  than 10%  stockholders  are required by SEC  regulation  to furnish the
Company  with copies of all  Section  16(a)  forms they file.  To the  Company's
knowledge, based solely on review of the copies of such reports furnished to the
Company and written  representations  that no other reports were required during
the fiscal year ended December 31, 1996,  all Section 16(a) filing  requirements
applicable to its executive officers,  directors and greater than 10% beneficial
owners were satisfied except that Mr. Joseph Motzkin  inadvertently filed a Form
3 Statement of Beneficial Ownership  Securities,  which was due August 11, 1996,
approximately 30 days late.

Item 11.  Executive Compensation

Director Compensation
---------------------

             Pursuant to a Resolution  adopted by the Directors in January 1996,
the  Company is not paying  cash  compensation  to its  Directors.  Non-Employee
Directors  are entitled to stock option  grants under the 1995 Stock Option Plan
for  Non-Employee  Directors.  The  Board may  reconsider  the  payment  of cash
compensation to Directors at a future date.

             Summary  Compensation  Table.  The  following  table sets forth the
aggregate cash compensation paid by the Company with respect to the fiscal years
ended December 31, 1996, 1995 and 1994 to the Company's Chief Executive  Officer
and the one other  senior  executive  officer in office on December 31, 1996 who
earned at least $100,000 in cash compensation  during 1996 (the "Named Executive
Officers").

                                      22
<PAGE>

                         SUMMARY COMPENSATION TABLE

                                                                    Long-Term
                                                                   Compensation
                                                                       Awards
                                                                       ------
                                           Annual                      Shares
                                        Compensation                 Underlying
Name and Principal Position    Year        Salary                      Options
                                             ($)                        (#)
----------------------------   -----     ----------              --------------

Philip Strauss (1)             1996        150,000                    250,000
   President and Chief         1995         43,750                    200,000
   Executive Officer    

Robert Rivkin                  1996        150,000                    206,250
   Vice President, Chief 
   Financial                   1995        150,000                       0
   Officer, Secretary and 
   Treasurer                   1994         75,000                     43,750

Richard H. Rosen (2)           1996         45,000                       0
   Chief Executive Officer, 
   President                   1995        180,000                       0
   and Treasurer               1994        180,000                    175,000

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

(1)Mr. Strauss became Chief Executive Officer on March 27, 1996.  Prior to that,
      Mr. Strauss was Executive Vice President and Chief Operating Officer which
      offices he had held since September 19, 1995.

(2)Dr. Richard H. Rosen resigned from all offices and positions with the Company
       on March 27, 1996.


                                      23
<PAGE>


         Option Grants in Fiscal Year 1996.  The following  table sets forth the
options  granted  during  fiscal year 1996 and the value of the options  held on
December 31, 1996 by the Company's named executive officers.

                          OPTION GRANTS IN FISCAL YEAR 1996
                          ---------------------------------
 
                                    Percent of 
                                    Total Options  Exercise             [Grant
                 Number of          Granted to     or Base              Date 
                 Shares Underlying  Employees in   Price     Expiration Present 
Name             Options Granted    Fiscal Year    ($/share) Date       Value $]
--------------------------------------------------------------------------------

Philip Strauss       250,000              34%       $2.25    2006       $204,250

Robert Rivkin        206,250              28%       $2.25    2006       $168,506

         Option Exercises and Year-End Holdings.  The following table sets forth
the options  exercised during fiscal year 1996 and the value of the options held
on December 31, 1996 by the Company's Named Executive Officers.

                     AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996
                          AND FISCAL YEAR-END 1996 OPTION VALUES

                                             Number of
                                             Securities            Value of
                                             Underlying            Unexercised
                                             Unexercised           in-the-Money
                                             Options               Options
                                             at fiscal             at fiscal
                   Shares                    Year-End (#)          Year-End ($)
                  Acquired      Value        -------------         -------------
                 On Exercise  Realized       Exercisable/          Exercisable/
Name                 (#)         ($)         Unexercisable         Unexercisable
--------------   -----------  --------       -------------         -------------
Philip Strauss       0            0             250,000/0                0
Robert S. Rivkin     0            0             250,000/0                0
Richard H. Rosen     0            0                 0                    0


     Option  Repricings  The  following  table sets forth the  options  repriced
during fiscal year 1996.

                           10-YEAR OPTION REPRICING
                                                                       Length of
                                                                       Original 
                        Number of   Market                             Option   
                        Securities  Price of   Exercise                Term     
                        Underlying  Stock at   Price at                Remaining
                        Options     Time       Time       New          at Date 
                        Repriced    of         of         Exercise     of 
Name            Date       (#)      Repricing  Repricing  Price        Repricing
--------------------------------------------------------------------------------

Philip Strauss  6/28/96  200,000      $5.44      $5.44     $2.25       9 years

                                      24
<PAGE>



        Employment Agreements.  As of December 31, 1996, the Company was a party
to an  employment  agreement  with  Mr.  Rivkin.  The  terms  of  the  Company's
employment  agreement  with Mr.  Rivkin,  provides (i) that Mr. Rivkin receive a
salary of  $150,000  per year;  and (ii) that he agree not to  compete  with WSI
following  termination  of  his  employment  by WSI  for a  period  of one  year
following such termination. The terms of this agreement shall continue in effect
until  terminated by either  party.  WSI may exercise the right to terminate the
agreement  with or without  cause at any time and Mr.  Rivkin may  exercise  the
right to terminate the agreement on 30 days' written notice at any time.

Stock Performance Graph
-----------------------

               The  Securities and Exchange  Commission  requires the Company to
present a chart comparing the cumulative total shareholder  return on its Common
Stock with the cumulative total shareholder  return of (i) a broad equity market
index and (ii) a published  industry index or peer group.  Although such a chart
would  normally be for a five-year  period,  the Common Stock has been listed on
the Nasdaq Small-Cap  Market only since November 14, 1995 and, as a result,  the
following  chart reflects only the period during which the Common Stock has been
listed on that  market.  The chart  compares the Common Stock with (i) the Media
General  Nasdaq  Market  Value  Index (the  "Nasdaq  Index")  and (ii) the Media
General Waste  Management  Industry Index (the "Waste  Management  Index").  The
total  return  for each of the  Common  Stock,  the  Nasdaq  Index and the Waste
Management Index, assumes the reinvestment of dividends, although dividends have
not  been  declared  on the  Company's  Common  Stock.  This  chart  assumes  an
investment of $100 on November 14, 1995 in each of the Common Stock,  the stocks
comprising  the Nasdaq  Index and the  stocks  comprising  the Waste  Management
Index.  The Nasdaq Index tracks the aggregate price  performance of all domestic
equity securities traded on the Nasdaq Market.

                                        Industry
                          WSI             Index          Broad Market           
                         ------         --------         ------------
November 14, 1995        100.00          100.00             100.00
December 31, 1995         89.33          107.37             101.13
December 31, 1995         14.00          133.17             125.67



                                       25
<PAGE>


Report of the Compensation Committee
------------------------------------

               The Compensation Committee's executive compensation philosophy is
to establish  competitive  levels of compensation,  link management's pay to the
achievement  of the  Company's  performance  goals,  and enable  the  Company to
attract and retain qualified  management.  The Company's  compensation  policies
seek to align the financial  interests of senior  management of the Company with
those of the stockholders.

               Base Salary.  The Company has established  base salary levels for
senior  management  based on a number of factors,  including market salaries for
such positions,  the responsibilities of the position,  the experience,  and the
required knowledge of the individual. The Compensation Committee attempts to fix
base  salaries  on a basis  generally  in  line  with  base  salary  levels  for
comparable companies.

               Incentive Compensation.  During each fiscal year the non-employee
directors who are members of the  Compensation  Committee may consider  granting
senior executives of the Company awards of stock or options under the Plan. Such
awards are based on various  factors,  including  both  corporate and individual
performance  during the  preceding  year and  incentives  to reach certain goals
during  future years.  During 1996,  the Company  lowered the exercise  price of
options granted to all Company  employees,  including the Named  Executives,  in
lieu of raising salaries. The new exercise price is $2.25.

             Chief Executive Officer  Compensation.  Base compensation of the 
Chief Executive Officer,  Philip Struass, for fiscal  year 1995 and 1996 was  
$150,000  which was not tied to any  performance  indicators.  Mr.  Strauss did 
not receive any bonus for 1995 or 1996 as there was no bonus plan in place.

Submitted by the Compensation Committee:

Jay Matulich and Barry D. Simmons

Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------

             Jay  Matulich  and Dr.  Simmons  served  on the  Compensation  
Committee  in 1996.  No  member of the Compensation Committee has ever served as
an officer of the Company.


Item 12.  Security Ownership of Certain Beneficial Owners and Management

    The following  table presents information as to all directors and senior 
executive  officers of the Company as of March 31, 1997 and persons or entities 
known to the  Company to be  beneficial  owners of more  than 5% of the  
Company's  Common  Stock  as of  March  31,  1997,  unless otherwise  indicated,
based on representations of officers and directors of the Company and filings 
received by the Company on Schedules 13D and 13G or Form 13F under the 
Securities  Exchange Act of 1934, as amended (the "Exchange Act"). All such  
information  was provided by the  stockholders  listed and reflects  their 
beneficial ownership known by the Company on March 31, 1997.


                                       26
<PAGE>


                        Beneficial Ownership of Common Stock
                        ------------------------------------


                  Directors, Officers                 Shares         Percent
                  and 5% Stockholders(1)               Owned         of Class
                  -------------------------------------------------------------

                  Richard Golob(2)                 21,355               *
                  1105 Massachusetts Ave, 5D
                  Cambridge, MA  02138

                  Liviakis Financial
                  Communications, Inc.            910,000             5.15%
                  Sacramento, CA 95816

                  Jay Matulich(3)                  17,500               *
                  1007 Maple Street
                  Santa Monica, CA  90405

                  Joseph Motzkin                   30,000               *
                  15 North Hill Drive
                  Lynnfield, MA  01940

                  William B. Philipbar(2)           1,667               *
                  4870 S.W. Parkgate Blvd.
                  Palm City, FL  34990

                  Bob Rivkin(4)                   250,875             1.41%
                  23 Marshall Path
                  Acton, MA  01720

                  Richard Rosen                   997,209             5.61%
                  162 Washington Street
                  Belmont, MA 02178

                  Barry D. Simmons(5)             217,875             1.2%
                  204 Prospect Street
                  Belmont, MA  02178

                  Daniel J. Shannon(6)             46,250               *
                  746 Exmoor Oaks Drive
                  Highland Park, IL  60035

                  Philip W. Strauss(4)            250,000             1.4%
                  4 Standish Road
                  Norfolk, MA  02056

                  B.G. Taylor(7)                  222,875             1.2%
                  1200 Shirley Lane
                  Midland, TX  79705

                  All directors and officers as a
                  group (7 persons)             1,058,397              6.0%

         *    less than 1%





                                       27
<PAGE>

(1)      The persons  named in the above  table have sole  voting and  investing
         power with  respect to all shares shown as  beneficially  owned by them
         subject to community property laws where applicable and the information
         contained in footnotes to this table.

(2)      Includes 1,667 shares subject to  stock options which are fully vested 
         and  are currently exercisable.

(3)      Shareholdings do not include shares and warrants held by Capital Growth
         International,   L.P.,  of  which  Mr.  Matulich  disclaims  beneficial
         ownership.  Also includes  2,500 shares  subject to stock options which
         are fully vested and are currently exercisable.

(4)      Includes 250,000 shares subject to stock options which are fully vested
         and are currently exercisable.

(5)      Includes 17,750 shares of Common Stock held by Dr.  Simmons'  immediate
         family,  including  one minor  child and two adult  children,  of which
         shares he disclaims  beneficial  ownership.  Also includes 1,667 shares
         subject  to stock  options  which are fully  vested  and are  currently
         exercisable.

(6)      Includes 46,250 shares subject to  stock options which are fully vested
         and are currently exercisable.

(7)      Includes  1,500 shares of Common Stock held by Mr.  Taylor's  wife,  of
         which shares he does not disclaim beneficial  ownership.  Also includes
         2,500 shares  subject to stock  options  which are fully vested and are
         currently exercisable.





                                       28
<PAGE>




                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)      Exhibits

         Exhibit No.     Description
         -----------     -----------------------------------------------------

         3(i).1          Articles of Incorporation of the Company.   
                         (Incorporated by reference to Exhibit No. 3(i).1 to the
                         Registration Statement on Form S-1 of BioSafe, No.
                         33-93966.)
         3(i).2          Articles of Amendment to Articles of Incorporation of 
                         the Company. (Incorporated by reference to Exhibit 
                         No. 3(i).2 to the Registration Statement on Form S-1
                         of BioSafe International, Inc., No. 33-93966.)
         3(i).3          Certificate of Incorporation of BioSafe, Inc., as 
                         amended.   (Incorporated by reference to Exhibit No. 
                         3(i).3 to the Registration Statement on Form S-1 of 
                         BioSafe International, Inc., No. 33-93966.)
         3(ii).1          Bylaws of the Company, as amended on March 26, 1996. 
                         (Incorporated by reference to Exhibit No. 3(ii).1 to 
                         Form 10-K For the Fiscal Year Ended December 31, 1995 
                         of BioSafe International, Inc.)
         3(ii).2         Bylaws of BioSafe, Inc.   (Incorporated by reference 
                         to Exhibit No. 3(ii).2 to the Registration Statement on
                         Form S-1 of BioSafe International, Inc., No. 33-93966.)
         4.1             Form of Series A Warrant Certificate.   (Incorporated 
                         by reference to Exhibit No. 4.1 to the Registration 
                         Statement on Form S-1 of BioSafe International, Inc., 
                         No.33-93966.)
         4.2             Series A Warrant Agreement.  (Incorporated by reference
                         to Exhibit No. 4.2 to the Registration Statement on 
                         Form S-1 of BioSafe International, Inc., No. 33-93966.)
         4.3             Form of Series C Warrant Certificate.  (Incorporated by
                         reference to Exhibit No. 4.3 to the Registration 
                         Statement on Form S-1 of BioSafe International, Inc., 
                         No.33-93966.)
         4.4             Series C and Series D Warrant Agreement.  (Incorporated
                         by reference to Exhibit No. 4.4 to the Registration 
                         Statement on Form S-1 of BioSafe International, Inc., 
                         No. 33-93966.)
         4.5             Form of Series D Warrant Certificate.  (Incorporated by
                         reference to Exhibit No. 4.5 to the Registration 
                         Statement on Form S-1 of BioSafe International, Inc., 
                         No. 33-93966.)
         4.6             Series D Warrant Agreement.  (Incorporated by reference
                         to Exhibit No. 4.6 to the Registration Statement on 
                         Form S-1 of BioSafe International, Inc., No. 33-93966.)
         4.7             Form of Series E Warrant Certificate.  (Incorporated by
                         reference to Exhibit No. 4.7 to the Registration 
                         Statement on Form S-1 of BioSafe International, Inc., 
                         No. 33-93966.)
         4.8             Series E Warrant Agreement.  (Incorporated by reference
                         to Exhibit No. 4.8 to the Registration Statement on 
                         Form S-1 of BioSafe International, Inc., No. 33-93966.)
         4.9             Form of Placement Agent Warrant.   (Incorporated by 
                         reference to Exhibit No. 4.9 to the Registration 
                         Statement on Form S-1 of BioSafe International, Inc.,
                         No. 33-93966.)
         4.10            Form of Series F Warrant Certificate. (Incorporated by
                         reference to Exhibit No. 4.10 to Form 10-K For the 
                         Fiscal Year Ended December 31, 1995 of BioSafe 
                         International, Inc.)


                                       29
<PAGE>

         4.11            Series F Warrant Agreement. (Incorporated by reference 
                         to Exhibit No. 4.10 to Form 10-K For the Fiscal Year 
                         Ended December 31, 1995 of BioSafe International, Inc.)
         10.1            Amended and Restated Joint Venture Agreement between 
                         BioSafe, Inc. and BioMed Environmental Systems, Inc., 
                         dated December 24, 1992.  (Incorporated by reference to
                         Exhibit No. 10.1 to the Registration Statement on Form
                          S-1 of BioSafe International, Inc., No. 33-93966.)
         10.2            Agreement between BioSafe, Inc. and the Town of 
                         Fairhaven, Massachusetts, dated July 24, 1995. 
                         (Incorporated by reference to Exhibit No. 10.2 to the 
                         Registration Statement on Form S-1 of BioSafe 
                         International, Inc., No. 33-93966.)
         10.3            Letter Agreement from the Town of Fairhaven to the 
                         Company, dated June 20, 1995.  (Incorporated by 
                         reference to Exhibit No. 10.3 to the Registration 
                         Statement on Form S-1 of BioSafe International, Inc., 
                         No. 33-93966.)
         10.4            Agreement and Plan of Merger dated as of March 17, 1995
                         among the Company,  Zoe Resources,  Inc., certain 
                         stockholders of the Company and BioSafe, Inc. 
                         (Incorporated by Reference to Exhibit 2.1 of the 
                         Company's  Current Report on Form 8-K, dated 
                         March 29, 1995.)
         10.5            1995 Stock Option Plan  (Incorporated by Reference to 
                         Exhibit 10.1 of the Company's Current Report on Form 
                         8-K, dated March 29, 1995.)
         10.6            Employment Agreement between S. Russell Sylva and the 
                         Company. (Incorporated by reference to Exhibit No. 10.7
                         to the Registration Statement on Form S-1 of BioSafe 
                         International, Inc., No. 33-93966.)
         10.7            Employment Agreement between Robert Rivkin and the 
                         Company. (Incorporated by reference to Exhibit No. 10.8
                         to the Registration Statement on Form S-1 of BioSafe 
                         International, Inc., No. 33-93966.)
         10.8            Selling Agreement between the Company and U.S. Sachem 
                         Financial Consultants, LP, dated March 29, 1995.   
                         (Incorporated by reference to Exhibit No. 10.9 to the 
                         Registration Statement on Form S-1 of BioSafe 
                         International, Inc., No. 33-93966.)
         10.9            Consulting Agreement between the Company and Liviakis 
                         Financial Communications, Inc., dated February 1, 1995.
                         (Incorporated by reference to  Exhibit No.10 to the 
                         Registration Statement on Form S-1 of BioSafe 
                         International, Inc., No. 33-93966.)
         10.10           Agreement between BioSafe, Inc. and Waste Management of
                         Rhode Island, Inc., dated July 31, 1995.  (Incorporated
                         by reference to Exhibit No. 10.11 to the Registration 
                         Statement on Form S-1 of BioSafe International, Inc., 
                         No. 33-93966.)
         10.11           Agreement between BioSafe, Inc. and the Town of South 
                         Hadley, Massachusetts, dated August 22, 1995.   
                         (Incorporated by reference to Exhibit No. 10.12 to
                         the Registration Statement on Form S-1 of BioSafe 
                         International, Inc., No. 33-93966.)
         10.12           Agreement between BioSafe, Inc. and Janos Szombathy, 
                         dated April 4, 1995. (Incorporated by reference to 
                         Exhibit No. 10.13 to the Registration Statement on Form
                         S-1 of BioSafe International, Inc., No. 33-93966.)
         10.13           USA Tire Recycling, LLC Pre-Formation Agreement between
                         Michael A. Bowers and BioSafe, Inc., dated 
                         April 3, 1995.   (Incorporated by reference to 
                         Exhibit No. 10.13 to the Registration Statement on Form
                         S-1 of BioSafe International, Inc., No. 33-93966.)
         10.14           Asset Purchase and Stockholders' Agreement among 
                         BioSafe International, Inc., BioSafe Landfill 
                         Technology, Inc., Cairns Associates, Inc. and 
                         Benjamin F. Cairns, dated December 28, 1995. 
                         (Incorporated by reference to Exhibit No. 10.14 to the 
                         Registration Statement on Form S-1 of BioSafe 
                         International, Inc., No. 33-93966.)


                                       30
<PAGE>

         10.15           Form of 10% Convertible, Redeemable, Subordinated Note 
                         Due 2000. (Incorporated by reference to Exhibit 
                         No. 10.15 to the Registration Statement on Form S-1 of
                         BioSafe International, Inc., No. 33-93966.)
         10.16           Venture Agreement and Engineering Services and License 
                         Agreement relating to BioSafe Europe, plc. 
                         (Incorporated by reference to Exhibit No. 10.16 to the 
                         Registration Statement on Form S-1 of BioSafe 
                         International, Inc., No. 33-93966.)
         10.17           Agreement between BioSafe International Inc. and 
                         ScotSafe Limited dated February 6, 1996.
         10.18           Agreement between BioSafe International Inc. and 
                         ScotSafe Limited dated November 15, 1996.
         10.19           Indemnification Agreement between BioSafe International
                         Inc. and Richard Golob dated May 8, 1996.
         10.20           Indemnification Agreement between BioSafe International
                         Inc. and William Philipbar dated May 8, 1996.
         16.1            Letter regarding change in certifying accountant. 
                         (Incorporated by reference  to  Exhibit  A to  the  
                         Current  Report  on  Form  8-K/A  of  BioSafe 
                         International, Inc., dated July 31, 1995.)
         21.1            Schedule of Subsidiaries.
         23.1            Consent of KPMG Peat Marwick LLP. (Incorporated by 
                         reference to Exhibit No. 10.16 to the Registration 
                         Statement on  Form S-1 of BioSafe International, Inc.,
                         No. 33-93966.)


(b)      Financial Statement Schedules

                  None.



(c)      Reports on Form 8-K

                  None.

                                      31
<PAGE>


                                      SIGNATURES
                                      ----------
         Pursuant to the  requirements of Section 13 of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned thereunto duly authorized.

                           WASTE SYSTEMS INTERNATIONAL, INC.
                           ---------------------------------

                                              /s/ Philip Strauss
     Date:December 19, 1997             By:  -----------------------
          -----------------                  Philip Strauss
                                             Chairman, Chief Executive Officer 
                                             and President

                                            
    Date:December 19, 1997              By:  /s/ Robert Rivkin
         -----------------                 ----------------------- 
                                             Robert Rivkin
                                             Vice President, Chief Financial 
                                             Officer, Treasurer and Secretary
                                             (Principal Financial and Accounting
                                             Officer)

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




                                       32
<PAGE>

<PAGE>



                              EXHIBIT 10.17
                      LICENSE AND SERVICES AGREEMENT
                      ------------------------------

                  
                                  LICENSE and SERVICES
                                  AGREEMENT 
                                      
                                  between

                                  BIOSAFE INTERNATIONAL INC.,
                                  having an office and place of business at 10
                                  Fawcett Street,  Cambridge, MA  02138 
                                  (`BioSafe,"  which reference shall be deemed,
                                  in the context of this agreement, with the
                                  exception of section 6.2 Hereof) to include 
                                  Biosafe International Inc. and its direct and
                                  indirect subsidiaries, collectively,

                                  and

                                  SCOTSAFE LIMITED, a company
                                  incorporated under the Companies Acts with 
                                  registered number SC0146908 and having its
                                  registered office at 4 Fitzroy Place, Glasgow,
                                  G37RH ("ScotSafe")


           WHEREAS, BioSafe is the owner of certain intellectual property
rights, including but not limited to certain patent rights, unpatented
technology, trade secrets, and proprietary and other know-how relating to the
disposal of infectious medical waste by means of a process incorporating
continuous flow augur technology; and

           WHEREAS, ScotSafe wishes to obtain a license to use the continuous
flow auger technology solely for the purpose of constructing and operating a
continuous flow auger at the Sites (as hereinafter defined); and

           WHEREAS, BioSafe and ScotSafe desire that BioSafe license the
continuous flow auger technology to ScotSafe and provide ScotSafe with certain
engineering services in consideration for which ScotSafe will pay royalties and
consulting fees as set forth herein.

           THEREFORE, IT IS AGREED as follows:


<PAGE>



SECTION 1. DEFINITIONS

                     In this Agreement words importing the singular shall 
include the plural unless otherwise required by the context.  In addition, the
following terms shall have the meanings as defined herein:

                     "Agreement" shall mean this Agreement and any modification,
alteration, addition or deletion hereto made in writing and after the date of
execution of this Agreement.

                     "Applicable Environmental Laws" shall mean any provisions,
statutory or otherwise, of United Kingdom, international or local law in the
jurisdiction where the CFA Unit (as hereinafter defined) is located and the 
regulations thereunder and any other United Kingdom, international or local laws
or regulations that govern:

                                          (a)       the existence, assessment,
                                                    cleanup or remedy of 
                                                    contamination of any kind of
                                                    Hazardous Materials at, on
                                                    or under the Site (as 
                                                    hereinafter defined);

                                          (b)       the protection of the
                                                    environment or of public 
                                                    health or safety from a 
                                                    release, spill, deposit or
                                                    otherwise emplaced
                                                    contamination of Hazardous 
                                                    Materials;

                                          (c)       the control and containment 
                                                    of Hazardous Materials;
                                 or
          
                                          (d)       the  use,  generation, 
                                                    transport,  treatment, 
                                                    storage, disposal,  removal,
                                                    containment  or recovery of
                                                    Hazardous Materials,
                                                    including, without
                                                    limitation, building
                                                    materials.

           Applicable Environmental Laws shall include all such environmental
laws, provisions and regulations, statutory or otherwise, now existing or from
time to time enacted during the term of this Agreement in respect of which
ScotSafe notifies BioSafe promptly after enactment thereof and shall include
without limitation or prejudice to the foregoing generality, the Environmental
Protection Act of 1990, the Control of Pollution Act of 1974, the Control of
Pollution (Special Waste) Regulations of 1980 the Sewerage (Scotland) Act 1968,
such provisions of the Environment Act of 1995 as may be in force during the
term of this Agreement, and EC Directives, Regulations and Conventions (to the
extent such laws are applicable to the Sites).

                     "CFA" shall mean the continuous flow auger developed by
BioSafe and conforming to the description contained in Schedule A attached 
hereto.


<PAGE>

                     "CFA Technology" shall mean all of the intellectual 
property rights including, but not limited to, patent rights, unpatented
technology, trade secrets and proprietary or other know-how which BioSafe now
owns, or which it may own, which directly relate to (a) the continuous flow
auger technology covered by the Patents (as hereinafter defined), and (b) all
trade secrets, know-how, and other proprietary and confidential information 
possessed by BioSafe directly relating to the use of the CFA in the disposal of 
clinical infectious waste ("CIW").

                     "CFA Units" shall mean continuous flow augers  installed at
the Sites which embody the CFA Technology.

                     "CIW" shall mean Clinical Infectious Waste, excluding 
Hazardous Material, human and animal tissue, chemotherapeutic and radioactive
waste.

                     "Hazardous Material" shall mean any substance which as of 
the date of this Agreement shall be identified as "hazardous" or "toxic" or 
otherwise regulated under Applicable Environmental Laws or which has been or 
shall be determined at any time by any agency or court to be a hazardous or 
toxic substance under Applicable Environmental Laws. The term "Hazardous 
Material" shall also include, without limitation, raw materials, building 
components, the products of any manufacturing or other activities on the 
properties, wastes, petroleum, and source, special nuclear or by-product 
material.

                     "Facilities" shall mean the processing facilities operated
by ScotSafe located at the Sites and incorporating the CFA Unit.

                     "Medical Waste" shall mean medical waste as defined under 
laws and regulations applicable to the Sites and shall include any modifications
of such term as used from time to time in such laws and regulations.

                     "Patents" shall mean the patents throughout the world 
covering the continuous flow auger technology developed by BioSafe, including 
without limitation U.S. Patent No. 5,277,136, captioned "Processing Facility 
for Disposing of Infectious Wastes."

                     "Sites" shall mean the sites at which the CFA Units will 
operate, the respective location of which are set forth on Schedule B attached 
hereto.

                     "Territory" shall mean the British Isles.




SECTION 2. LICENSE OF CFA TECHNOLOGY

           2.1 License of CFA Technology. In consideration for the Royalties (as
hereinafter defined in Section 5.1 hereof) to be paid by ScotSafe to BioSafe
hereunder, BioSafe hereby grants an exclusive license to ScotSafe in respect of
the Territory, under and relative to the Patents, to make and have made, and to
use, the CFA Technology solely in the construction and operation of the CFA
Units at the Sites. ScotSafe shall have no right to sublicense the CFA


<PAGE>

Technology. ScotSafe may call on the CFA Technology and BioSafe's services
elsewhere in Europe on terms to be mutually agreed by BioSafe and ScotSafe.

           2.2 Term of License. The term of the license granted pursuant to
Sections 2.1 hereof for the CFA Technology which is protected by the Patents
shall be for the duration of the Patents, plus any renewals permitted by law.
The term of the license for the CFA Technology which is not protected by the
Patents shall be the term of this Agreement.

           2.3 Proprietary Rights. All proprietary rights in and to the CFA
Technology, including, without limitation, all rights with respect to patents,
copyrights and trademarks, including, without limitation, the "BioSafe" mark,
and rights under the trade secret laws of any jurisdiction, shall be and remain
the sole property of BioSafe. ScotSafe shall have no right, title or interest
therein except as expressly provided herein. ScotSafe agrees to display all
appropriate notices of any patent registration or application of which it is
given notice by BioSafe, in accordance with BioSafe's reasonable instructions as
to the content of such notices, and shall promptly notify BioSafe of any
infringement of BioSafe's proprietary rights of which it has knowledge.

           2.4 Substitute Technology. BioSafe in consultation with ScotSafe
shall have the right to substitute other proprietary technologies of BioSafe in
place of the CFA Technology in the event that BioSafe determines that such other
technologies are preferable and can be provided on a cost-effective basis, in
which event all references herein to "CFA" or the "CFA Technology" or the "CFA
Unit" shall be deemed to refer to such substitute technology.

           2.5 Developments by ScotSafe. In the event that ScotSafe shall
develop any improvements to the CFA Technology or any other patented or
unpatented technology for processing medical waste during the term of this
Agreement, either alone or jointly with BioSafe, ScotSafe shall promptly
disclose such improvements or new technology to BioSafe. All rights in any such
improvements or new technology developed by ScotSafe shall be the property of
BioSafe and shall be deemed for all purposes of this Agreement to constitute a
part of the CFA Technology. ScotSafe hereby assigns to BioSafe all of its rights
in any such improvements or new technology, and shall execute any documents or
instruments required to confirm such assignment. In the event that BioSafe shall
decide to seek patent protection for any such improvements or new technology,
ScotSafe shall cooperate, at BioSafe's expense, in BioSafe's efforts in seeking
such patent protection, and in connection therewith shall execute, and cause its
employees to execute, any patent applications, assignments, or other documents
required in connection therewith.



<PAGE>


SECTION 3. SERVICES

           3.1 Purchase and Delivery of the CFA Unit. ScotSafe shall have
responsibility for arranging the manufacture, purchase and delivery of the CFA
Unit and the shipping of the CFA Unit to the Site; provided that BioSafe will
co-operate fully with ScotSafe in arranging, at ScotSafe's expense, for such
manufacture, as well as all necessary insurance, shipping instructions,
insurance, import licenses, permits, and other necessary documents for the
shipment and delivery of the CFA Units to the Sites.

           3.2 BioSafe Services. ScotSafe shall retain BioSafe to provide the
services listed in subsections (a) through (c) below, for which services BioSafe
will be paid Consulting Fees as set forth in Section 5.2 hereof:

                     (a)       BioSafe shall have responsibility for overseeing
                               and managing the installation and commissioning
                               of the CFA Units at the Sites, including:

                                  (i)   planning and design of each Facility,
                                        including CFA, recycling, sharps
                                        programme, and residue disposal;

                                  (ii)  equipment specification and procurement;

                                  (iii) installation and acceptance testing (as
                                        further described in Section 4 hereof),
                                        provided that BioSafe will have approval
                                        authority on all vendor equipment and
                                        contractors associated with the
                                        installation of each CFA Unit;

                                  (iv)  testing for required permits and 
                                        approvals; and

                                  (v)   the provision of written materials and
                                        protocols for the operation of each CFA 
                                        Unit.

           BioSafe acknowledges and understands that during the course of this
Agreement ScotSafe may want to assume responsibility for some of the services
provided by BioSafe under this Section 3.2(a); therefore, BioSafe agrees to
negotiate in good faith with ScotSafe with respect to any reasonable reduction
in the services provided by BioSafe hereunder.

                     (b)       BioSafe shall provide reasonable operations 
training and technical support for the employees of ScotSafe required for 
operation of the CFA Units at the Sites as deemed necessary by both parties. 
This training and technical support may involve reasonable travel by BioSafe 
personnel, at ScotSafe's expense, to the office of ScotSafe and to the Sites.


<PAGE>


                     (c)       BioSafe will provide assistance to ScotSafe in 
                               preparing, submitting, negotiating and all other
                               similar actions relating to any patent
                               applications, patent renewal applications,
                               applications to register trademarks and any and 
                               all other similar governmental filings which 
                               ScotSafe may be required to make during the term
                               of this Agreement in the United Kingdom in order
                               to protect ScotSafe's interest in the CFA
                               Technology. ScotSafe will provide similar 
                               assistance to BioSafe to protect BioSafe's 
                               interest in the CFA Technology.

           3.3       ScotSafe Responsibilities.  ScotSafe, at its expense, will
be responsible for developing each Site, including without limitation:

                     (a)       preparing the structure at each Site to house the
CFA Unit at that Site in accordance with requirements specified by BioSafe;

                     (b)       providing water, power and gas utilities at each
Site sufficient to operate the CFA Unit at that Site in accordance with
requirements specified by BioSafe;

                     (c)       obtaining all required licenses and permits to
install and operate the CFA Unit at each Site subject to such CFA Unit
satisfying the Acceptance Tests; and

                     (d)       providing CIW and any other test and maintenance 
materials as required by BioSafe in a timely manner and in adequate amounts to
conduct process testing and the Acceptance Tests.

           3.4 Initiation Notice. ScotSafe shall provide written notification to
BioSafe upon the initiation of any purchase order or contractual agreement or
understanding relating to the design, fabrication or installation of each CFA
Unit, with the exception of the first two CFA Units commissioned hereunder (such
notification referred to herein as an "Initiation Notice").

SECTION 4. ACCEPTANCE OF CFA UNITS

           4.1       Acceptance Tests.  The acceptance test standards for
evaluation of the CFA Units at the Sites are set forth on Schedule C attached
hereto (collectively, the "Acceptance Tests").

           4.2 Completion of Acceptance Tests. No later than one month after the
installation of the CFA Unit at each Site has been completed in accordance with
BioSafe's specifications, the Acceptance Tests shall commence. Acceptance
Testing will be conducted under the joint supervision of BioSafe and ScotSafe.
ScotSafe will be responsible for determining the local codes and regulations
that must be satisfied, and provide copies of all relevant requirements to
BioSafe prior to commencing installation of the CFA Unit at each Site. The
results of all testing completed by outside contractors and consultants will be
transmitted simultaneously to BioSafe and ScotSafe. Upon completion of the
Acceptance Tests, BioSafe shall submit to ScotSafe a report which summarizes

<PAGE>

commissioning and acceptance testing activities, including the results of the
Acceptance Tests ("the Acceptance Test Results"). The date of the ScotSafe's
receipt of the Acceptance Test Results shall be deemed the Acceptance Date
unless, within fourteen (14) days of receipt, ScotSafe delivers to BioSafe
written notification detailing each acceptance standard which ScotSafe asserts
has not been satisfied. BioSafe shall make such modifications and repeat tests
with the co-operation of ScotSafe as necessary to satisfy the Acceptance Tests.
In the event that the CFA Unit does not satisfy the agreed Acceptance Tests
within six (6) months from BioSafe's delivery of a certificate of mechanical
completion of the installation of the CFA Unit at each Site, BioSafe will use
its reasonable efforts to correct the deficiency within such period of time as
is mutually agreed between ScotSafe and BioSafe, and if this is not possible
then BioSafe will cooperate with, and provide to ScotSafe appropriate assistance
to remedy such deficiency, subject to the limitations on BioSafe liability
contained in Section 8.2 hereof.

           4.3 Disputes Regarding Acceptance. In the event that there is a
disagreement regarding whether a particular CFA Unit has satisfied the
Acceptance Tests, the matter shall be referred for final settlement to an
independent third party acting as an expert and not as an arbiter, nominated
jointly by BioSafe and ScotSafe. Failing such joint nomination, an independent
third party shall be nominated on the application of either party by the then
current Secretary of the Association of Consulting Engineers, London. The
decision of such third party shall be final and binding on BioSafe and ScotSafe.

SECTION 5. ROYALTIES AND CONSULTING FEES

           5.1 Royalties. In consideration of the license granted by BioSafe
herein, ScotSafe shall pay BioSafe royalties for each CFA Unit in the amounts
set forth in Schedule D attached hereto (the "Royalties"). The Royalties shall
be payable in twenty-four equal monthly payments, until paid in full, on the
following terms. The first Royalty payment for each of the first two (2) CFA
Units shall be due on the date Acceptance Tests for such CFA Unit has commenced
in accordance with Section 4.2 hereof, and subsequent Royalty payments shall be
due monthly thereafter. The first Royalty payment for each additional CFA Unit
shall be due upon, and enclosed with, delivery to BioSafe of an Initiation
Notice (as defined in Section 3.4 hereof) with respect to each such CFA Unit,
and subsequent Royalty payments for each such CFA Unit shall be due monthly
thereafter.

           5.2 Consulting Fees. ScotSafe shall pay BioSafe compensation for the
services rendered by BioSafe to ScotSafe under Sections 3.2 and 4.2 or
otherwise. Payment shall be on a time-and-materials basis, for which purpose the
services of BioSafe personnel will be charged at reasonable hourly rates no
higher than the rates then customarily charged by BioSafe for such personnel or
personnel of comparable skills and experience. Rates for BioSafe personnel as of
the date of execution of this Agreement are set forth in Schedule E

<PAGE>


attached hereto, provided, however, that BioSafe reserves the right to change
these rates at any time. BioSafe shall submit invoices for such services and any
related disbursements reimbursable under Section 5.3 hereof on a regular basis,
and ScotSafe shall pay all charges reflected on such invoices within thirty (30)
days after presentation.

           5.3 Expenses. ScotSafe will reimburse BioSafe for reasonable expenses
incurred by BioSafe in the performance of its obligations hereunder, including,
without limitation, coach-class air travel, lodging and meals, when these
expenses are supported by receipts.

           5.4 Currency. Royalties and Consulting Fees payable hereunder shall
be paid in U.S. dollars, and any conversion from foreign currencies shall be
calculated at the exchange rates prevailing on the last day of the month in
which such Royalties or Consulting Fees accrue.

           5.5 Interest. Any amounts not paid when due hereunder shall accrue
interest at a rate per annum equal to two percent (2%) over the Prime Rate
quoted from time to time in the Wall Street Journal.

SECTION 6. TERM; TERMINATION

           6.1 Term of the Agreement. This Agreement shall commence on the last
date of execution of this Agreement and shall expire on 30 November, 2020,
except as earlier terminated in accordance with the terms of this Agreement, or
by mutual agreement of the parties hereto.

           6.2       Termination.

                     (a)       BioSafe may terminate this Agreement in the event
ScotSafe fails to pay any amount owed to BioSafe hereunder when due, which 
failure has not been cured within thirty (30) days.

                     (b)       Either party may terminate this Agreement in the
event of a material breach of this Agreement, which breach has not been cured
within thirty (30) days of receipt of written notice thereof.

                     (c)       ScotSafe may terminate this Agreement immediately
by written notice to BioSafe upon the occurrence of (i) the adjudication of
BioSafe bankruptcy or insolvency of BioSafe International, Inc. pursuant to the
provisions of any United States federal or state bankruptcy or insolvency act,
(ii) the appointment of a receiver or trustee of all, or substantially all, of 
the property or assets of BioSafe, (iii) the filing of a petition by, or of an 
involuntary petition against, BioSafe under the provisions of any federal or 
state bankruptcy or insolvency act, (iv) the making by BioSafe of an assignment
for the benefit of creditors or (v) the dissolution of BioSafe.  BioSafe shall 
have the same rights to terminate in the event ScotSafe shall suffer any of the 
occurrences listed in clauses (i) - (v) above under applicable United Kingdom 
bankruptcy or insolvency laws. Upon termination of this Agreement

<PAGE>


for any reason ScotSafe shall cease all use and exploitation of the CFA
Technology, and each party shall return to the other any and all documents or
other materials containing Confidential Information of the other (as defined
herein).

           6.3 Survival of Obligations. Upon any termination of this Agreement,
all rights and obligations of the parties under this Agreement shall cease
except for (a) ScotSafe's obligations to make any payment which was due and
payable on or prior to the date of termination, (b) the parties' obligations of
confidentiality under Section 7 of this Agreement, and (c) the obligations of
the parties under this Section 6.3.

SECTION 7. CONFIDENTIALITY

           7.1       General.

                     (a)       Both parties shall maintain in strictest
confidence and shall cause their directors, officers, employees, agents, counsel
and representatives to maintain in strictest confidence, all proprietary and 
confidential information and materials (whether or not patentable), including,
without limitation, equipment, processes, methods, data, software, reports, 
know-how, sources of supply, customer lists, patent positions and business plans
which are communicated to, learned of, developed or otherwise acquired by any 
party pursuant to this Agreement and any other information designated by the 
disclosing party as confidential or proprietary in relation to the subject 
matter of this Agreement, which information is provided by one party to the 
other either directly or indirectly ("Confidential Information").

                     (b)       ScotSafe will ensure that any agents of ScotSafe 
who have access to the CFA Technology execute a confidentiality and proprietary
information agreement in a form reasonably  acceptable to BioSafe and ScotSafe, 
which agreement shall require such agent to perform the obligations required to 
be performed by ScotSafe in Section 2.5 hereof.

           7.2 Exceptions. Confidential Information shall not include any
information that (i) becomes known to the general public without the fault or
breach (including simple negligence) of the receiving party; or (ii) was already
known to or by the recipient as evidenced by prior written documents in its
possession; or (iii) is disclosed to the recipient by a third party who is not
in default of any confidentiality obligations to the disclosing party hereunder;
or (iv) is developed by or on behalf of the receiving party, without reliance on
confidential information received hereunder. Each party shall be entitled, in
addition to any other right or remedy it may have, at law or in equity, to an
injunction, without the posting of any bond or other security, enjoining or
restraining the other party from any violation or threatened violation of this
Section.

           7.3 Employees. ScotSafe agrees that if any of its directors,
officers, key employees or other employees, who could reasonably be expected to
possess Confidential Information the disclosure of which could be harmful to

<PAGE>


BioSafe's interest, shall leave the employment of ScotSafe, then ScotSafe will
use reasonable efforts to obtain from such departing person an agreement not to
disclose to any third party at any time such Confidential Information in such
person's possession, and to cause such person to deliver to ScotSafe and not
take with him or retain, any such Confidential Information, and to provide
written certification to ScotSafe that all such materials have been so delivered
to ScotSafe prior to departure from employment.

           7.4       Survival.  The obligations of the parties under this
Section 7 shall survive any termination of this Agreement for any reason.


SECTION 8. RISK; INDEMNIFICATION

           8.1 Disclaimer of Warranties. EXCEPT AS EXPRESSLY SET FORTH HEREIN,
BIOSAFE DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION ANY WARRANTIES AS TO THE SUITABILITY OR MERCHANTABILITY OR FITNESS
FOR ANY PARTICULAR PURPOSE OF THE CFA TECHNOLOGY, THE CFA UNIT OR ANY SERVICES
FURNISHED HEREUNDER. NEITHER BIOSAFE, NOR ITS EMPLOYEES, AGENTS OR
SUBCONTRACTORS SHALL BE LIABLE FOR ANY LOST OR ANTICIPATED PROFITS, OR ANY
INCIDENTAL, INDIRECT EXEMPLARY, SPECIAL OR CONSEQUENTIAL DAMAGES, LOSS BY REASON
OF PLANT OR FACILITY SHUT DOWN OR NON-OPERATION; INCREASED EXPENSE OF OPERATION
OF ANY FACILITY OR EQUIPMENT; DAMAGE OR INJURY TO THE ENVIRONMENT (INCLUDING
WITHOUT LIMITATION, POLLUTION, ECOLOGY AND LIKE MATTERS); OR ANY OTHER SPECIAL
OR CONSEQUENTIAL LOSS OR DAMAGE, WHETHER ARISING IN CONTRACT, TORT OR OTHERWISE,
REGARDLESS OF WHETHER BIOSAFE WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

           8.2 Defects. In the event the CFA Unit fails to meet specifications
due to a defect in materials or workmanship of a CFA Unit, BioSafe shall
cooperate with the manufacturer of such CFA Unit in order to rectify such
defects, for which cooperation ScotSafe shall pay BioSafe Consulting Fees as
described in Section 5.2 hereof. In the event that a CFA Unit fails to meet
specifications due to a defect in the CFA Technology, BioSafe's liability
hereunder shall be limited to, at BioSafe's sole option (after discussion with
ScotSafe), repair of such defects or refund of the Royalties paid to BioSafe
hereunder with respect to such CFA Unit.

           8.3 Loss or Damage. Each party agrees to indemnify and defend the
other and hold them harmless from and against any claims for personal injury or
property damage arising out of the negligence or misconduct of the employees or
agents of such party; provided however, that neither party shall be responsible
for indirect, special or consequential damages.

<PAGE>
  


            8.4 Infringement. BioSafe represents and warrants that, to the best
knowledge and belief of BioSafe, the CFA Technology does not infringe upon any
valid patent of any third party in the United States and the United Kingdom, and
BioSafe is not aware of any claim by any third party that such infringement
exists. BioSafe agrees to defend, at its own expense, and to pay all costs and
damages awarded against ScotSafe based on, any and all claims by third parties
arising from actual or alleged infringement by the CFA Technology of any such
patent if it is shown that BioSafe knew of such infringement or possible claim
of infringement; provided that BioSafe's obligation to pay such costs and
damages under this Section 8.4 shall not apply to the extent that such actual or
alleged infringement arises out of modifications to the CFA Technology made by
ScotSafe; and provided that BioSafe's obligation to pay such costs and damages
shall be subject to and limited by the following provisions of this Section 8.4.
In the event that ScotSafe receives a claim or notice of a claim that is or may
be subject to indemnification hereunder, ScotSafe shall (i) give BioSafe prompt
written notice of such claim or notice of claim, (ii) cooperation with BioSafe
at BioSafe's expense in every reasonable manner in the defense of such claim,
and (iii) permit BioSafe to assume and control the defense thereof at BioSafe's
cost and expense, provided that ScotSafe shall have the right, at its option and
at its expense, to participate in the defense of such claim through counsel of
its own choosing. If infringement is held to exist, or if a finding of
infringement is likely, BioSafe may, at its option, revise the infringing
material so as to make it non-infringing, or arrange to procure for ScotSafe the
right to continue using the infringing material to the extent permitted by this
Agreement.

           8.5 Indemnification by ScotSafe. ScotSafe agrees to indemnify and
defend BioSafe and hold it harmless from and against any claims arising out of
the activities of ScotSafe or its employees or agents under the license
conferred hereby, including without limitation, any such claims alleging loss or
damage arising from the use of the CFA Technology or the construction or
operation by ScotSafe of any or all of the CFA Units.

           8.6 Indemnification by BioSafe. BioSafe agrees to indemnify and
defend ScotSafe and hold it harmless from and against any claims arising out of
the activities of BioSafe or its employees or agents under the license conferred
hereby, including without limitation any such claims alleging loss or damage
arising from the services as set out herein provided by BioSafe in respect of
any or all of the CFA Units.


<PAGE>

SECTION 9. GOVERNING LAW

           9.1 Governing Law. This Agreement shall be governed by and construed
in accordance with the law of Scotland. In the event that there is a dispute
under this Agreement (with the exception of disputes arising under Section 4.3
hereof), the parties hereto shall submit to binding arbitration at the
International Court of Arbitration at Paris, France or otherwise to such
arbitral or judicial proceeding, governed by the law of Scotland, as the parties
may mutually agree.


SECTION 10.  MISCELLANEOUS

           10.1 Force Majeure. For the purposes of this Agreement, Force Majeure
Event means any circumstances beyond the control of either party to this
Agreement (including without limitation acts of war or civil unrest, strikes,
lockouts or other industrial action, storm, explosion, Act of God, accident or
prohibitive government regulations) provided, however, the parties shall make
diligent good faith efforts to perform their respective obligations hereunder.
If due to any Force Majeure Event either party is unable to a material extent to
fulfill its obligations under this Agreement the party so unable shall not be
liable to the other for any delay or non-performance.

           10.2 Notices. Any notice or other communication to be given or served
hereunder shall be sufficiently given or serviced if it is delivered to the
party to whom such notice was addressed personally or if sent by first class
mail, postage prepaid, or if sent by telex or facsimile transmission to that
party at the address stated below:

           If to BioSafe:

                                                         Richard H. Rosen, Ph.D.
                                          BioSafe International, Inc.
                                          10 Fawcett Street
                                          Cambridge, MA 02138

           with copies to:     Jeffrie Bettinger
                                          BioSafe International, Inc.
                                          10 Fawcett Street
                                          Cambridge, MA 02138

                                          Thomas P. Storer, P.C.
                                          Goodwin, Procter & Hoar
                                          Exchange Place
                                          Boston, MA 02109-2881

           If to ScotSafe:
                                          ScotSafe Limited
                                          4 Fitzroy Place
                                          Glasgow, G3 7RH



<PAGE>


           with copies to:

                                          John (known as Ian) Reynolds
                                          14 Argyll Gardens, Larkhall,
                                          Strathclyde ML 9 2EN

                                          George Bonnar Weir
                                          6 Kirkdene Crescent, Newton Mearns,
                                          Glasgow, G77 5RP

                                          Kevin Sweeney
                                          McGrigor Donald, Solicitors
                                          Pacific House
                                          70 Wellington Street
                                          Glasgow, G2 6SB

or at such other address which the recipient most recently has notified the
other for the purpose of this Section. Any document sent by first class mail
shall be deemed to be received ten (10) days after the same shall have been
sent. Any notice sent by telex or facsimile shall be deemed given when received,
answer back confirmed.

           10.3 Assignment. The rights and liabilities conferred by this
Agreement are personal to the parties hereto and may not be assigned or
transferred to any other party hereto without the prior consent in writing of
the other party; except that either party may assign its rights and obligations
hereunder to any of its direct or indirect subsidiaries or to a corporation or
other entity which may acquire all or substantially all of the assets or
business of that party, provided that in such event the assigning party shall
not be relieved of its obligations hereunder.

           10.4 Effect of Waiver. No delay or omission or any party in
exercising any right, power, privilege or remedy in respect of this Agreement
shall impair such right, power, privileged or remedy or be construed as a waiver
thereof nor shall any single or partial exercise of such right, power,
privileged or remedy preclude any further exercise of any right, power,
privilege or remedy. The rights, powers, privileges and remedies herein provided
are cumulative and not exclusive of any rights, powers, privileges or remedies
provided by law.

           10.5 Amendments. This Agreement may only be amended or supplemented
by a writing that refers expressly to this Agreement and that is signed by both
of the parties.



<PAGE>


           10.6 Severability. If at any time any of the provisions of this
Agreement is or becomes invalid, illegal or unenforceable in any respect under
the law of any jurisdiction, neither the validity, legality or enforceability of
the remaining provisions nor the validity, legality or enforceability of such
provision under the law of any other jurisdiction shall in any way be affected
or impaired thereby.

           10.7 Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the matters dealt with herein and
supersedes any previous agreement between the parties hereto in relation to such
matters. Each of the parties acknowledges that in entering into this Agreement,
it has not relied on any representation or warranty save as expressly set out
herein or in any document referred to herein. No variation of this Agreement
shall be valid or effective unless made by one or more instruments in writing
and signed by such of the parties which would be affected by such variation.

           10.8 Costs and Attorneys' Fees. Each party will pay its own costs and
attorneys' fees incident to this Agreement and the transaction contemplated
hereby (except as may be specifically provided for herein) whether or not this
transaction shall be consummated.

           10.9 Public Announcements. Neither of the parties hereto shall issue
any press release or otherwise publicize this Agreement or the transactions
contemplated herein without the approval of the other party, which approval
shall not be unreasonably withheld. ScotSafe recognizes that BioSafe is a public
company subject to disclosure requirements under applicable law. The approval of
a specific press release or other form of publicity shall not constitute
approval of subsequent press releases or publicity.

           10.10     No Joint Venture.  The parties acknowledge and agree that 
each is an independent contractor and not an agent, joint venturer or partner of
the other party.  This Agreement shall not be construed as constituting either
party as a partner of the other party or


                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

<PAGE>


to create a joint venture or any other form of legal association that would
impose liability upon one party of the act or failure to act of the other party
or as providing either party with the right, power or authority (express or
implied) to create any duty or obligation on behalf of the other party.

SUBSCRIBED for and on behalf of

BIOSAFE at ______________________________

on_______________________________________

by_______________________________________
being a Director/the Secretary/or an
Authorized Signatory of BioSafe in
the presence of:

Witness___________________________
Name_____________________________
Address___________________________
Occupation_________________________

SUBSCRIBED for and on behalf of

SCOTSAFE at______________________

on________________________________

by________________________________
being Director/the Secretary/or an
Authorized Signatory of SCOTSAFE in
the presence of:

Witness__________________________
Name___________________________
Address_________________________
Occupation_______________________


<PAGE>


                                   Schedule A

                               CFA COMPONENT LIST



Dryers
Shredders
Oil Heater
Computer Control
Condenser/Cooling Tower
Air Filtration
Auxiliary Conveyors
Control and Monitoring Systems and other minor components



<PAGE>


                                   Schedule B

                              Location of the Site

Location of the Site: Newcastle, England and other sites in the Territory to be
determined by mutual agreement of ScotSafe and BioSafe.


<PAGE>


                                   Schedule C

                            Acceptance Test Standards


           The Acceptance Test Standards for the CFA Units are as follows:

           1.  Description of Microbiological Efficacy Test.  The
Microbiological Efficacy Test will be determined by mutual agreement of BioSafe
and ScotSafe.

           2.  Other Acceptance Test Standards.  Other acceptance standards 
include those standards required to satisfy the applicable local authorities at 
each Site with respect to:

                               (i)        environmental health;

                               (ii)       health and safety;

                                          (iii)     the suitability of the CFA
                                          Unit at the Site for use in treating
                                          and disposing CIW;

                                          (iv)      any aspects of planning to 
                                          the extent that they are dependent on
                                          sub-clauses (i) and (ii) above;

                                          (v)       the waste residue generated
                                          by the CFA Unit at the Site being
                                          microbiologically accepted for
                                          landfill; and

                                          (vi) such other standards as are 
                                          mutually agreed to by BioSafe and 
                                          ScotSafe in writing (collectively
                                          "the Acceptance Tests").

<PAGE>


                                   Schedule D

                                   Royalties

$400 x 1,500 pounds per hour = $600,000 in respect of the first CFA Unit and,
thereafter, in respect of each additional CFA Unit as follows:

           CFA Unit 2$200      x          1,500 pounds per hour = $300,000
           CFA Unit 3$300      x          1,500 pounds per hour = $450,000
           CFA Unit 4$150      x          1,500 pounds per hour = $225,000
           CFA Unit 5$50       x          1,500 pounds per hour = $75,000
           CFA Unit 6$50       x          1,500 pounds per hour = $75,000
           CFA Unit 7$50       x          1,500 pounds per hour = $75,000
           CFA Unit 8$50       x          1,500 pounds per hour = $75,000
           CFA Unit 9$50       x          1,500 pounds per hour = $75,000

Each CFA Units installed in the Territory after the ninth CFA Unit shall be
subject to a royalty of $50 per pound per hour of actual nameplate capacity for
such CFA Unit.

It is understood that the 1,500 pounds per hour figure is a warranted minimum
capacity, and that it is the intention of BioSafe that each Facility will be
constructed to achieve a targeted maximum of 3,000 pounds per hour under ideal
conditions.



<PAGE>


                                   Schedule E

                         Current BioSafe Personnel Rates


           Category/Title                                           Daily Rate

President                                                              $2097
Director of Process Technology                                          $932
Senior Engineer                                                         $700
Engineer                                                                $526
Engineering Associate                                                   $468
Process Technician                                                      $351


Rates shown above are in U.S. Dollars and are typical billing rates for CY 1996
subject to change based on actual personnel and inflation. BioSafe will charge
the actual rate for personnel engaged in the work at our then current multiplier
for overheads. The daily rate includes all overheads and fees including profit
at 15%. All expenses incurred in the conduct of the work including travel,
lodging and meals, are billed as direct costs.



241836.c5


<PAGE>



                                   EXHIBIT 10.18
                LICENSE AND SERVICES AGREEMENT - EUROPEAN LICENSE


                                  LICENSE and SERVICES
                                  AGREEMENT - EUROPEAN LICENSE                
                                 
                                  between

                                  BIOSAFE INTERNATIONAL INC.,
                                  having an office and place of business at 10
                                  Fawcett Street,  Cambridge, MA  02138 
                                  (`BioSafe,"  which reference shall be deemed,
                                  in the context of this agreement, with the
                                  exception of section 6.2 Hereof) to include 
                                  Biosafe International Inc. and its direct and
                                  indirect subsidiaries, collectively,

                                  and

                                  SCOTSAFE LIMITED, a company
                                  incorporated under the Companies Acts with 
                                  registered number SC0146908 and having its
                                  registered office at 4 Fitzroy Place, Glasgow,
                                  G37RH ("ScotSafe")



   

           WHEREAS, BioSafe is the owner of certain intellectual property
rights, including but not limited to certain patent rights, unpatented
technology, trade secrets, and proprietary and other know-how relating to the
disposal of infectious medical waste by means of a process incorporating
continuous flow augur technology; and

           WHEREAS, ScotSafe wishes to obtain a license to use the continuous
flow auger technology solely for the purpose of constructing and operating a
continuous flow auger at the Sites (as hereinafter defined); and

           WHEREAS, BioSafe and ScotSafe desire that BioSafe license the
continuous flow auger technology to ScotSafe and provide ScotSafe with certain
engineering services in consideration for which ScotSafe will pay royalties and
consulting fees as set forth herein.

           THEREFORE, IT IS AGREED as follows:


<PAGE>



SECTION 1. DEFINITIONS

                     In  this  Agreement  words  importing  the  singular  shall
include the plural unless otherwise required by the context and a reference to a
Schedule with an alphabetic designation shall be a reference to the Schedule
bearing that alphabetic designation annexed hereto. In addition, the following
terms shall have the meanings as defined herein:

                     "Agreement" shall mean this Agreement and any modification,
alteration, addition or deletion hereto made in writing and after the date of
execution of this Agreement.

                     "Applicable Environmental Laws" shall mean any provisions, 
statutory or otherwise, of international, national or local law in the 
jurisdiction where the CFA Unit (as hereinafter defined) islocated and the 
regulations thereunder and any other international, national or local laws or 
regulations that govern:

                                (a)       the existence, assessment, cleanup or
                                remedy of contamination of any kind of Hazardous
                                Materials at, on or under the Site 
                                (as hereinafter defined);

                                (b)       the protection of the environment or 
                                of public health or safety from a release,
                                spill, deposit or otherwise emplaced 
                                contamination of Hazardous Materials;

                                (c)       the control and containment of 
                                Hazardous Materials; 
                           or

                                (d) the  use,  generation,  transport,
                                treatment, storage, disposal, removal,
                                containment or recovery of Hazardous Materials,
                                including, without limitation, building
                                materials.

           Applicable Environmental Laws shall include all such environmental
laws, provisions and regulations, statutory or otherwise, now existing or from
time to time enacted during the term of this Agreement in respect of which
ScotSafe notifies BioSafe promptly after enactment thereof.

                     "CFA" shall mean the continuous flow auger developed by 
BioSafe and conforming to the description contained in Schedule A attached 
hereto.

                     "CFA Technology" shall mean all of the intellectual 
property rights including, but not limited to, patent rights, unpatented 
technology, trade secrets and proprietary or other know-how which BioSafe now 

<PAGE>

owns, or which it may own, which directly relate to (a) the continuous flow 
auger technology covered by the Patents (as hereinafter defined), and (b) all
trade secrets, know-how, and other proprietary and confidential information 
possessed by BioSafe directly relating to the use of the CFA in the disposal of
clinical infectious waste ("CIW).
 
                     "CFA Units" shall mean continuous flow augers  installed at
the Sites which embody the CFA Technology.

                     "CIW" shall mean Clinical Infectious Waste, excluding
Hazardous Material, human and animal tissue, chemotherapeutic and radioactive 
waste.

                     "Hazardous Material" shall mean any substance which as of 
the date of this Agreement shall be identified as "hazardous" or "toxic" or 
otherwise regulated under Applicable Environmental Laws or which has been or 
shall be determined at any time by any agency or court to be a hazardous or 
toxic substance under Applicable Environmental Laws. The term "Hazardous 
Material" shall also include, without limitation, raw materials, building 
components, the products of any manufacturing or other activities on the 
properties, wastes, petroleum, and source, special nuclear or by-product 
material.

                     "Facilities" shall mean the processing facilities operated 
by ScotSafe located at the Sites and incorporating the CFA Unit.

                     "Medical Waste" shall mean medical waste as defined under 
laws and regulations applicable to the Sites and shall include any modifications
of such term as used from time to time in such laws and regulations.

                     "Patents" shall mean the patents throughout the world 
covering the continuous flow auger technology developed by BioSafe, including 
without limitation U.S. Patent No. 5,277,136, captioned "Processing Facility 
for Disposing of Infectious Wastes."

                     "Sites" shall mean the sites at which the CFA Units will 
operate, the respective location of which are set forth on Schedule B attached
hereto.

                     "Territory" shall mean Austria, Belgium, Denmark, Finland,
France, Germany, Italy, the Netherlands, Norway, Portugal, Spain, Sweden and 
Switzerland.

<PAGE>

SECTION 2. LICENSE OF CFA TECHNOLOGY

           2.1 License of CFA Technology. In consideration for the Royalties (as
hereinafter defined in Section 5.1 hereof) to be paid by ScotSafe to BioSafe
hereunder, BioSafe hereby grants an exclusive (subject to Section 5.1 hereof)
license to ScotSafe in respect of the Territory, under and relative to the
Patents, to make and have made, and to use, the CFA Technology solely in the
construction and operation of the CFA Units at the Sites. ScotSafe shall have no
right to subcontract or to sublicense the CFA Technology without the express
prior written approval of BioSafe, which approval BioSafe may withhold in its
sole discretion. In the event that BioSafe grants to ScotSafe the right to
subcontract or to sublicense the CFA Technology, such sublicense shall be on
terms to be mutually agreed on by BioSafe and ScotSafe.

           2.2 Term of License. The term of the license granted pursuant to
Section 2.1 hereof for the CFA Technology which is protected by the Patents
shall be for the duration of the Patents, plus any renewals permitted by law.
The term of the license for the CFA Technology which is not protected by the
Patents shall be the term of this Agreement.

           2.3 Proprietary Rights. All proprietary rights in and to the CFA
Technology, including, without limitation, all rights with respect to patents,
copyrights and trademarks, including, without limitation, the "BioSafe" mark,
and rights under the trade secret laws of any jurisdiction, shall be and remain
the sole property of BioSafe. ScotSafe shall have no right, title or interest
therein except as expressly provided herein. ScotSafe agrees to display all
appropriate notices of any patent registration or application of which it is
given notice by BioSafe, in accordance with BioSafe's reasonable instructions as
to the content of such notices, and shall promptly notify BioSafe of any
infringement of BioSafe's proprietary rights of which it has knowledge.

           2.4 Substitute Technology. BioSafe in consultation with ScotSafe
shall have the right to substitute other proprietary technologies of BioSafe in
place of the CFA Technology in the event that BioSafe determines that such other
technologies are preferable and can be provided on a cost-effective basis, in
which event all references herein to "CFA" or the "CFA Technology" or the "CFA
Unit" shall be deemed to refer to such substitute technology.

           2.5 Developments by ScotSafe. In the event that ScotSafe shall
develop any improvements to the CFA Technology or any other patented or
unpatented technology for processing medical waste during the term of this
Agreement, either alone or jointly with BioSafe, ScotSafe shall promptly
disclose such improvements or new technology to BioSafe. All rights in any such
improvements or new technology developed by ScotSafe shall be the property of
BioSafe and shall be deemed for all purposes of this Agreement to constitute a
part of the CFA Technology. ScotSafe hereby assigns to BioSafe all of its rights
in any such improvements or new technology, and shall execute any documents or
instruments required to confirm such assignment. In the event that BioSafe shall

<PAGE>


decide to seek patent protection for any such improvements or new technology,
ScotSafe shall cooperate, at BioSafe's expense, in BioSafe's efforts in seeking
such patent protection, and in connection therewith shall execute, and cause its
employees to execute, any patent applications, assignments, or other documents
required in connection therewith.

SECTION 3. SERVICES

           3.1 Purchase and Delivery of the CFA Unit. ScotSafe shall have
responsibility for arranging the manufacture, purchase and delivery of the CFA
Unit and the shipping of the CFA Unit to the Site; provided that BioSafe will
co-operate fully with ScotSafe in arranging, at ScotSafe's expense, for such
manufacture, as well as all necessary insurance, shipping instructions,
insurance, import licenses, permits, and other necessary documents for the
shipment and delivery of the CFA Units to the Sites.

           3.2 BioSafe Services. ScotSafe shall retain BioSafe to provide the
services listed in subsections (a) through (c) below, for which services BioSafe
will be paid Consulting Fees as set forth in Section 5.2 hereof:

                     (a)       BioSafe shall have responsibility for overseeing
and managing the installation and commissioning of the CFA Units at the Sites, 
including:

                                (i)     planning and design of each Facility, 
                                        including CFA, recycling, sharps 
                                        programme, and residue disposal;

                                (ii)    equipment specification and procurement;

                                (iii)   installation and acceptance testing 
                                        (as further described in Section 4 
                                        hereof), provided that BioSafe will have
                                        approval authority on all vendor 
                                        equipment and contractors associated
                                        with the installation of each CFA Unit;

                                (iv)    testing for required permits and 
                                        approvals; and

                                (v)     the provision of written materials and
                                        protocols for the operation of each CFA 
                                        Unit.

           BioSafe acknowledges and understands that during the course of this
Agreement ScotSafe may want to assume responsibility for some of the services
provided by BioSafe under this Section 3.2(a); therefore, BioSafe agrees to
negotiate in good faith with ScotSafe with respect to any reasonable reduction
in the services provided by BioSafe hereunder.


<PAGE>

                    (b)       BioSafe shall provide reasonable operations 
training and technical support for the employees of ScotSafe required for 
operation of the CFA Units at the Sites as deemed necessary by both parties. 
This training and technical support may involve reasonable travel by BioSafe 
personnel, at ScotSafe's expense, to the office of ScotSafe and to the Sites.

                     (c)       BioSafe will provide assistance to ScotSafe in 
preparing, submitting, negotiating and all other similar actions relating to any
 patent applications, patent renewal applications, applications to register 
trademarks and any and all other similar governmental filings which ScotSafe may
 be required to make during the term of this Agreement in order to protect 
ScotSafe's interest in the CFA Technology. ScotSafe will provide similar 
assistance to BioSafe to protect BioSafe's interest in the CFA Technology.

           3.3       ScotSafe Responsibilities.  ScotSafe, at its expense, will
 be responsible for developing each Site, including without limitation:

                     (a)       preparing the structure at each Site to house the
 CFA Unit at that Site in accordance with requirements specified by BioSafe;

                     (b)       providing water, power and gas utilities at each
 Site sufficient to operate the CFA Unit at that Site in accordance with 
requirements specified by BioSafe;

                     (c)       obtaining all required licenses and permits to 
install and operate the CFA Unit at each Site subject to such CFA Unit 
satisfying the Acceptance Tests; and

                     (d)       providing CIW and any other test and maintenance
 materials as required by BioSafe in a timely manner and in adequate amounts to 
conduct process testing and the Acceptance Tests.

           3.4 Initiation Notice. ScotSafe shall provide written notification to
BioSafe upon the initiation of any purchase order or contractual agreement or
understanding relating to the design, fabrication or installation of each CFA
Unit (such notification referred to herein as an "Initiation Notice").

SECTION 4. ACCEPTANCE OF CFA UNITS

           4.1       Acceptance Tests.  The acceptance test standards for 
evaluation of the CFA Units at the Sites are set forth on Schedule C attached 
hereto (collectively, the "Acceptance Tests").

           4.2 Completion of Acceptance Tests. No later than one month after the
installation of the CFA Unit at each Site has been completed in accordance with
BioSafe's specifications, the Acceptance Tests shall commence. Acceptance
Testing will be conducted under the joint supervision of BioSafe and ScotSafe.

<PAGE>

ScotSafe will be responsible for determining the local codes and regulations
that must be satisfied, and provide copies of all relevant requirements to
BioSafe prior to commencing installation of the CFA Unit at each Site. The
results of all testing completed by outside contractors and consultants will be
transmitted simultaneously to BioSafe and ScotSafe. Upon completion of the
Acceptance Tests, BioSafe shall submit to ScotSafe a report which summarizes
commissioning and acceptance testing activities, including the results of the
Acceptance Tests ("the Acceptance Test Results"). The date of the ScotSafe's
receipt of the Acceptance Test Results shall be deemed the Acceptance Date
unless, within fourteen (14) days of receipt, ScotSafe delivers to BioSafe
written notification detailing each acceptance standard which ScotSafe asserts
has not been satisfied. BioSafe shall make such modifications and repeat tests
with the co-operation of ScotSafe as necessary to satisfy the Acceptance Tests.
In the event that the CFA Unit does not satisfy the agreed Acceptance Tests
within six (6) months from BioSafe's delivery of a certificate of mechanical
completion of the installation of the CFA Unit at each Site, BioSafe will use
its reasonable efforts to correct the deficiency within such period of time as
is mutually agreed between ScotSafe and BioSafe, and if this is not possible
then BioSafe will cooperate with, and provide to ScotSafe appropriate assistance
to remedy such deficiency, subject to the limitations on BioSafe liability
contained in Section 8.2 hereof.

           4.3 Disputes Regarding Acceptance. In the event that there is a
disagreement regarding whether a particular CFA Unit has satisfied the
Acceptance Tests, the matter shall be referred for final settlement to an
independent third party acting as an expert and not as an arbiter, nominated
jointly by BioSafe and ScotSafe. Failing such joint nomination, an independent
third party shall be nominated on the application of either party by the then
current Secretary of the Association of Consulting Engineers, London. The
decision of such third party shall be final and binding on BioSafe and ScotSafe.

SECTION 5. ROYALTIES AND CONSULTING FEES

           5.1 Royalties. In consideration of the license granted by BioSafe
herein, ScotSafe shall pay BioSafe royalties for each CFA Unit in the amounts
and in the manner set forth in Schedule D attached hereto (the "Royalties"). The
license from BioSafe to ScotSafe shall be exclusive to ScotSafe within the
Territory provided that ScotSafe pays to BioSafe the minimum Royalties in the
amounts and in the manner set forth in Schedule D attached hereto (the "Minimum
Royalties"). In the event that ScotSafe does not pay to BioSafe the Minimum
Royalties for each calendar year during which they are required to be paid,
ScotSafe shall perform one of the following within ten (10) days following the
end of such calendar year:

           (a)       pay to BioSafe a single cash payment in an amount equal to
 the shortfall in the Minimum Royalty amount for such calendar year;

           (b)       notify BioSafe in writing of ScotSafe's election to conver
 the license granted under Section 2.1 hereof to a non-exclusive license within 
the Territory; or


<PAGE>

           (c)       notify BioSafe in writing of ScotSafe's election to 
terminate this Agreement.

If ScotSafe elects to convert the license granted in Section 2.1 hereof to a
non-exclusive license within the Territory in accordance with Section 5.1(b)
above, BioSafe shall have the right to terminate this Agreement upon 12 months
prior written notice to ScotSafe. If BioSafe does not receive the Minimum
Royalty shortfall payment described in Section 5.1(a) above or either of the
notices described in Section 5.1(b) and (c) above, within ten (10) days
following the end of the calendar year for which such Minimum Royalties apply,
BioSafe shall have the right to terminate this Agreement upon ten (10) days
written notice to ScotSafe.


           5.2 Consulting Fees. ScotSafe shall pay BioSafe compensation for the
services rendered by BioSafe to ScotSafe under Sections 3.2 and 4.2 or
otherwise. Payment shall be on a time-and-materials basis, for which purpose the
services of BioSafe personnel will be charged at reasonable hourly rates no
higher than the rates then customarily charged by BioSafe for such personnel or
personnel of comparable skills and experience. Rates for BioSafe personnel as of
the date of execution of this Agreement are set forth in Schedule E attached
hereto, provided, however, that BioSafe reserves the right to change these rates
at any time. BioSafe shall submit invoices for such services and any related
disbursements reimbursable under Section 5.3 hereof on a regular basis, and
ScotSafe shall pay all charges reflected on such invoices within thirty (30)
days after presentation.

           5.3 Expenses. ScotSafe will reimburse BioSafe for reasonable expenses
incurred by BioSafe in the performance of its obligations hereunder, including,
without limitation, coach-class air travel, lodging and meals, when these
expenses are supported by receipts.

           5.4 Currency. Royalties and Consulting Fees payable hereunder shall
be paid in U.S. dollars, and any conversion from foreign currencies shall be
calculated at the exchange rates prevailing on the last day of the month in
which such Royalties or Consulting Fees accrue.

           5.5 Interest. Any amounts not paid when due hereunder shall accrue
interest at a rate per annum equal to two percent (2%) over the Prime Rate
quoted from time to time in the Wall Street Journal.

SECTION 6. TERM; TERMINATION

           6.1 Term of the Agreement. This Agreement shall commence on the last
date of execution of this Agreement and shall expire on 30 November, 2020,
except as earlier terminated in accordance with the terms of this Agreement, or
by mutual agreement of the parties hereto.


<PAGE>

           6.2       Termination.

                     (a)       BioSafe may terminate this Agreement in the event
 ScotSafe fails to pay any amount owed to BioSafe hereunder when due, including
 without limitation the minimum Royalties set forthon Schedule D attached
 hereto, which failure has not been cured within thirty (30) days.

                     (b)       Either party may terminate this Agreement in the 
event of a material breach of this Agreement, which breach has not been cured 
within thirty (30) days of receipt of written notice thereof.

                     (c)       ScotSafe may terminate this Agreement immediately
by written notice to BioSafe upon the occurrence of (i) the adjudication of 
BioSafe bankruptcy or insolvency of BioSafe International,Inc. pursuant to the 
provisions of any United States federal or state bankruptcy or insolvency act, 
(ii) the appointment of a receiver or trustee of all, or substantially all, of
the property or assets of BioSafe, (iii) the filing of a petition by, or of an
involuntary petition against, BioSafe under the provisions of any federal or
state bankruptcy or insolvency act, (iv) the making by BioSafe of an assignment
for the benefit of creditors or (v) the dissolution of BioSafe.  BioSafe shall
have the same rights to terminate in the event ScotSafe shall suffer any of the
occurrences listed in clauses (i) - (v) above under applicable United Kingdom
bankruptcy or insolvency laws. Upon termination of this Agreement for any 
reason ScotSafe shall cease all use and exploitation of the CFA Technology, and
each party shall return to the other any and all documents or other materials
containing Confidential Information of the other (as defined
herein).


           6.3 Survival of Obligations. Upon any termination of this Agreement,
all rights and obligations of the parties under this Agreement shall cease
except for (a) ScotSafe's obligations to make any payment which was due and
payable on or prior to the date of termination, (b) the parties' obligations of
confidentiality under Section 7 of this Agreement, and (c) the obligations of
the parties under this Section 6.3.

SECTION 7. CONFIDENTIALITY

           7.1       General.

                     (a)       Both parties shall maintain in strictest 
confidence and shall cause their directors, officers, employees, agents, counsel
and representatives to maintain in strictest confidence, all proprietary and 
confidential information and materials (whether or not patentable), including,
without limitation, equipment, processes, methods, data, software, reports, 
know-how, sources of supply, customer lists, patent positions and business plans
which are communicated to, learned of, developed or otherwise acquired by any
party pursuant to this Agreement and any other informationdesignated by the
disclosing party as confidential or proprietary in relation to the subject 
matter of this Agreement, which information is provided by one party to the 
other either directly or indirectly ("Confidential Information").


<PAGE>

                     (b)       ScotSafe will ensure that any agents or 
subcontractors of ScotSafe or sublicensees (approved under Section 2.1 hereof) 
who have access to the CFA Technology execute a confidentiality and proprietary 
information agreement in a form reasonably acceptable to BioSafe and ScotSafe, 
which agreement shall require such agent, subcontractor or approved sublicensee 
to perform the obligations required to be performed by ScotSafe in Section 2.5 
hereof.

           7.2 Exceptions. Confidential Information shall not include any
information that (i) becomes known to the general public without the fault or
breach (including simple negligence) of the receiving party; or (ii) was already
known to or by the recipient as evidenced by prior written documents in its
possession; or (iii) is disclosed to the recipient by a third party who is not
in default of any confidentiality obligations to the disclosing party hereunder;
or (iv) is developed by or on behalf of the receiving party, without reliance on
confidential information received hereunder. Each party shall be entitled, in
addition to any other right or remedy it may have, at law or in equity, to an
injunction, without the posting of any bond or other security, enjoining or
restraining the other party from any violation or threatened violation of this
Section.

           7.3 Employees. ScotSafe agrees that if any of its directors,
officers, key employees or other employees, who could reasonably be expected to
possess Confidential Information the disclosure of which could be harmful to
BioSafe's interest, shall leave the employment of ScotSafe, then ScotSafe will
use reasonable efforts to obtain from such departing person an agreement not to
disclose to any third party at any time such Confidential Information in such
person's possession, and to cause such person to deliver to ScotSafe and not
take with him or retain, any such Confidential Information, and to provide
written certification to ScotSafe that all such materials have been so delivered
to ScotSafe prior to departure from employment.

           7.4       Survival.  The obligations of the parties under this 
Section 7 shall survive any termination of this Agreement for any reason.

<PAGE>
          

SECTION 8. RISK; INDEMNIFICATION

           8.1 Disclaimer of Warranties. EXCEPT AS EXPRESSLY SET FORTH HEREIN,
BIOSAFE DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION ANY WARRANTIES AS TO THE SUITABILITY OR MERCHANTABILITY OR FITNESS
FOR ANY PARTICULAR PURPOSE OF THE CFA TECHNOLOGY, THE CFA UNIT OR ANY SERVICES
FURNISHED HEREUNDER. NEITHER BIOSAFE, NOR ITS EMPLOYEES, AGENTS OR
SUBCONTRACTORS SHALL BE LIABLE FOR ANY LOST OR ANTICIPATED PROFITS, OR ANY
INCIDENTAL, INDIRECT EXEMPLARY, SPECIAL OR CONSEQUENTIAL DAMAGES, LOSS BY REASON
OF PLANT OR FACILITY SHUT DOWN OR NON-OPERATION; INCREASED EXPENSE OF OPERATION
OF ANY FACILITY OR EQUIPMENT; DAMAGE OR INJURY TO THE ENVIRONMENT (INCLUDING
WITHOUT LIMITATION, POLLUTION, ECOLOGY AND LIKE MATTERS); OR ANY OTHER SPECIAL
OR CONSEQUENTIAL LOSS OR DAMAGE, WHETHER ARISING IN CONTRACT, TORT OR OTHERWISE,
REGARDLESS OF WHETHER BIOSAFE WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

           8.2 Defects. In the event the CFA Unit fails to meet specifications
due to a defect in materials or workmanship of a CFA Unit, BioSafe shall
cooperate with the manufacturer of such CFA Unit in order to rectify such
defects, for which cooperation ScotSafe shall pay BioSafe Consulting Fees as
described in Section 5.2 hereof. In the event that a CFA Unit fails to meet
specifications due to a defect in the CFA Technology, BioSafe's liability
hereunder shall be limited to, at BioSafe's sole option (after discussion with
ScotSafe), repair of such defects or refund of the Royalties paid to BioSafe
hereunder with respect to such CFA Unit.

           8.3 Loss or Damage. Each party agrees to indemnify and defend the
other and hold them harmless from and against any claims for personal injury or
property damage arising out of the negligence or misconduct of the employees or
agents of such party; provided however, that neither party shall be responsible
for indirect, special or consequential damages.

           8.4 Infringement. BioSafe represents and warrants that, to the best
knowledge and belief of BioSafe, the CFA Technology does not infringe upon any
valid patent of any third party in the United States and in the Territory, and
BioSafe is not aware of any claim by any third party that such infringement
exists. BioSafe agrees to defend, at its own expense, and to pay all costs and
damages awarded against ScotSafe based on, any and all claims by third parties
arising from actual or alleged infringement by the CFA Technology of any such
patent if it is shown that BioSafe knew of such infringement or possible claim
of infringement; provided that BioSafe's obligation to pay such costs and
damages under this Section 8.4 shall not apply to the extent that such actual or
alleged infringement arises out of modifications to the CFA Technology made by
ScotSafe; and provided that BioSafe's obligation to pay such costs and damages
shall be subject to and limited by the following provisions of this Section 8.4.

<PAGE>


In the event that ScotSafe receives a claim or notice of a claim that is or may
be subject to indemnification hereunder, ScotSafe shall (i) give BioSafe prompt
written notice of such claim or notice of claim, (ii) cooperation with BioSafe
at BioSafe's expense in every reasonable manner in the defense of such claim,
and (iii) permit BioSafe to assume and control the defense thereof at BioSafe's
cost and expense, provided that ScotSafe shall have the right, at its option and
at its expense, to participate in the defense of such claim through counsel of
its own choosing. If infringement is held to exist, or if a finding of
infringement is likely, BioSafe may, at its option, revise the infringing
material so as to make it non-infringing, or arrange to procure for ScotSafe the
right to continue using the infringing material to the extent permitted by this
Agreement.

           8.5 Indemnification by ScotSafe. ScotSafe agrees to indemnify and
defend BioSafe and hold it harmless from and against any claims arising out of
the activities of ScotSafe or its employees or agents under the license
conferred hereby, including without limitation, any such claims alleging loss or
damage arising from the use of the CFA Technology or the construction or
operation by ScotSafe of any or all of the CFA Units.

           8.6 Indemnification by BioSafe. BioSafe agrees to indemnify and
defend ScotSafe and hold it harmless from and against any claims arising out of
the activities of BioSafe or its employees or agents under the license conferred
hereby, including without limitation any such claims alleging loss or damage
arising from the services as set out herein provided by BioSafe in respect of
any or all of the CFA Units.

SECTION 9. GOVERNING LAW

           9.1 Governing Law. This Agreement shall be governed by and construed
in accordance with the law of Scotland. In the event that there is a dispute
under this Agreement (with the exception of disputes arising under Section 4.3
hereof), the parties hereto shall submit to binding arbitration at the
International Court of Arbitration at Paris, France or otherwise to such
arbitral or judicial proceeding, governed by the law of Scotland, as the parties
may mutually agree.



SECTION 10.  MISCELLANEOUS

           10.1 Force Majeure. For the purposes of this Agreement, Force Majeure
Event means any circumstances beyond the control of either party to this
Agreement (including without limitation acts of war or civil unrest, strikes,
lockouts or other industrial action, storm, explosion, Act of God, accident or
prohibitive government regulations) provided, however, the parties shall make
diligent good faith efforts to perform their respective obligations hereunder.
If due to any Force Majeure Event either party is unable to a material extent to
fulfill its obligations under this Agreement the party so unable shall not be
liable to the other for any delay or non-performance.


<PAGE>

           10.2 Notices. Any notice or other communication to be given or served
hereunder shall be sufficiently given or serviced if it is delivered to the
party to whom such notice was addressed personally or if sent by first class
mail, postage prepaid, or if sent by telex or facsimile transmission to that
party at the address stated below:

           If to BioSafe:

                                                             Philip W. Strauss
                                          BioSafe International, Inc.
                                          10 Fawcett Street
                                          Cambridge, MA 02138

           with copies to:     Jeffrie Bettinger
                                          BioSafe International, Inc.
                                          10 Fawcett Street
                                          Cambridge, MA 02138

                                          Thomas P. Storer, P.C.
                                          Goodwin, Procter & Hoar
                                          Exchange Place
                                          Boston, MA 02109-2881

           If to ScotSafe:
                                          ScotSafe Limited
                                          4 Fitzroy Place
                                          Glasgow, G3 7RH

           with copies to:

                                          John (known as Ian) Reynolds
                                          14 Argyll Gardens, Larkhall,
                                          Strathclyde ML 9 2EN

                                          George Bonnar Weir
                                          6 Kirkdene Crescent, Newton Mearns,
                                          Glasgow, G77 5RP

                                          Kevin Sweeney
                                          McGrigor Donald, Solicitors
                                          Pacific House
                                          70 Wellington Street
                                          Glasgow, G2 6SB

or at such other address which the recipient most recently has notified the
other for the purpose of this Section. Any document sent by first class mail


<PAGE>


shall be deemed to be received ten (10) days after the same shall have been
sent. Any notice sent by telex or facsimile shall be deemed given when received,
answer back confirmed.

           10.3 Assignment. The rights and liabilities conferred by this
Agreement are personal to the parties hereto and may not be assigned or
transferred to any other party hereto without the prior consent in writing of
the other party; except that either party may assign its rights and obligations
hereunder to any of its direct or indirect subsidiaries or to a corporation or
other entity which may acquire all or substantially all of the assets or
business of that party, provided that in such event the assigning party shall
not be relieved of its obligations hereunder.

           10.4 Effect of Waiver. No delay or omission or any party in
exercising any right, power, privilege or remedy in respect of this Agreement
shall impair such right, power, privileged or remedy or be construed as a waiver
thereof nor shall any single or partial exercise of such right, power,
privileged or remedy preclude any further exercise of any right, power,
privilege or remedy. The rights, powers, privileges and remedies herein provided
are cumulative and not exclusive of any rights, powers, privileges or remedies
provided by law.

           10.5 Amendments. This Agreement may only be amended or supplemented
by a writing that refers expressly to this Agreement and that is signed by both
of the parties.

           10.6 Severability. If at any time any of the provisions of this
Agreement is or becomes invalid, illegal or unenforceable in any respect under
the law of any jurisdiction, neither the validity, legality or enforceability of
the remaining provisions nor the validity, legality or enforceability of such
provision under the law of any other jurisdiction shall in any way be affected
or impaired thereby.

           10.7 Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the matters dealt with herein and
supersedes any previous agreement between the parties hereto in relation to such
matters. Each of the parties acknowledges that in entering into this Agreement,
it has not relied on any representation or warranty save as expressly set out
herein or in any document referred to herein. No variation of this Agreement
shall be valid or effective unless made by one or more instruments in writing
and signed by such of the parties which would be affected by such variation.

           10.8 Costs and Attorneys' Fees. Each party will pay its own costs and
attorneys' fees incident to this Agreement and the transaction contemplated
hereby (except as may be specifically provided for herein) whether or not this
transaction shall be consummated.

           10.9 Public Announcements. Neither of the parties hereto shall issue
any press release or otherwise publicize this Agreement or the transactions
contemplated herein without the approval of the other party, which approval

<PAGE>

shall not be unreasonably withheld. ScotSafe recognizes that BioSafe is a public
company subject to disclosure requirements under applicable law. The approval of
a specific press release or other form of publicity shall not constitute
approval of subsequent press releases or publicity.

           10.10     No Joint Venture.  The parties acknowledge and agree that
each is an independent contractor and not an agent, joint venturer or partner of
the other party.  This Agreement shall not be construed as constituting either
party as a partner of the other party or


                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

<PAGE>


to create a joint venture or any other form of legal association that would
impose liability upon one party of the act or failure to act of the other party
or as providing either party with the right, power or authority (express or
implied) to create any duty or obligation on behalf of the other party.

SUBSCRIBED for and on behalf of

BIOSAFE at ______________________________

on_______________________________________

by_______________________________________
being a Director/the Secretary/or an
Authorized Signatory of BioSafe in
the presence of:

Witness___________________________
Name_____________________________
Address___________________________
Occupation_________________________

SUBSCRIBED for and on behalf of

SCOTSAFE at______________________

on________________________________

by________________________________
being Director/the Secretary/or an
Authorized Signatory of SCOTSAFE in
the presence of:

Witness__________________________
Name___________________________
Address_________________________
Occupation_______________________


<PAGE>


                                       This Schedule A and the following four
                                       Schedules (Schedules B to E inclusive)
                                       are the Schedules referred to in the
                                       foregoing Agreement between BioSafe
                                       International, Inc. and ScotSafe Limited
      
                                       Schedule A

                                   CFA COMPONENT LIST




Dryers
Shredders
Oil Heater
Computer Control
Condenser/Cooling Tower
Air Filtration
Auxiliary Conveyors
Control and Monitoring Systems and other minor components



<PAGE>


                                   Schedule B

                              Location of the Site

Location of the Site: To be determined by mutual agreement of ScotSafe and
BioSafe.



<PAGE>


                                   Schedule C

                            Acceptance Test Standards


         The Acceptance Test Standards for the CFA Units are as follows:

         1.  Description of Microbiological Efficacy Test.  The Microbiological
Efficacy Test will be determined by mutual agreement of BioSafe and ScotSafe.

         2.  Other Acceptance Test Standards.  Other acceptance standards 
include those standards required to satisfy the applicable local authorities at 
each Site with respect to:

                               (i)        environmental health;

                               (ii)       health and safety;

                                         (iii)     the suitability of the CFA 
                                         Unit at the Site for use in treating
                                         and disposing CIW;

                                         (iv)      any aspects of planning to 
                                         the extent that they are dependent on
                                         sub-clauses (i) and (ii) above;

                                         (v)       the waste residue generated 
                                         by the CFA Unit at the Site being
                                         microbiologically accepted for 
                                         landfill; and

                                         (vi) such other standards as are
                                         mutually agreed to by BioSafe and 
                                         ScotSafe in writing (collectively 
                                         "the Acceptance Tests").

<PAGE>


                                   Schedule D

                                    Royalties

             The first installment of the Royalty payment for each CFA Unit
shall be due upon the commencement of the Acceptance Tests for such CFA Unit, as
described in Section 4.2 hereof. The amounts of the Royalty payments shall be
determined in accordance with the number of installations of CFA Units per
country within the Territory as set forth below. The Royalty payments described
below refer to and are repeated for each country within the Territory.

For each country in the Territory:

           $200,000 for the first CFA Unit in that country, payable in
twenty-four equal consecutive monthly payments.

           $200,000 each for the second and third CFA Units in that country,
payable in twelve equal consecutive monthly installments.

           $100,000 for each subsequent CFA Unit in that country, payable in
twelve equal consecutive monthly installments.



                                Minimum Royalties



             Calendar Year*                         Minimum Royalty
                 1998                                  $100,000
                 1999                                  $300,000
                 2000                                  $400,000






*A Minimum Royalty will not be in effect for calendar years after the year 2000.


<PAGE>


                                   Schedule E

                         Current BioSafe Personnel Rates



           Category/Title                                  Daily Rate

President                                                     $2097
Director of Process Technology                                 $932
Senior Engineer                                                $700
Engineer                                                       $526
Engineering Associate                                          $468
Process Technician                                             $351


Rates shown above are in U.S. Dollars and are typical billing rates for CY 1996
subject to change based on actual personnel and inflation. BioSafe will charge
the actual rate for personnel engaged in the work at our then current multiplier
for overheads. The daily rate includes all overheads and fees including profit
at 15%. All expenses incurred in the conduct of the work including travel,
lodging and meals, are billed as direct costs.










<PAGE>