SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------

                                    FORM 10-K

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

                  For the fiscal year ended December 31, 1998
                         Commission file number 0-25998

                        WASTE SYSTEMS INTERNATIONAL, INC.
              (Exact name of registrant as specified in its charter)


        Delaware                                                   95-4203626
     (State or other                                            (I.R.S. Employer
     jurisdiction of                                             Identification
incorporation or organization)                                         No.)
        
  420 Bedford Street, Suite 300
   Lexington, Massachusetts                                             02420
(Address of principal executive offices)                             (zip code)

                            (781) 862-3000 Phone
                            (781) 862-2929 Fax
              (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, $.01 par value per share
                           ------------------------

     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 or any amendment to this
Form 10-K X

     As of  March  24,  1999,  the  market  value  of the  voting  stock  of the
Registrant held by non-affiliates of the Registrant was $50,492,453

     The number of shares of the  Registrant's  common stock, par value $.01 per
share, outstanding as of March 24, 1999 was 11,220,545.

                        DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's Proxy Statement for the 1999 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K. 
Portions of the Registration Statement on Form S-1 of Waste Systems 
International, Inc. (No. 33-93966) are incorporated by reference into Part IV 
of this Form 10-K.





                                     
<PAGE>
                                      



                               TABLE OF CONTENTS


                                                                           Page
PART I
     Item 1.    Business                                                      1
     Item 2.    Properties                                                    11
     Item 3.    Legal Proceedings                                             11
     Item 4.    Submission of Matters to a 
                  Vote of Security Holders                                    11

PART II
     Item 5.    Market For Registrant's Common Equity and Related
                  Stockholder Matters                                         12
     Item 6.    Selected Financial Data                                       13
     Item 7.    Management's Discussion and Analysis of Financial 
                  Condition and Results of Operations                         15
     Item 8.    Financial Statements and Supplementary Data                   26
     Item 9.    Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure                         49

PART III
     Item 10.   Directors and Executive Officers                              49
     Item 11.   Executive Compensation                                        52
     Item 12.   Security Ownership of Certain Beneficial 
                  Owners and Management                                       55
     Item 13.   Certain Relationships and Related Transactions                57

PART IV
     Item 14.   Exhibits, Financial Statement Schedules, 
                  and Reports on Form 8-K                                     58

     Signatures                                                               59






                                      
<PAGE>





Note Regarding Forward Looking Statements:

This Annual Report on Form 10-K contains  forward-looking  statements concerning
among other things,  the Company's  expected  future  revenues,  operations  and
expenditures and estimates of the potential markets for the Company's  services.
Such  statements  made by the Company  fall within the meaning of Section 27A of
the  Securities  Act of 1933,  as amended,  and  Section  21E of the  Securities
Exchange  Act of 1934,  as  amended.  All such  forward-looking  statements  are
necessarily  only estimates of future results and the actual results achieved by
the  Company may differ  materially  from these  projections  due to a number of
factors as  discussed  in the  section  entitled  "Management's  Discussion  and
Analysis  of  Financial  Condition  and Results of  Operations--Certain  Factors
Affecting Future Operating Results" of this Form 10-K.

                                PART I

Item 1.  Business

The Company

         Waste  Systems  International,  Inc.  (the  "Company"  or  "WSI") is an
integrated  non-hazardous  solid waste  management  company that provides  solid
waste  collection,  recycling,  transfer  and disposal  services to  commercial,
industrial,  residential and municipal customers within certain regional markets
in the  Northeast  and  Mid-Atlantic  States where it  operates.  The Company is
achieving  significant  growth by implementing an active  acquisition  strategy.
During 1998,  the Company  completed 34  acquisitions  of landfills,  collection
companies and transfer  stations.  At December 31, 1998, the Company owned three
landfills in Vermont and Central Pennsylvania.  Subsequent to December 31, 1998,
the Company  acquired a fourth landfill  located in Central  Pennsylvania  which
significantly  increased the  Company's  disposal  capacity in that region.  The
Company's  Moretown  Landfill  in  Vermont  and Sandy Run  Landfill  in  Central
Pennsylvania are currently  operating and permitted to accept 120,000 and 86,000
tons per  year,  respectively.  The  Company's  Mostoller  Landfill  in  Central
Pennsylvania  is permitted  to accept  624,000 tons per year and is scheduled to
commence  operations  in the second half of 1999,  subject to receipt of certain
incidental  permits  and  final  construction.  As of  December  31,  1998,  the
aggregate  remaining  estimated  permitted capacity of the Company's three owned
landfills was approximately  18.5 million cubic yards. In addition,  the Company
has  contracted  with the Town of South  Hadley,  Massachusetts  to operate that
Town's landfill which has estimated capacity of approximately 1.87 million cubic
yards available for future disposal, subject to receipt of required permits. The
Company also owns four operating transfer stations and has acquired another that
is permitted and is ready to begin  construction.  As of December 31, 1998,  the
Company's   collection   operations  serve  a  total  of  approximately   52,000
commercial,  industrial,  residential  and  municipal  customers in the Vermont,
Central  Pennsylvania,  Central  Massachusetts  and  Central  Upstate  New  York
markets.

     The  Company  has  completed  6  acquisitions  since  January  1, 1999 (See
Management's  Discussion  And  Analysis Of  Financial  Condition  And Results Of
Operations   -  Recent   Business   Developments-   Acquisitions)   which   have
significantly  increased the Company's presence within the geographic regions in
which it operates. Included in the 6 acquisitions are Community Refuse Services,
Inc., which is a landfill located in Central Pennsylvania,  and Cumberland Waste
Service,  Inc.,  a  collection  operation  serving  over 2,300  customers in the
geographical  area surrounding the landfill.  The landfill  acquisition will add
approximately  6.0  million  cubic  yards  of  capacity  for the  region  and is
permitted to accept 306,000 tons of municipal solid waste per year. As a result,
management  believes  that the Company is poised to continue its growth in these
areas and to enhance its profitability  through the  implementation of operating
efficiencies.

         The Company  focuses on the  operation of an  integrated  non-hazardous
solid waste  management  business,  including  the  ownership  and  operation of
landfills,  solid waste collection services and transfer stations. The Company's
objective is to expand the current geographic scope of its operations  primarily
within the  Northeast  and  Mid-Atlantic  regions of the United  States,  and to
become one of the leading  providers  of  non-hazardous  solid waste  management
services in each local market that it serves.  The key elements of the Company's
strategy for  achieving its  objective  are: (i) to acquire and integrate  solid
waste disposal  capacity,  transfer  stations and  collection  operations in its
targeted new markets,  (ii) to generate  internal growth through increased sales
penetration and the marketing of additional  services to existing  customers and
(iii) to enhance profitability by increasing operating efficiency.


                                       1
<PAGE>


Industry Overview

        Based on  published  industry  information,  the solid waste  management
industry generated approximately $38 billion in revenue during 1997. Of this $38
billion aggregate revenue,  approximately 44% was generated by public companies,
approximately 33% was generated by municipal governments,  and the remaining 23%
was generated by numerous private solid waste operators.

        The  solid  waste   management   industry  is   generally   experiencing
significant  consolidation  and  integration.  The  Company  believes  that  the
consolidation  and  integration  is a result  of the  following  factors,  among
others: (i) increasingly stringent environmental regulations which have resulted
in an increased need for substantial capital to maintain regulatory  compliance;
(ii) the  inability of many smaller  operators to achieve the economies of scale
necessary to compete with larger  providers;  (iii) the competitive and economic
benefits of providing integrated  collection,  recycling,  transfer and disposal
services;  and (iv) the  privatization  of solid  waste  assets and  services by
municipalities. Although significant consolidation has occurred within the solid
waste  management  industry,  the Company  believes the industry  remains highly
fragmented and that a substantial number of potential acquisition  opportunities
remain,  including  within  the  Northeast  and  Mid-Atlantic  regions  where it
operates.

        Stringent  environmental  regulations  have resulted in rising costs for
owners of landfills while permits required for landfill  development,  expansion
or construction have also become increasingly difficult to obtain. These ongoing
costs are coupled with increased financial reserve  requirements for closure and
post-closure monitoring. Certain of the smaller industry participants have found
these costs and  regulations  burdensome  and have decided either to close their
operations  or to sell them to larger  operators.  As a  result,  the  number of
operating landfills has decreased while the size of landfills has increased.

        Economies  of scale,  driven by the high fixed costs of landfill  assets
and the associated  profitability of each incremental ton of waste,  have led to
the  development  of higher volume,  regional  landfills.  Integrated  operators
achieve  economies of scale in the solid waste collection and disposal  industry
through vertical integration of their operations that may generate a significant
waste stream for these high-volume landfills.  Integrated companies gain further
competitive advantage over non-integrated operators by being able to control the
waste stream.  The ability of larger  integrated  companies to  internalize  the
collected solid waste (i.e., collecting the waste at the source, transferring it
through  their own transfer  stations and  disposing of it at their own disposal
facility),  coupled  with  access  to  significant  capital  resources  to  make
acquisitions, has created an environment in which large integrated companies can
operate more cost effectively and competitively than non-integrated operators.

        The trend toward  consolidation  in the solid waste  industry is further
supported by the increasing  tendency of a number of municipalities to privatize
their  waste  disposal   operations.   Privatization   is  often  an  attractive
alternative  for  municipalities  due,  among other  reasons,  to the ability of
integrated  operators  to  leverage  their  economies  of scale to  provide  the
community with a broader range of services while  enabling the  municipality  to
reduce  its own  capital  asset  requirements.  The  Company  believes  that the
financial  condition of municipal  landfills was adversely  affected by the 1994
United  States  Supreme  Court  decision  which  declared  "flow  control"  laws
unconstitutional,  particularly  in the  Northeastern  states.  These  laws  had
required  waste  generated  in  counties or  districts  to be disposed of at the
respective county or district-owned landfills or incinerators.  The reduction in
the captive waste stream to these facilities, resulting from the invalidation of
such laws, forced the counties that owned them to increase their per ton tipping
fees to meet  municipal bond  payments.  The Company  believes that these market
dynamics are factors causing  municipalities  throughout the northeastern states
to consider the privatization of public facilities.

Strategy

        The Company's objective is to expand the current geographic scope of its
operations primarily within the Northeast and Mid-Atlantic regions of the United
States, and to become one of the leading providers of non-hazardous  solid waste
management services in each local market that it serves. The key elements of the
Company's strategy for achieving its objective are: (i) to acquire and integrate
solid waste disposal  capacity,  transfer stations and collection  operations in
its targeted new markets,  (ii) to generate  internal  growth through  increased
sales penetration and the marketing of additional services to existing customers
and (iii) to enhance  profitability  by  increasing  operating  efficiency.  The
Company intends to implement this strategy as follows:

                                       2
<PAGE>

        Expansion  Through  Acquisitions.  During 1998, the Company completed 34
acquisitions  within 4 states in the Northeast  and  Mid-Atlantic  regions.  The
Company intends to continue to expand by acquiring solid waste disposal capacity
and  collection  companies  in new and  existing  markets.  In  considering  new
markets,  the Company  evaluates  opportunities to acquire or otherwise  control
sufficient  landfills,  transfer stations and collection  operations which would
enable it to  generate an  integrated  waste  stream and  achieve  the  disposal
economies of scale necessary to meet its market share and financial  objectives.
The  Company  has  established  criteria,   which  enable  it  to  evaluate  the
prospective  acquisition  opportunity and the target market.  Historically,  the
Company has entered new markets,  which are  adjacent to its  existing  markets;
however,  the Company is considering  new markets in  non-contiguous  geographic
areas, which meet its criteria.

        Internal Growth.  In order to generate  continued  internal growth,  the
Company has focused on increasing sales  penetration in its current and adjacent
markets,  soliciting  new  commercial,  industrial  and  residential  customers,
marketing  upgraded  services  to existing  customers  and,  where  appropriate,
raising  prices.  As  customers  are added in existing  markets,  the  Company's
revenue per routed truck is improved,  which  generally  increases the Company's
collection  efficiencies and profitability.  The Company uses transfer stations,
which serve to link disparate collection  operations with Company landfills,  as
an important part of its internal growth strategy.

        Operating Enhancements for Acquired and Existing Businesses. The Company
has implemented a system that establishes  standards for each of its markets and
tracks  operating  criteria  for its  collection,  transfer,  disposal and other
services  to  facilitate   improved   profitability  in  existing  and  acquired
operations.  These measurement  criteria include collection and disposal routing
efficiency, equipment utilization, cost controls, commercial weight tracking and
employee  training  and  safety   procedures.   The  Company  believes  that  by
establishing standards and closely monitoring compliance,  it is able to improve
existing  and  acquired  operations.  Moreover,  where  the  Company  is able to
internalize  the waste  stream of  acquired  operations,  it is further  able to
increase operating efficiencies and improve capacity utilization.


Acquisition Program

        The Company is pursuing  an active  acquisition  strategy to achieve its
objective of expanding  the current  geographical  scope of its  operations  and
becoming a leading  provider of integrated  solid waste  management  services in
each  of the  markets  it  serves.  The  Company  seeks  acquisitions  that  are
consistent  with its  three-step  acquisition  program  designed  to (i) acquire
long-term   disposal  capacity  in  targeted  regional  markets,   (ii)  acquire
collection  companies and transfer stations which will serve as platforms in the
targeted  regions to secure a stable  long-term  waste  flow,  and (iii)  secure
"tuck-in  acquisitions"  of small  but  complementary  collection  companies  to
increase a regional operation's profitability.

        The  following  table sets forth  acquisitions  completed by the Company
through March 24, 1999:
<TABLE>
<S>                                  <C>                     <C>                             <C>
Acquisition                          Month Acquired          Principal Business              Location
-----------                          ---------------         ------------------              ---------
Vermont Region

Grady Majors Rubbish Removal         September 1998          Collection                      St. Albans, VT

Cota Sanitation                      June 1998               Collection                      Newport, VT

Vincent Moss                         June 1998               Collection                      Newport, VT

Austin Rubbish Removal               June 1998               Collection                      Newport, VT

Surprenant Rubbish, Inc.             June 1998               Collection                      Newport, VT

Fortin's Trucking of Williston       May 1998                Collection                      Williston, VT

John Leo & Sons, Ltd.                March 1998              Collection                      Burlington, VT

Rapid Rubbish Removal, Inc.          February 1998           Collection/Transfer Station     St. Johnsbury, VT

Greenia Trucking                     February 1998           Collection                      St. Albans, VT

Doyle Disposal                       January 1998            Collection                      Barre, VT

Perkins Disposal                     January 1998            Collection                      St. Johnsbury, VT

CSWD Transfer Station*               October 1997            Transfer Station                Williston, VT

The Hartigan Company                 January 1997            Collection                      Stowe, VT

Waitsfield Transfer Station          November 1995           Transfer Station                Waitsfield, VT

Moretown Landfill                    July 1995               Landfill                        Moretown, VT



                                       3
<PAGE>





Acquisition                          Month Acquired          Principal Business              Location
-----------                          --------------          ------------------              ----------
Central Pennsylvania Region

Cumberland Waste Service, Inc        March 1999              Collection                      Cumberland, PA

Community Refuse Service, Inc        March 1999              Landfill                        Cumberland, PA

Koontz Disposal                      January 1999            Collection                      Boswell, PA

Jim's Hauling, Inc.                  January 1999            Collection                      Duncansville, PA

Mostoller Landfill, Inc.             August 1998             Landfill                        Somerset, PA

Worthy's Refuse Service              August 1998             Collection                      McVey Town, PA

Sandy Run Landfill                   July 1998               Landfill                        Hopewell, PA

Patterson's Hauling                  May 1998                Collection                      Altoona, PA

Pleasant Valley Hauling              May 1998                Collection                      Altoona, PA

Horvath Sanitation, Inc./
Eagle Recycling, Inc.                May 1998                Collection                      Altoona, PA

McCardle Refuse Company              May 1998                Collection                      Burham, PA


Central Massachusetts Region

Troiano Trucking, Inc.               March 1999              Collection                      Worcester, MA

Steve Provost Rubbish Removal        December 1998           Collection                      Rochdale, MA

Sunrise Trucking                     December 1998           Collection                      Spencer, MA

Trashworks                           November 1998           Collection                      Worcester, MA

Mattei-Flynn Trucking, Inc.          August 1998             Collection                      Auburn, MA

Mass Wood Recycling, Inc.            July 1998               Transfer Station                Oxford, MA


Central Upstate New York Region

Santaro Trucking Co., Inc.           January 1999            Collection                      Syracuse, NY

Richard A. Bristol, Sr.              November 1998           Collection                      Rome, NY

Bristol Trash and Recycling II       November 1998           Collection                      Rome, NY

Shepard Disposal Service             October 1998            Collection                      Oneida, NY

Emmons Trash Removal                 October 1998            Collection                      Sherill, NY

Wayne Wehrle                         September 1998          Collection                      Clinton, NY

Phillip Trucking                     September 1998          Collection                      Wampsville, NY

Mary Lou Mauzy                       September 1998          Collection                      Cazenovia, NY

Costello's Trash Removal             September 1998          Collection                      Cazenovia, NY

Bliss Rubbish Removal, Inc.*         September 1998          Collection/Transfer Station     Camden, NY

Besig & Sons                         September 1998          Collection                      Westmoreland, NY

Larry Baker Disposal, Inc.           September 1998          Collection                      Oneida, NY

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

* Acquisition pursuant to lease/purchase arrangement.


                                       4
<PAGE>


Integrated Solid Waste Management Operations

        The  Company's  operations  include the  ownership  and/or  operation of
landfills, solid waste collection services and transfer stations. As the Company
has executed its acquisition  strategy and integrated the solid waste management
assets  acquired,  the Company's rate of  internalization  of its operations has
increased.  Throughout 1998, the Company increased the amount waste collected by
the Company that was  subsequently  disposed at Company  landfills and increased
the amount of the solid waste delivered for disposal at the Company's  landfills
that was collected by the Company.

        Solid Waste Collection.  The Company's solid waste collection operations
served  approximately 52,000 commercial,  industrial,  residential and municipal
customers  at December  31, 1998.  A majority of the  Company's  commercial  and
industrial collection services are performed under service agreements with terms
ranging  from one to three  years,  and fees are  determined  by such factors as
collection  frequency,  type of equipment and  containers  furnished,  the type,
volume and weight of the solid waste collected,  the distance to the disposal or
processing  facility  and the cost of  disposal  or  processing.  The  Company's
residential   collection  and  disposal  services  are  performed  either  on  a
subscription  basis (i.e.,  with no underlying  contract) with  individuals,  or
under contracts with municipalities,  homeowners associations,  apartment owners
or mobile home park operators. Revenues from collection operations accounted for
approximately  73.5% of the Company's  revenues for the year ended  December 31,
1998.

        Landfills.  At December 31, 1998, the Company owned three  landfills and
has an  agreement  to  operate a fourth  landfill  under a  long-term  operating
agreement. The Moretown Landfill and Sandy Run Landfill, which are the Company's
only  operating  landfills  at December 31, 1998,  include  leachate  collection
systems,  groundwater monitoring systems and, where required, active methane gas
extraction and recovery systems.

        During  1998,  over 95% of the solid  waste from the  Company's  Vermont
operations was delivered for disposal at the Moretown Landfill and approximately
63% of the solid waste  delivered for disposal at the Moretown  Landfill  during
this period was collected by the Company. During 1998,  approximately 59% of the
solid waste from the Company's Central Pennsylvania operations was delivered for
disposal  at the Sandy Run  Landfill  and  approximately  58% of the solid waste
delivered  for  disposal  at the Sandy  Run  Landfill  during  this  period  was
collected  by the  Company.  Revenue  from  landfill  operations  accounted  for
approximately  20.1% of the Company's  revenues for the year ended  December 31,
1998.

        The following table provides certain information regarding the landfills
that the Company owns or operates.  All  information  is provided as of December
31, 1998,  except for Community  Refuse  Service,  Inc. which is as of March 12,
1999.

Remaining Estimated Permitted Capacity
                                          Estimated              Capacity in
                                        Total Remaining           Permitting
                                       Permitted Capacity          Process
Landfill             Location            (Cubic Yards)         (Cubic Yards)(1)
--------------------------------------------------------------------------------

Mostoller          Somerset, PA          14,200,000                   -
Sandy Run          Hopewell, PA           2,865,000                   -
Moretown           Moretown, VT           1,478,000                   -
South Hadley(2)    South Hadley, MA             -                 2,000,000
Community Refuse 
  Service, Inc.    Cumberland, PA         6,000,000                   -

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

(1)     Represents  capacity  for which  the  Company  has begun the  permitting
        process.  Does not include additional available capacity at the site for
        which permits have not yet been sought.

(2)     The South Hadley Landfill will be operated pursuant to an operating 
        agreement expiring in 2015.

        Once the  permitted  capacity of a particular  landfill is reached,  the
landfill must be closed and capped if additional capacity is not authorized. The
Company  establishes  reserves  for the  estimated  costs  associated  with such
closure  and  post-closure  costs  over  the  anticipated  useful  life  of such
landfill.  See "Management's  Discussion and Analysis of Financial Condition and
Results of  Operations - Certain  Factors  Affecting  Future  Operating  Results
-Adequacy of Accruals for Closure and Post-Closure Costs."


                                       5
<PAGE>



        Transfer Station Services.  At December 31, 1998, the Company owned four
operating  transfer  stations.  In addition,  the Company has  acquired  another
transfer  station  that is  permitted  and in the process of  construction.  The
transfer stations  receive,  compact and transfer solid waste collected from the
Company's  various  collection  operations  and from third  parties to long-haul
vehicles for transport to landfills. The Company believes that transfer stations
benefit the  Company by (i)  increasing  the size of the waste  shed,  which has
access  to  the  Company's  landfills  and  (ii)  reducing  costs  by  improving
utilization  of  collection  personnel  and  equipment.  Revenues  from transfer
station services  accounted for approximately 6.4% of the Company's revenues for
the year ended December 31, 1998.

Regional Operations

        The Company's  current or planned solid waste management  operations are
as follows:

        Vermont  Operations.  The Company established its first integrated solid
waste management  operations in the  geographical  area surrounding its Moretown
Landfill.  In addition to the  Moretown  Landfill,  the Company  currently  owns
and/or  operates  three  transfer  stations and  collection  operations  serving
commercial,  industrial,  residential and municipal customers in the Burlington,
St. Albans,  St.  Johnsbury,  Newport and  Barre-Montpelier,  Vermont areas. The
Vermont  operations  serve   approximately   6,200  residential   customers  and
approximately  2,600  other  customers,  including  commercial,  industrial  and
municipal  customers.  The first cell  ("Cell 1") at the  Moretown  Landfill  is
permitted  to  receive  approximately  120,000  tons per year and had  remaining
estimated permitted capacity at December 31, 1998 of approximately  78,000 cubic
yards.  The Company  received all of the permits  required for  development  and
operation of the second cell ("Cell 2") and began construction on Cell 2 in July
1998.  Cell 2 will  increase  the  permitted  landfill  capacity by an estimated
additional  1.4 million  cubic  yards.  The Company  expects that Cell 2 will be
available  to receive  solid  waste late in the second  quarter of 1999.  During
1998,  over 95% of the solid waste from the  Company's  Vermont  operations  was
delivered  for disposal at the Moretown  Landfill and  approximately  63% of the
solid waste  delivered for disposal at the Moretown  Landfill during this period
was collected by the Company.

        Central  Pennsylvania  Operations.  In May 1998,  the Company  commenced
operations  in  Central   Pennsylvania,   through  the  acquisition  of  Horvath
Sanitation,  Inc.  and  Eagle  Recycling,  Inc.  ("Eagle"),  which  are based in
Altoona,   Pennsylvania.   Subsequently,  the  Company  completed  four  tuck-in
acquisitions which have been integrated with Eagle's operations. At December 31,
1998, the Central Pennsylvania operations serve approximately 24,000 residential
customers  and 2,500  other  customers,  including  commercial,  industrial  and
municipal customers.  In July 1998, the Company acquired the Sandy Run Landfill,
a 700-acre,  3.0 million cubic yard permitted  solid waste landfill in Hopewell,
Pennsylvania  and began the process of integrating  Eagle's  operations with the
Sandy Run  Landfill.  The Sandy Run Landfill is  currently  permitted to receive
approximately  86,000  tons  per  year  and had  remaining  estimated  permitted
capacity at December 31, 1998 of approximately  2.9 million cubic yards.  During
1998,   approximately  59%  of  the  solid  waste  from  the  Company's  Central
Pennsylvania operations was delivered for disposal at the Sandy Run Landfill and
approximately  58% of the solid waste  delivered  for  disposal at the Sandy Run
Landfill  during this period was collected by the Company.  In August 1998,  the
Company acquired the Mostoller  Landfill in Somerset County,  Pennsylvania.  The
Mostoller Landfill is permitted to receive  approximately  624,000 tons of waste
per year (subject to receiving certain pending  incidental  permits as disclosed
below),  including  municipal solid waste,  construction  and demolition  waste,
sludge  and  residual  wastes.   This  landfill   consists  of  7  cells  having
approximately  14.2 million  cubic yards of  permitted  capacity  with  expected
additional room for expansion on the 513 acre permitted  "greenfields" site. The
Company has obtained the principal permits for the construction and operation of
the Mostoller Landfill,  subject to commencing  operations prior to December 31,
1999.  Applications  are pending for  incidental  air quality and state  highway
occupancy permits required in connection with the operation of the landfill, and
the Company  expects  these  permits will be received in a timely  fashion.  The
Company expects to carry out  construction of the Mostoller  Landfill during the
first half of 1999 with operations expected to commence during the third quarter
of 1999. In January 1999, the Company completed the tuck-in  collection  company
acquisitions   of  Jim's   Hauling,   Inc.  and  Koontz   Disposal  in  Central,
Pennsylvania.  These have been integrated into the Eagle operation. On March 11,
1999, the Company acquired Community Refuse Services,  Inc., which is a landfill
located  in  Central  Pennsylvania,   and  Cumberland  Waste  Service,  Inc.,  a
collection  operation  serving  over 2,300  customers in the  geographical  area
surrounding the landfill.  The landfill  acquisition will add  approximately 6.0
million  cubic  yards of  capacity  for the  region and is  permitted  to accept
306,000 tons of municipal solid waste per year.

        Central  Massachusetts  Operations.  The  Company  and the Town of South
Hadley,  Massachusetts  have  entered  into a contract  whereby the Company will
operate the Town's 30-acre  municipal  solid waste  landfill.  The Town of South
Hadley will retain full ownership of the South Hadley Landfill while the Company
operates the facility.  The Company is currently in the  permitting  process for
the South Hadley  Landfill and expects to have received all of its operating and
construction  permits by the third quarter of 1999. The Company anticipates that
the South Hadley  Landfill will be available to begin  accepting  solid waste at
the first  10-acre  lined cell during the second half of 1999.  The South Hadley
Landfill is currently expected to have approximately 2.00 million cubic yards of
new capacity for future  disposal.  In July 1998, the Company acquired Mass Wood
Recycling,  Inc. in Oxford,  Massachusetts,  a permitted transfer station,  with
construction expected to commence during the first half of 1999. In August 1998,
the Company acquired Mattei-Flynn Trucking, Inc. in Auburn, Massachusetts.  This
waste  collection  operation  currently  has an  established  customer  base  of
approximately 1,500 residential  customers and 2,300 other customers,  including
commercial,  industrial  and  municipal  customers  and serves as a platform for
company  growth in this  targeted  regional  market.  Subsequently,  the Company
completed four tuck-in acquisitions,  and has integrated these acquisitions with
Mattei-Flynn's  operations.  The Company intends to integrate  these  collection
operations  with the Oxford Transfer  Station and to eventually  internalize the
waste at the South Hadley  Landfill.  In  addition,  the Company has a long-term
disposal agreement with a third party landfill in Southbridge,  Massachusetts at
very  favorable  rates  through the year 2019. As a part of the  agreement,  the
Company has a "Right of First Refusal" to purchase the landfill.

                                       6
<PAGE>

        Central  Upstate  New York  Operations.  During  the four  months  ended
December 31, 1998, the Company  entered the Central Upstate New York market with
the acquisition of eleven  collection  operations and a transfer  station in the
general area between  Syracuse and Utica,  New York. At December 31, 1998, these
waste collection operations serve approximately 11,300 residential customers and
1,600 other customers, including commercial, industrial and municipal customers.
The Company  selected  the Central  Upstate New York market for  acquisition  of
collection operations and transfer stations in anticipation of the privatization
of nearby  landfills.  The Company is  currently  evaluating  opportunities  for
expansion and integration of its Central Upstate New York operations. In January
1999, the Company  completed the  acquisition  of Santaro  Trucking Co., Inc., a
collection  company  located  in  Syracuse,  New  York  which  serves  over  400
commercial customers.

Competition

        Though  the  solid  waste  management  industry  has been  substantially
consolidated  in certain  markets,  it generally is highly  competitive and very
fragmented and requires  substantial  labor and capital  resources.  Competition
exists for collection, recycling, transfer and disposal services. The markets in
which the Company  competes or is likely to compete in are usually served by one
or more of the large  national,  regional or local solid waste companies who may
have greater  financial,  marketing or technical  resources than the Company and
may be able to achieve greater economies of scale than the Company.  The Company
also  competes  with  counties,  municipalities  and  operators  of  alternative
disposal  facilities  that  operate  their own  waste  collection  and  disposal
facilities.  The  availability  of user fees,  charges or tax  revenues  and the
availability of tax-exempt financing may provide a competitive  advantage to the
public sector.  Additionally,  alternative disposal facilities such as recycling
and  incineration  may  reduce the demand  for the  disposal  of solid  waste in
landfills.

        The Company competes for waste  collection and disposal  business on the
basis of price, quality of service and geographical location. From time to time,
competitors  may  reduce the price of their  services  in an effort to expand or
maintain market share or to win  competitively  bid contracts.  Competition also
exists within the industry for acquisition targets where the Company may compete
with publicly-owned national or regional solid waste management companies.

Marketing and Sales

        The Company has a  coordinated  marketing  and sales  strategy to obtain
solid waste streams which is formulated at the corporate  level and  implemented
through  regional  management.  The Company markets its services locally through
regional  managers and direct  sales  representatives  who focus on  commercial,
industrial,  municipal  and  residential  customers.  The  Company  markets  its
commercial,  industrial and municipal services through its sales representatives
who visit  customers on a regular  basis and make sales calls to  potential  new
customers.  These sales  representatives  receive a significant portion of their
compensation  based upon meeting  certain  incentive  targets.  The Company also
obtains new customers from referral  sources,  its general  reputation and local
market print  advertising.  Leads are also developed from new building  permits,
business  licenses  and  other  public  records.  Additionally,   each  regional
operation  generally  advertises  in the yellow  pages and other local  business
print  media  that cover its  service  area.  The  Company  emphasizes  customer
satisfaction and retention,  and believes that its focus on quality service will
help retain existing and attract additional customers.

        Maintenance of a local  presence and identity is an important  aspect of
the Company's marketing plan, and many of the Company's managers are involved in
local  governmental,  civic and business  organizations.  The Company's name and
logo, or, where  appropriate,  that of the Company's  regional  operations,  are
displayed  on all  Company  containers  and  trucks.  Additionally,  the Company
attends  and  makes   presentations  at  municipal  and  state  conferences  and
advertises in governmental associations' membership publications.

        No single customer of the Company  individually  accounted for more than
10% of Company revenues in the year ended December 31, 1998.

                                       7
<PAGE>

Government Regulation

        The Company and its  customers  are subject to  extensive  and  evolving
environmental  laws and  regulations  that  have been  enacted  in  response  to
increased concern over environmental  issues and technological  advances.  These
regulations are administered by the U.S. Environmental Protection Agency ("EPA")
and various other federal,  state and local  environmental,  transportation  and
health and safety agencies.  The Company believes that such laws and regulations
have the effect of enhancing the potential  market in which the Company operates
by allowing the Company to offer economical solutions for regulatory problems to
its  customers  and  acquisition  candidates.  On the other hand,  such laws and
regulations  represent a potential constraint on, and added expense with respect
to,  the  Company's  operation  of  projects  for its  customers  or for its own
account.

        In order to develop and operate a landfill project,  the Company must go
through several governmental review processes and obtain one or more permits and
often zoning or other land use  approvals.  These permits and zoning or land use
approvals  are  difficult  and time  consuming  to obtain  and may be opposed by
various local authorities,  abutters, and ad hoc citizens' groups. In connection
with the Company's  preliminary  development of landfill  projects,  the Company
will expend  considerable  time,  effort and  resources  in  complying  with the
governmental  review and permitting process necessary to develop or increase the
capacity of these landfills. Once obtained,  operating permits generally must be
periodically  renewed  and are subject to  modification  and  revocation  by the
issuing agency. Furthermore,  landfill operations are subject to challenge under
statutory and common law regulation of  "nuisances," in addition to statutes and
regulations  with respect to permits and other  approvals.  Similar  permits and
approvals are required for the development  and operation of transfer  stations,
although the regulatory reviews of applications  pertaining to transfer stations
are generally less costly and time-consuming than the procedures  conducted with
respect to the permitting of landfills.

        The Company's  landfill  operations and transfer  stations subject it to
certain  laws  and   regulations   governing   operational,   monitoring,   site
maintenance, closure and post-closure, and financial assurance obligations which
change  from  time to time  and  which  could  give  rise to  increased  capital
expenditures and operating costs. In connection with the Company's  operation of
landfills  and transfer  stations,  the Company will expend  considerable  time,
effort and resources in complying with these laws and regulations.  Governmental
authorities have the power to enforce compliance with these laws and regulations
and to obtain  injunctions or impose civil or criminal  penalties in the case of
violations.  Failure  to  correct  the  problems  to  the  satisfaction  of  the
authorities could lead to curtailed operations, additional costs or even closure
of a landfill or transfer station.

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

        The  Resource  Conservation  and  Recovery  Act of 1976  ("RCRA").  RCRA
regulates the  generation,  treatment,  storage,  handling,  transportation  and
disposal of solid waste and  requires  states to develop  programs to ensure the
safe  disposal  of solid  waste.  RCRA  divides  solid  waste  into two  groups,
hazardous and non-hazardous. Wastes are generally classified as hazardous wastes
if they (i) either (a) are  specifically  included on a list of hazardous wastes
or (b) exhibit certain hazardous  characteristics  and (ii) are not specifically
designated  as  non-hazardous.  Wastes  classified  as hazardous  under RCRA are
subject to much stricter regulation than wastes classified as non-hazardous, and
businesses that deal with hazardous waste are subject to regulatory  obligations
in addition to those imposed on handlers of non-hazardous waste.

        Among the wastes that are specifically designated as non-hazardous waste
are  household  waste and  "special"  waste,  including  items such as petroleum
contaminated soils, asbestos,  shredder fluff and most non-hazardous  industrial
waste products.

        The EPA  regulations  issued under  Subtitle C of RCRA (the  "Subtitle C
Regulations")  impose a comprehensive  "cradle to grave" system for tracking the
generation, transportation, treatment, storage and disposal of hazardous wastes.
The Subtitle C Regulations  impose  obligations on generators,  transporters and
disposers of hazardous  waste, and require permits that are costly to obtain and
maintain for sites where such material is treated, stored or disposed.  Subtitle
C requirements  include detailed operating,  inspection,  training and emergency
preparedness  and response  standards,  as well as requirements for manifesting,
record keeping and reporting,  corrective action, facility closure, post-closure
and financial  responsibility.  Most states have promulgated regulations modeled
on some or all of the  Subtitle  C  provisions  issued  by the EPA.  Some  state
regulations impose different, additional or more stringent obligations.

        The Company is not involved with transportation or disposal of hazardous
wastes, except for the occasional  collection,  at certain transfer stations, of
hazardous wastes generated by "conditionally  exempt small quantity  generators"
(as defined by RCRA).  These hazardous  wastes are then  transported by properly
permitted  hazardous  waste  transporters  for  disposal at  properly  permitted
hazardous waste disposal facilities that are owned by third parties.

                                       8
<PAGE>

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

        The Federal Water Pollution Control Act of 1972 (the "Clean Water Act").
The Clean Water Act  establishes  rules  regulating  the discharge of pollutants
from a variety of sources,  including solid waste disposal sites, into waters of
the United States. If runoff or collected leachate from the Company's  landfills
and transfer  stations are  discharged  into  streams,  rivers or other  surface
waters of the United  States,  the Clean Water Act would  require the Company to
apply for and obtain a discharge  permit,  conduct  sampling and monitoring and,
under  certain  circumstances,   reduce  the  quantity  of  pollutants  in  such
discharge.  Also,  virtually  all  landfills are required to comply with federal
storm water  regulations,  which are designed to prevent  possibly  contaminated
storm water from flowing into  surface  waters.  The Company is working with the
appropriate  regulatory agencies to ensure that its facilities are in compliance
with Clean Water Act  requirements,  particularly as they apply to treatment and
discharge of leachate  and storm  water.  The Company has secured or has applied
for the  required  discharge  permits  under the Clean  Water Act or  comparable
state-delegated  programs.  To  ensure  compliance  with  the  Clean  Water  Act
pretreatment  and  discharge  requirements,  the  Company  has either  installed
wastewater  treatment  systems  at its  facilities  to  treat  its  effluent  to
acceptable  levels before discharge or has arranged to discharge its effluent to
municipal wastewater treatment facilities.

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

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

                                       9
<PAGE>

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

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

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

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

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

        In addition,  certain  states and  localities  may for economic or other
reasons  restrict the  exportation of waste from their  jurisdiction  or require
that a  specified  amount of waste be  disposed of at  facilities  within  their
jurisdiction.  In 1994, the United States  Supreme Court held  unconstitutional,
and therefore  invalid, a local ordinance that sought to impose flow controls on
taking waste out of the locality. However, certain state and local jurisdictions
continue to seek to enforce such restrictions and, in certain cases, the Company
may elect not to challenge such restrictions based upon various  considerations.
In addition, the aforementioned  proposed federal legislation would allow states
and localities to impose certain flow control  restrictions.  These restrictions
could result in the volume of waste going to landfills  being reduced in certain
areas, which may adversely affect the Company's ability to operate its landfills
at their full capacity and/or affect the prices that can be charged for landfill
disposal services.

                                       10
<PAGE>

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



        The Company  believes  that it is in material  compliance  with federal,
state and local regulations based on the Company's internal review process which
has not identified any material  non-compliance and the Company has not received
any verbal or written notification from any governmental agency to the contrary.
See "Management's  Discussion and Analysis of Financial Condition and Results of
Operations - Certain  Factors  Affecting  Future  Operating  Results  -Potential
Environmental Liability and Adverse Effect of Environmental Regulation."

Employees

        As of December 31, 1998, the Company had 303 full time  employees.  As a
result of the  acquisitions  subsequent to December 31, 1998, at March 24, 1999,
the Company had 357 full time employees. The Company believes its future success
will  depend in part on its  continued  ability  to recruit  and  retain  highly
qualified technical and managerial personnel.  See "Management's  Discussion and
Analysis of Financial  Condition  and Results of  Operations  - Certain  Factors
Affecting Future Operating  Results  -Dependence on Management" and "-Ability to
Manage  Growth."  The  Company's  employees  are not  subject to any  collective
bargaining agreement.  The Company considers its relations with its employees to
be good.

Item 2.  Properties

        The Company owns or leases and operates  landfills,  transfer  stations,
offices and other  facilities  in  connection  with its  integrated  solid waste
management  operations  as  described  under  "Business-Integrated  Solid  Waste
Management   Operations."   In  addition,   the  Company  leases  its  corporate
headquarters,   located  at  420   Bedford   Street,   Suite   300,   Lexington,
Massachusetts.  The Company currently occupies  approximately 11,000 square feet
at the  Lexington  location  under the terms of a lease  expiring in March 2003,
with annual  rent of  approximately  $200,000  subject to  escalation  in future
years.

Item 3.  Legal Proceedings

        Richard Rosen. Richard Rosen ("Rosen"), former Chairman, Chief Executive
Officer and President of the Company, commenced an action against the Company in
Middlesex  County  (Massachusetts)  Superior Court,  seeking an award of damages
resulting  from the Company's  alleged  breach of a Memorandum of  Understanding
entered into between the Company and Rosen in connection with the termination of
Rosen's  employment with the Company,  in which Rosen had been granted an option
to purchase certain assets of the Company not related to its core business.  The
Company  believes this claim to be frivolous and is  vigorously  defending  this
action.  The Company has previously  received an arbitration award against Rosen
directing Rosen to pay $780,160 for breach by Rosen of his employment  agreement
with  the  Company.  On  February  25,  1997  the  Middlesex  Superior  Court in
Cambridge,  Massachusetts  confirmed the arbitration  award and entered judgment
against Rosen.

        In addition  to the matter set forth  above,  from time to time,  in the
ordinary course of its business, the Company is subject to legal proceedings and
claims  arising from the conduct of its business  operations.  In the opinion of
the Company, the ultimate disposition of such matters on an aggregate basis will
not have a  material  adverse  effect on the  Company's  financial  position  or
results of operations.

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

         None

                                       11
<PAGE>


                                      PART II

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

The Company's  Common Stock is currently  quoted on the NASDAQ  Small-Cap Market
under the symbol "WSII". The following table sets forth the high and low closing
price of the common  stock for the periods  indicated  and restated to reflect a
one-for five reverse stock split effective February 13, 1998.

                                               High                      Low

 Fourth quarter ended December 31, 1998     $  6.25                   $  4.38
 Third quarter ended September 30, 1998        9.69                      5.00
 Second quarter ended June 30, 1998            9.81                      5.94
 First quarter ended March 31, 1998            7.38                      3.00


 Fourth quarter ended December 31, 1997     $  5.00                   $  2.80
 Third quarter ended September 30, 1997        3.15                      1.40
 Second quarter ended June 30, 1997            2.35                      1.25
 First quarter ended March 31, 1997            2.80                      1.55


On March 24,  1999,  the  reported  last sale price of the  common  stock on the
NASDAQ  Small-Cap  Market  was $4.50 per share,  and there  were 257  holders of
record of common stock.

The  Company  has never paid  dividends  on its Common  Stock and has no present
intention  to  pay  dividends.  The  Company's  intention  is to  retain  future
anticipated earnings to finance the expansion of its business.

At December 31, 1997, the Company had outstanding $9,257,807 of principal amount
Series A  Convertible  Preferred  Stock,  par value $0.001 per share  ("Series A
Preferred  Stock"),  which was issued in a private  placement  on June 26, 1997,
bearing an 8.0% annual cumulative dividend and was convertible into common stock
at a conversion  price of $1.40625 per share of common stock.  On July 27, 1998,
the Company met the mandatory  conversion  trading  requirements  and elected to
convert all of the remaining  shares of Series A Preferred  Stock into 6,590,577
shares of the  Company's  Common Stock and the Board of  Directors  declared and
paid cash dividends of approximately $787,000.

At December 31, 1997, the Company also had  outstanding  $4,048,750 of principal
amount Series B Convertible Preferred Stock, par value $0.001 per share ("Series
B Preferred  Stock").  The Series B Preferred  Stock was issued on December  31,
1997 in a private placement in exchange for outstanding convertible notes of the
Company,  bearing a 6.0% annual  cumulative  dividend,  and was convertible into
common stock at a conversion  price of $6.25 per share of common  stock.  On May
14, 1998,  the Company met the mandatory  conversion  trading  requirements  and
elected  to  convert  all of the  shares of the  Series B  Preferred  Stock into
623,808 shares of the Company's Common Stock and the Board of Directors declared
and paid cash dividends of approximately $101,000.




                                       12
<PAGE>



Item 6.  Selected Consolidated Financial and Operating Data

               SELECTED CONSOLIDATED FINANCIAL DATA
          (In thousands, except share and per share data)

        The following  selected  consolidated  financial data for the five years
ended  December  31,  1998 have been  derived  from the  Company's  Consolidated
Financial  Statements,  which have been  audited by KPMG Peat  Marwick  LLP. The
selected  consolidated   financial  data  presented  below  should  be  read  in
conjunction  with the  Company's  Consolidated  Financial  Statements  and notes
thereto and  "Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations,"  which is included  elsewhere in this Form 10-K.  During
1998, the Company acquired two landfills,  31 solid waste  collection  companies
and three transfer  stations.  Due to the significance of the acquired  business
operations to the Company's financial performance,  the Company does not believe
that its historical  financial  statements are necessarily  indicative of future
performance  and as a result  will  affect the  comparability  of the  financial
information included herein.
<TABLE>
<S>                                               <C>             <C>           <C>          <C>         <C>
                                                                  Fiscal Year Ended December 31
                                                     1998            1997       1996         1995        1994
                                                   --------        -------    --------     --------    ------
Statement of Operations Data:
   Revenues........................                $  21,045   $   3,458    $   1,496    $   1,344   $      --
   Cost of operations:
     Operating expenses............                   12,400       1,719          921          766          --
     Depreciation and amortization.                    4,501         692          370           72          --
     Acquisition integration costs(1)                  1,864          --           --          --           --
     Write-off of project development costs              236       1,495        6,652          --           --
                                                    --------   ---------    ---------      --------    ---------
        Total cost of operations...                   19,001       3,906        7,943          838          --
                                                   ---------   ---------    ---------     ---------    ---------

        Gross profit (loss) .......                    2,044        (448)      (6,447)         506          --

   Selling, general and administrative expenses        4,483       2,138        2,433        3,286       1,485
   Amortization of prepaid consulting fees                --          --          834          501          --
   Restructuring(2)................                       --         596        1,741           --          --
                                                   ---------   ---------    ---------     ---------   ---------
     Loss from operations..........                  (2,439)     (3,182)      (11,465)      (3,281)     (1,485)

   Other income (expense):
     Royalty and other income (expense), net           (134)       (516)          817          761       2,064
     Interest expense and financing costs            (4,074)       (1,355)      (1,182)       (471)       (152)
     Interest income...............                      441        172           178          289          --
     Write-off of accounts and notes receivable          --        (568)          --        (2,975)         --
                                                    --------   ---------     ---------   ---------     --------
     Total other income (expense)..                  (3,767)     (2,267)        (187)      (2,396)       1,912
                                                   ---------   ---------    ---------    ---------     --------

   Income (loss) before income taxes,
     discontinued operations and
     extraordinary item............                  (6,206)     (5,449)     (11,652)      (5,677)         427
   Federal and state income tax expense
     (benefit).....................                       43           6         (23)        (110)         185
   Discontinued operations.........                       --          --      (2,261)      (2,303)          --
   Extraordinary item - loss on extinguishment
     of debt.......................                    (247)       (134)           --           --          --
                                                   --------    --------     ---------    ---------   ---------
   Net income (loss)...............                $ (6,496)   $ (5,589)    $(13,890)    $ (7,870)   $     242
   Preferred stock dividends (3)...                     888          --          --            10          108
                                                   ---------   ---------    --------     ---------   ---------
     Net income (loss) available for common
        stockholders(3)............                $ (7,384)   $ (5,589)    $(13,890)    $ (7,880)   $     134
                                                   ========    ========     =========     ========    =========
   Basic net income (loss) per share from
     continuing operations ........                $  (0.97)   $  (1.51)    $  (4.10)    $  (2.88)   $    0.15

   Weighted average number of shares used in
     computation of basic net income
     (loss) per share..............                7,389,547   3,612,623    2,834,841    1,932,809   899,727

EBITDA (4).........................                $  2,130     $(2,469)    $ (9,909)    $ (2,592)   $(1,476)
Adjusted EBITDA (5)................                $  4,230     $  (378)    $ (1,516)    $ (2,592)   $(1,476)
Capital expenditures (excluding acquisitions)      $  9,032     $   998     $  6,599     $  9,749    $   807
Cash flow from operating activities                $  592       $(4,586)    $ (3,912)    $ (3,083)   $  (209)
Cash flow from investing activities                $(71,939)    $   706     $ (7,641)    $(10,267)   $(1,588)
Cash flow from financing activities                $  68,576    $ 6,579     $  6,581     $ 18,416    $ 1,965


                                                                          December 31,
                                                     1998        1997        1996         1995       1994
                                                   --------    -------     -------      -------    ------
Balance Sheet Data:
   Cash and cash equivalents..........             $    194   $   2,964    $  265    $   5,237   $     171
   Working capital....................               (6,520)      1,532    (4,508)       2,393         659
   Total assets.......................               96,117      18,560    16,858       23,508       4,369
   Long-term debt, less current portion              74,861       7,201     9,450       12,266       1,263
   Total stockholders' equity (deficit)               1,739       5,972    (1,849)       3,292         597
</TABLE>


                                       13
<PAGE>


        (1)    Acquisition integration costs consist of one-time,  non-recurring
               costs,  which in the opinion of  management  have no future value
               and, therefore,  are expensed. Such costs include termination and
               retention of employees, lease termination costs, costs related to
               the  integration of information  systems and costs related to the
               change of name of the acquired company or business.

        (2)    Prior to March 27, 1996, the Company had been actively developing
               environmental 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 developing an integrated
               solid waste management operation.

        (3)    In May and July 1998 the  Company  met the  mandatory  conversion
               trading  requirements and elected to convert all of the remaining
               shares  of the  Company's  Preferred  Stock  into  shares  of the
               Company's  Common Stock and the Board of  Directors  declared and
               paid cash dividends of approximately $888,000.

        (4)    EBITDA is defined  as  operating  income or loss from  continuing
               operations   excluding   depreciation  and  amortization,   which
               includes  depreciation  and  amortization  included  in  selling,
               general and administrative  expenses.  EBITDA does not represent,
               and should not be considered as an alternative  to, net income or
               cash flows  from  operating  activities,  each as  determined  in
               accordance  with  GAAP.  Moreover,  EBITDA  does not  necessarily
               indicate  whether cash flow will be sufficient  for such items as
               working capital or capital  expenditures,  or to react to changes
               in the  Company's  industry  or to the  economy in  general.  The
               Company  believes  that  EBITDA  is a  measure  commonly  used by
               lenders and certain investors to evaluate a company's performance
               in the solid waste  industry.  The  Company  also  believes  that
               EBITDA  data may  help  investors  to  understand  the  Company's
               performance  because such data may reflect the Company's  ability
               to generate  cash flows,  which is an indicator of its ability to
               satisfy  its  debt  service,  capital  expenditures  and  working
               capital  requirements.  Because  EBITDA is not  calculated by all
               companies and analysts in the same fashion,  the EBITDA  measures
               presented by the Company may not be  comparable  to the similarly
               titled  measures  reported  by  other  companies.  Therefore,  in
               evaluating  EBITDA data,  investors should consider,  among other
               factors:  the non-GAAP nature of EBITDA;  actual cash flows;  the
               actual   availability   of  funds  for  debt   service,   capital
               expenditures  and working capital;  and the  comparability of the
               Company's EBITDA data to  similarly-titled  measures  reported by
               other companies.

        (5)    Adjusted  EBITDA is EBITDA after  adjusting for one-time  charges
               for  write-off  of  landfill   development   costs,   acquisition
               integration costs and restructuring charges.





                                       14
<PAGE>



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

        The  following  discussion  of the  financial  condition  and results of
operations  of the  Company  should be read in  conjunction  with the  Company's
Consolidated  Financial Statements and the notes thereto.  This Annual Report on
Form 10-K contains forward-looking statements concerning among other things, the
Company's expected future revenues, operations and expenditures and estimates of
the potential  markets for the Company's  services.  Such statements made by the
Company fall within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
such forward-looking statements are necessarily only estimates of future results
and the actual results achieved by the Company may differ  materially from these
projections  due to a number of factors as  discussed  in the  section  entitled
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations--Certain  Factors  Affecting Future  Operating  Results" of this Form
10-K.

Introduction

        The  Company  is an  integrated  non-hazardous  solid  waste  management
company that provides solid waste collection,  recycling,  transfer and disposal
services to commercial,  industrial,  residential and municipal customers within
certain  regional  markets in the Northeast and  Mid-Atlantic  states,  where it
operates.  The Company  focuses on the operation of an integrated  non-hazardous
solid waste management business,  including the ownership and operation of solid
waste  disposal  facilities  (landfills),  transfer  stations  and  solid  waste
collection  services.  The Company derives  revenue from collecting  solid waste
from its  customers,  which it delivers for disposal in its own  landfills,  and
also from unaffiliated waste collection companies who pay to dispose of waste in
the Company's  landfills.  The Company seeks through its acquisition strategy to
acquire substantial  collection  operations and transfer stations in association
with its landfills in order to enhance its overall profitability and to increase
its control over its sources of revenue. See "Business - Strategy"

        During 1998, the Company acquired a total of 34 companies  including two
landfills,  31 collection companies (2 of which included a transfer station) and
one  transfer  station.  Due  to  the  significance  of  the  acquired  business
operations to the Company's financial performance,  the Company does not believe
that its historical  financial  statements are necessarily  indicative of future
performance  and as a result  will  affect the  comparability  of the  financial
information included herein.

Revenues:

         Revenues   represent   fees  charged  to  customers   for  solid  waste
collection,  transfer,  recycling and disposal services  provided.  Arrangements
with customers include both long-term  contractual  arrangements and as-received
disposal at prices quoted by the Company.  Revenues for the periods presented in
the  consolidated  statements  of  operations  were derived  from the  following
sources:
                                              Year ended December 31,
                                      1998              1997              1996
                                     -------          -------            -------
  Collection                           73.5%            12.8%              -   %
  Landfill                             20.1             78.1              100.0
  Transfer                              6.4              9.1               -
                                    ----------       ----------          -------
  Total Revenue                        100.0%           100.0%            100.0%
                                    =========         ========            ======


         For the  purpose  of this  table,  revenue is  attributed  fully to the
operation  where the Company  first  receives the waste.  For  example,  revenue
received from waste collected by the Company and disposed in a Company  landfill
is entirely attributed to collection.  The increase in the Company's  collection
revenues as a percentage of total  revenues  during 1998 compared to 1997 is due
primarily to the impact of the 31 collection companies acquired during 1998. The
decrease in landfill and transfer station revenue as a percentage of revenues in
1998  compared  to  1997  is due  primarily  to the  acquisition  of  collection
companies  that had been  disposing  of their  waste at the  Company's  transfer
stations  and  landfills.  These  acquired  revenues  are now being  recorded as
collection revenue.


                                       15
<PAGE>

Recent Business Developments

         Senior Notes Offering and Debt Repayment. On March 2, 1999, the Company
completed  a private  placement  of $100.0  million of 11.5%  Senior  Notes (the
"Senior  Notes") and warrants to purchase an  aggregate  of 1,500,000  shares of
common  stock at an  exercise  price of $6.25 per share  (the  "Warrants").  The
Senior  Notes  mature on January 15, 2006 and bear  interest at 11.5% per annum,
payable semi-annually in arrears on each January 15 and July 15, commencing July
15, 1999, subject to prepayment in certain  circumstances.  The interest rate on
the Senior Notes is subject to adjustment  upon the occurrence of certain events
as provided in the Senior Notes  Indenture.  The Senior Notes may be redeemed at
the option of the Company after March 2, 2003 at redemption  prices set forth in
the Senior  Notes  Indenture,  together  with accrued and unpaid  interest.  The
Warrants are  exercisable  from  September 2, 1999,  through March 2, 2004.  The
number of shares  for  which,  and the  price per share at which,  a Warrant  is
exercisable,  are subject to adjustment upon the occurrence of certain events as
provided in the  Warrant  Agreement.  The net  proceeds  to the  Company,  after
deducting the discount to the initial  purchaser and related issuance costs, was
approximately $97.3 million. The Company used a portion of the proceeds from the
Senior Notes to repay $20.0  million of the  Company's  13% short term notes due
June 30, 1999,  (the  outstanding  balance of the 13% short-term  notes was $7.5
million at December 31, 1998) $10.0  million of the Howard Bank credit  facility
and  approximately  $1.7 million of capital leases and other notes  payable.  In
addition,  the Company redeemed  approximately $1.45 million principal amount of
the Company's 10%  Convertible  Subordinated  Debentures due October 6, 2000 and
completed  several  acquisitions as described  below. The Company intends to use
the balance of the proceeds for general corporate  purposes,  including possible
future acquisitions and working capital.

         Conversion of Debt into Equity On March 3, 1999, the Company offered to
exchange up to 2,244,109  shares of the Company's  Common Stock for a portion of
the Company's 7%  Subordinated  Notes due May 13, 2005.  The exchange  price per
share of $4.63 was equal to the closing  price of the Common Stock on the Nasdaq
SmallCap Market on the first interim closing as reported by NASDAQ.  Any accrued
but  unpaid  interest  on the  Notes  will be paid in cash.  As a result  of the
exchange  offer,   the  Company  retired   $10,390,000  of  its  7%  Convertible
Subordinated  Notes.  The  remaining  7%  Convertible   Subordinated  Notes  are
convertible by holders into Common Shares at $10.00 per share.

         Stock  Repurchase  With the proceeds of the Senior  Notes,  the Company
repurchased  497,778  shares of the  Company's  common  stock  from the  Federal
Deposit  Insurance  Corporation  (FDIC)  for  an  aggregate  purchase  price  of
approximately $2.8 million.

         Acquisitions  Since  December  31, 1998  through  March 24,  1999,  the
Company has completed six  acquisitions,  consisting of 5 collection  operations
and one  landfill.  The  aggregate  purchase  price for these  acquisitions  was
approximately  $38  million  which  was  paid in  cash  and  the  assumption  of
approximately  $3 million  of debt.  These  acquisitions  have  combined  annual
revenue of approximately  $12 million.  The acquisitions  have all been recorded
using the purchase method of accounting.





                                       16
<PAGE>




         The following table sets forth, for the periods indicated, certain data
derived from the Company's Consolidated Statements of Operations, expressed as a
percentage of revenues:
<TABLE>
         <S>                                                <C>                 <C>            <C>
                                                                     Year ended December 31,
                                                               1998              1997             1996
                                                          -------------      -----------     ------------
         Revenues                                             100.0   %         100.0  %        100.0%

         Operating expenses                                    58.9              49.7             61.6
         Depreciation and amortization                         21.4              20.0             24.7
         Acquisition integration costs                          8.9                 -                -
         Write-off of project development costs                 1.1              43.3            444.7
                                                          ----------         ---------         --------
              Total cost of operations                         90.3             113.0            531.0
                                                          -----------        ---------         --------

         Gross profit (loss)                                    9.7             (13.0)           (431.0)
         Selling, general and administrative expenses          21.3              61.8             163.3
         Restructuring                                           -               17.2             116.5
         Amortization of prepaid consulting fees                 -                 -               55.8
                                                          -----------         ----------        --------

              Loss from operations                            (11.6)            (92.0)           (766.6)

         Royalty and other income (expense), net               (0.6)            (14.9)             62.5
         Interest income                                        2.1               5.0              11.9
         Interest expense and financing costs                 (19.4)            (39.2)            (79.0)
         Equity in loss of affiliate                            -                 -                (6.4)
         Write off of assets                                    -                 -                (1.5)
         Write off of accounts receivable                       -               (16.4)                -
                                                          ----------          ----------        --------

              Total other income (expense)                    (17.9)            (65.5)            (12.5)

         Income tax expense                                     0.2               0.2              (1.6)

              Loss from continuing operations                 (29.7)           (157.7)           (777.5)

         Discontinued operations                                -                 -              (151.2)
                                                          -----------        ------- ---        --------

              Loss before extraordinary item                  (29.7)           (157.7)           (928.7)

         Extraordinary item                                    (1.2)             (3.9)               -
                                                          -------------      -----------         -------

              Net loss                                        (30.9)%          (161.6)%          (928.7)%
                                                          ============          ========        =========

         EBITDA                                                10.1%           (71.4)%          (662.0)%
                                                          ============     ===========       ==========

         Adjusted EBITDA                                       21.9%           (10.9%)          (101.3)%
                                                          ============     ===========       ===========


</TABLE>

                                       17
<PAGE>

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

        Revenues.  Revenues  for  1998  increased  by  $17,587,000  or  509%  to
$21,045,000 from $3,458,000 in 1997.  Thirty-four  acquisitions completed by the
Company  in  1998  accounted  for  approximately  $15.8  million  or  90% of the
increase.  The  balance of the  increase  is the result of the  internal  growth
within the Vermont  operations during 1998. The growth in the Vermont operations
was due to the full year's  operation of the CSWD  Transfer  Station,  which was
acquired  in the  fourth  quarter  of 1997,  increased  volume and prices at the
Moretown Landfill and internal growth at the Company's collection operations.

        Cost of  operations.  Operating  expenses  for  1998  was  approximately
$12,400,000  compared to $1,719,000 for 1997.  The increase of  $10,681,000  was
primarily  due to the 34  acquisitions  completed by the Company in 1998 and the
related  increase in  revenue.  As a  percentage  of sales,  operating  expenses
increased to  approximately  59% in 1998 from  approximately  50% in 1997.  This
increase  was  primarily  due to the change in revenue  mix,  with a much larger
portion of the  revenue  coming  from  collection  operations,  which  typically
experience much higher operating expenses than landfill operations.  The Company
internalizes  a  significant  portion  of its waste  collected  in  Vermont  and
Pennsylvania, which significantly reduces costs of operations as a percentage of
revenue.  The  Company's New York and  Massachusetts  operations do not yet have
landfills where waste can be internalized.

        Operating  costs,  disposal  costs,  and  collection  fees  vary  widely
throughout the geographic areas in which the Company  operates.  The prices that
the Company charges are determined locally,  and typically vary by the volume or
weight,  type of waste  collected,  frequency of collections,  distance to final
disposal  sites,  labor costs and amount and type of equipment  furnished to the
customer.

        Depreciation and amortization. Depreciation and amortization expense was
$4,501,000  and  $692,000 for the years ended 1998 and 1997,  respectively.  The
increase of  $3,809,000  was primarily due to the  additional  depreciation  and
amortization  related to the Company's 34  acquisitions  completed  during 1998.
During  1998,  the Company  purchased  property and  equipment of  approximately
$24,298,000  related to the  acquisitions.  ($7,522,000  of this  amount was for
assets under  development  not placed into service in 1998.)  Goodwill and other
intangible  assets  totaling  approximately  $35,171,000  were also  recorded in
connection  with  the   acquisitions.   In  addition,   the  Company   purchased
approximately  $3,094,000  of property and  equipment  necessary for its ongoing
operations,  including costs to improve  efficiencies at several of the acquired
companies.  Finally,  landfill  amortization  costs in Vermont  increased due to
increased  usage of the  Moretown  landfill  in 1998.  The  Company had costs of
approximately $5,456,000 for construction of Cell 2 at the Moretown landfill and
other  development  costs related to the Mostoller and South Hadley landfill and
the Transfer Station in Oxford Massachusetts  totaling  approximately  $480,000.
These  costs did not  impact  operating  results  as they were not  placed  into
service in 1998.

        Acquisition integration costs.  Acquisition integration costs consist of
one-time, non-recurring costs, which in the opinion of management have no future
value and, therefore, are expensed. Such costs include termination and retention
of employees,  lease  termination  costs,  costs related to the  integration  of
information  systems  and costs  related to the  change of name of the  acquired
company or  business.These  charges  are  estimated  and accrued at the time the
acquisition  is  closed.  The  estimates  are  reviewed  frequently  by  Company
management and the related  operation teams integrating the new acquisitions and
adjusted as required. Acquisition integration costs totaled $1,864,000 for 1998.

        Write-off  of  landfill   development   costs.   Write-off  of  landfill
development costs were $236,000 and $1,495,000 for 1998 and 1997,  respectively.
The write-off of landfill development costs is related to the termination of the
Company's  contract for  remodeling  and  operation of a landfill in  Fairhaven,
Massachusetts.  See  footnote  17  "Fairhaven  Massachusetts  Operation"  in the
financial statements included in Item 8. The 1998 expense of $236,000 represents
the final  charges  related  to the  termination  of the  project.  There are no
remaining accruals at December 31, 1998.

                                       18
<PAGE>

        Selling,  general  and  administrative  expenses.  Selling,  general and
administrative   expenses  increased  $2,344,000  in  1998  to  $4,482,000  from
$2,138,000  in  1997.  As  a  percentage  of  revenue,   selling,   general  and
administrative  expenses  decreased  to 21.3% in 1998  from  61.8% in 1997.  The
dollar  increase  was due to efforts by the Company to build  infrastructure  to
sustain its  significant  growth through  acquisition and to support the several
corporate  initiatives  designed to implement its strategy.  The Company expects
spending  growth to continue  moderately  into 1999 as the Company  continues to
implement its growth through acquisition strategy.  The decrease as a percentage
of  revenue  was  primarily  due  to  the  expanded  revenue  base  and  related
efficiencies,  as the Company is able to purchase  "tuck-in"  acquisitions  that
increase revenues and improve margins without adding significant  administrative
costs. The Company  anticipates that in future periods its selling,  general and
administrative  expenses  should continue to decrease as a percentage of revenue
as it  leverages  its current  corporate  overhead to revenue  growth  primarily
through acquisitions.

        Restructuring.  During  1996,  the Company  announced  its  intention to
restructure  the Company's  operations to focus its resources and  activities on
developing  an  integrated  solid waste  management  operation.  See footnote 16
"Restructuring and Discontinued Operations" in the financial statements included
in Item 8. The  restructuring was completed in 1997.  Restructuring  charges for
1997 totaled $596,000 which consisted of costs incurred for employee  severance,
non-cancelable  lease  commitments,  professional  fees and litigation costs. No
charges were recorded in 1998.

        Royalty and other income  (expense).  Royalty and other income (expense)
was  approximately  ($134,000)  and  ($516,000) in 1998 and 1997,  respectively.
Royalty and other income (expense) primarily relates to the Company's medical  
waste treatment proprietary technologies.

        Interest expense and financing costs, net. Interest expense for 1998 was
approximately  $3,633,000,  net of  interest  income of  $441,000 as compared to
approximately  $1,182,000  net of  interest  income of  $172,000  for 1997.  The
increase  resulted  primarily  from  significant  increases in debt necessary to
finance the acquisitions and capital needs of the Company. During 1998 and 1997,
the Company capitalized  interest expense of $360,000 and $24,000,  respectively
related to construction  costs for the Mostoller and South Hadley  landfills and
the Transfer Station in Oxford Massachusetts discussed above..

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

        Revenues.  Revenues for 1997 increased by $1,962,000 to $3,458,000  from
$1,496,000  in 1996.  The increase of 131% was due  primarily  to the  increased
waste  volume  accepted  at the  Moretown  Landfill,  in its first  full year of
operation,  the acquisition  through a lease/purchase  arrangement on October 6,
1997 of the Chittenden Solid Waste District ("CSWD") transfer station located in
Williston,   Vermont  and  the  internal  growth  of  the  Company's  collection
operations.  All  1997  revenues  were  generated  from  the  Company's  Vermont
operations  as  compared  to 1996,  where  approximately  $1,157,000  or 77% was
generated from the Company's operations at the Fairhaven Landfill.

        Cost of  operations.  Operating  expenses  for  1997  was  approximately
$1,718,000  compared to $921,000 in 1996. The increase of $797,000 was primarily
due  to the  growth  of the  Company's  Vermont  operations.  During  1997,  the
Company's Vermont operations expanded as a result of the Company's purchase of a
collection company and its acquisition  through a lease/purchase  arrangement of
the CSWD transfer station.

        Depreciation and amortization. Depreciation and amortization expense was
$692,000  and  $370,000  for the years  ended 1997 and 1996,  respectively.  The
increase of $322,000 or 87% was due  primarily to the growth in the operation at
the Moretown  Landfill which resulted in increased  amortization  of capitalized
landfill  costs and to a substantial  increase in capital  equipment used in the
Company's other Vermont operations.

        Write-off  of  landfill   development   costs.   Write-off  of  landfill
development  costs were  $1,495,000  and $6,652,000 for the years ended 1997 and
1996,  respectively.  The write-off of landfill  development costs is related to
the Fairhaven Landfill.

        Selling,  general  and  administrative  expenses.  Selling,  general and
administrative  expenses for 1997 were approximately  $2,138,000,  a decrease of
12.5% from 1996. The decrease was due to the  restructuring  undertaken in March
of 1996 and to the  cessation  of  operations  at the  Fairhaven  Landfill.  The
decrease  was   partially   offset  by   increases   in  selling,   general  and
administrative   expenses  at  the  Company's  Vermont  operations  and  general
corporate expenses due to the building of an infrastructure necessary to support
increases in acquisition, operating and administrative activities.

                                       19
<PAGE>

        Restructuring.  Prior to March 27, 1996,  the Company had been  actively
developing environmental  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 developing an
integrated solid waste management operation.  As part of the 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  certain  environmental  related
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.  Restructuring  charges for 1997
and 1996 were $596,000 and  $1,742,000,  respectively,  which consisted of costs
incurred for employee severance, non-cancelable lease commitments,  professional
fees and litigation costs.

        Royalty and other income  (expense).  Royalty and other income (expense)
decreased approximately  $1,451,000 in 1997 to ($516,000) from $935,000 in 1996.
The  decrease  in  1997  was  due to  the  termination  of one of the  Company's
licensing agreements with ScotSafe Limited ("ScotSafe").

        Interest  expense and  financing  costs.  Interest  expense for 1997 was
approximately  $1,182,000  net of  interest  income of  $172,000  as compared to
approximately  $1,004,000  net of  interest  income of  $178,000  for 1996.  The
increase resulted primarily from additional  indebtedness incurred in connection
with acquisitions and capital expenditures for the Company's Vermont operations.
During 1997 and 1996, the Company  capitalized  interest  expense of $24,000 and
$42,000, respectively related to construction costs.

        Write-off of accounts receivable. During the fourth quarter of 1997, the
Company wrote-off an uncollectible receivable due from ScotSafe of approximately
$568,000.

Liquidity and Capital Resources

        The  Company's  business is capital  intensive.  The  Company's  capital
requirements,  which  are  substantial,   include  acquisitions,   property  and
equipment  purchases and capital  expenditures  for landfill cell  construction,
landfill  development and landfill closure activities.  Principally due to these
factors,  the Company may incur working capital  deficits.  The Company plans to
meet its capital needs through various financing sources,  including  internally
generated funds, equity securities and debt. On May 13, 1998, the Company closed
on an offering of $60.0 million 7% Convertible Subordinated Notes which resulted
in net proceeds to the Company of approximately  $58.3 million.  As discussed in
"Recent  Business  Developments",  on March 2, 1999,  the  Company  completed  a
private  offering of 11 1/2% Senior Notes in the aggregate  principal  amount of
$100 million due January 15, 2006 which  resulted in net proceeds to the Company
of  approximately  $97.3  million.  The Company has used the proceeds from these
Debt  offerings  to  complete  various  acquisitions  during  1998 and 1999.  In
addition, the Company has repaid other outstanding debt obligations, repurchased
497,778 shares of the Company's common stock from the Federal Deposit  Insurance
Corporation  (FDIC)  for an  aggregate  purchase  price  of  approximately  $2.8
million, and fund the Company's growth,  including  infrastructure.  The Company
intends to use the  balance of the  proceeds  for  general  corporate  purposes,
including  possible  future  acquisitions  and  working  capital.  In  addition,
approximately   $10,390,000  of  the  7%  Convertible  Subordinated  Notes  were
exchanged into common stock during March 1999 through an exchange offering.  The
Company intends to continue its strategy to  aggressively  pursue and develop an
integrated solid waste management company, primarily through acquisitions. There
can be no assurance that additional debt or equity  financing will be available,
or available on terms  acceptable to the Company.  Any failure of the Company to
obtain required  financing would have a material adverse effect on the Company's
financial condition and results of operations.

        The Company maintains an acquisitions department that is responsible for
the identification,  due diligence, negotiation and closure of acquisitions. The
Company believes that a combination of internally  generated  funds,  additional
debt and equity  financing and the proceeds from the Notes will provide adequate
funds to support the Company's cost structure,  acquisition strategy and working
capital requirements for the foreseeable future.

                                       20
<PAGE>

        In connection with its growth strategy,  the Company currently is and at
any given time will be involved in  potential  acquisitions  that are in various
stages of exploration and negotiation  (ranging from initial  discussions to the
execution of letters of intent and the  preparation  of definitive  agreements),
some of which may, if  consummated,  be  material.  No  assurance  can be given,
however,  that the Company will be successful in completing further acquisitions
in accordance with its growth strategy, or that such acquisitions, if completed,
will be successful.

        During 1998,  the Company  acquired a total of 34  companies,  including
eleven  collection  companies  (one of which  included  a transfer  station)  in
Vermont,  five collection  companies and two landfills in Central  Pennsylvania,
three collection  companies and a transfer station in Central  Massachusetts and
twelve  collection  companies  (one of which  included  a transfer  station)  in
Central  Upstate  New  York.  The  aggregate  cost  of  these  acquisitions  was
approximately  $61.4 million consisting of approximately  $58.3 million in cash,
$3.4  million  in  common  stock  and  approximately  $1.5  million  in  assumed
liabilities. Acquisition integration costs for the year ended December 31, 1998,
related  to  the  acquisitions  in  Vermont,   Central   Pennsylvania,   Central
Massachusetts and Central Upstate New York, were approximately $1,865,000.

        The  Company  generated  net cash  from  operating  activities  for 1998
approximately $592,000. In 1997, the Company used approximately ($4,586,000) for
operating  activities.  The improved  cash flow from  operations in 1998 was due
primarily to the increased  revenues  which were offset by related  increases in
cost of operations,  integration costs and selling,  general and  administrative
expenses.  The  remainder  of the cash flow  increase  was due to changes in the
operating  assets and  liabilities  including  increases  in  accounts  payable,
accrued  expenses  and  deferred  revenue.  These were  offset by an increase in
accounts receivable.

        EBITDA   increased   by   approximately   $4,599,000   during   1998  to
approximately  $2,130,000 from negative EBITDA of approximately  ($2,469,000) in
1997.  As a percentage  of revenue,  EBITDA  increased to 10.1% during 1998 from
(71.4%) in 1997.  Adjusted EBITDA increased by approximately  $4,608,000  during
1998 to approximately  $4,230,000 from negative Adjusted EBITDA of approximately
($378,000)  in 1997. As a percentage of revenue,  Adjusted  EBITDA  increased to
21.9% in 1998 compared to (10.9%) in 1997.

        Net cash used by  investing  activities  during  1998 was  approximately
$71,939,000 compared to cash generated of approximately $706,000 in 1997. Of the
net cash used by investing activities in 1998, approximately $58,340,000 million
was used for the acquisition of landfill,  collection and transfer operations in
Vermont,  Central  Pennsylvania,  Central  Massachusetts and Central Upstate New
York. In addition,  the Company placed deposits for future acquisitions totaling
$2,211,000.  Additional  capital  expenditures of approximately  $9,032,000 were
made to  develop  Cell 2 at the  Company's  Moretown  landfill  and to  increase
operating efficiencies at the Company's Vermont,  Central Pennsylvania,  Central
Massachusetts and Central Upstate New York operations.  Other investing activity
included the acquisition of various  long-term  permits necessary to operate the
landfills and for long-term  prepaid  disposal costs.  The net cash generated by
investing  activities  for 1997 was primarily due to the reduction in collateral
requirements on the Vermont Landfill  closure and post-closure  performance bond
of  approximately  $1,000,000  and the proceeds  from the sale of the  Fairhaven
equipment for approximately $800,000.
These were offset by capital expenditures at the Company's Vermont operation.

        The Company's  capital  expenditures  and capital needs for acquisitions
have  increased   significantly,   reflecting  the  Company's  rapid  growth  by
acquisition  and  development  of revenue  producing  assets,  and will increase
further  as the  Company  continues  to  complete  acquisitions.  Total  capital
expenditures  are expected to further  increase during 1999 due to acquisitions,
ongoing  construction  of Cell 2 at the Moretown  Landfill,  the development and
construction of the Mostoller and South Hadley Landfills and construction of the
transfer station in Central Massachusetts.

        Net cash provided by financing  activities during 1998 was approximately
$68,576,000  compared  to  $6,579,000  in  1997.  The  increase  in 1998 was due
primarily to the receipt of the net proceeds of $58.3 million  related to the 7%
Convertible  Subordinated  Notes,  borrowings  under the  Company's  bank credit
facility of $10 million,  $7.5 million in additional short-term financing from a
related  party   stockholder   and   borrowings   for  equipment   purchases  of
approximately $9.0 million.  The proceeds were offset by principal repayments of
debt of approximately $15.2 million and dividend payments on the Preferred Stock
of approximately $888,000.

        The Company has a $10 million  line of credit  facility  with The Howard
Bank,  N.A.  which was fully  drawn as of  December  31. The entire  balance was
repaid on March 2, 1999 with the proceeds from the Senior Notes.  The Company is
currently negotiating an expansion of this facility with The Howard Bank.

        At December 31, 1998,  the Company had  approximately  $83.1  million of
short-term and long-term debt.

        Based upon its current  operating  plan,  the Company  believes that its
cash  and  cash  equivalents,   available  borrowings,  future  cash  flow  from
operations  and the proceeds of future debt and equity  financings  will satisfy
the Company's working capital needs for the foreseeable future.  However,  there
can be no  assurances  in this  regard.  See Certain  Factors  Affecting  Future
Operating  Results-Substantial  Increased  Leverage," and "-Uncertain Ability to
Finance the Company's Growth."


                                       21
<PAGE>

Certain Factors Affecting Future Operating Results

History of Losses

         During the fiscal years ending  December 31, 1998,  1997 and 1996,  the
Company suffered net losses (including  non-recurring  charges) of approximately
($6,496,000),  ($5,589,000),  and  ($13,890,000),  respectively,  on revenues of
$21,045,000,   $3,458,000,   and   $1,496,000,   respectively.   Following   its
restructuring  in 1996 in which the  Company  directed  its focus on becoming an
integrated solid waste management  company,  the Company  implemented a business
strategy based on aggressive growth through acquisitions.  The Company's ability
to become  profitable,  and to maintain  such  profitability,  as it pursues its
business strategy will depend upon several factors, including its ability to (i)
execute its acquisition  strategy and expand its revenue  generating  operations
while not proportionately  increasing its administrative  overhead,  (ii) locate
sufficient  additional  financing to fund  acquisitions,  and (iii)  continually
adapt to changing  conditions  in the  competitive  market in which it operates.
Outside  factors,  such as the economic and regulatory  environments in which it
operates will also have an effect on the Company's business.

Substantial Increased Leverage

        In connection with its business  strategy,  the Company has incurred and
expects  to incur  substantial  indebtedness,  resulting  in a highly  leveraged
capital structure.  The Company's substantial  indebtedness could have important
consequences,  including  limiting the Company's  ability to fund future working
capital, capital expenditures and other general corporate requirements. This may
increase  the  Company's   vulnerability   to  adverse   economic  and  industry
conditions;  requiring the Company to dedicate a substantial portion of its cash
flow from operations to payments on the Company's indebtedness, thereby reducing
the  availability  of the Company's cash flow to fund working  capital,  capital
expenditures  and other  general  corporate  purposes;  limiting  the  Company's
flexibility in planning for, or reacting to,  changes in the Company's  business
and the  industry  in which the  Company  operates;  placing  the  Company  at a
competitive  disadvantage  compared to the Company's  competitors that have less
indebtedness and limiting the Company's ability to borrow additional funds.

Uncertain Ability to Finance the Company's Growth

        The Company  will  require  substantial  funds to complete  and bring to
commercial  viability all of its currently  planned  projects.  The Company also
anticipates that future business acquisitions will be financed through cash from
operations, the proceeds from the Senior Notes, borrowings under its bank credit
facility,  offering the Company's  stock as  consideration  for  acquisitions or
additional  equity or debt  financings.  Therefore,  the  Company's  ability  to
satisfy its future capital and operating  requirements  is dependent on a number
of pending or future financing  activities,  none of which is assured successful
completion.

Ability to Identify, Acquire and Integrate Acquisition Targets

        The future success of the Company is highly dependent upon the Company's
continued  ability to successfully  identify,  acquire and integrate  additional
solid  waste  collection,   recycling,  transfer  and  disposal  businesses.  As
competition  for  acquisition   candidates  increases  within  the  solid  waste
management industry,  the availability of suitable candidates at terms favorable
to the Company may decrease.  The Company  competes for  acquisition  candidates
with larger,  more  established  companies that may have  significantly  greater
capital resources than the Company,  which can further decrease the availability
of suitable acquisition  candidates.  There can be no assurance that the Company
will be able to  identify  suitable  acquisition  candidates,  obtain  necessary
financings on favorable terms or successfully  integrate any  acquisitions  with
current operations.

        The  Company  believes  that a  significant  factor  in its  ability  to
consummate acquisitions will be the attractiveness of the Company's Common Stock
as consideration for potential  acquisition targets. This attractiveness may, in
large part, be dependent upon the relative market price and capital prospects of
the  Company's  equity  securities  as compared to the equity  securities of its
competitors.  If the market price of the Company's Common Stock were to decline,
the Company's ability to implement its acquisition  program through the issuance
of its Common Stock could be materially adversely affected.

Ability to Manage Growth

        The Company's objective is to continue to grow by expanding its services
in  markets   where  it  can  be  one  of  the  largest   and  most   profitable
fully-integrated solid waste management companies.  Accordingly, the Company may
experience  periods of  significant  rapid  growth.  Such growth,  if it were to
occur,  could place a  significant  strain on the Company's  management  and its
operational,   financial  and  other  resources.   Any  failure  to  expand  its
operational  and  financial  systems  and  controls  or to  recruit  appropriate
personnel in an  efficient  manner at a pace  consistent  with such growth could
have a material adverse effect on the Company's  business,  financial  condition
and results of operations.

        The  Company's   future  success  is  also  highly  dependent  upon  its
continuing  ability to  identify,  hire,  train and  motivate  highly  qualified
personnel.  The Company faces  competition  for hiring such personnel from other
companies,  government  entities  and  other  organizations.  There  can  be  no
assurance  that the Company  will be  successful  in  attracting  and  retaining
qualified personnel as required for its projected  operations.  The inability to
attract and retain qualified personnel could have a material adverse effect upon
the Company's business, financial condition and results of operations.

                                       22
<PAGE>

Limitations on Landfill Permitting and Expansion

The Company's  operations  depend on its ability to expand the landfills it owns
or operates and develop or acquire new landfill sites. There can be no assurance
that the Company will be successful in obtaining new landfill sites or expanding
the  permitted  capacity of its  existing  landfills.  The process of  obtaining
required  permits and  approvals  to operate and expand  landfills  and transfer
stations has become increasingly  difficult and expensive.  The process can take
several years and involves  hearings and compliance  with zoning,  environmental
and other  requirements.  There can be no  assurance  that the  Company  will be
successful in obtaining and  maintaining  required  permits.  Even when granted,
final permits to expand are often not approved until the remaining capacity of a
landfill is very low. In the event the Company  exhausts its permitted  capacity
at one of its  landfills,  the Company's  ability to expand  internally  will be
limited and the Company  will be  required  to cap and close such  landfill.  In
addition,  the  Company  could be forced to  dispose  of its waste at  landfills
operated by its competitors.  The additional costs could have a material adverse
effect on the Company's business.

Dependence on Management

        The Company's  future  success is highly  dependent upon the services of
its executive officers,  particularly Philip Strauss,  Chairman, Chief Executive
Officer  and  President  of the  Company,  and  Robert  Rivkin,  Executive  Vice
President-Acquisitions,  Chief Financial Officer, Treasurer and Secretary of the
Company. The Company has obtained key executive insurance policies in the amount
of $1.0 million with respect to each of Messrs.  Strauss and Rivkin. The loss of
the services of Mr.  Strauss or Mr. Rivkin could have a material  adverse effect
on the Company's business, financial condition and results of operations.

Competition

        The  solid  waste  management  industry  is  highly  competitive,   very
fragmented and requires  substantial  labor and capital  resources.  Competition
exists  for  collection,   recycling,   transfer  and  disposal  services,   and
acquisition targets. The markets the Company competes or is likely to compete in
are usually served by one or more of the large national, regional or local solid
waste  companies  who may have  accumulated  substantial  goodwill  and/or  have
greater financial,  marketing or technical resources than those available to the
Company.  The Company also competes with counties,  municipalities and operators
of alternative  disposal  facilities that operate their own waste collection and
disposal facilities.  The availability of user fees, charges or tax revenues and
the availability of tax-exempt financing may provide a competitive  advantage to
the  public  sector.  Additionally,  alternative  disposal  facilities  such  as
recycling and incineration may reduce the demand for the disposal of solid waste
in landfills. Competition for waste collection and disposal business is based on
price,  the quality of service  and  geographical  location.  From time to time,
competitors  may  reduce the price of their  services  in an effort to expand or
maintain  market share or to win  competitively  bid contracts.  There can be no
assurance  that the Company will be able to  successfully  bid such contracts or
compete   with  the  larger   and   better-capitalized   companies.   Geographic
Concentration of Operations

        The  Company  has  established  solid  waste  management  operations  in
Vermont,  Central  Pennsylvania,  Central  Massachusetts and Central Upstate New
York.   Since  the  Company's   current  primary  source  of  revenues  will  be
concentrated in these geographic  locations,  the Company's business,  financial
condition and results of operations  could be  materially  affected by,  without
limitation, the following: (i) downturns in these local economies, (ii) severely
harsh weather conditions and (iii) state regulations.  Additionally, the growing
competition   within  the  local   economies  for  waste  streams  may  make  it
increasingly difficult to expand within these regions. There can be no assurance
that the Company  will be able to continue to increase  the waste  stream to its
landfills or be able to expand its geographic markets to mitigate the effects of
adverse events that may occur in these regions.

Seasonally

        The  Company's   revenues  and  results  of  operations   tend  to  vary
seasonally.  The winter months of the fourth and first  quarters of the calendar
year tend to yield lower revenues than those experienced in the warmer months of
the second and third  quarters.  The primary  reasons for lower  revenues in the
winter months include,  without limitation:  (i) harsh winter weather conditions
which can interfere with collection and  transportation,  (ii) the  construction
and demolition  activities which generate landfill waste are primarily performed
in the warmer  seasons and (iii) the volume of waste in the region is  generally
lower than that which occurs in warmer  months.  The Company  believes  that the
seasonally of the revenue stream will not have a material  adverse effect on the
Company's  business,  financial  condition  and  results  of  operations  on  an
annualized basis.

                                       23
<PAGE>

Environmental and Government Regulations

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

Potential Environmental Liability and Adverse Effect of Environmental Regulation

        The  Company's  business  exposes  it to the  risk  that it will be held
liable if harmful  substances  escape into the  environment and cause damages or
injuries as a result of its operating activities.  Moreover,  federal, state and
local environmental legislation and regulations require substantial expenditures
and impose significant liabilities for non-compliance. The Company believes that
it is currently in material compliance with all applicable environmental laws.

Potential Adverse Community Relations

        The  potential  exists  for  unexpected  delays,  costs  and  litigation
resulting  from  community  resistance  and  concerns  relating to existing  and
acquired operations and proposed future development of solid waste facilities.

Performance or Surety Bonds and Letters of Credit

The Company may be required to post a performance bond, surety bond or letter of
credit to ensure proper closure and  post-closure  monitoring and maintenance at
its landfills and transfer stations. Failure to obtain performance bonds, surety
bonds or letters of credit in sufficient amounts or at acceptable rates may have
a material  adverse effect on the Company's  business,  financial  condition and
results of operations.

Environmental Impairment Liability Insurance

        The Company has obtained  environmental  impairment  liability insurance
covering claims for the sudden or gradual onset of  environmental  damage to the
extent of $5 million per  landfill.  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 also carries a comprehensive  general
liability insurance policy,  which management considers adequate at this time to
protect its assets and operations from other risks.

Adequacy of Accruals for Closure and Post-Closure Costs

        The Company has material financial  obligations  relating to closure and
post-closure costs of its existing landfills and any landfill it may purchase or
operate  in  the  future.   The  Company   estimates  and  accrues  closure  and
post-closure  costs  based  on  engineering  estimates  of  landfill  usage  and
remaining  landfill  capacity.  There  can be no  assurance  that the  Company's
financial  obligations  for closure and  post-closure  costs will not exceed the
amount accrued,  which, if it occurs,  may have a material adverse effect on the
Company's business, financial condition and results of operations.

                                       24
<PAGE>

Capital Expenditures

        The Company  capitalizes,  in accordance with GAAP, certain expenditures
and  advances  relating  to  acquisitions,  pending  acquisitions  and  landfill
projects.  The  Company's  policy  is to  expense  in  the  current  period  all
unamortized capital  expenditures and advances relating to any operation that is
permanently  shut down or any  acquisition  that will not be consummated and any
landfill project that is terminated.  Thus, the Company may be required to incur
a charge against  earnings in future periods that could have a material  adverse
effect on the Company's business, financial condition and results of operations.

Year 2000 Compliance

         The  statements  in  the  following  section  include  the  "Year  2000
readiness  disclosure"  within  the  meaning  of the Year 2000  Information  and
Readiness  Disclosure  Act.  Please  refer  to the  information  located  at the
beginning of this Item 7 regarding forward-looking  statements contained in this
section.

         The Company is assessing  the readiness of its systems for handling the
Year 2000.  Although the  assessment  is still  underway,  management  currently
believes  that all material  systems will be compliant by Year 2000 and that the
costs  associated  with this are not  material.  The Company has  incurred  only
minimal costs to date associated with the Year 2000 issue.

         The Company is in the process of identifying key third-party vendors to
understand their ability to continue  providing  services through Year 2000. The
Company  uses  well-regarded  nationally  known  software  vendors  for both its
general accounting  applications and industry-specific  customer information and
billing systems.  The Company is implementing a new general  accounting  package
which will be fully Year 2000  compatible,  and the  provider of the solid waste
industry  customer  information and billing system is Year 2000 compatible.  The
Company's banking arrangements are with national banking institutions, which are
taking  all  necessary  steps to insure  its  customers'  uninterrupted  service
throughout  applicable Year 2000 timeframes.  The Company's payroll is performed
out-of-house  by the largest  provider of third  party  payroll  services in the
country, which has made a commitment of uninterrupted service to their customers
throughout applicable Year 2000 timeframes.

        While the Company  currently  expects  that the Year 2000 issue will not
cause  significant  operational  problems,  delays in the  implementation of new
information  systems, or failure to fully identify all Year 2000 dependencies in
the Company's systems and in the systems of suppliers and financial institutions
could have material adverse consequences.  Therefore,  the Company is developing
contingency plans for continuous operations in the event such problems arise.

Inflation

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





                                       25
<PAGE>



Item 8.  Financial Statements and Supplementary Data

            WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES

               Index to Consolidated Financial Statements


                                                                            Page

Independent Auditors' Report                                                  27

Consolidated Balance Sheets at December 31, 1998 and 1997                     28

Consolidated Statements of Operations for the years ended 
     December 31, 1998, 1997 and 1996                                         29

Consolidated Statements of Cash Flows for the years ended 
     December 31, 1998, 1997 and 1996                                      30-31

Consolidated Statements of Stockholders' Equity (Deficit) 
     for the years ended December 31, 1998, 1997 and 1996                     32

Notes to Consolidated Financial Statements                                 33-48





                                       26
<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. and  subsidiaries as of December 31, 1998 and 1997, 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,
1998. 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 as of December 31, 1998 and 1997, and the
consolidated  results of their  operations  and their cash flows for each of the
years in the  three-year  period ended  December 31, 1998,  in  conformity  with
generally accepted accounting principles.


KPMG Peat Marwick LLP


Boston, Massachusetts
March 12, 1999






                                       27
<PAGE>


<TABLE>

                                    WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                                                 Consolidated Balance Sheets



                                                                                    December 31,     December 31,
                             Assets                                                    1998              1997
                             ------
                                                                                 ----------------  ----------------
<S>                                                                              <C>               <C>  
Current assets:
      Cash and cash equivalents                                                  $       193,613   $     2,964,274
      Accounts receivable, less allowance for doubtful accounts of                             -                 -
          $222,028 and $45,833 in 1998 and 1997, respectively                          5,235,534           944,793
      Prepaid expenses and other current assets  (Note 4)                              4,769,285         1,366,092
                                                                                 ----------------  ----------------
          Total current assets                                                        10,198,432         5,275,159

Restricted cash and securities                                                            39,842           254,000
Property and equipment, net (Notes 2, 3 and 5)                                        44,685,735        12,487,183
Intangible assets, net (Notes 2, 3 and 6)                                             38,059,374            96,832
Other assets                                                                           3,133,316           447,080
                                                                                 ----------------  ----------------
          Total assets                                                           $    96,116,699   $    18,560,254
                                                                                 ================  ================


          Liabilities and Stockholders' Equity

Current liabilities:
      Current portion of long-term debt and notes payable (Note 7)               $     8,259,922   $       843,831
      Accounts payable                                                                 3,849,632           353,937
      Accrued expenses (Note 8)                                                        2,742,409         2,544,995
      Deferred revenue                                                                 1,866,128                 -
                                                                                 ----------------  ----------------
          Total current liabilities                                                   16,718,091         3,742,763

Long-term debt and notes payable (Note 7)                                             64,861,187         7,201,262
Landfill closure and post-closure costs (Notes 2 and 10)                               2,798,597         1,644,000
                                                                                 ----------------  ----------------
          Total liabilities                                                           94,377,875        12,588,025
                                                                                 ----------------  ----------------

Commitments and Contingencies (Note 11)

Stockholders' equity (Notes 12, 13, 14 and 20):
      Common stock, $.01 par value.  Authorized 30,000,000 shares;
          11,718,323 and 3,893,415 shares issued and outstanding at    
          December 31, 1998 and 1997, respectively                                       117,184            38,934
      Preferred stock, $.001 par value.  Authorized 1,000,000 shares:
          Series A Convertible Preferred Stock; 200,000 shares designated,
          0 and 92,580 shares issued and outstanding at December 31, 1998
          and 1997, respectively                                                               -         9,257,807
          Series B Convertible Preferred Stock; 100,000 shares designated,
          0 and 40,488 shares issued and outstanding at December 31, 1998
          and 1997, respectively                                                               -         4,048,750
      Additional paid-in capital                                                      37,810,712        21,432,437
      Accumulated deficit                                                            (36,189,072)      (28,805,699)
                                                                                 ----------------  ----------------
          Total stockholders' equity                                                   1,738,824         5,972,229
                                                                                 ----------------  ----------------
          Total liabilities and stockholders' equity                             $    96,116,699   $    18,560,254
                                                                                 ================  ================

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


                                       28
<PAGE>






<TABLE>

                                  WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                                         Consolidated Statements of Operations


                                                                                Years ended December 31,
                                                                  -----------------------------------------------------
                                                                          1998              1997              1996
                                                                    ---------------   ---------------   ---------------

<S>                                                                 <C>               <C>               <C>        
Revenues                                                            $   21,044,584    $    3,457,692    $   1,495,606
                                                                    ---------------   ---------------   ---------------
Cost of operations:
     Operating expenses                                                 12,399,529         1,718,214           920,553
     Depreciation and amortization                                       4,501,424           692,224           369,785
     Acquisition integration costs (Note 3)                              1,864,535                 -                 -
     Write-off of project development costs (Note 17)                      235,464         1,495,388         6,652,075
                                                                    ---------------   ---------------   ---------------
             Total cost of operations                                   19,000,952         3,905,826         7,942,413
                                                                    ---------------   ---------------   ---------------
            Gross profit (loss)                                          2,043,632          (448,134)       (6,446,807)

Selling, general and administrative expenses                             4,482,478         2,138,180         2,442,816
Amortization of prepaid consulting fees                                          -                 -           834,375
Restructuring (Note 16)                                                          -           596,426         1,741,729
                                                                    ---------------   ---------------   ---------------
            Loss from operations                                        (2,438,846)       (3,182,740)      (11,465,727)
                                                                    ---------------   ---------------   ---------------

Other income (expense):
     Royalty and other income (expense), net                              (134,455)         (515,875)          935,358
     Interest income                                                       441,069           172,363           178,224
     Interest expense and financing costs                               (4,073,693)       (1,354,614)       (1,182,118)
     Write-off of accounts receivable (Note 15)                                  -          (568,217)                -
     Equity in loss of affiliate                                                 -                 -           (96,144)
     Write-off of assets                                                         -                 -           (21,858)
                                                                    ---------------   ---------------   ---------------
            Total other income (expense)                                (3,767,079)       (2,266,343)         (186,538)
                                                                    ---------------   ---------------   ---------------

            Loss before income tax expense (benefit), discontinued
                operations and extraordinary item                       (6,205,925)       (5,449,083)      (11,652,265)

Income tax expense (benefit)  (Note 9)                                      43,174             5,622           (23,456)
     Loss from continuing operations                                    (6,249,099)       (5,454,705)      (11,628,809)
Discontinued operations (Note 16)                                                -                 -        (2,260,963)
                                                                    ---------------   ---------------   ---------------
     Loss before extraordinary item                                     (6,249,099)       (5,454,705)      (13,889,772)

Extraordinary item - loss on extinguishment of debt (Note 7)              (246,535)         (133,907)                -
                                                                    ---------------   ---------------   ---------------
     Net loss                                                           (6,495,634)       (5,588,612)      (13,889,772)

Preferred stock dividends (Note 13)                                        887,869                 -                 -
                                                                    ---------------   ---------------   ---------------

            Net loss available for common shareholders              $   (7,383,503)   $   (5,588,612)   $  (13,889,772)
                                                                    ===============   ===============   ===============

Basic net loss per share:
     Loss from continuing operations                                $        (0.85)   $        (1.51)   $        (4.10)
     Discontinued operations                                                     -                 -             (0.80)
     Extraordinary item                                                      (0.03)            (0.04)                -
                                                                    ---------------   ---------------   ---------------

Basic net loss per share                                                     (0.88)            (1.55)            (4.90)
     Preferred stock dividends                                               (0.12)                -                 -
                                                                    ---------------   ---------------   ---------------

Basic net loss available for common shareholders                    $        (1.00)   $        (1.55)$  $        (4.90)

Weighted average number of shares used in
     computation of basic net loss per share                             7,389,547         3,612,623         2,834,841
                                                                    ===============   ===============   ===============


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


                                       29
<PAGE>





<TABLE>

                                   WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                                          Consolidated Statements of Cash Flows


                                                                                   Years ended December 31,
                                                                     -----------------------------------------------------
                                                                             1998               1997              1996
                                                                     ------------------  ----------------  ---------------          
<S>                                                                  <C>                 <C>               <C>        
Cash flows from operating activities:
    Net loss                                                         $      (6,495,634)  $    (5,588,612)  $  (13,889,772)
    Adjustments to reconcile net loss to net cash
      provided (used) by operating activities:
       Depreciation and amortization                                         5,248,354           900,549        1,556,380
       Extraordinary loss on extinguishment of debt                            246,535           133,907                -
       Accrued landfill closure and post-closure costs                       1,154,597           124,000           20,000
       Write-off of project development costs                                  235,284         1,495,388        6,652,075
       Write-off of accounts receivable and other assets                             -           568,217           21,858
       Discontinued operations                                                       -                 -        2,260,963
       Minority interest                                                             -                 -          (12,655)
       Equity in loss of affiliate                                                   -                 -           96,144
       Issuance of common stock for services                                    12,500            44,854           17,157
       Allowance for doubtful accounts                                         176,195            23,333           10,000
       Changes in assets and liabilities:                             
          Accounts and notes receivable                                     (2,004,616)           73,503          375,519
          Prepaid expenses and other current assets                           (861,529)         (242,092)          16,558
          Accounts payable                                                   1,372,730        (1,175,139)      (1,253,507)
          Accrued expenses                                                     640,869            62,463          777,516
          Deferred revenue                                                   1,645,124                 -                -
                                                                     ------------------  ----------------  ---------------
       Net cash used by continuing operations                                1,370,409        (3,579,629)      (3,351,764)
       Net cash used by discontinued operations and restructuring             (778,609)       (1,006,488)        (560,377)
                                                                     ------------------  ----------------  ---------------
          Net cash provided (used) by operating activities                     591,800        (4,586,117)      (3,912,141)
                                                                     ------------------  ----------------  ---------------
Cash flows from investing activities:
    Proceeds from sale of assets                                                     -           800,000          127,500
    Net assets acquired through acquisitions                               (58,340,223)                -
    Restricted cash and securities                                             214,158           956,017       (1,022,517)
    Investment in affiliate                                                          -                 -          (86,115)
    Landfills                                                               (5,372,481)         (307,552)      (5,199,493)
    Landfill and other development projects                                    (99,655)         (263,868)        (467,855)
    Land, buildings, facilities and improvements                              (664,264)                -
    Machinery and equipment                                                   (189,215)         (114,330)        (914,600)
    Rolling stock                                                           (1,403,747)         (122,905)               -
    Containers                                                                (617,813)         (189,109)         (16,716)
    Office furniture and equipment                                            (684,515)                -
    Deposits for future acquisitions                                        (2,210,667)                -                -
    Intangible assets                                                         (709,881)                -          (35,261)
    Other assets                                                            (1,860,527)          (52,127)         (26,162)
                                                                     ------------------  ----------------  ---------------
          Net cash provided (used) by investing activities                 (71,938,830)          706,126       (7,641,219)
                                                                     ------------------  ----------------  ---------------
Cash flows from financing activities:
    Deferred financing and registration costs                               (1,808,962)          (56,098)         (86,074)
    Net borrowings and advances                                       
       from stockholders and related parties                                         -                 -         (114,575)
    Repayments of notes payable and long-term debt                         (15,217,063)       (2,445,476)        (426,734)
    Borrowings from notes payable and long-term debt                        86,449,857         1,143,861        1,117,982
    Proceeds from issuance of common stock                                      40,406           686,724        6,090,473
    Proceeds from issuance of Series A preferred stock                               -         7,250,478                -
    Dividends paid                                                            (887,869)                -
                                                                     ------------------  ----------------  ---------------

          Net cash provided by financing activities                         68,576,369         6,579,489        6,581,072
                                                                     ------------------  ----------------  ---------------
Increase (decrease) in cash and cash equivalents                            (2,770,661)        2,699,498       (4,972,288)
Cash and cash equivalents, beginning of year                                 2,964,274           264,776        5,237,064
                                                                     ------------------  ----------------  ---------------
Cash and cash equivalents, end of year                               $         193,613   $     2,964,274   $      264,776
                                                                     ==================  ================  ===============


  See accompanying  notes to consolidated  financial statements.


</TABLE>


                                       30
<PAGE>



Supplemental disclosures of cash flow information:

     During the years ended  December  31,  1998,  1997 and 1996,  cash paid for
interest was $3,715,304, $1,493,221, and $1,201,864, respectively.

Supplemental disclosures of non-cash activities:

     During  1998,  1997 and 1996 the  Company  acquired  assets of  $2,113.591,
$2,190,050 and $683,777 respectively, under capital lease obligations.

     In connection  with the Company's  acquisitions,  during 1998,  the Company
acquired property and equipment of $24,297,759, intangible assets of $35,170,590
and other assets of $336,619.  The Company paid  $58,340,233 in cash and assumed
liabilities from the acquired companies of $1,464,735.

     During 1998,  the Company  converted  92,580  shares or  $9,257,807  of its
Series A Preferred Stock into 6,590,577 shares of its Common Stock.

     On September  22, 1998,  the Company  issued  455,922  shares of its Common
Stock in connection with the acquisition of Mattei-Flynn Trucking, Inc.

     On May 22, 1998, the Company issued 111,110 shares of its Common Stock in 
connection  with the  acquisition of Eagle Recycling, Inc. and Horvath S
anitation, Inc.

     On May 14, 1998, the Company  converted  40,488 shares or $4,048,750 of its
Series B Preferred Stock into 623,808 shares of its Common Stock.

     In December 1997, the Company converted $3,950,000,  plus accrued interest,
of its 10% Convertible,  Redeemable,  Subordinated Notes due October 6, 2000 for
40,488 shares of its Series B Convertible Preferred Stock.

     In October 1997, the Company converted 4,800 shares valued at $480,000,  of
its Series A Preferred Stock into 341,334 shares of its Common Stock.

     In June  1997,  the  Company  issued  Series A  Preferred  Stock  valued at
$850,000 in exchange for the  remaining  20% minority  interest in the Moretown,
Vermont landfill.

     In June 1997, the Company issued Series A Preferred Stock valued at $44,854
in exchange for consulting services.

     In June 1997, the Company wrote down assets to their net  realizable  value
of $863,428 related to the Fairhaven landfill project.  This was charged against
the restructuring and current liabilities accrual.

     In June 1997,  the Company  issued  Series A Preferred  Stock at a value of
$700,000 and retired the FDIC loan of $511,093 and accrued  interest of $55,000.
The pay off  resulted  in a  realized  loss on the early  retirement  of debt of
$133,907.


     In 1996, the Company exchanged  $2,850,000 of convertible subordinated debt
and $27,425 of accrued interest for 313,992 shares of common stock.

        See  accompanying  notes  to  consolidated  financial statements.



                                       31
<PAGE>





<TABLE>
                                              WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
                                          Consolidated Statements of Stockholders' Equity (Deficit)

                              Preferred Stock       Preferred Stock                           Additional               Stockholders'
                                  Series A              Series B            Common Stock       paid-in     Accumulated     equity
                             Shares     Amount     Shares     Amount     Shares     Amount     capital       deficit     (deficit)
                            --------- ---------- ---------- ---------- ---------- ---------- ------------ ------------- ------------

<S>                         <C>       <C>        <C>        <C>        <C>        <C>        <C>          <C>           <C>
Balance, December 31, 1995          -          -          -          -  2,341,268  $ 23,413  $12,595,504  $ (9,327,315) $ 3,766,601

Exercise of Warrants to purchase    
  1,728 shares of common stock
  at $11.45 per share               -          -          -          -      1,728        17       19,769              -      19,786

Exercise of merger-related Placement
  Agent Warrants to purchase 1,755
  shares of common stock at
  $11.50 per share                  -          -          -          -      1,755        18       20,165              -      20,183

Exercise of merger-related Placement
  Agent Warrants to purchase 6,444  
  shares of common stock at         
  $11.50 per share                  -          -          -          -      6,444        64       74,042              -      74,106

Exercise of Options to purchase     
  656 shares of common stock
  at $10.00 per share               -          -          -          -        656         7        6,555              -       6,562

Issuance of common stock at $9.70     
  per share, through private placement
  in June, 1996                     -          -          -          -    660,949     6,609    6,404,591              -   6,411,200

Expenses incurred in connection with
  the private placement in
  June, 1996                        -          -          -          -          -          -    (651,926)             -    (651,926)

Exercise of Options to purchase
  656 shares of common stock
  at $10.00 per share               -          -          -          -        656         7        6,555              -       6,562

Issuance of common stock at $11.25
  per share, net of 50% discount
  due to restrictions on sale,
  for director's fee                -          -          -          -      2,000        20       11,230              -      11,250

Conversion of convertible debentures,
  plus accrued interest at a conversion
  price of $9.16                                                          313,992     3,140    2,874,285                  2,877,425

Reclassification of deferred financing
  costs related to convertible debentures
  converted to common stock                                                                     (235,888)                  (235,888)

Exercise of Series C Warrants to purchase
  400 shares of common stock at 
  $10.00 per share                  -          -          -          -        400         4        3,996              -       4,000


Issuance of common stock at $7.50
  per share, net of 50% discount
  due to restrictions on sale,
  for directors fee                                                         1,575  $     16  $     5,890                      5,906 

Issuance of common stock at $6.85
  per share, in exchange for debt
  in November 1996                  -          -          -          -     29,091       291      199,709              -     200,000

Net loss for the year ended
  December 31, 1996                 -          -          -          -          -          -            -  (13,889,772) (13,889,772)
                             -------- ---------- ---------- ---------- ---------- ---------- ------------ ------------- ------------
Balance, December 31, 1996          -          -          -          -  3,360,514    33,606   21,334,477   (23,217,087)  (1,374,005)

Issuance of common stock at
  $2.50 per share, in connection
  with a private placement,
  January 1997                      -          -          -          -    172,000     1,720      428,280              -     430,000
                              
Issuance of Series A Convertible
  Preferred Stock, 8% cumulative
  annual dividend, convertible
  into common stock at a price
  of $1.406 per share, 
  June 1997                   97,380  9,737,807           -          -          -          -    (892,475)             -   8,845,332

Issuance of common stock at $3.75
  per share, in connection with the
  purchase of minority interest in 
  the Company's collection operations
  in Vermont, September 1997        -          -          -          -     18,667       187       69,813              -      70,000

Exercise of Series E Warrants to
  purchase 901 shares of common 
  stock at $17.50 per share,
  November 1997                     -          -          -          -        901         9       15,755              -      15,764

Conversion of Series A Convertible
  Preferred Stock for common stock
  at $1.406 per share, September
  and October 1997            (4,800)  (480,000)          -          -    341,334     3,413      476,587              -            -

Issuance of Series B Convertible
  Preferred Stock, 6% cumulative
  annual dividend, convertible into
  common stock at a price of $6.26
  per share, December 30, 1997      -          -    40,488  4,048,750           -          -            -             -   4,048,750

Net loss for the year ended
  December 31, 1997                 -          -          -          -          -          -            -   (5,588,612)  (5,588,612)
                             -------- ---------- ---------- ---------- ---------- ---------- ------------ ------------- ------------
Balance, December 31, 1997    92,580  9,257,807     40,488  4,048,750   3,893,415    38,935   21,432,437   (28,805,699)   5,972,230

Conversion of Series B Preferred
  Stock to equity                   -          -   (40,488)(4,048,750)    623,808     6,238    4,042,512              -            -

Conversion of Series A Preferred
  Stock to equity            (92,580)(9,257,807)          -          -  6,590,577    65,906    9,191,901              -            -
  
Expenses associated with
  equity transactions                                                                           (256,101)                  (256,101)

Common Stock issued for services                                           14,766       148       12,352                     12,500
 
Common Stock issued in business 
  combinations  
                                                                          567,032     5,670    3,347,494                  3,353,164
Exercise of options to purchase
  common stock                                                             28,725       287       40,117                     40,404

Dividends paid on preferred stock                                                                             (887,869)    (887,869)

Net loss for the year ended
  December 31, 1998                                                                                         (6,495,634)  (6,495,634)

                             -------- ---------- ---------- ---------- ---------- ---------- ------------ ------------- ------------
Balance, December 31, 1998          - $        -          - $        - 11,718,323 $ 117,184  $37,810,712  $(36,189,202) $ 1,738,694
                             -------- ---------- ---------- ---------- ---------- ---------- ------------ ------------- ------------


          See accompanying notes to consolidated financial statements

</TABLE>
           


                                       32
<PAGE>




                 WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES   
                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note  1.      Business and Nature of Operations

The  Company  is  an  integrated  solid  waste  management   company   providing
non-hazardous  waste  collection,  recycling,  transfer and disposal services to
approximately 52,000 commercial, industrial, residential and municipal customers
located in 4 states in the Northeast and Mid-Atlantic  regions of the country as
of December 31, 1998.

On March 2, 1999,  the Company  completed an offering of $100.0 million in 11.5%
Senior  Notes (the  "Senior  Notes") and  warrants to purchase an  aggregate  of
1,500,000  shares of common  stock at an exercise  price of $6.25 per share (the
"Warrants"). The Company used a portion of the proceeds from the Senior Notes to
repay certain debt obligations and to repurchase 497,778 shares of the Company's
common stock from the Federal Deposit Insurance  Corporation (FDIC). The Company
intends to use the  balance of the  proceeds  for  general  corporate  purposes,
including possible future acquisitions and working capital.  In addition,  since
December 31, 1998 the Company has  completed six  acquisitions,  consisting of 5
collection operations and one landfill. See Footnote 20 "Subsequent Events".

Note  2.      Summary of Significant Accounting Policies

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

Use of Estimates:  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the 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, and are valued at cost plus accrued  interest which
approximates market, are considered to be cash equivalents.

Restricted  Cash  and  Securities:   Restricted  cash  and  securities   consist
principally  of funds or  securities  deposited  in  connection  with the future
financial  obligation of landfill or transfer station closure and  post-closure.
Amounts are principally invested in fixed income securities of U.S. governmental
and financial institutions.  The Company considers its investments to be held to
maturity.  Substantially  all of these  investments  mature within one year. The
investments are valued at cost plus accrued interest, which approximates market.

Fair Value of Financial Instruments: Statement of Financial Accounting Standards
No. 102, "Disclosures About the Fair Value of Financial  Instruments",  requires
disclosure of information about the fair value of certain financial  instruments
for  which it is  practicable  to  estimate  that  value.  For  purposes  of the
following  disclosure the fair value of a financial  instrument is the amount at
which the instrument could be exchanged in a current transaction between willing
parties other than in a forced sale or  liquidation.  Management  has determined
that the carrying  value of its financial  assets and  liabilities  approximates
fair value at December 31, 1998.

Property and  Equipment:  Property and equipment are stated at cost. The cost of
all maintenance and repairs are charged to operations as incurred.  Depreciation
for financial reporting purposes is provided using the straight-line method over
the estimated useful lives of the assets as follows:

              Buildings, facilities and improvements                 10-30 years
              Machinery and equipment                                 3-10 years
              Rolling stock                                           3-10 years
              Containers                                              5-10 years
              Office equipment                                         3-5 years

                                       33
<PAGE>

Capitalization of landfill  development  costs begins 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 and
with the signing of landfill management contracts for facilities operated by the
Company that are not owned.  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  and not  amortized  until all permits are  obtained  and
operations have commenced.

Interest is  capitalized  on landfill  development  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
approximately  $360,000,  $24,000 and $42,000 were capitalized during 1998, 1997
and 1996, respectively.

Landfill  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  materially  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  amortization  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.

Intangible Assets: The Company records the excess of the purchase price over the
fair  market  value of the net  identifiable  assets of an  acquired  company as
goodwill. Goodwill is amortized on a straight-line basis over forty years. Other
intangible  assets include customer lists and covenants not to compete which are
amortized  on a  straight-line  basis  over a period not to exceed ten years and
over the term of the agreement,  respectively. The Company evaluates the periods
of  amortization   continually  to  determine  whether   subsequent  events  and
circumstances  warrant  revised  estimates of useful  lives.  If  estimates  are
changed,  the unamortized cost shall be allocated to the remaining period in the
revised useful life.

Landfill  Closure and Post-Closure  Costs: The Company has a material  financial
obligation relating to closure and post-closure activities for landfills it owns
or  operates.  Accordingly,  the  Company  estimates  and  accrues  closure  and
post-closure costs on a unit-of-production  basis over each landfill's estimated
remaining permitted airspace capacity.  The accrual is based on final capping of
the  site,  site  inspection,  leachate  management,  methane  gas  control  and
recovery,  groundwater  monitoring,  and operation and  maintenance  costs to be
incurred  during the period after the facility  closes.  The estimated costs are
expressed in current  dollars and are not discounted to reflect timing of future
expenditures.  The  Company  has  accrued  approximately  $2.8  million and $1.6
million  for  closure  and  post-closure  costs at  December  31, 1998 and 1997,
respectively.  The engineering and accounting staffs of the Company periodically
review its future obligation for closure and post-closure costs. If estimates of
the  permitted  air  space  capacity  or the  estimated  costs  of  closure  and
post-closure have changed, the Company revises the rates at which it accrues the
future costs.

The Company records  reserves for landfill  closure and  post-closure  costs, 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.

Deferred   Financing  Costs:   Deferred  financing  costs  are  amortized  on  a
straight-line basis over the life of the related notes payable or debt. There is
not a  material  difference  between  using  the  straight-line  method  and the
effective interest method.

                                       34
<PAGE>

Income Taxes:     The Company uses the asset and liability method of accounting 
for deferred income taxes.

Revenue  Recognition:  The  Company's  revenues are derived  primarily  from its
collection,  recycling,  transfer and  disposal  services.  The Company  records
revenues  when the  services  are  performed.  The  Company  occasionally  bills
customers in advance of providing the services.  Advanced  billings are recorded
as deferred revenue.

Cost of operations:  Cost of operations  includes direct labor, fuel,  equipment
maintenance,  insurance, depreciation and amortization of equipment and landfill
development  costs,  accruals for ongoing  closure and  post-closure  regulatory
compliance (for landfills  owned),  and other routine  maintenance and operating
costs  directly  related  to  landfill  operations.  Also  included  in  cost of
operations  are payments  made to the towns in which each landfill is located in
the form of "Host Town Fees",  which are  negotiated  on a rate per ton basis as
part of the contract with the Town. In Towns where  landfills are operated under
management  contracts,  the Town is responsible for the closure and post-closure
costs related to the landfill.

Earnings Per Share:  In 1997, the Financial  Accounting  Standards  Board issued
Statement of Financial  Accounting  Standards No. 128,  Earnings Per Share (SFAS
128).  SFAS 128 replaced the  calculation of primary and fully diluted  earnings
per share with basic and diluted earnings per share. Unlike primary earnings per
share,  basic  earnings  per share  excludes  any  dilutive  effects of options,
warrants and convertible securities.  Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share.  Earnings per share
amounts for all periods have been presented, and where appropriate,  restated to
conform  to the SFAS 128  requirements.  Weighted  average  number of common and
common  equivalent  shares  outstanding  and  earnings  per  common  and  common
equivalent  shares have been restated to give effect to a  one-for-five  reverse
stock split effective February 18, 1998.

Impairment of  Long-Lived  Assets and  Long-Lived  Assets to be Disposed Of: The
Company  adopted the provisions of SFAS No. 121,  "Accounting for the Impairment
of Long-Lived  Assets to Be Disposed Of", on January 1, 1997, for the year ended
December 31, 1996. This Statement  requires that  long-lived  assets and certain
identifiable  intangibles be reviewed for impairment  whenever events or changes
in  circumstances  indicate  that the  carrying  amount  of an asset  may not be
recoverable.  Recoverability  of  assets  to be held and used is  measured  by a
comparison of the carrying  amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired,  the
impairment  to be  recognized  is measured  by the amount by which the  carrying
amounts of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the  carrying  amount or fair value less cost to
sell. Adoption of this Statement did not have a material impact on the Company's
financial position, results of operations, or liquidity in 1998 or 1997.

Reclassifications:  Certain amounts in prior year financial statements have been
reclassified to conform to their 1998 presentation.

                                       35
<PAGE>

Note  3.  Acquisitions

During 1998,  the Company  acquired a total of 34  companies,  including  eleven
collection companies (one of which included a transfer station) in Vermont, five
collection companies and two landfills in Central Pennsylvania, three collection
companies and a transfer station in Central  Massachusetts and twelve collection
companies  (one of which  included a transfer  station)  in Central  Upstate New
York. The aggregate cost of these  acquisitions was approximately  $63.2 million
consisting of  approximately  $58.3  million in cash,  $3.4 million in stock and
approximately  $1.5 million in assumed  liabilities.  The acquisitions  have all
been recorded  using the purchase  method of  accounting  and  accordingly,  the
results of operations of the acquired companies are included in the consolidated
statements  of  operations  since  the  respective  dates  of  acquisition.  The
purchases  prices were  allocated to the assets and  liabilities of the acquired
companies  based on their  respective fair values at the dates of acquisition as
follows: the Company acquired property and equipment of $24,298,000,  intangible
assets of $35,171,000 and other assets of $337,000.

Acquisition integration costs consist of one-time, non-recurring costs, which in
the opinion of  management  have no future value and,  therefore,  are expensed.
Such costs include  termination  and retention of employees,  lease  termination
costs, costs related to the integration of information systems and costs related
to the change of name of the  acquired  company or business.  These  charges are
estimated and accrued at the time the  acquisition is closed.  The estimates are
reviewed  frequently  by Company  management  and the  related  operation  teams
integrating  the  new  acquisitions   and  adjusted  as  required.   Acquisition
integration costs totaled $1,865,000 for 1998.

The following  unaudited pro forma financial  information  presents the combined
results of operations of the Company and the aggregate of the acquired  entities
for the  years  ended  December  31,  1998 and 1997 as if the  acquisitions  had
occurred as of January 1, 1998 and 1997,  respectively,  after giving  effect to
certain  adjustments,  including  amortization  of  intangibles  and  additional
depreciation of property and equipment. The pro forma financial information does
not  necessarily  reflect the results of operations that would have occurred had
the Company and the  aggregate of the  acquired  entities  constituted  a single
entity during such period.

                                December 31,1998               December 31, 1997
                                  (unaudited)                    (unaudited)

  Net revenue                     $ 31,546,000                    $31,018,000   
                                   ============                    ===========

  Net loss                        $ (4,631,000)                   $(5,128,000)
                                   =============                   ============

  Basic loss per share            $     (0.63)                    $   (1.42)
                                    ============                   ============


Note  4.      Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following;

                                                          December 31,
                                                    1998                1997
                                             -----------------------------------

 Deposits for future acquisitions             $ 2,210,667          $     132,893
 Prepaid disposal costs                         1,922,792                    -
 Prepaid permit costs                                 -                  502,974
 Due from former employee                             -                  300,000
 Other prepaid expenses                           635,826                430,225
                                            --------------           -----------

 Total prepaid expenses and 
     other current assets                   $    4,769,285          $  1,366,092
                                            ==============          ============

                                       36
<PAGE>

Note  5.      Property and Equipment

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

                                                            December 31,
                                                    1998                1997
                                                --------------------------------
 Landfills                                    $ 18,631,409           $ 8,412,010
 Landfill and other development projects         8,778,901               691,225
 Buildings, facilities and improvements          4,701,245             1,490,964
 Machinery and equipment                         3,038,700             1,513,720
 Rolling stock                                   8,980,626               662,595
 Containers                                      4,104,397               401,941
 Office furniture and equipment                    713,235               333,017
                                              ------------            ----------
                                                48,948,513            13,505,472
 Less accumulated depreciation 
    and amortization                           (4,262,778)           (1,018,289)
                                               -----------         -------------

 Property and equipment, net                   $44,685,735           $12,487,183
                                               ===========           ===========

Note  6.      Intangible Assets

Intangible assets consist of the following;

                                                          December 31,
                                                    1998                1997
                                                 -------------------------------
Goodwill                                      $   30,441,948         $    94,873
Non-compete agreements                             4,333,685                  -
Customer lists                                     3,841,599                  -
Other                                                713,235               3,354
                                                 ------------        -----------
                                                  39,330,467              98,227
    Less accumulated amortization                 (1,271,093)            (1,395)
                                                  -----------         ----------
 Total intangible assets                        $ 38,059,374         $    96,832
                                                 ============        ===========

Note  7.      Long-term Debt and Notes Payable

Long-term debt and notes payable consists of:
                                                             December 31,
                                                       1998                1997
                                                     ---------------------------
7% Convertible Subordinated Notes                $ 60,000,000    $          -
Howard Bank Credit Facility                        10,000,000            748,000
13% Short-term Notes                                7,500,000               -
10% Convertible Subordinated Debentures             1,850,000          4,425,000
Capital Leases                                      1,201,516          2,626,700
Equipment and Other Notes Payable                   2,569,593            245,393
                                                 -------------       -----------

                                                   83,121,109          8,045,093
   Less current portion                             8,259,922            843,831
                                                 -------------       -----------

     Long-term portion                           $ 74,861,187        $ 7,201,262
                                                  ============       ===========

Scheduled  maturities of long-term  debt and notes  payable,  excluding  capital
leases are as follows:

Payments due in the year ending December 31,
                  1999                                     $  8,176,268
                  2000                                       12,536,690
                  2001                                          530,953
                  2002                                          427,261
                  2003                                          248,421
                  Thereafter                                 60,000,000
                                                          -------------

                                                          $  81,919,593

                                       37
<PAGE>

7%  Convertible  Subordinated  Notes:  On May 13,  1998,  the Company  closed an
offering of $60.0 million in 7% Convertible  Subordinated  Notes (the "Notes" or
"7%  Subordinated  Notes"),  which  resulted  in net  proceeds to the Company of
approximately $58.3 million.  The Notes mature in May 2005, and bear interest at
7.0% per annum,  payable  semi-annually  in arrears on each June 30 and December
31. The Notes and any accrued but unpaid  interest are  convertible  into Common
Stock at a conversion  price of $10.00 per share.  The shares are convertible at
the option of the  holder at any time and can be  mandatorily  converted  by the
Company  after 2 years if the  Company's  Common Stock  closing  price equals or
exceeds the conversion  price of $10.00 per share for a period of 20 consecutive
trading  days.  The Company used the majority of the proceeds  from the Notes to
repay  existing  debt  of  approximately  $11.7  million  and  complete  several
acquisitions.  As a  result  of  the  debt  payoffs,  the  Company  recorded  an
extraordinary  loss on extinguishment  of debt of approximately  $247,000 during
1998. In March 1999,  the Company  exchanged  2,244,109  shares of the Company's
Common Stock for $10,390,000 of the Notes. (See Footnote 20 "Subsequent Events")

Howard Bank  Credit  Facility:  On March 31,  1997,  the  Company  closed a $1.0
million term loan with The Howard Bank of Burlington,  Vermont. During 1998, the
loan was renegotiated as part of a line of credit for  $10,000,000.  The line of
credit was repaid in full in March 1999,  with the proceeds of the Senior Notes.
See Footnote 20  "Subsequent  Events".  The Company is currently  negotiating an
expansion of this facility with The Howard Bank.

13% Short-term  Notes. At December 31, 1998 the Company had outstanding  debt in
the principal  amount of  approximately  $7.5 million to BIII Capital  Partners,
L.P., a significant  shareholder of the Company. The debt consisted of 13% Short
Term Notes due June 30, 1999.  The Short Term Notes were repaid in full in March
1999,  with the  proceeds  of the Senior  Notes.  See  Footnote  20  "Subsequent
Events".

10%  Convertible   Subordinated   Notes.  During  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 Notes mature on September 30, 2000,  and bear interest at 10%,
payable  quarterly.  The Notes are  convertible  into Common  Stock at $9.20 per
share and are callable at the  Company's  option at any time if the closing sale
price  of  the  Common  Stock  exceeds  $50.00  per  share  for a  period  of 20
consecutive  trading days prior to  redemption  notice.  The Notes 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.

On  December  31,  1997,  the  Company   converted   $3,950,000  of  Convertible
Subordinated  Debentures and $110,625 of accrued  interest into 40,488 shares of
Series B Convertible Preferred Stock. See Footnote 13 "Preferred Stock".

Capital Leases.   The Company  leases  certain  facilities,  equipment,  and 
vehicles  under  agreements  which are classified as capital leases.

                                       38
<PAGE>

Leased capital assets included in property and equipment are as follows:
                                                           December 31,
                                                  1998                  1997

                  Land and Buildings           $ 1,327,161           $ 1,634,078
                  Machinery and equipment              -               1,881,630
                                              ------------             ---------

                                                 1,327,161             3,515,708
                      Accumulated depreciation    (38,667)             (207,053)
                                               ----------             ---------
                                              $  1,288,494           $ 3,308,655
                                              ============           ===========

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, 1998 are as follows:

                                               Capital                 Operating
                                                Leases                    Leases
Payments due in the year ending December 31,
                  1999                     $   200,040              $    313,883
                  2000                         200,040                   327,719
                  2001                         200,040                   351,215
                  2002                         200,040                   358,484
                  2003                         200,040                    94,366
                  Thereafter                   766,820                       -
                                              ----------              ----------

                  Minimum lease payments     1,767,020               $ 1,445,667
                                                                     ==========
Less: amount representing interest             565,504

Present value of net minimum lease payments  1,201,516
                      Less current portion      83,654

                  Long-term portion        $ 1,117,862
                                           ===========


The Company's rental expense for operating  leases was $388,630,  $81,757 and 
$293,766 for the years ended December 31, 1998, 1997 and 1996, respectively.

Equipment and Other Notes Payable, Equipment and other notes payable are secured
by the respective equipment,  and are payable monthly in varying amounts ranging
from $1,686 To $18,524 With interest  rates  ranging from 8.0% to 8.5%.  Most of
the notes were repaid in March 1999 with the proceeds of the Senior  Notes.  See
Footnote 20 "Subsequent Events".

Note  8. Accrued Expenses

Accrued expenses consisted of the following:

                                                          December 31,
                                                  1998                      1997
                                               ---------------------------------
Acquisition integration costs                 $  676,703              $       -
Interest                                         123,872                 103,578
Professional and consulting fees                 125,410                 265,024
Compensation and benefits                        432,089                  64,451
Other taxes and fees                             449,509                 271,718
Due to sellers                                   260,000                      -
Accrued disposal costs                           210,021                      -
Medical Waste litigation (See Note 15)            88,189                 300,000
Other                                            376,616                   5,615
Fairhaven landfill (See Note 17)                      -                  756,000
Restructuring (See Note 16)                           -                  778,609
                                               -----------               -------

                                              $ 2,742,409            $ 2,544,995
                                               ===========            ==========

                                       39
<PAGE>

Note  9.      Income Taxes


Income tax expense 
    (benefit) consists of:              Current        Deferred          Total
 Year ended December 31, 1998:          ----------------------------------------

    Federal                           $      -        $     -        $      -
    State                                  43,174           -          43,174
                                        ----------------------------------------

                                      $    43,174      $     -       $ 43,174
                                        ========================================

Year ended December 31, 1997:
     Federal                          $      -         $     -       $     -
     State                                5,622              -           5,622
                                       -----------------------------------------

                                      $   5,622        $     -       $   5,622
                                        ========================================

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

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

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 years
ended December 31:

                                      1998            1997            1996
                                     ---------------------------------------

Statutory Federal income tax 
     (benefit)                    $ (2,193,836)   $ (1,898,217)  $ (4,717,894)
State taxes, net of Federal income 
      tax benefit                   (3,460,328)       (530,947)    (1,210,466)
Valuation allowance                  5,533,239       2,432,087      5,898,245
Other                                  164,100           2,699          6,659
                                    -------------  --------------  -------------
                                 $     43,174      $     5,622   $   (23,456)
                                    ===========    ==============   ============


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,  1998 and 1997 are
presented below.

                                                1998                    1997
                                             -------------          ----------
Deferred tax assets:
Accounts receivable allowance              $   303,207            $       11,528
Property and equipment depreciation                -                     194,942
Other accrued liabilities                      334,102                 4,371,736
Operating loss and credit carryforwards     14,864,820                 4,543,738
                                            ----------                 ---------

Gross deferred tax assets                   15,502,129                 9,121,944
 Less: valuation allowance                 (14,655,182)              (9,121,944)
                                          ------------               -----------

    Net deferred t                           846,947                         -

   Deferred tax liabilities:
 Total deferred tax liabilities             (846,947)                        -

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

                                       40
<PAGE>

At  December  31,  1998 the Company had net  operating  loss  carryforwards  for
Federal  income tax purposes of  approximately  $34 million which  generally are
available to offset  future  Federal  taxable  income,  if any, and which expire
during the years ending December 31, 2010 through 2018. The Company underwent an
ownership  change as defined in Internal  Revenue  Code  Section 382 on June 30,
1997 and as a result will be restricted in its ability to use net operating loss
carryforwards  generated prior to the ownership  change to offset future taxable
income. The Company's future use of net operating loss  carryforwards  generated
prior to the ownership change will be subject to an annual limitation  generally
equal to the product of the long-term tax exempt rate for June 1997 of 5.64% and
the value of the Company as of June 30, 1997.  As a result of this  limitation a
portion of the Company's Federal and state net operating loss  carryforwards may
expire unused.

Note  10.     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 at December 31, 1998,  that the total costs for final
closure and  post-closure of Cells I and II 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,  is
approximately  $4.2  million.  Based  upon  the  capacity  of  Cells  I and  II,
approximately  $1.8  million and $1.6  million were accrued at December 31, 1998
and 1997,  respectively  for final closure and post closure costs. In July 1998,
the Company acquired the Sandy Run landfill  located in Hopewell,  Pennsylvania.
The Company has  estimated at December 31, 1998,  that the total costs for final
closure and post-closure of Cells I through IV at Sandy Run,  including  capping
costs,  cap maintenance,  groundwater  monitoring,  methane gas monitoring,  and
leachate  treatment  and  disposal  for up to 30 years,  is  approximately  $4.1
million.  Based upon the capacity of Cells I and II,  approximately $1.0 million
was accrued at December 31, 1998 for final closure and post closure costs.

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 - Summary of  Significant  Accounting  Policies -  Landfill  Closure  and
Post-Closure Costs.

Note  11.     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 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 10 - Landfill
Closure and Post Closure Costs.

The  Company  has a $5  million  environmental  impairment  liability  insurance
covering claims for sudden or gradual onset of  environmental  damage at each of
its landfills.  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.

                                       41
<PAGE>

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 employment  agreements with
its two senior executives, which expire on July 1, 2000 and subsequently provide
for employment  until  terminated by either party at annual salaries of $200,000
through July 1, 1999 and $225,000 through July 1, 2000.

Legal Matters. Richard Rosen ("Rosen"), former Chairman, Chief Executive Officer
and  President  of the  Company,  commenced  an action  against  the  Company in
Middlesex  County  (Massachusetts)  Superior Court,  seeking an award of damages
resulting  from the Company's  alleged  breach of a Memorandum of  Understanding
entered into between the Company and Rosen in connection with the termination of
Rosen's  employment with the Company,  in which Rosen had been granted an option
to purchase certain assets of the Company not related to its core business.  The
Company  believes this claim to be frivolous and is  vigorously  defending  this
action.  The Company has previously  received an arbitration award against Rosen
directing Rosen to pay $780,160 for breach by Rosen of his employment  agreement
with  the  Company.  On  February  25,  1997  the  Middlesex  Superior  Court in
Cambridge,  Massachusetts  confirmed the arbitration  award and entered judgment
against Rosen.

In addition to the matter set forth  above,  from time to time,  in the ordinary
course of its business,  the Company is subject to legal  proceedings and claims
arising  from the  conduct of its  business  operations.  In the  opinion of the
Company, the ultimate disposition of such matters on an aggregate basis will not
have a material adverse effect on the Company's financial position or results of
operations.



Note  12.     Common Stock

During 1998,  the Company  converted  92,580 shares or $9,257,807  of its 
Series A Preferred  Stock into  6,590,577 shares of its Common Stock.

On September 22, 1998,  the Company issued 455,922 shares of its Common Stock in
connection with the acquisition of Mattei-Flynn Trucking, Inc.

On May 22, 1998,  the Company  issued  111,110  shares of its Common Stock in 
connection  with the  acquisition  of Eagle Recycling, Inc. and Horvath 
Sanitation, Inc.

On May 14, 1998,  the Company  converted  40,488 shares or $4,048,750 of its 
Series B Preferred  Stock into 623,808 shares of its Common Stock.

In December  1997,  the  Company's  Board of  Directors  approved a one for five
reverse stock split of the Company's  Common  Stock.  On February 13, 1998,  the
stockholders  of the  Company  approved  the  reverse  stock  split at a special
stockholders'  meeting.  No fractional shares were issued in connection with the
reverse  stock  split,  and  stockholders  received  cash  in  payment  for  any
fractional shares otherwise issuable.  The Company's  financial  statements have
been restated to reflect the one-for-five reverse split.

In  September  1997,  the  Company  issued  18,667  shares  of  common  stock in
connection with the purchase of the minority  interest in the Company's  Vermont
hauling business for $70,000.

On January 21, 1997, the Company  closed a Regulation  "D" private  placement of
172,000  shares  of  common  stock at $2.50 per share  with  gross  proceeds  of
$430,000.

                                       42
<PAGE>

Note  13.     Preferred Stock

At December 31, 1997, the Company had outstanding $9,257,807 of principal amount
Series A  Convertible  Preferred  Stock,  par value $0.001 per share  ("Series A
Preferred  Stock"),  which was issued in a private  placement  on June 26, 1997,
bearing an 8.0% annual  cumulative  dividend.  The Series A Preferred  Stock was
convertible  into common  stock at a  conversion  price of $1.40625 per share of
common stock. On July 27, 1998, the Company met the mandatory conversion trading
requirements  and  elected to convert  all of the  remaining  shares of Series A
Preferred  Stock into  6,590,577  shares of the  Company's  Common Stock and the
Board of Directors declared and paid cash dividends of approximately $787,000.

At December 31, 1997, the Company also had  outstanding  $4,048,750 of principal
amount Series B Convertible Preferred Stock, par value $0.001 per share ("Series
B Preferred  Stock").  The Series B Preferred  Stock was issued on December  31,
1997  in a  private  placement  in  exchange  for  outstanding  10%  Convertible
Debentures of the Company,  bearing a 6.0% annual cumulative  dividend,  and was
convertible into common stock at a conversion price of $6.25 per share of common
stock.  On May 14,  1998,  the  Company  met the  mandatory  conversion  trading
requirements  and elected to convert all of the shares of the Series B Preferred
Stock into 623,808  shares of Common  Stock and the Board of Directors  declared
and paid cash dividends of approximately $101,000.

Note  14.     Stock Options

Employee  Stock Option  Plan.  Pursuant to the  Company's  1995 Stock Option and
Incentive  Plan as amended  (the  "Plan"),  options to purchase up to  3,000,000
shares of Common Stock were reserved for issuance to employees  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.  At the  Annual
Meeting of the Stockholders of the Company,  held August 19, 1998, the number of
shares  reserved for issuance  under the Plan was  increased  from  1,700,000 to
3,000,000.


As of December 31, 1998,  options to purchase  2,341,793  shares of Common Stock
had been  granted and options to purchase  up to an  additional  658,207  shares
remained available for grant. The per share weighted average fair value of stock
options granted during 1998, 1997 and 1996 was approximately  $3.28,  $3.73, and
$4.08,  respectively,  using  the  Black  Scholes  option-price  model  with the
following weighted average assumptions:  volatility, 50% in 1998 and 30% in both
1997 and 1996;  expected  dividend yield,  0% for all years;  risk free interest
rate,  4.75% in 1998 and 5.5% in both 1997 and 1996;  and expected life, 5 years
for all 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 1998, 1997 and 1996 would have increased to the amounts shown below.

                                       43
<PAGE>

                                      1998             1997               1996
                                      ----             ----               ----
Net loss available for 
    common shareholders
     - as reported           $ (7,383,503)    $  (5,588,612)     $  (13,889,772)
     - pro forma               (8,662,888)       (6,006,315)        (14,334,772)

Basic net loss per share
     - as reported            $  (1.00)          $   (1.55)        $     (4.90)
     - pro forma              $  (1.17)          $   (1.66)        $     (5.06)

Pro forma net loss  reflects only the effects of options  granted in 1998,  1997
and 1996. 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, 1996 are 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.

Changes in options and option shares under the plan during the respective  years
were as follows:
<TABLE>
     <S>                                <C>            <C>            <C>        <C>             <C>          <C>
                                          1998                            1997                     1996
                        ------------------------------------------------------------------------------------------------

                                      Weighted Avg.                Weighted Avg.               Weighted Avg.
                                     exercise price     Number    exercise price   Number     exercise price     Number
                                     per share       of shares     per share     of shares       per share     of shares
     Options outstanding,
       beginning of year                  $1.42      1,327,417        $1.41        161,200          $1.41       123,825
     Options granted                       6.68      1,121,351         1.43      1,179,217           1.41       148,250
     Options exercised                     1.41       (28,725)                                  -    1.41       (1,312)
     Options canceled                      6.82       (78,250)         1.64       (13,000)           1.41     (109,563)

     Options outstanding,
       end of year                         3.75      2,341,793         1.42      1,327,417           1.41       161,200
     Shares reserved for future grants                 658,207                     372,583           1.41       138,800

     Total options in the plan                       3,000,000                   1,700,000                      300,000

     Options exercisable, end of year     $1.42        340,573        $1.42        114,900          $1.41       102,225
                                                       =======                     =======                      =======
</TABLE>


On June 30,  1997,  the Board of  Directors  repriced  to  $1.406  per share any
currently outstanding stock options with exercise prices in excess of $1.406 per
share for all employee  participants in the Stock Option Plan at that time. Each
repriced  option  retained  the vesting  schedule  associated  with the original
grant.




                                       44
<PAGE>




Options  outstanding  at December  31, 1998 and related  proceeds to the Company
were as follows:

<TABLE>
                  <S>            <C>              <C>            <C>                 <C>                 <C>
                                                                  Remaining         Weighted Avg.        Number of
                   Shares          Price          Exercise      Contractual            Exercise          Options
                Under Option     Per Share        Proceeds       Life                Price              Exercisable

                   1,264,043          $1.41     $1,830,768           8.38              $ 1.41               334,823
                      23,000    1.88 - 2.19         43,438           8.73                1.89                 5,750
                      30,000           3.44        103,140           9.17                3.44                   -
                      43,750    3.75 - 5.88        237,450           9.72                5.28                   -
                     762,500           6.25      4,765,625           9.33                6.25                   -
                      47,000      6.50-8.88        368,668           9.49                7.84                   -
                      86,500           9.00        778,500           9.42                9.00                   -
                      85,000    9.23 - 9.25        786,172             9.57              9.25                  -
                 -----------    -----------    -----------   --------------   -------------------    ------------

                   2,341,793                    $8,913,761           8.84              $ 3.78               340,573
                   =========                    ==========                                                  =======
</TABLE>

Non-Employee  Directors Stock Option Plan.  Pursuant to the Company's 1995 Stock
Option Plan for Non-Employee  Directors as amended, each Director is entitled to
receive a grant of Non Qualified  Stock 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. In addition,  the plan provides for the issuance of 20,000 fully vested
options upon the election of each new member of the Board of Directors initially
elected  after  December 24, 1997,  excluding  employees of the Company.  At the
Annual  Meeting of the  Stockholders  of the Company,  held August 19, 1998, the
number of shares granted to each Director under the  Non-Qualified  Stock Option
Plan for  Non-Employee  Directors as amended was  increased to 10,000 from 2,000
for each year that the holder  remains a Director of the  Company.  In addition,
the number of fully  vested  options upon the election of each new member of the
Board  of  Directors  initially  elected  after  December  24,  1997,  excluding
employees of the Company was increased to 20,000 from 4,000.

Changes in options and option shares under the plan during the respective  years
were as follows:
<TABLE>
     <S>                             <C>               <C>            <C>          <C>             <C>          <C>
                                              1998                         1997                       1996
                                     Weighted Avg.                Weighted Avg.               Weighted Avg.
                                     exercise price     Number    exercise price   Number     exercise price     Number
                                     per share       of shares     per share     of shares       per share     of shares
     Options outstanding,
       beginning of year                  $1.79         27,480        $1.41         19,416          $1.41         8,750
     Options granted                       3.75         50,000         2.28         35,480           1.41        10,666
     Options exercised                      -              -            -              -              -             -
     Options canceled                       -              -           2.15        (27,416)           -             -
                                                      ---------                    --------                     --------

     Options outstanding,
       end of year                         3.05         77,480         1.79         27,480           1.41        19,416
                                                        ======                      ======                       ======

     Options exercisable, end of year     $1.84         22,370        $1.84         21,500           1.41         7,041
                                                        ======                      ======                        =====

</TABLE>


                                       45
<PAGE>


Options  outstanding  at December  31, 1998 and related  proceeds to the Company
were as follows:
<TABLE>
                    <S>            <C>            <C>            <C>                 <C>                 <C>
                                                                  Remaining         Weighted Avg.        Number of
                   Shares          Price          Exercise      Contractual            Exercise          Options
                Under Option     Per Share        Proceeds       Life                Price              Exercisable

                      14,000      $  1.41       $   19,684           8.67              $ 1.41                10,000
                      13,480         2.19           29,454           8.33                2.19                12,370
                      10,000         3.75           37,500           9.00                3.75                   -
                      40,000         6.25          250,000           9.67                6.25                  -
                 -----------      --------       ---------   --------------   -------------------    ------------

                       77,480     $  4.34        $ 336,638           9.09             $  4.34                22,370
                  ===========                    =========                                                   ======

</TABLE>


Note  15.     Accounts Receivable Write-off

During 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 the Company's CFA medical waste  processing  technology
throughout  Europe. In accordance with the agreement,  the Company would provide
technical  assistance  including  facility  design,  installation,  testing  and
training. In addition to royalty payments for each plant, ScotSafe agreed to pay
the Company for consulting and other services including  out-of-pocket expenses.
During  the  fourth  quarter  of  1997  the  Company  terminated  its  licensing
agreements  with  ScotSafe  and wrote off the  receivable  due from  ScotSafe of
approximately  $570,000  because  ScotSafe was in default for failure to pay the
Company royalties due under the terms of the agreement.

Subsequent  to the  termination,  ScotSafe  was  placed  into  receivership  and
Eurocare  Environmental  Services,  Ltd.  (Eurocare)  purchased  its  assets  in
December 1997.  Eurocare  continues to operate the three  facilities the Company
constructed  for  ScotSafe  without  a  licensing  agreement.   The  Company  is
continuing to pursue an action against  Eurocare through the Court of Session in
Scotland to restrict  Eurocare's use of the Company's  confidential  information
embodied within the plant equipment.  The Company also has a patent pending with
the European  Patent  Office and expects grant on April 21, 1999, at which time,
the Company  will act  vigorously  to protect  its rights to the CFA  technology
against Eurocare and seek substantial damages.

Note  16.     Restructuring and Discontinued Operations

Restructuring of Operations.  In March 1996, the Company announced its intention
to restructure the Company's operations to focus its resources and activities on
developing a fully integrated solid waste management  company.  During the years
ended December 31, 1997 and 1996, the Company recorded  restructuring charges of
$596,426 and  $1,741,729,  respectively,  for costs  associated with the plan to
focus on the development of an integrated  solid waste management  company.  The
costs   included   accruals  for  employee   severance,   non-cancelable   lease
commitments,  professional  fees and litigation  costs.  The  restructuring  was
completed in 1997; no restructuring charges were recorded in 1998.

Discontinued  Operations.  In  March  1996,  as part of the  restructuring,  the
Company ceased  operations at its technology center and discharged all employees
and  consultants  engaged in various  research  and  development  projects.  The
Company  also ceased  operations  at 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  operations  at the  technology  center and MSF for all periods
presented are reported in the accompanying 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.

At  December  31,  1998 and 1997,  the  Company  had  reserves  and  liabilities
associated with restructuring  activities and discontinued  operations of $0 and
$778,609, respectively.


Note  17.   Fairhaven, Massachusetts Operation

         In 1994,  WSI  entered  into a  contract  with  the Town of  Fairhaven,
Massachusetts to operate and remodel the Town's existing 26-acre  landfill.  The
Company began operations at the landfill in 1995. On November 8, 1995, an action
was brought  against  various  parties  including  the  Company  relating to the
remodeling permits issued at the Fairhaven landfill, seeking among other things,
to appeal the permits that had been issued.  On June 2, 1997, the judge ruled in
the Company's favor. However,  based on the extensive delays associated with the
litigation  and the  engineering  impacts  of the  delays  associated  with  the
litigation,  which  resulted  in  the  uncertainty  of  the  long-term  economic
viability of the project,  the Company  terminated the project.  On February 24,
1998,  the  Company  entered  into a  termination  agreement  with  the  Town of
Fairhaven that required the Company to perform a certain amount of  construction
and closure work at the landfill. Write-off of project development costs in 1998
and 1997 primarily  represent the Company's cost to liquidate the equipment that
was used at the Fairhaven landfill and the costs to close the landfill under the
Company's  Termination  Agreement with the Town of Fairhaven.  The Company wrote
off its capital  investment in the project at December 31, 1996. The termination
of this project was  completed in 1998. No other amounts are accrued at December
31, 1998.

                                       46
<PAGE>

Note  18.   Segment Information

The Company adopted the provisions of SFAS No. 131,  "Disclosures about Segments
of an Enterprise  and Related  Information  ", on January 1, 1999,  for the year
ended  December 31, 1998.  SFAS No. 131  establishes  standards for the way that
public business  enterprises  report  information  about  operating  segments in
annual financial  statements and requires that those enterprises report selected
information  about  operating  segments in interim  financial  reports issued to
shareholders.  It also  establishes  standards  for  related  disclosures  about
products and services, geographic areas, and major customers. Operating segments
are  defined as  components  of an  enterprise  about which  separate  financial
information  is  available  that is evaluated  regularly by the chief  operating
decision maker, or decision making group, in deciding how to allocate  resources
and in assessing their performance. The Company's chief operating decision-maker
is the Chief Executive Officer (CEO).

The Company manages its business  segments  primarily on a regional  basis.  The
Company's  reportable segments are comprised of Central  Massachusetts,  Central
Upstate New York,  Central  Pennsylvania  and Vermont.  Each  operating  segment
provides services as further described in Note 1. The accounting policies of the
various  segments are the same as those described in the "Summary of Significant
Accounting  Policies" in Note 2. The Company  evaluates the  performance  of its
segments based on operating income (loss), EBITDA and Adjusted EBITDA. Operating
income (loss) for each segment  includes all expenses  directly  attributable to
the segment,  including acquisition related costs, and excludes certain expenses
that are managed  outside the reportable  segments.  Costs excluded from segment
profit primarily consist of corporate expenses. Corporate expenses are comprised
primarily of information  systems and other general and administrative  expenses
separately  managed.  EBITDA  is  defined  as  operating  income  or  loss  from
continuing  operations excluding  depreciation and amortization,  which includes
depreciation and amortization  included in selling,  general and  administrative
expenses.  EBITDA  does  not  represent,  and  should  not be  considered  as an
alternative  to, net income or cash flows  from  operating  activities,  each as
determined in  accordance  with GAAP.  Adjusted  EBITDA  represents  EBITDA plus
one-time charges  associated with the write-off of landfill  development  costs,
acquisition  integration costs and restructuring costs.  Acquisition integration
costs  consist  of  one-time,  non-recurring  costs,  which  in the  opinion  of
management have no future value and, therefore, are expensed. Such costs include
termination and retention of employees,  lease termination  costs, costs related
to the  integration  of  information  systems and costs related to the change of
name  of the  acquired  company  or  business.  The  Company  does  not  include
intercompany  transfers  between  segments for  management  reporting  purposes.
Segment assets exclude corporate assets.  Corporate assets include cash and cash
equivalents,  office  equipment  and  other  assets.  Capital  expenditures  for
long-lived assets are not reported to management by segment and are excluded, as
presenting such information is not practical.


Summary  information by segment as of and for the years ended December 31, 1998,
1997 and 1996 is as follows:

<TABLE>
     <S>                                                      <C>              <C>               <C>
                                                               1998             1997               1996
                                                               ----             ----               ----
     Vermont
         Revenue                                            $10,430,732       $3,457,692          $338,225
         Income (loss) from continuing operations             1,603,205          761,433          (95,363)
         Depreciation and amortization                        2,307,776          692,224           104,961
         Acquisition integration costs                          477,328              -                 -
         EBITDA                                               3,910,981        1,453,657             9,598
         Adjusted EBITDA                                      4,388,309        1,453,657             9,598
         Net interest expense                                   298,369          177,917                -
         Segment assets                                      26,105,235       14,986,994        11,124,803

     Central Pennsylvania
         Revenue                                             $6,644,099    $         -       $         -
         Income (loss) from continuing operations             (418,827)              -                 -
         Depreciation and amortization                        1,786,435              -                 -
         Acquisition integration costs                          617,403              -                 -
         EBITDA                                               1,367,609              -                 -
         Adjusted EBITDA                                      1,985,012              -                 -
         Net interest expense                                    46,586              -                 -
         Segment assets                                      44,613,001          132,893               -

     Central Massachusetts
         Revenue                                             $1,831,027    $         -       $  1,157,381
         Income (loss) from continuing operations             (188,864)      (1,930,008)       (8,886,925)
         Depreciation and amortization                          167,663              -             264,824
         Acquisition integration costs                           84,276              -                 -
         EBITDA                                                (21,202)      (1,930,008)       (8,622,101)
         Adjusted EBITDA                                        298,538        (434,620)       (1,970,026)
         Net interest expense                                       -                -             183,499
         Segment assets                                      11,699,773        1,090,170         3.288.827

     Central Upstate New York
         Revenue                                             $2,138,726     $        -      $          -
         Income (loss) from continuing operations             (573,510)              -                 -
         Depreciation and amortization                          239,551              -                 -
         Acquisition integration costs                          685,528              -                 -
         EBITDA                                               (333,959)              -                 -
         Adjusted EBITDA                                        351,569              -                 -
         Net interest expense                                       -                -                 -
         Segment assets                                       9,118,715              -                 -

     Corporate
         Revenue                                            $   -           $        -      $          -
         Income (loss) from continuing operations           (2,860,851)      (2,014,165)       (2,483,439)
         Depreciation and amortization                           67,396           21,516         1,186,595
         Acquisition integration costs                              -                -                 -
         EBITDA                                             (2,793,455)      (1,992,649)       (1,296,844)
         Adjusted EBITDA                                    (2,793,455)      (1,396,223)         (444,885)
         Net interest expense                                 2,949,574        1,004,334           820,395
         Segment assets                                       4,579,975        2,483,090         2,444,460
</TABLE>

                                       47
<PAGE>

Note 19.    Year 2000

The Company is  assessing  the  readiness  of its systems for  handling the Year
2000. Although the assessment is still underway,  management  currently believes
that all  material  systems  will be  compliant  by Year 2000 and that the costs
associated  with this are not  material.  The Company has incurred  only minimal
costs to date associated with the Year 2000 issue.

The  Company  is in the  process  of  identifying  key  third-party  vendors  to
understand their ability to continue  providing  services through Year 2000. The
Company  uses  well-regarded  nationally  known  software  vendors  for both its
general accounting  applications and industry-specific  customer information and
billing systems.  The Company is implementing a new general  accounting  package
which will be fully Year 2000  compatible,  and the  provider of the solid waste
industry  customer  information and billing system is Year 2000 compatible.  The
Company's banking arrangements are with national banking institutions, which are
taking  all  necessary  steps to insure  its  customers'  uninterrupted  service
throughout  applicable Year 2000 timeframes.  The Company's payroll is performed
out-of-house  by the largest  provider of third  party  payroll  services in the
country, which has made a commitment of uninterrupted service to their customers
throughout applicable Year 2000 timeframes.

While the  Company  currently  expects  that the Year 2000  issue will not cause
significant   operational   problems,   delays  in  the  implementation  of  new
information  systems, or failure to fully identify all Year 2000 dependencies in
the Company's systems and in the systems of suppliers and financial institutions
could have material adverse consequences.  Therefore,  the Company is developing
contingency plans for continuous operations in the event such problems arise.

Note  20.   Subsequent Events

Senior  Notes  Offering  and  Debt  Repayment.  On March 2,  1999,  the  Company
completed  a private  placement  of $100.0  million of 11.5%  Senior  Notes (the
"Senior  Notes") and warrants to purchase an  aggregate  of 1,500,000  shares of
common  stock at an  exercise  price of $6.25 per share  (the  "Warrants").  The
Senior  Notes  mature on January 15, 2006 and bear  interest at 11.5% per annum,
payable semi-annually in arrears on each January 15 and July 15, commencing July
15, 1999, subject to prepayment in certain  circumstances.  The interest rate on
the Senior Notes is subject to adjustment  upon the occurrence of certain events
as provided in the Senior Notes  Indenture.  The Senior Notes may be redeemed at
the option of the Company after March 2, 2003 at redemption  prices set forth in
the Senior  Notes  Indenture,  together  with accrued and unpaid  interest.  The
Warrants are  exercisable  from  September 2, 1999,  through March 2, 2004.  The
number of shares  for  which,  and the  price per share at which,  a Warrant  is
exercisable,  are subject to adjustment upon the occurrence of certain events as
provided in the  Warrant  Agreement.  The net  proceeds  to the  Company,  after
deducting the discount to the initial  purchaser and related issuance costs, was
approximately $97.3 million. The Company used a portion of the proceeds from the
Senior Notes to repay $20.0  million of the  Company's  13% short term notes due
June 30, 1999,  (the  outstanding  balance of the 13% short-term  notes was $7.5
million at December 31, 1998) $10.0  million of the Howard Bank credit  facility
and  approximately  $1.7 million of capital leases and other notes  payable.  In
addition,  the Company redeemed  approximately $1.45 million principal amount of
the Company's 10%  Convertible  Subordinated  Debentures due October 6, 2000 and
completed  several  acquisitions as described  below. The Company intends to use
the balance of the proceeds for general corporate  purposes,  including possible
future acquisitions and working capital.

         Conversion of Debt into Equity On March 3, 1999, the Company offered to
exchange up to 2,244,109  shares of the Company's  Common Stock for a portion of
the Company's 7%  Subordinated  Notes due May 13, 2005.  The exchange  price per
share of $4.63 was equal to the closing  price of the Common Stock on the Nasdaq
SmallCap Market on the first interim closing as reported by NASDAQ.  Any accrued
but  unpaid  interest  on the  Notes  will be paid in cash.  As a result  of the
exchange  offer,   the  Company  retired   $10,390,000  of  its  7%  Convertible
Subordinated  Notes.  The  remaining  7%  Convertible   Subordinated  Notes  are
convertible by holders into Common Shares at $10.00 per share.

         Stock  Repurchase  With the proceeds of the Senior  Notes,  the Company
repurchased  497,778  shares of the  Company's  common  stock  from the  Federal
Deposit  Insurance  Corporation  (FDIC)  for  an  aggregate  purchase  price  of
approximately $2.8 million.

Acquisitions  Since  December 31, 1998 through  March 24, 1999,  the Company has
completed  six  acquisitions,  consisting  of 5  collection  operations  and one
landfill.  The aggregate purchase price for these acquisitions was approximately
$38  million  which  was paid in cash and the  assumption  of  approximately  $3
million  of  debt.   These   acquisitions   have  combined   annual  revenue  of
approximately  $12 million.  The  acquisitions  have all been recorded using the
purchase method of accounting.





                                       48
<PAGE>


Item 9.       Changes in and Disagreements with Accountants on Accounting and 
              Financial Disclosure

None.

                                  PART III

Item 10.  Directors and Executive Officers of the Registrant

Information Regarding Directors

         The following  table and  biographical  descriptions  set forth certain
information as of March 15, 1999,  unless otherwise  specified,  with respect to
the seven  Directors of the Company,  all of whom are nominees for reelection at
the 1999 Annual Meeting of Stockholders,  based on information  furnished to the
Company by each Director.

                           Directors

                                                             Director
                                       Age                    Since
                                     -----------------------------------
Philip W. Strauss                       50                    1996
Robert Rivkin                           40                    1997
Jay Matulich                            44                    1995
David J. Breazzano                      42                    1997
Charles Johnston                        64                    1997
Judy K. Mencher                         42                    1997
William B. Philipbar                    73                    1997
--------------

         Philip W. Strauss.  Mr. Strauss has been the Chief  Executive  Officer 
and President  since March 27, 1996 and Chairman of the Board since June 24,  
1996.  Previously  Mr.  Strauss had been  Executive  Vice  President  and
Chief  Operating  Officer of the Company  since  September  19,  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.

         Robert Rivkin.  Mr. Rivkin,  a Certified  Public  Accountant,  has been
Executive  Vice  President  Acquisitions  of the Company since April 1998,  Vice
President and Chief Financial Officer since March 1995, Secretary since May 1995
and  Treasurer  since June 1996.  Mr.  Rivkin was first  elected to the Board of
Directors  in June 1997.  For the six years  prior to joining the  Company,  Mr.
Rivkin  was  a  principal  at  The  Envirovision  Group  Inc.,  a  full  service
environmental  engineering,  consulting and  contracting  company,  where he was
responsible  for finance,  marketing and  strategic  planning.  Previously,  Mr.
Rivkin practiced public  accounting in New York, where he specialized in mergers
and acquisitions, initial public offerings and SEC reporting.

         Jay J.  Matulich.  Mr.  Matulich  has been a member  of the  Board of  
Directors  since  March  1995.  Mr. Matulich  is a Managing  Director  of  
International  Capital  Growth  Limited  ("ICG"),  formerly  Capital  Growth
International  L.L.C.  and U.S. Sachem Financial  Consultants,  L.P. He has held
this position since 1994. From May 1990 to October 1994, Mr. Matulich was a Vice
President of Gruntal & Co., Incorporated, investment bankers.

         David J.  Breazzano.  Mr.  Breazzano  has been a member of the Board of
Directors  since June  1997.  Mr. Breazzano is one of the two  principals  at
DDJ Capital  Management,  LLC,  which was  established  in 1996. He has
over 18 years  of  investment  experience  and  served  as a Vice  President and
Portfolio  Manager  at  Fidelity Investments  ("Fidelity")  from 1990 to 1996. 
Prior to joining  Fidelity,  Mr.  Breazzano  was President and Chief
Investment  Officer of the T. Rowe Price  Recovery  Fund.  Mr.  Breazzano  also
serves as a Director of Key Energy Group, Inc. and Samuel Jewelers, Inc.

         Charles  Johnston.  Mr.  Johnston  has  been a member  of the  Board of
Directors  since  June  1997.  During the past 10 years he has served on various
boards.  Mr.  Johnston is  currently  Chairman of Ventex  Technology  in Riviera
Beach,  Florida  and has held that  position  since 1993.  He is also  currently
Chairman of AFD  Technologies in Jupiter,  Florida.  He was previously  founder,
Chairman,  and CEO of ISI  Systems,  a  public  company  on the  American  Stock
Exchange prior to being sold to Teleglobe  Corporation of Montreal,  Canada. Mr.
Johnston also serves as Trustee of Worcester Polytechnic Institute in Worcester,
Massachusetts  as well as Trustee for the  Institute  of  Psychiatric  Research,
University of Pennsylvania in Philadelphia, Pennsylvania. In addition, he serves
as director of the following  companies - Kideo Productions and Infosafe Systems
both of New York City,  Hydron  Technologies  Inc.  of Boca  Raton,  Florida and
Spectrum Signal Processing of Vancouver, British Columbia.

                                       49
<PAGE>

         Judy K.  Mencher.  Ms.  Mencher  has been a member  of the  Board of  
Directors  since  August  1997.  Ms. Mencher is one of the two principals at DDJ
Capital  Management,  LLC, which was  established in 1996. From 1990 to
1996, Ms. Mencher was at Fidelity  working in the Distressed  Investing  Group. 
Prior to joining Fidelity in 1990, Ms.  Mencher  was a  Partner  at the law 
firm of  Goodwin,  Procter  & Hoar LLP specializing  in  bankruptcy  and 
creditors' rights.

         William B.  Philipbar.  Mr.  Philipbar  was first  elected a Director  
of the  Company on May 8, 1996.  He resigned as a Director of the Company on 
June 24, 1997 and was  reelected  to the Board on August 20,  1997.  Since
December  1997,  Mr.  Philipbar has been a part-time  consultant for the Company
in connection  with the Company's consideration of proposed  acquisitions and 
other strategic  matters.  Prior to becoming a Director of the Company,
Mr.  Philipbar  served as Chairman of the Delaware  Solid Waste  Authority  fro
1977 to 1987 and was President and Chief  Executive  Officer of  Rollins  
Environmental  Corp.  from 1973 to 1984.  He has been a Director  of Matlack
Systems,  Inc. and Rollins  Truck  Leasing  Corp.  since 1993.  Until 1995 he 
was also an advisor to Charles  River Ventures.

The Board of Directors and Its Committees

Board of Directors

         The Company's Board of Directors  consists of seven members, a majority
of whom is independent of the Company's  management.  Each director holds office
for a term  from  election  until  the  next  Annual  Meeting  of the  Company's
stockholders and until his or her successor is duly elected and qualified.

         The Board of Directors held 5 meetings during fiscal year 1998. Each of
the Company's directors attended at least 80% of the total number of meetings of
the Board of Directors  and of the  committees of the Company of which he or she
was a member.

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

         Compensation  Committee.  The Compensation  Committee  currently
consists of Messrs.  Johnston and Strauss and Ms.  Mencher.  The  Compensation  
Committee  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  (excluding Mr.  
Strauss)  administers,  and has authority to grant awards under,  the
Directors'  Plan to the  employee  directors  and  management  of the  Company 
and its  subsidiaries  and other key employees.  The Compensation Committee held
2 meetings during fiscal year 1998.

         Audit  Committee.  The Audit  Committee  currently  consists of Messrs.
Breazzano, Matulich and Philipbar. The Audit Committee 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 held 2
meetings during fiscal year 1998.



                                       50
<PAGE>


Information Regarding Executive Officers

         Set forth below is certain information  regarding each of the executive
officers of the  Company,  including  their  principal  occupation  and business
experience for at least the last five years.

       Name                       Age                          Position

Philip W. Strauss............     50       Chief Executive Officer and President
Robert Rivkin................     40       Executive Vice President - 
                                           Acquisitions,Chief Financial Officer,
                                            Secretary and Treasurer
Michael J. Leannah...........     46       Senior Vice President and Chief
                                            Operating Officer
Joseph E. Motzkin............     56       Vice President - Acquisitions
Arthur Streeter..............     38       Vice President and General Counsel
-----------------

        The principal  occupation and business  experience for at least the last
five years of each  executive  officer  of the  Company,  other  than  executive
officers also serving as Directors, is set forth below.

        Michael J. Leannah.  Mr.  Leannah has been a Senior Vice President and 
the Chief  Operating  Officer of the Company since July 1998.  Prior to joining
the Company,  he was an Operating Vice  President at Superior  Services,
Inc. From 1986 to 1997, he held various  management  positions at Waste 
Management,  Inc., most recently serving as Vice President, Operations and
State President.

        Joseph E. Motzkin.  Mr. Motzkin has been a Vice President of the Company
since August 1996.  From 1994 to 1996, Mr.Motzkin was a General Manager at Prins
Recycling  Corporation  where he established  recycling  programs,
and directed  sales  programs and  customer  service  activities.  
From 1989 to 1994,  he was a General  Manager at 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.

        Arthur  Streeter.  Mr. Streeter has been Vice President and General  
Counsel since February 1998.  Prior to joining the Company he was a Partner at 
Goldstein  and  Manello,  a 60 lawyer firm based in Boston,  Massachusetts
where he gained 12 years of experience representing both private and public 
companies.

        Each of the executive  officers holds his or her respective office until
the  regular  annual  meeting  of the Board of  Directors  following  the annual
meeting of stockholders  and until his or her successor is elected and qualified
or until his or her earlier resignation or removal.

Compliance with Section 16(a) of the Exchange Act

        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, 1998,  all Section 16(a) filing  requirements
applicable to its executive officers,  directors and greater than 10% beneficial
owners were satisfied.

                                       51
<PAGE>

Item 11.  Executive Compensation

Director Compensation

        The Company does not currently pay cash  compensation  to its directors.
Non-employee directors are entitled to stock option grants under the Amended and
Restated  Waste  Systems   International,   Inc.  1995  Stock  Option  Plan  for
Non-Employee Directors (the "Director Plan"). The Director Plan provides for the
automatic granting to Independent Directors (as defined in the Director Plan) of
options that do not qualify as incentive  stock  options  (referred to as "Stock
Options")  under Section 422 of the Code.  Under the terms of the Director Plan,
each  Independent  Director  who first  becomes a Director  of the Company on or
after June 30, 1997 shall automatically be granted on the date he or she becomes
a Director of the Company a Stock  Option to  purchase  20,000  shares of Common
Stock. In addition,  the Director Plan provides that each  Independent  Director
shall  automatically be granted, at the beginning of each calendar year in which
he or she is  serving  as an  Independent  Director,  a Stock  Option to acquire
10,000 shares of Stock.  Each  Independent  Director  entering service after the
start of any calendar year will  automatically  be granted on the effective date
of his or her Board  membership  a Stock  Option to  acquire a portion of 10,000
shares of Stock prorated to reflect the remaining portion of such calendar year.
The exercise  price per share for the Common  Stock  covered by any Stock Option
granted  under the Director  Plan shall be equal to the fair market value of the
Common Stock on the date such option is granted.

        Other than  Stock  Options to  acquire  20,000  shares of Stock  granted
automatically  to each new director joining the Board on or after June 30, 1997,
which Stock  Options vest  immediately  upon grant,  options  granted  under the
Director  Plan  shall  vest at a rate of 25% of the  total  number  of shares of
Common Stock purchasable under such option for each year that the holder remains
a Director of the Company,  such vesting to take place at the end of each of the
first four calendar years following  issuance of such options.  An option issued
under the Director  Plan shall not be  exercisable  after the  expiration of ten
years from the date of grant.

Executive Compensation

        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, 1998, 1997 and 1996 to the Company's  Chief  Executive  Officer and
the three other  senior  executive  officers in office on December  31, 1998 who
earned at least $100,000 in cash compensation  during 1998 (the "Named Executive
Officers").

                                             SUMMARY COMPENSATION TABLE
<TABLE>
<S>                                                    <C>                 <C>                 <C>
                                                                                                 Long-Term
                                                                                               Compensation
                                                                                                  Awards
                                                                                 Annual           Shares
                                                                              Compensation      Underlying
                                                                                 Salary         Options (1)
Name and Principal Position                                  Year                  ($)              (#)
---------------------------                                  ----          --------------------------------

Philip Strauss                                               1998                188,172           250,000
Chairman of the Board,                                       1997                162,504           522,859
President and Chief                                          1996                150,000           50,000(2)
Executive Officer

Robert Rivkin                                                1998                187,506           250,000
Executive Vice President - Acquisitions,                     1997                162,504           522,859
Chief Financial Officer, Secretary and Treasurer             1996                150,000            41,250

Joseph Motzkin(3)                                            1998                118,060            40,000
Vice President - Acquisitions                                1997                110,000            19,300

Arthur Streeter(4)                                           1998                118,428            40,000 
Vice-President and General Counsel

</TABLE>


(1)      All information with respect to outstanding  options,  including shares
         issuable or issued and exercise  prices payable or paid per share,  has
         been  adjusted  to reflect the 1-for-5  reverse  stock split  effective
         February 13, 1998.

(2)      Includes the options to acquire 40,000 shares of Common Stock granted 
         in 1995 and repriced in 1996.

(3)      Includes Mr.  Motzkin's  salary for 1998 and 1997 only as Mr.  Motzkin 
         did not join the Company  until the third quarter of 1996.

(4)      Includes Mr. Streeter's salary for 1998 only as Mr. Streeter joined the
         Company in February 1998.

                                       52
<PAGE>

         Option Grants in Fiscal Year 1998.  The following  table sets forth the
options  granted  during  fiscal year 1998 and the value of the options  held on
December 31, 1998 by the Company's Named Executive Officers.
<TABLE>

                                        OPTION GRANTS IN FISCAL YEAR 1998 (1)
<S>                      <C>                 <C>                    <C>              <C>            <C>
                                              Percent of Total
                            Number of         Options Granted       Exercise or
                        Shares Underlying     to Employees in       Base Price     Expiration       Grant Date
Name                   Options Granted(#)        Fiscal Year        ($ /share)         Date      Present Value$(2)
----                   ------------------    -------------------    ----------    -------------  --------------   

Philip Strauss               250,000                   24%            $6.25        4/17/08           $767,000
Robert Rivkin                250,000                   24%            $6.25        4/17/08           $767,000
Joseph Motzkin                40,000                    4%            $6.25        4/17/08           $122,720
Michael Leannah               75,000                    7%            $9.25        7/20/08           $126,525
Arthur Streeter               30,000                    3%            $3.44         2/2/08           $ 50,610
Arthur Streeter               10,000                    1%            $6.25        4/17/08           $ 30,680
</TABLE>

(1)      All information with respect to outstanding  options,  including shares
         issuable or issued and exercise  prices payable or paid per share,  has
         been  adjusted  to reflect the 1-for-5  reverse  stock split  effective
         February 13, 1998.

(2)      The grant date present  value was  determined  using the Black  Scholes
         option pricing model with the following  weighted average  assumptions;
         volatility,  50%; expected dividend yield, 0%; risk free interest rate,
         4.75% and expected life, 5 years.

         Option Exercises and Year-End Holdings.  The following table sets forth
the options  exercised during fiscal year 1998 and the value of the options held
on December 31, 1998 by the Company's Named Executive Officers.


                 AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998
                     AND FISCAL YEAR-END 1998 OPTION VALUES
<TABLE>
<S>                 <C>                 <C>                 <C>            <C>            <C>            <C>
                                                              Number of
                                                          Securities Underlying               Value of Unexercised
                        Shares                               Unexercised Options              in-the-Money Options
                       Acquired On         Value                                             at Fiscal Year-End (#)
at Fiscal Year-End ($)
Name                 Exercise (#)     Realized ($)       Exercisable   Unexercisable       Exercisable   Unexercisable
 ----------------------------------- --------------   --------------------------------------------------  -----------------
Philip Strauss            0                 0             180,715         642,144           $739,847        $2,628,937
Robert Rivkin             0                 0             180,715         642,144            739,847         2,628,937
Joseph Motzkin            0                 0               9,825          59,475             40,224            79,731

</TABLE>

                                       53
<PAGE>

         Employment  Agreements.  On June 30, 1998,  the Company and Mr. Strauss
entered into an employment  agreement.  The terms of the  agreement  provide (i)
that Mr. Strauss shall serve as the Company's President and Chief Executive 
Officer, (ii)that he receive a salary of $200,000 per year through June 30, 1999
and $225,000 per year through June 30, 2000 and (iii) that he agree not to 
compete with the Company following termination of his employment for a period of
one year following the termination. In the event that Mr. Strauss is terminated 
for cause, he shall not be bound to the  non-competition  provisions.  
The Company's agreement  with Mr.  Strauss  is  effective  until  June 30,  1999
and,  absent ninety-day  notice  from  either  party  to  the  contrary,  shall 
be extended automatically for subsequent one-year terms upon the expiration of  
the agreement. The Company's agreement with Mr. Strauss may be terminated at any
time by the mutual consent of the parties.

         On June 30, 1998, the Company and Mr. Rivkin entered into an employment
agreement.  The terms of the  agreement  provide (i) that he receive a salary of
$200,000 per year through June 30, 1999 and $225,000 per year through June 30, 
2000 per year  and  (iii)  that he  agree  not to  compete  with  the  Company  
following termination   of  his  employment  for  a  period  of  one  year  
following  the termination.  In the event that Mr. Rivkin is terminated for 
cause, he shall not be bound to the  non-competition  provisions.  The Company's
agreement with Mr.Rivkin is  effective  until June 30,  1999 and,  absent  
ninety-day  notice from either party to the contrary,  shall be extended  
automatically  for  subsequent one-year  terms upon the expiration of the  
agreement.  The Company's  agreement with Mr.  Rivkin  may be  terminated at any
time by the  mutual  consent of the parties.


Compensation Committee Interlocks and Insider Participation

         Currently,  Philip W. Strauss,  Charles Johnston and Judy K. Mencher 
serve on the Compensation  Committee.  Philip W. Strauss, in addition to serving
as a member of the Compensation  Committee,  is the Chief Executive Officer and 
President.  No other member of the Compensation Committee in 1997 ever served as
an officer of the Company.


                                       54
<PAGE>

Item 12.  Security Ownership of Certain Beneficial Owners and Management

         The following table presents information as to all directors and senior
executive  officers  of the Company as of March 15, 1999 and persons or entities
known to the Company to be  beneficial  owners of more than 5% of the  Company's
Common  Stock  as of  March  15,  1999,  unless  otherwise  indicated,  based on
representations of officers and directors of the Company and filings received by
the Company on Schedules 13D and 13G or Form 13F under the  Securities  Exchange
Act of 1934, as amended (the "Exchange Act").

      
<TABLE>
                        Beneficial Ownership
<S>                                                                   <C>              <C>          <C>
                                                                                        Common Stock
                                                                     -------------------------------------------------

                                                                     # of  Shares                    % of Class
Directors, Executive Officers and 5% Stockholders(1)                 Beneficially                    Beneficially
                                                                      Owned                            Owned(2)
----------------------------------------------------------------------------------------------------------------------
B-III Capital Partners, L.P.(3)                                                                      45.4%
c/o DDJ Capital Management, LLC                                        6,367,406
141 Linden Street
Wellesley, MA 02181

The Prudential Insurance Company of America  (4)                                                     6.9%
100 Mulberry Street                                                      791,611
Newark, NJ  07102

PaineWebber High Income Fund (5)
1285 Avenue of the Americas                                            1,717,194                    14.1%
New York, NY  10019

John Hancock Advisers(6)                                               1,150,000                     9.3%
101 Huntington Avenue
Boston, MA  02199

BEA Associates (Credit Suisse) (7)                                       700,000                     5.9%
153 East 53 Street, 57th Floor
New York, NY  10022
                                                                         735,000                     6.5%
Dawson Samberg Capital Management, Inc,(8)
354 Pequot Avenue
Southport, CT  06490

David J. Breazzano(9)                                                      6,750                     *

Charles Johnston(10)                                                       6,750                     *

Jay Matulich(11)                                                           7,000                     *
 
Judy K. Mencher(9)                                                         6,685                     * 

Joseph Motzkin(12)                                                        45,553                     *

William B. Philipbar(13)                                                  31,685                     *

Robert Rivkin(14)                                                        261,168                     2.3%

Philip W. Strauss(15)                                                    260,993                     2.3%

All directors and officers as a                                          626,584                     5.6%
Group (8 persons)

</TABLE>


                                       55
<PAGE>

        less than 1%

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

(2)    Based on 11,220,546  shares of Common Stock issued and  outstanding as of
       March 15,  1999.  As of March 15,  1999 the Company  had  outstanding  7%
       Convertible  Subordinated Notes due 2005 which are currently  convertible
       at the option of the holder into an aggregate  6,000,000 shares of Common
       Stock at a  conversion  price of $10.00 as set  forth in the  Notes.  The
       Company is currently  conducting a private exchange offering with respect
       to the 7%  Subordinated  Notes,  scheduled  to  expire  March  31,  1999,
       pursuant  to which it is  offering  to issue up to  2,244,109  shares  in
       exchange  for the  tender of 7%  Subordinated  Notes at the face value of
       their principal  amount (plus a cash payment for accrued  interest).  The
       exchange  price for Common Stock issued in such  exchange  offer is $4.63
       per  share,  or $5.37  per share  less than the $10 per share  conversion
       price under the terms of the 7% Subordinated Notes.  Assuming the Company
       issues  2,244,109  shares of  Common  Stock in the  exchange  offer at an
       exchange  price of $4.63 per share,  the Company  would be  obligated  to
       issue upon conversion of all remaining  outstanding 7% Subordinated Notes
       an aggregate of 4,960,978 shares of Common Stock,  which aggregate figure
       includes an  additional  1,205,087  shares of Common Stock  issuable as a
       result of the  difference  between the $4.63 per share exchange price and
       the $10 per share conversion price. In accordance with Exchange Act rules
       promulgated  by  the  Commission,  the  foregoing  shares  issuable  upon
       conversion of the 7% Convertible  Subordinated Notes are included in this
       table only for those holders with the right to acquire such shares within
       60 days from the date of this  report,  to the extent such  holder  could
       acquire additional shares.

(3)    Includes  3,567,406  shares of Common Stock currently owned and 2,800,000
       shares issuable upon conversion of 7% Convertible Subordinated Notes at a
       conversion  price  of  $10.00  as set  forth  in the  Note.  DDJ  Capital
       Management, LLC ("DDJ") serves as the investment manager to B-III Capital
       Partners, L.P. ("B III"); an affiliate of DDJ acts as the general partner
       of B III.  Assuming its pro rata  participation  in the private  exchange
       offering described in footnote 2 above, B III might receive an additional
       562,374 shares as a result of the private  exchange  offering price being
       lower than the  conversion  price in the Note which would result in B III
       owning approximately 47.5% of the Common Stock.

(4)    Includes  591,611  shares of Common  Stock  currently  owned and  200,000
       shares issuable upon conversion of 7% Convertible Subordinated Notes at a
       conversion  price of $10.00 as set  forth in the Note.  Assuming  its pro
       rata participation in the private exchange offering described in footnote
       2 above, Prudential might receive an additional 40,170 shares as a result
       of the private  exchange  offering  price being lower than the conversion
       price in the Note which would result in Prudential  owning  approximately
       7.3% of the Common  Stock.  The  Common  Stock and Notes are held for the
       benefit of certain registered  investment companies over which Prudential
       or The  Prudential  Investment  Corporation  ("PIC")  may have  direct or
       indirect  voting  and/or  investment  discretion,  with  respect to which
       Prudential  has advised  the Company  that  Prudential  and PIC  disclaim
       beneficial ownership.

(5)    Includes  717,194  shares of Common Stock  currently  owned and 1,000,000
       shares issuable upon conversion of 7% Convertible Subordinated Notes at a
       conversion  price of $10.00.  Assuming its pro rata  participation in the
       private  exchange  offering  described in footnote 2 above,  Paine Webber
       might  receive an  additional  208,848  shares as a result of the private
       exchange offering price being lower than the conversion price in the Note
       which would  result in Paine  Webber  owning  approximately  15.4% of the
       Common Stock.

(6)    Includes  1,150,000  shares  issuable upon  conversion of 7%  Convertible
       Subordinated Notes at a conversion price of $10.00. Assuming its pro rata
       participation  in the private exchange  offering  described in footnote 2
       above,  John Hancock  might  receive an  additional  230,975  shares as a
       result of the  private  exchange  offering  price  being  lower  than the
       conversion  price in the Note which would result in John  Hancock  owning
       approximately 11.0% of the Common Stock.

(7)    Includes  700,000  shares  issuable  upon  conversion  of 7%  Convertible
       Subordinated Notes at a conversion price of $10.00. Assuming its pro rata
       participation  in the private exchange  offering  described in footnote 2
       above,  BEA  Associates  might receive an additional  140,593 shares as a
       result of the  private  exchange  offering  price  being  lower  than the
       conversion prices in the Note which would result in BEA Associates owning
       approximately 7.0% of the Common Stock.

(8)    Includes  585,000  shares of Common  Stock  currently  owned and  150,000
       shares issuable upon conversion of 7% Convertible Subordinated Notes with
       a conversion price of $10.00.  Assuming its pro rata participation in the
       private exchange offering  described in footnote 2 above.  Dawson Samberg
       might  receive an  additional  56,103  shares as a result of the  private
       exchange  offering  price being lower than the  conversion  prices in the
       Note which would result in Dawson  Samberg owning  approximately  6.9% of
       the Common Stock.

(9)     Includes  6,750  shares  subject to stock  options  which are fully  
        vested and  currently  exercisable  and excludes those shares owned by 
        B III, which Mr. Breazzano and Ms. Mencher may be deemed to beneficially
        own as a result of Mr.  Breazzano's and Ms. Mencher's  interest in DDJ, 
        however,  such beneficial  ownership is disclaimed.  Both Mr. Breazzano 
        and Ms. Mencher are managing members of DDJ.

(10)    Includes 6,750 shares subject to stock options which are fully vested 
        and currently exercisable.

(11)    Includes  2,000 shares of Common Stock  currently  owned and 5,000 
        shares subject to stock options which are fully vested and currently 
        exercisable.

(12)    Includes 18,403 shares of Common Stock currently owned and 27,150 shares
        subject to stock options which are fully vested and currently
        exercisable.

(13)    Includes 31,685 shares subject to stock options which are fully vested 
        and currently exercisable.

(14)    Includes  17,953 shares of Common Stock  currently  owned and 243,215  
        shares subject to stock options which are fully vested and currently 
        exercisable.

(15)    Includes  17,778 shares of Common Stock  currently  owned and 243,215  
        shares subject to stock options which are fully vested and currently 
        exercisable.


                                       56
<PAGE>

Item 13.  Certain Relationships and Related Transactions

On  December  15,  1997,  the Board of  Directors  voted to retain  Mr.  William
Philipbar,  a Non-Employee Director of the Company, as a part-time consultant in
connection with the Company's  consideration of proposed  acquisitions and other
strategic matters.  Mr.  Philipbar's  compensation for providing such consulting
services for up to four days per month, as requested by the Company, consists of
grants of  options  to acquire  25,000  shares of Common  Stock to be granted on
January  1 of each  year  (beginning  January1,  1998) so long as Mr.  Philipbar
continues to be so retained by the Company.  Under such consulting  arrangement,
Mr.  Philipbar  received  options on January 1, 1998 and 1999 to acquire  25,000
shares of Common Stock,  vesting  according to the terms described  below.  Such
grants are made under an amendment of the  Company's  Amended and Restated  1995
Stock Option and Incentive Plan (the "Plan") permitting the grant of options and
other benefits under the Plan to Non-Employee  Directors,  consultants and other
key persons,  which was approved by the Company's stockholders at the August 18,
1998 Annual Meeting of  Stockholders.  Each such option granted to Mr. Philipbar
under such consulting arrangement (a) shall remain outstanding for a term of ten
years,  subject to  termination 90 days following the date of termination of Mr.
Philipbar's consulting arrangement with the Company; (b) shall be exercisable at
an exercise  price per share equal to the closing  price of the Common  Stock on
its  principal  trading  market on the first trading day on or after the date of
issuance;  (c) shall  initially be unvested,  and shall vest in full on the date
one year  after  the date of  issuance,  provided  that Mr.  Philipbar  has been
retained as a consultant by the Company and has been ready,  willing and able to
perform services as such consultant  during such one year period;  and (d) shall
be a non-qualified stock option for income tax purposes.



                                       57
<PAGE>


                               PART IV

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

(A)      1.  Financial Statements

The financial statements are listed under Part II, Item 8 of this Report.

         2.  Financial Statement Schedules

The  financial  statement  schedules  are listed  under Part II,  Item 8 of this
Report.

         3.  Exhibits

The exhibits are listed below under Part IV, Item 14(c) of this report.

(B)       Reports on Form 8-K

         No reports on Form 8-K were filed during the quarter ended December 31,
1998.

(C)      Exhibits

Exhibit No.                  Description

1.1      Purchase  Agreement,  dated  February 25, 1999,  by and among First 
         Albany  Corporation  and Waste Systems International,  Inc. and its 
         subsidiaries.  (Incorporated by reference to Exhibit No. 1.1 of the 
         Company's Current Report on Form 8-K, dated March 2, 1999.)

2.1      Articles   of  Merger  of  BioSafe   International,   Inc.,   a  Nevada
         Corporation,  with  and  into  Waste  Systems  International,  Inc.,  a
         Delaware Corporation, filed October 24, 1997 (Incorporated by reference
         to Exhibit 2.1 to Form 10-Q For the  Quarterly  Period Ended  September
         30, 1997 of Waste Systems International, Inc.)

2.2      Certificate  of  Merger  of  BioSafe  International,   Inc.,  a  Nevada
         Corporation,  with  and  into  Waste  Systems  International,  Inc.,  a
         Delaware Corporation,  filed October 24, 1997 and effective October 27,
         1997.  (Incorporated  by  reference to Exhibit 2.2 to Form 10-Q For the
         Quarterly   Period   Ended   September   30,  1997  of  Waste   Systems
         International, Inc.)

2.3      Agreement and Plan of Merger dated October 17, 1997 by and between 
         BioSafe  International,  Inc. a Nevada Corporation and Waste Systems 
         International,  Inc. a Delaware Corporation.  (Incorporated by 
         reference to Exhibit  2.3  to  Form  10-Q  For  the  Quarterly  Period
         Ended  September  30,  1997  of  Waste  Systems International, Inc.)

3(i).1   Second  Amended and Restated  Certificate  of  Incorporation  of Waste 
         Systems  International,  Inc. filed February 13, 1998.

3(i).2   Certificate of Designations of Series B Convertible Preferred Stock of 
         Waste Systems  International,  Inc. filed March 5, 1998.

3(i).3   Certificate  of  Corrections to the Second  Amended and Restated 
         Certificate  of  Incorporation  of Waste Systems International, Inc.
         as filed February 13, 1998),filed March 17, 1998.

3(ii).1  Bylaws of the Company, adopted and effective as of October 27, 1997.

4.4      Certificate of Designation of Series A Convertible  Preferred Stock 
         of Waste Systems  International,  Inc.
         filed October 20, 1997 (Refer to Exhibit 3(i).3 above).

4.5      Certificate of Designation of Series B Convertible  Preferred Stock of 
         Waste Systems  International,  Inc. filed October 20, 1997 (Refer to 
         Exhibit 3(i).2 above).

4.6      Amended  and  Restated  Subscription   Agreement  dated  as  of  
         June  30,  1997 (Incorporated  by  reference  to  Exhibit  4.2 to  Form
         10-Q  for  the Quarterly   Period   Ended   September   30,  1997  of 
         Waste   Systems International, Inc.)

4.7      Indenture,   dated  as  of  March  2,  1999,   between   Waste  Systems
         International, Inc. and IBJ Whitehall Bank & Trust Company, including a
         form of the 11 1/2% Senior Note due 2006. (Incorporated by reference to
         Exhibit  No. 4.1 of the  Company's  Current  Report on Form 8-K,  dated
         March 2, 1999.)

4.8      Warrant  Agreement,  dated as of March 2, 1999,  between  Waste Systems
         International,  Inc. and  subsidiaries  and IBJ Whitehall  Bank & Trust
         Company, a New York banking corporation as warrant agent. (Incorporated
         by reference to Exhibit No. 4.2 of the Company's Current Report on Form
         8-K, dated March 2, 1999.)

4.9      Note Registration Rights Agreement,  dated as of March 2, 1999, by and 
         among Waste Systems  International, Inc. and its subsidiaries and First
         Albany  Corporation.  (Incorporated by reference to Exhibit No. 4.3 of
         the Company's Current Report on Form 8-K, dated March 2, 1999.)

4.10     Warrant  Registration  Rights  Agreement,  dated  as of March  2, 1999,
         by  and  among  Waste  Systems International,  Inc. and its  
         subsidiaries  and First Albany  Corporation.  (Incorporated  by 
         reference to Exhibit No. 4.4 of the Company's Current Report on
         Form 8-K, dated March 2, 1999.)

10.4     Agreement  and Plan of  Merger  dated as of March 17,  1995,  among the
         Company,  Zoe Resources,  Inc., certain stockholders of the Company and
         BioSafe,  Inc.  (Incorporated  by  Reference  to  Exhibit  2.1  of  the
         Company's Current Report on Form 8-K, dated March 29, 1995.)

10.5     1995 Stock Option Plan  (Incorporated  by Reference to Exhibit  10.1 of
         the  Company's  Current  Report on Form 8-K, dated March 29, 1995.)

10.6     Agreement  between  BioSafe,  Inc.  and the Town of South  Hadley,  
         Massachusetts,  dated August 22, 1995. (Incorporated  by  reference 
         to Exhibit No.  10.12 to the  Registration  Statement on Form S-1 of 
         BioSafe International, Inc., No. 33-93966 as filed on June 26 1995.)

10.7     Form of 10% Convertible,  Redeemable,  Subordinated  Note Due 2000.  
        (Incorporated by reference to Exhibit No. 10.15 to the Registration 
         Statement on Form S-1 of BioSafe International, Inc., No. 33-93966.)

Schedule of Subsidiaries.

27.1     Financial Data Schedules


                                       58
<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.


Date:  March 31, 1999                        By:   /s/ Philip Strauss
                                                     ------------------
                                                    Philip Strauss
                                                    Chairman, Chief Executive
                                                    Officer and President
                                                   (Principal Executive Officer)

Date: March 31, 1999                         By:   /S/ Robert Rivkin
                                                    ------------------
                                                    Robert Rivkin
                                                    Executive Vice President 
                                                    -Acquisitions,
                                                    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.

Date: March 31, 1999                         By: /s/ Philip Strauss
                                                  -------------------------
                                                    Philip Strauss
                                                    Chairman, Chief Executive  
                                                    Officer and President
                                                   (Principal Executive Officer)

Date: March 31, 1999                         By:  /S/ Robert Rivkin
                                                  ----------------------------
                                                    Robert Rivkin
                                                    Executive Vice President 
                                                    -Acquisitions,
                                                    Chief Financial Officer, 
                                                    Treasurer and Secretary
                                                   (Principal Financial and 
                                                    Accounting Officer)

Date: March 31, 1999                         By:   /S/ Jay J. Matulich
                                                   -----------------------------
                                                     Jay J. Matulich - Director

Date: March 31, 1999                         By:   /S/ David J. Breazzano
                                                  ------------------------------
                                                   David J. Breazzano - Director

Date: March 31, 1999                         By:   /S/ Charles Johnston
                                                  ------------------------------
                                                     Charles Johnston - Director

Date: March 31, 1999                         By:   /S/ Judy K. Mencher
                                                  ------------------------------
                                                      Judy K. Mencher - Director

Date: March 31, 1999                         By:   /S/ William B. Philipbar
                                                 -------------------------------
                                                 William B. Philipbar - Director


                                       59
<PAGE>



Exhibit 21.1
Schedule of Subsidiaries
As of December 31, 1998

Name and address:                                                   EIN


WSI Medical-Waste Systems, Inc.                                       04-3377563
(Formerly Biosafe Medical Waste Technology, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

WSI Vermont                                                           03-0347845
 (Formerly Waste Professionals of Vermont, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

WSI Moretown                                                          03-0355691
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

WSI Burlington Transfer Station,Inc.                                  04-3374689
 (Formerly Burlington Area Transfer Station, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

WSI Waitsfield Transfer Station, Inc.                                 04-3292469
 (Formerly Waitsville Transfer Station, Inc.
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

WSI of Vermont, Inc.                                                  03-0354296
 (Formerly WPV Disposal, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

WSI of Massachusetts Holdings, Inc.                                   04-3301441
 (Formerly Biosafe Buckland, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

WSI of Fairhaven, Inc.                                                04-3301442
 (Formerly Biosafe Fairhaven, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

WSI of South Hadley, Inc.                                             04-3086959
 (Formerly Biosafe, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

WSI Pennsylvania Holdings, Inc.                                       04-3301448
 (Formerly Biosafe Mid-Atlantic, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

WSI Hopewell Landfill, Inc.                                           04-3301445
(Formerly Biosafe Pennsylvania, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

WSI of Pennsylvania, Inc.                                             04-3301449
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

WSI of Pennsylvania Transportation, Inc.                              04-3301450
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

WSI Altoona Transfer Station, Inc.                                    04-3301447
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

Biosafe Systems, Inc.                                                 36-4027808
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

Eagle Recycling, Inc.                                                 23-2640932
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

Horvath Sanitation, Inc.                                              25-1685001
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

Mostoller Landfill, Inc.                                              25-1622775
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

WSI St. Johnsbury Transfer Station, Inc.                              03-0356503
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

WSI New York Holdings, Inc.                                           04-3428760
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

WSI of New York, Inc.                                                 04-3434005
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

Mattei-Flynn Trucking, Inc.                                           04-2989917
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

Mass Wood Recycling, Inc.                                             04-3454163
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

WSI Maryland Holdings, Inc.                                           04-3428758
420 Bedford Street, Suite 300
Lexington, Massachusetts 02420

                                       60
<PAGE>