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

                                    FORM 10-K/A
                                  Amendment No. 3

                     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. 3 to Form 10-K Filed with the 
                   Securities and Exchange Commission for the year ended
                   December 31, 1996.

                                                                           PAGE
                                                                           ---- 
PART I                                                                      

         Item 1.    Is unchanged                                                
         Item 2.    Is unchanged
         Item 3.    Is unchanged
         Item 4.    Is unchanged

PART II                                                                     

         Item 5.    Market For Registrant's Common Equity and Related 
                    Stockholder Matters                                     1
         Item 6.    Is unchanged
         Item 7.    Is unchanged
         Item 8.    Financial Statements and Supplementary Data             3
         Item 9.    Is unchanged

PART III

         Item 10.   Directors and Executive Officers                        4
         Item 11.   Executive Compensation                                  6
         Item 12.   Is unchanged
         Item 13.   Is unchanged

PART IV                                                                     

         Item 14.   Is unchanged

Signatures                                                                 10 


<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 accredited unaffiliated private 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.  The Preferred Stock was issued in 1993 in exchange for the 
         retirement of $775,000 of debt.  This issuance was made to former 
         directors 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.  These issuances were made to accredited private 
         investors.  

         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.

                                             1
<PAGE>

         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 approximately 30 unaffiliated  
         investors and was exempt from registration under Regulation D.  The 
         names of the investors are as follows:  Rosebud Fund, BA II, Norway, 
         Edgeport Nominees, Capital Trust, Capital Trust S.A., Napier Brown 
         Holdings, Patrick Ridgewell, Cameo Trust, Walter Prime, Sereen Intl, 
         Seif Limited, Henley Group, W&P Bank and Trust, Kenmar Gems Op Fund,
         Oscar Garzatto, Fenwich Assets, Intragalactic Fund, BUS Systems, The
         Shelby Group, Arbinator, Faisal Fionance, Banque Genevoise, Heritage
         Finance, Credit Suisse, CUF Finance, Comptoir Prive Gestion, Cramer & 
         Cie and Gifford Investments. 

         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.
                                      
         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 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.

                                        2
<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


                                      
<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 $622,624, 
         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.  He has held 
this position for more than five years. 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.

                                      4
<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.  Since March of 1991, Mr. Shannon has been a 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 has been retired for the past five 
years.  Prior to that, he 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.
                                      5 
<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").

                                      6
<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.


                                      7
<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

                                      8
<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



                                       9
<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 based on a number of factors as noted above in "Report of 
Compensation Committee - Base Salary".  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.



                                    
<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:February 9, 1998             By:  -----------------------
          -----------------                  Philip Strauss
                                             Chairman, Chief Executive Officer 
                                             and President

                                            
    Date:February 9, 1998              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.




                                       10

<PAGE>