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


                                     FORM 10-KSB
                                    ------------


              [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                           SECURITIES EXCHANGE ACT OF 1934
                     For the fiscal year ended December 31,1996

                                         OR

            [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                           SECURITIES EXCHANGE ACT OF 1934
                          Commission file number 33-30365-C
                                     ------------


                          EMERALD CAPITAL INVESTMENTS, INC.
             (Name of Small Business Issuer as specified in its charter)

                    Delaware                               36-36939936
               ------------------                          -----------
              (State or other jurisdiction of           (I.R.S. employer
               incorporation or organization)            identification No.)
                  330 East Main, Suite 201                     60010
                    Barrington, Illinois                      --------
          (Address of principal executive offices)            (Zip Code)

           Issuer's telephone number, including area code:  (847) 516-2900
                                             ------------


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

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


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

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained, to the best of Issuer's knowledge, in definitive proxy or information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. X

     The Issuer's  revenues for the fiscal year ending December 31,1996 were $0.


      As of March 30, 1997,  there were 5,808,698 shares of the Company's common
stock issued and outstanding of which 4,301,479 were held by non-affiliates.  As
of March 30,1997 there was no active market for the Company's common stock.

                     DOCUMENTS INCORPORATED BY REFERENCE:  NONE

 .





<PAGE>



                                       PART I

ITEM 1. DESCRIPTION OF BUSINESS

General

      From  March  1994  to  December   29,  1995  the   Company,   through  its
subsidiaries,  Waste Reduction Technologies,  Inc. ("WRTI") and Continental Tire
Recycles, Inc. ("CTR"), was engaged in the business of designing,  manufacturing
and marketing  waste  reduction  equipment  (primarily  shredding  machines) and
collecting  and recycling used tires.  The Company  acquired WRTI in March 1994.
WRTI was formed in 1993 and at the time of the  acquisition,  WRTI's  activities
had been limited to developing a business plan and designing  various  shredding
equipment products.  The products offered by WRTI included a variety of sizes of
shredding  machines and waste  reduction  systems  designed to meet the needs of
specific customers.

      In May, 1994 the Company formed CTR as a wholly-owned  subsidiary.  CTR is
engaged in the business of collecting and recycling  used tires.  CTR is paid to
accept used tires from a variety of sources and once  collected,  the used tires
are sorted into various  categories.  Some used tires still have additional life
and are resold as used tires. Others are shredded into tire derived fuel and are
used as a fuel additive in coal fired furnaces.

      The WRTI and CTR operations  never  generated  significant  revenue,  were
capital  intensive  and resulted in  significant  losses to the  Company.  As of
December  1995,  the  Company had  exhausted  all of its  working  capital,  had
exhausted  its  ability  to borrow  funds and was  unable to  continue  with the
operations of WRTI and CTR. On December 29, 1995,  the Company sold WRTI and CTR
to a group of  purchasers  which  included  a  former  member  of the  Company's
management.

      During  the year  ended  December  31,  1996,  the  Company  conducted  no
operations and generated no revenue.  The Company has no current  operations and
is seeking to enter into active  business  operations  by acquiring  one or more
other operating companies.

      The information  contained herein relating to the historical operations of
WRTI and CTR is no longer a current  description of the Company's  business plan
and is included solely for historical information.

History of the Company

      The Company was formed  March 22, 1989 for the purpose of investing in any
and all types of assets,  properties and businesses.  Pursuant to a registration
statement  which was  declared  effective  on  December  19,  1989,  the Company
registered  5,000,000 Units of its securities to be offered and sold in a public
offering.  The  offering  was closed on April 17, 1990 and a total of  1,315,600
Units were sold.  The net offering  proceeds were  approximately  $102,052.  The
offering was a "blind  pool" or "blank  check"  offering.  Each Unit sold in the
public  offering  consisted of one share of common  stock,  one Class "A" common
stock purchase warrant and one Class "B" common

                                      2

<PAGE>



stock  purchase  warrant.  The  Warrants  expired  June 30, 1993  without  being
exercised.  In 1992, the Company  effected a 1-for-10  reverse split of its then
issued and outstanding shares of common stock.

      Prior to its  acquisition  of WRTI,  the  Company  attempted  to acquire a
number of businesses and attempted to commence business  operations in different
industries.  However,  the Company was  unsuccessful  in such previous  business
operations.

      In 1992, the Company  acquired an Area  Development  Franchise to open and
operate Ho Lee Chow restaurants in DuPage County and Kane County,  Illinois.  In
September 1993, the Company sold its Ho Lee Chow related assets in consideration
for the  transfer to the Company of  2,612,500  shares of the  Company's  common
stock  owned by the  individuals  comprising  the  group of  purchasers  and the
cancellation of options to purchase 300,000 shares of the Company's common stock
owned  by the  purchasers.  The  purchasers  also  assumed  certain  liabilities
relating to the Ho Lee Chow assets and operations.

Current Business Plan

      The Company believes that in order to commence active operations,  it must
acquire an operating company. The Company, proposes to seek, investigate and, if
warranted,   acquire  an  interest  in  another  Company  ("Potential   Business
Opportunity").  As of the date  hereof,  the Company has no  Potential  Business
Opportunity  under  contemplation  for  acquisition  but proposes to investigate
Potential Business  Opportunities from inventors or entrepreneurs with a concept
which has not yet been placed in  operation,  or from existing  companies  which
have recently  commenced  operations,  and are in need of  additional  funds for
expansion into new products or markets, or from established businesses which may
be  experiencing  financial  or  operating  difficulties  and are in need of the
limited  additional  capital the Company  could  provide.  It is likely that the
Company  will be  required  to raise  additional  funds in  order to  attract  a
Potential Business Opportunity.  There can be no assurance that the Company will
be able to raise  additional  capital  in  sufficient  amounts  to  enable it to
acquire a suitable Potential Business Opportunity.

      In some  instances,  a  Potential  Business  Opportunity  may  involve the
acquisition  of or merger  with a  corporation  which does not need  substantial
additional  cash but which desires to establish a public  trading market for its
Common Stock. Some companies with Potential  Business  Opportunities may seek to
become a public company through merging with, being acquired by or selling their
assets to an existing public company. There are numerous reasons why an existing
privately-held company would seek to become a public company through a merger or
acquisition rather than doing its own public offering. Such reasons include, but
are not limited to,  avoiding  the time  delays  involved in a public  offering;
retaining  a larger  share  of  voting  control  of the  publicly-held  company;
reducing the cost factors  incurred in becoming a public  company;  and avoiding
any  dilution  requirements  set  forth  under  various  states'  blue sky laws.
Although  there is no currently a public market for the Company's  common stock,
the Company is a reporting company and does have a base of public shareholders.


                                      3

<PAGE>



      The Company does not propose to restrict its search for Potential Business
Opportunities to any particular  industry or any particular  geographic area and
may, therefore,  engage in essentially any business to the extent of its limited
resources.  It is anticipated that knowledge of Potential Business Opportunities
will be made known to the Company by various sources, including its officers and
directors,  professional advisors such as attorneys and accountants,  securities
broker-dealers,  venture capitalists,  members of the financial  community,  and
others who may present  unsolicited  proposals.  The Company may compensate such
parties for services rendered.

      There can be no  assurance  that the Company will ever acquire a Potential
Business  Opportunity.  Even  if the  Company  is able to  acquire  a  Potential
Business  Opportunity,  there can be no assurance that any such acquisition will
be profitable to the Company or its Stockholders.  Stockholders  should be aware
that an  investment  in the Company could result in a total loss of an investors
investment.

      The analysis of a Potential Business  Opportunity will be undertaken by or
under the supervision of the officers and directors of the Company.  Inasmuch as
the  Company  will have only  limited  funds  available  to it in its search for
Potential  Business  Opportunities,  the  Company  will  not be able  to  expend
significant funds on a complete and exhaustive investigation of such business or
opportunity.  The Company will,  however,  investigate,  to the extent  believed
reasonable by its management, such Potential Business Opportunities.

      Prior to making a  decision  to  acquire  or  participate  in a  Potential
Business  Opportunity,  the Company will obtain written materials  regarding the
Potential  Business  Opportunity  containing  such  items  as a  description  of
products,   services,  and  company  history;   management  resumes;   financial
information;  available projections with related assumptions upon which they are
based;  evidence of existing  patents,  trademarks,  or service  marks or rights
thereto; present any proposed forms of compensation to management; a description
of  transactions  between  the  prospective  entity  and its  affiliates  during
relevant  analysis of risks and competitive  conditions;  and other  information
deemed relevant.

      It is anticipated that the  investigation of specific  Potential  Business
Opportunities  and  the  negotiation,   drafting,   and  execution  of  relevant
agreements, disclosure documents, and other instruments will require substantial
management time and attention and substantial costs for accountants,  attorneys,
and others.  If a decision is made not to  participate  in a specific  Potential
Business   Opportunity,   the  costs   theretofore   incurred   in  the  related
investigation  would not be  recoverable.  Furthermore,  even if an agreement is
reached for the participation in a specific Potential Business Opportunity,  the
failure to consummate that  transaction may result in the loss to the Company of
the related costs incurred.

      The Company will have unrestricted flexibility in seeking,  analyzing, and
participating in Potential Business  Opportunities.  In its efforts, the Company
will consider the following kinds of factors:


                                      4

<PAGE>



      (a)   Potential for growth, indicated by new technology, anticipated 
            market expansion, or new products;

      (b)   Competitive position as compared to other firms engaged in similar 
            activities;

      (c)   Strength of management;

      (d)   Capital requirements and anticipated  availability of required funds
            to be  provided by the Company  from future  operations  through the
            sale of additional  securities,  through  joint  ventures or similar
            arrangements or from other sources;

      (e)   Other relevant factors.

      Potential  Business  Opportunities may occur in many different  industries
and at  various  stages  of  development,  all of  which  will  make the task of
comparative  investigation and analysis of such business opportunities extremely
difficult  and  complex.  Potential  investors  must  recognize  that due to the
Company's limited capital  available for investigation and management's  limited
experience  in business  analysis  the Company  may not  discover or  adequately
evaluate adverse facts about the opportunity to be acquired.

      The Company is unable to predict when it may acquire a Potential  Business
Opportunity.  It expects,  however,  that the analysis of specific proposals and
the selection of a Potential  Business  Opportunity  may take several  months or
more.

      The  manner in which the  Company  participates  in a  Potential  Business
Opportunity will depend upon the nature of the opportunity, the respective needs
and  desires  of the  Company  and the  promoters  of the  opportunity,  and the
relative negotiating strength of the Company and such promoters.  The exact form
or structure of the Company's  participation in a Potential Business Opportunity
or venture will be dependent  upon the needs of the  particular  situation.  The
Company's  participation  may be structured as an asset  purchase  agreement,  a
lease,  a license,  a joint venture,  a partnership,  a merger or acquisition of
securities.  Generally,  issuance of the Company's  securities in an acquisition
would  be  undertaken  in  reliance  upon  one  or  more   exemptions  from  the
registration  provisions of applicable  federal  securities laws,  including the
exemptions  provided  for  non-public  or limited  offerings,  distributions  to
persons  resident in only one state,  and analogous  exemptions  provided  under
state securities laws. Shares issued in a reorganization  transaction based upon
these  exemptions  would  be  considered   "restricted"   securities  under  the
Securities Act of 1933 and Rule 144 promulgated thereunder,  could not generally
be resold  for a period of two years,  and would be  subject  to  certain  other
restrictions. However, the Company may agree in any such transaction to register
securities  to be issued  either at the time of the  transaction  or at  certain
specified times thereafter.




                                      5

<PAGE>



WRTI Operations-General

      The Company owned and operated Waste Reduction Technology, Inc. ("WRTI) an
Illinois  corporation  from march 1994 to December 29, 1995. WRTI was founded to
develop a business plan relating to the business of manufacturing  and marketing
waste  reduction  equipment  and,  subject to  adequate  financing,  to commence
operations in such business.  While it was owned by the Company, WRTI's business
plan was to market waste reduction equipment to be used to shred waste materials
including,  but not limited to tires,  paper, wood, glass, metal and other waste
products.  While its was owned by the Company,  WRTI  offered four  direct-drive
shredder  models and one compactor  model.  WRTI's  products were purchased from
stock  parts or  manufactured  by third party  machine  shops  according  to the
specifications of WRTI. WRTI assembled its products in its own facility.

      On December  29,  1995,  the Company sold all of its shares of WRTI and no
longer has any interest in WRTI.

Continental Tire Recyclers, Inc. ("CTR")

      CTR was a wholly-owned  subsidiary of the Company which owned and operated
a tire  processing  and  recycling  facility  in Pekin,  Illinois.  The  process
mechanically  shreds  whole truck and  passengers  tires into chips which can be
used in the following ways:

      Tire Derived Fuel:  (TDF) Shredded tires result in a TDF by-product  which
have been sold principally to cement kilns to be used as a fuel source. It takes
approximately 120 passenger tires to make a ton of TDF.

      Used Tire and  Casing  Products:  Between  ten and  twenty  percent of the
current generation of scrap tires can be sorted out or "culled" and sold to both
domestic  and foreign  markets.  Used tires have been sold at the  facility  for
between  $1.50 and $3.00 for  passenger  tires and between  $5.00 and $45.00 for
trucks.  Casings, used in the retreading industry have brought $.75 to $2.00 for
passenger castings and $4.00 to $25.00 for truck castings.

      Crumb Rubber: Crumb Rubber may be used for a variety of products.

Sale of WRTI and CTR

      On December 29,  1995,  the Company sold all of its shares of WRTI and CTR
to a group of 20 buyers  ("Buyers").  One of the Buyers was William G. Holmes, a
former  officer and director of the Company.  The purchase  price for all of the
shares of WRTI and CTR sold by the Company to the Buyers was $30,000.  The total
liabilities  of  WRTI  and  CTR  as  of  December  29,  1995  was  approximately
$1,758,308,  including bank debt of $250,000 and approximately  $394,950 owed to
six individual lenders, including the Company's president and secretary.


                                      6

<PAGE>



      Some of the individual  lenders also had personally  guaranteed bank loans
of WRTI and CTR. As payment in full of the $394,950, the individual lenders were
paid a total of  $75,000  by the  Buyers  and were  issued a total of 26% equity
interest in a new limited liability company known as Continental Tire Recyclers,
LLC, a company  formed by the Buyers to own and operate CTR. In connection  with
such transaction, the bank released all parties from their personal guarantee of
the indebtedness of WRTI and CTR. Additionally, the individual lenders acquired,
either  directly from the Company or from other  shareholders a total of 620,809
shares of the Company's  common stock in connection with such  transaction  (See
"Certain Transactions.")

Employees

      The Company currently has no employees.

ITEM 2.  PROPERTIES

      The Company currently operates out of the office of Douglas P. Morris, the
Secretary and a director of the Company. The Company does not pay for the use of
these facilities.

ITEM 3.     LEGAL PROCEEDINGS

      There are not presently any material  pending legal  proceedings  to which
the  Company  is a  party  or of  which  any of  its  property  or  wholly-owned
subsidiary  is subject  and no such  proceedings  are known to the Company to be
threatened or contemplated against it.

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

      No  meetings  of the  Company's  shareholders  were held  during  the last
quarter of the Company's fiscal year.

                                    PART II

ITEM 5.     MARKET FOR THE REGISTRANT'S COMMON STOCK AND WARRANTS
AND RELATED SECURITY HOLDER MATTERS

     A.  Market  for  Common  Stock.  There is no active  public  market for the
Company's  securities.  From  time-to-time,  the Company's common stock has been
traded, on a very limited basis, in the over-the-counter market.

     B. Holders.  The number of record holders of the Company's  common stock as
of March 30, 1997  approximately  170. One of the  Company's  shareholders  is a
brokerage firm which owns securities as a nominee for its customers.

     C. Dividends.  The Company has not paid any cash dividends to date and does
not anticipate or contemplate paying dividends in the foreseeable  future. It is
the present  intention  of  management  to utilize all  available  funds for the
development of the Company's business.

                                      7

<PAGE>



ITEM 6.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
RESULTS OF OPERATIONS

General

      The  Company  is  currently  an  inactive   company  seeking  to  commence
operations by acquiring another company which is conducting  operations.  During
the year ended  December  31, 1996,  the Company  conducted  no  operations  and
generated no revenues. Prior to December 29, 1995, the Company had been involved
in the  business  of  recycling  used  tires and  designing,  manufacturing  and
marketing  shredding  equipment.  The  Company's  tire  recycling  and shredding
equipment  operations were  unsuccessful and the Company  generated  significant
losses during 1994 and 1995.  During 1995 the Company funded its operations with
loans from a commercial  bank,  from management and from other  individuals.  By
November  1995,  the Board of Directors had  concluded  that the Company did not
have the  capital,  or the ability to obtain  capital  necessary to continue its
current  operations.  The Company's Board of Directors initiated efforts to sell
the Company's WRTI and CTR  operations.  The Company was able to interest one of
its directors and several other individuals in purchasing WRTI and CTR.

      Effective  December 29,  1995,  the Company sold all of its shares of WRTI
and CTR for $30,000.  As a result of such sale, the Company's total liabilities,
on a consolidated basis, decreased from $1,758,308 to approximately $6,500.

      The Company  currently has no active  business  operations  and is seeking
investments  in  other  business  entities  made  through  the  issuance  of the
Company's securities.

      The financial  statements  attached  hereto  exclude WRTI and CTR for 1995
inasmuch as they are discontinued operations.

      As a result of the  matters  described  above,  the  Company's  historical
financial  statements  and this  Management's  Discussion  and  Analysis are not
necessarily   reflective  of  the  Company's  future   operations  or  financial
condition.

 Financial Condition

       Total  assets at December  31,1996 were  $12,738,  all of which was cash.
This reflects the sale of WRTI and CTR on December 31,1996. On December 31,1995,
the Company's total assets on a consolidated  basis which included the assets of
WRTI  and  CTR,  was  $1,006,535.  On  December  31,1996,  the  Company  had  no
liabilities. The Company intends to use such cash to pay for various filing fees
and  professional  fees  relating to its reporting  obligations  and to find the
costs which may arise from seeking new business opportunities.

      It is likely that the Company will be required to raise additional capital
in order to  attract  and  potential  acquisition  partner  but  there can be no
assurance that the Company will be able to raise any additional  capital.  It is
also likely that any future acquisition will be made through the issuance of

                                      8

<PAGE>



shares of the  Company's  common  stock which will result in the dilution of the
percentage ownership of the current shareholders.

Results of Operations

      During  1996,  the  Company  conducted  no  operations  and  generated  no
revenues.  All of the Company's  revenues for the years ended  December 31, 1995
and 1994 were derived from the operations of WRTI and CTR. As stated above,  the
Company  sold  WRTI  and  CTR on  December  29,1995  and  has  treated  them  as
discontinued  operations.  Therefore,  the  revenues  of WRTI and CTR have  been
excluded  from the  Statement of  Operations  which is included in the financial
statements attached hereto. Therefore, excluding the operations of WRTI and CTR,
the Company had no revenues  during 1996,  1995 or 1994. If the revenues of WRTI
and CTR  were  included  in the  Statement  of  Operations,  total  consolidated
revenues would have been  $1,093,283  during 1995 and $305,387 during 1994. (See
Footnote 3 to the financial statements.)

      The  Company's  total  loss  for 1996 was  $10,597  compared  to a loss of
$860,846  during 1995. The 1995 loss includes losses from the operations of WRTI
and CTR.

      It is unlikely  that the Company  will be able to  generate  any  revenues
unless and until it  acquires  an  operating  company,  of which there can be no
assurance.

Plan of Operation

      Commencing in the fourth  quarter of 1995, the Company's Plan of Operation
was essentially the plan to sell its WRTI and CTR operation.  Effective December
29, 1995 these operations were sold. The Company's  current plan of operation is
to acquire another operating  company.  (See "Item 1 - Description of Business -
Current Business Plan.")

      It is likely that any acquisition will be a "reverse  merger"  acquisition
whereby the Company acquires a larger company by issuing shares of the Company's
common stock to the  shareholders  of the larger  company.  Although the Company
would be the surviving or parent  company from a corporate law  standpoint,  the
shareholders of the larger company would be the controlling  shareholders of the
Company  and the  larger  company  would be treated  as the  survivor  or parent
company from an  accounting  point of view.  It can be expected that any company
which  may  desire  to be  acquired  by the  Company  will  do so as  method  of
potentially  becoming a public company more quickly and less expensively than if
such company  undertook its own public offering.  The Company has not identified
any potential  acquisition  target and there can be no assurance that it will be
able to acquire any other company.  Furthermore,  even if the Company is able to
acquire  another  company,  there can be no assurance that the Company will ever
operate at a profit.


                                      9

<PAGE>



ITEM 7.      FINANCIAL STATEMENTS

                         Index to Financial Statements
Financial Statements
      Independent Accountants' Report
        Year Ended December 31,1996

      Balance Sheet
        December 31,1996

      Statement of Operations
        Years ended December 31,1996 and 1995

      Statement of Changes in Stockholders'  Equity From January 1, 1995 through
        December 31,1996

      Statement of Cash Flows -
        Years ended December 31,1996 and 1995

      Notes to Financial Statements

Financial  Statement  Schedules All  schedules are omitted  because they are not
applicable or the required  information is shown in the financial  statements or
notes thereto.


                                      10

<PAGE>


                          EMERALD CAPITAL INVESTMENTS, INC.
                            (A Development Stage Company)


                          INDEPENDENT AUDITORS' REPORT




To the Board of Directors and
Stockholders of Emerald Capital Investments, Inc.


We have audited the accompanying  balance sheet of Emerald Capital  Investments,
Inc.,  (a  development  stage  company) as of December  31, 1996 and the related
statements of operations, stockholders' equity, and cash flows for the two years
then ended and the cumulative  amounts since December 29, 1995  (commencement of
development  stage).  These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial  position of Emerald Capital  Investments,
Inc. (a  development  stage company) as of December 31, 1996, and the results of
its operations and its cash flows for the years ended December 31, 1996 and 1995
and the cumulative  amounts since December 29, 1995 (commencement of development
stage), in conformity with generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial  statements,  the Company  has  suffered  recurring  losses that raise
substantial doubt about its ability to continue as a going concern. Management's
plans  regarding  those  matters  also are  described  in Note 2. The  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.


                                           TANNER + CO.

Salt Lake City, Utah
February 14, 1997





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


See accompanying notes to financial statements.
                                                                            11

<PAGE>


                        EMERALD CAPITAL INVESTMENTS, INC.
                          (A Development Stage Company)



                                  Balance Sheet

                                December 31, 1996
------------------------------------------------------------------------------



         Assets

Current assets -
   cash                                                     $     12,738
                                                            ------------

            Total assets                                    $     12,738
                                                            ------------

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

                                                            
         Liabilities and Stockholders' Equity

Current liabilities                                         $         -
                                                            ------------

Commitments                                                           -

Stockholders' equity:
   Common stock - $.001 par value. 100,000,000 shares
     authorized; 5,808,698 shares issued and outstanding,
     respectively                                                  5,809
   Additional paid-in capital                                  2,600,656
   Accumulated deficit                                        (2,593,727)
                                                            ------------

            Total stockholders' equity                            12,738
                                                            ------------

            Total liabilities and stockholders' equity      $     12,738
                                                            ------------



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


See accompanying notes to financial statements.
                                                                      12

<PAGE>

                        EMERALD CAPITAL INVESTMENTS, INC.
                          (A Development Stage Company)

                                                  Satement of Operations


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

  
                                                  Year Ended
                                                  December 31,       
                                            ------------------------ Cumulative
                                               1996        1995        Amounts
                                            -----------------------------------
Revenue                                      $    -      $     -    $     -   

Selling, general and administrative expenses    10,597     470,476      10,597
                                            -----------------------------------

         Loss from continuing operations       (10,597)   (470,476)    (10,597)

Discontinued operations:
   Loss from discontinued operations                -    (1,238,194)      -
   Income on disposal of discontinued
     operations                                     -     847,824         -
                                            -----------------------------------

         Loss from discontinued operations          -    (390,370)        -
                                            -----------------------------------

Loss before income taxes                      (10,597)   (860,846)    (10,597)
Income tax expense                                  -           -           -
                                            -----------------------------------

         Net loss                            $(10,597)  $(860,846) $  (10,597)
                                            -----------------------------------

         Net loss per share continuing
           operations                        $   (.00)  $   (.08)  $     (.00)
         Net loss per share discontinued
           operations                        $   (.00)  $   (.07)  $     (.00)
                                            -----------------------------------

                                             $   (.00)  $   (.15)        (.00)
                                            -----------------------------------

Weighted average number of shares
outstanding                                  5,809,000   5,689,000   5,809,000
                                            -----------------------------------



------------------------------------------------------------------------------
See accompanying notes to financial statements.
                                                                      13

<PAGE>


                          EMERALD CAPITAL INVESTMENTS, INC.
                           (A Development Stage Company)

                          Statement of Stockholders' Equity

                       Years Ended December 31, 1996 and 1995
------------------------------------------------------------------------------







<TABLE>
<CAPTION>
                                                                             
                                                                       
                                                  Common Stock          Additional                    Total
                                               ------------------        Paid-In     Retained      Stockholders
                                                 Shares     Amount       Capital      Deficit        Equity
                                               -------------------------------------------------------------------
<S>                                            <C>          <C>        <C>          <C>             <C>           
Balance, January 1, 1995                       5,344,887    $5,345     $2,137,309    $(1,722,284)   $420,370

Shares issued for services valued at $1.00
per share                                        302,911       303        302,608         -          302,911

Shares issued for cash at $1.00 
per share                                        160,900       161        160,739          -         160,900     

Net loss                                            -           -            -        (860,846)     (860,846)
                                              ---------------------------------------------------------------

Balance, December 31, 1995                     5,808,698    5,809       2,600,656   (2,583,130)       23,335

Net loss                                            -           -            -         (10,597)      (10,597)
                                              ---------------------------------------------------------------

Balance, December 31, 1996                     5,808,698   $5,809      $2,600,656  $(2,593,727)        12,738
                                              ---------------------------------------------------------------

</TABLE>



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


See accompanying notes to financial statements.
                                                                      14

<PAGE>


                                       EMERALD CAPITAL INVESTMENTS, INC.
                                           (A Development Stage Company)

                                                 Statement of Cash Flows
------------------------------------------------------------------------------


                                                 Year Ended
                                                December 31,       
                                         ----------------------    Cumulative
                                              1996        1995      Amounts
                                         ------------------------------------
Cash flows from operating activities:
   Net loss                              $   (10,597)  $ (860,846)  $ (10,597)
   Adjustment to reconcile net loss to
     net cash used in operating activities:
      Loss on discontinued operations           -      1,238,194        -
      Gain on disposal of discontinued
        operations                              -       (847,824)       -
      Stock issued for services                 -        302,911        -
      Decrease in accounts receivable         30,000        -         30,000
      (Decrease) increase in accounts
        payable                               (6,665)     6,665       (6,665)
                                          ------------------------------------

            Net cash provided by (used in)
            operating activities              12,738    (160,900)     12,738
                                          ------------------------------------

Cash flows from investing activities            -           -           -
                                          ------------------------------------

Cash lows from financing activities -
   proceeds from issuance of common stock       -        160,900        -
                                          ------------------------------------

            Net increase in cash              12,738        -        12,738

Cash, beginning of period                       -           -           -
                                          ------------------------------------

Cash, end of period                       $   12,738    $   -      $ 12,738
                                          ------------------------------------



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


See accompanying notes to financial statements.
                                                                      15

<PAGE>


                                       EMERALD CAPITAL INVESTMENTS, INC.
                                           (A Development Stage Company)



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



Disclosure of noncash transactions
During the year ended  December  31,  1995,  the Company  sold its wholly  owned
subsidiaries  in exchange  for a  receivable  of $30,000.  This  receivable  was
subsequently collected during 1996.

Supplemental disclosures of cash flow information:


                                           Year Ended
                                            December         Cumulative
                                    ------------------------
                                        1996        1995      Amounts
                                    ------------------------------------

Cash paid during the year for:

      Interest                      $      -    $      -    $      -           
                                    ------------------------------------

      Income taxes                  $      -    $      -    $      -           
                                    ------------------------------------





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


See accompanying notes to financial statements.
                                                                      16

<PAGE>


                                       EMERALD CAPITAL INVESTMENTS, INC.
                                           (A Development Stage Company)

                                           Notes to Financial Statements

                                              December 31, 1996 and 1995
------------------------------------------------------------------------------


1. Summary of Significant Accounting Policies

Organization

Emerald Capital Investments,  Inc. (the Company) was organized under the laws of
the state of  Delaware  on March 22,  1989.  On January  10,  1994,  the Company
entered into an agreement  whereby the Company  issued  1,862,427  shares of its
common  stock for all of the issued and  outstanding  shares of Waste  Reduction
Technologies,  Inc.,  (WRTI) and its wholly owned  subsidiary  Continental  Tire
Recycles, Inc. (CTR).


Effective  December  29, 1995 the  Company  sold its common  stock of WRTI.  The
Company  ultimately  received  $30,000 cash from the sale of the WRTI stock. The
purchaser  was a company in which a  shareholder  and former  officer of Emerald
Capital, Inc., is a part owner.


The 1995 financial  statements  reflect the operations and net assets of WRTI as
discontinued operations and net assets of discontinued operations.


Effective  with the sale of WRTI on December  29,  1995,  the  Company  became a
development stage company. There were no transactions in the period December 29,
1995 through  December 31, 1995.  The Company is considered a development  stage
Company as defined in SFAS No. 7. The Company  has, at the  present,  time,  not
paid any dividends and any dividends  that may be paid in the future will depend
upon the financial requirements of the Company and other relevant factors.


Loss Per Common Share
Loss per share of  common  stock is  calculated  based on the  weighted  average
number of shares  outstanding  during each year. Stock options were not included
in the calculation of loss per share as the effect would be antidilutive.


Cash and Cash Equivalents
For purposes of the  statement of cash flows,  the Company  considers all highly
liquid debt instruments  purchased with a maturity of three months or less to be
cash equivalents.


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



                                                                      17

<PAGE>


                                       EMERALD CAPITAL INVESTMENTS, INC.
                                           (A Development Stage Company)
                                           Notes to Financial Statements
                                                               Continued

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



1. Summary of Significant Accounting Policies Continued

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  disclosure  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.


2. Going Concern

The   accompanying   consolidated   financial   statements  of  Emerald  Capital
Investments,   Inc.,  have  been  prepared  on  a  going-concern   basis,  which
contemplates  profitable  operations and the  satisfaction of liabilities in the
normal course of business.  There are uncertainties that raise substantial doubt
about the ability of the Company to continue as a going concern. As shown in the
consolidated statement of operations, the Company reported a net loss of $10,597
for the year ended December 31, 1996.


The Company's  continuation  as a going concern is dependent upon its ability to
develop  sufficient  cash  flows for  operations  to meet its  obligations.  The
financial  statements do not include any adjustments  that might result from the
outcome of these uncertainties.


3. Discontinued Operations

During 1994, the Company entered into an agreement to purchase WRTI and CTR (see
note 1). During 1995, the Company  determined that it appeared unlikely that the
subsidiaries would succeed. In addition, the buyer of the subsidiaries agreed to
purchase all of the assets and assume the  obligations  and  commitments  to the
Company in connection with the franchise agreements in exchange for $30,000.



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



                                   18

<PAGE>


                                       EMERALD CAPITAL INVESTMENTS, INC.
                                           (A Development Stage Company)
                                           Notes to Financial Statements
                                                               Continued

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



3. Discontinued Operations Continued

Condensed financial  information of discontinued  operations for the years ended
December 31, 1995 are as follows:


Revenues                               $  1,093,283
Expenses                                  2,331,477
                                       ------------

Net loss                               $ (1,238,194)
                                       ------------



4. Warrants

Pursuant to an  underwriting  agreement for a Company stock  offering in a prior
year, the Company has issued 13,156  warrants to the underwriter to purchase one
share of  common  stock  for each  warrant  at a price of $.125  per  share.  At
December 31, 1996, no warrants had been exercised.


5. Common Stock

Stock Issuance

During the year ended  December 31, 1995,  the Company  issued 160,900 shares of
restricted  common stock in a private  placement  to investors at  approximately
$1.00 per share. The Company also issued 302,911 of common stock for services.


6. Related Party Transactions

During 1995,  the Company sold its 100%  interest in WRTI to a company which has
an officer and  shareholder  who is a former officer and  shareholder of Emerald
Capital Investments, Inc.

During 1995, as an incentive to related parties and officers to provide personal
guarantees for security of the Company's  line of credit,  the Company agreed to
issue to them an aggregate of 45,000  shares of the  Company's  common stock and
provided options to purchase  additional common stock. In addition,  the Company
also  agreed to issue to an officer  and two  related  parties an  aggregate  of
27,000  shares of the  Company's  common stock as an  incentive  for loaning the
Company $150,000. individuals also received stock options (see note 8).



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



                                   19

<PAGE>


                                       EMERALD CAPITAL INVESTMENTS, INC.
                                           (A Development Stage Company)
                                           Notes to Financial Statements
                                                               Continued

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



7. Income Taxes

The difference  between income taxes at statutory rates and the amount presented
in the  financial  statements  is the increase in the tax  valuation  allowance,
which offsets the income tax benefit for the operating loss.


Deferred tax assets are as follows:


                                           1996
                                       ------------

Operating loss carryforward            $    882,000
Valuation allowance                        (882,000)
                                       ------------

                                       $       -
                                       ------------



As of December 31, 1996,  the Company had a net operating loss  carryforward  of
approximately  $2,593,000  available  to offset  future  income  for  income tax
reporting  purposes.  This amount  begins to expire in 2004.  The ability of the
Company to utilize  the net  operating  loss is  dependent  upon the tax laws in
effect at the time such loss carryforwards can be utilized.


8. Stock Options

As part of the  private  placement  the  Company  issued  2,502,566  options  to
purchase one share each of the  Company's  common  stock for $1.00.  The options
expire two years from the date of issuance.  No options  have been  exercised at
December 31, 1996.


The Company has issued stock options to certain  officers and related parties as
an incentive for them to loan the Company an aggregate of $150,000 and provide a
personal guarantee for the line of credit.  Options under these agreements total
202,500 options. The option price is $.75 per share and expires in 1999.



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



                                   20

<PAGE>


                                       EMERALD CAPITAL INVESTMENTS, INC.
                                           (A Development Stage Company)
                                           Notes to Financial Statements
                                                               Continued

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



9. Stock Based Compensation

In October 1995, the Financial  Accounting  Standards Board issued  Statement of
financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation"  (FAS 123) which  established  financial  accounting and reporting
standards for stock-based  compensation.  The new standard  defines a fair value
method of accounting for an employee stock option or similar equity  instrument.
This statement gives entities the choice between  adopting the fair value method
or  continuing  to use the intrinsic  value method under  Accounting  Principles
Board (APB) Opinion No. 25 with footnote disclosures of the pro forma effects if
the fair value method had been adopted. The Corporation has opted for the latter
approach. Accordingly, no compensation expense has been recognized for the stock
option plans. Had compensation  expense for the Corporation's  stock option plan
been determined based on the fair value at the grant date for awards in 1996 and
1995 consistent with the provisions of FAS No. 123, the Corporation's results of
operations would have been reduced to the pro forma amounts indicated below:


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

Net loss - as reported                $           $   (860,846)
Net loss - pro forma                  $           $ (3,363,412)
Earnings per share - as reported      $      -    $       (.15)
Earnings per share - pro forma        $      -    $       (.59)
                                    ---------------------------



The fair value of each option  grant is estimated in the date of grant using the
Black-Scholes option pricing model with the following assumptions:

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

Expected dividend yield                 $           $      -           
Expected stock price volatility               -         410%
Risk-free interest rate                       -         4.5%
Expected life of options                      -        2 years
                                       ------------------------



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



                                   21

<PAGE>


                                       EMERALD CAPITAL INVESTMENTS, INC.
                                           (A Development Stage Company)
                                           Notes to Financial Statements
                                                               Continued

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




The weighted average fair value of options granted during 1995 was $1.00.

9. Stock Based

The following table summarizes information about fixed stock options outstanding
at December 31, 1996:


                              Options Outstanding    Options Exercisable
                             ---------------------------------------------
                           Weighted
                            Average
             Number        Remaining     Weighted     Number       Weighted
Range of   Outstanding    Contractual     Average   Exercisable     Average
Exercise       at            Life        Exercise       at         Exercise
 Prices     12/31/96       (Years)        Price      12/31/96        Price
------------------------------------------------------------------------------

$ .75        202,500        3.0        $   .75        202,500      $  .75
 1.00      2,502,566        0.5           1.00      2,502,566        1.00
------------------------------------------------------------------------------

$ .75 to   2,705,066       $.69        $   .98      2,705,066      $  .98
  to 1.00
------------------------------------------------------------------------------



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



                                   22

<PAGE>


                                       EMERALD CAPITAL INVESTMENTS, INC.
                                           (A Development Stage Company)
                                           Notes to Financial Statements
                                                               Continued

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




ITEM 8.      DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

   None.

                                PART III

ITEM 9.      DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.

     A.  Identification  of Directors.  Background  information  concerning  the
Company's officers and directors is as follows:

Name                       Age                      Position

Frank H. Ross, III         51                 CEO/President/
                                         Treasurer /Director

Douglas P. Morris          41             Secretary/Director

Henry O'bartuch, II        48                       Director

     Frank H. Ross, III. Mr. Ross is a founder of WRTI.  Since 1973, he has been
the  president  of  Ross-Payne  &  Associates,   a  business   consulting   firm
specializing  in the management of construction  and heavy equipment  companies.
Mr. Ross has been an officer and director of the Company since March 5, 1994.

     Douglas P. Morris. Mr. Morris, is and has been since 1988, the owner of H &
M Capital  Investments,  Inc. a privately-held  business  consulting firm. H & M
Capital  Investments,  Inc. is engaged in  consulting  with  privately-held  and
publicly-held  companies  relating  to  management,  debt  financing  and equity
financing.  Mr. Morris is the president of Celtic  Investment,  Inc., a publicly
held company engaged in the financial  services  business.  Mr. Morris is also a
director of Beacon Capital Investment,  Inc. and Dauphin  Technology,  Inc. From
1984, to 1988, Mr. Morris was self-employed in managing his own investments. Mr.
Morris received his Masters Degree in Public Administration at the University of
Southern  California  in 1982,  and his  Bachelor  of Arts  Degree  in  Judicial
Administration from Brigham Young University in 1978.

     Henry O'bartuch,  II. Mr. O'bartuch was appointed a director of the Company
in January  1996.  Mr.  O'bartuch  owns and operates a funeral home  business in
Chicago, Illinois.

   B.             Significant Employees.  None


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



                                   23

<PAGE>


                                       EMERALD CAPITAL INVESTMENTS, INC.
                                           (A Development Stage Company)
                                           Notes to Financial Statements
                                                               Continued

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



   C.             Family Relationships.  None

   D.             Compliance with Section 16(a).  The Company is not subject to
Section 16 of the Exchange Act.

ITEM 10.    EXECUTIVE COMPENSATION

   The following table sets forth the aggregate compensation paid by the Company
for services  rendered  during the last three  calendar  years to the  Company's
Chief Executive Officer and other executive officers.

<TABLE>
<CAPTION>

                                                         Long Term Compensation
                            Annual Compensation        Awards               Payouts
Name                                       Other
and                                        Annual   Restricted                        All Other
Principal                                  Compen-  Stock        Options/   LTIP       Compen-
Position                 Year Salary Bonus sation   Award(s)     SARs       Payouts    sation
<S>                      <C>  <C>    <C>   <C>      <C>          <C>        <C>        <C>

Frank Ross, III          1996  -0-     -0-   -0-      -0-         -0-        -0-        -0-
CEO/President            1995 $34,616  -0-   -0-      -0-         -0-        -0-        -0-
                         1994 $66,925  -0-   -0-      -0-         -0-        -0-        -0-

Thomas J. Katsoulis(2)   1996  -0-     -0-   -0-      -0-         -0-        -0-        -0-
Former President         1995  -0-     -0-   -0-      -0-         -0-        -0-        -0-
                         1994 $106,925 -0-   -0-      -0-         -0-        -0-        -0-

William G. Holmes(3)     1996  -0-     -0-   -0-      -0-         -0-        -0-        -0-       
Former Executive V.P.    1995  -0-     -0-   -0-      -0-         -0-        -0-        -0-
                         1994 $122,669 -0-   -0-      -0-         -0-        -0-        -0-

Douglas P. Morris (4)    1996  -0-     -0-   -0-      -0-         -0-        -0-        -0-
Secretary                1995  -0-     -0-  $8,000    -0-         -0-        -0-        -0-
                         1994  -0-     -0- $10,000    -0-         -0-        -0-        -0-

</TABLE>

(1)  Mr.  Ross was  appointed  a  director  and Chief  Financial  Officer of the
     Company in March 1994.  In January  1995,  Mr. Ross was  appointed  CEO and
     President of the Company.  Pursuant to his Employment  Agreement.  Mr. Ross
     earned a monthly salary of $10,000. However, due to the financial condition
     of the Company,  Mr. Ross was only paid $34,616 in total salary  during the
     year ended  December  31,1995.  The liability for the balance of the salary
     was  eliminated  in the  transaction  wherein WRTI and CTR were sold by the
     Company.  In March 1994, the Company granted Mr. Ross an Option to purchase
     833,333 shares of the Company's common stock at $.05 per share. Such option
     was subject to certain conditions and was not exercisable in 1994. In 1995,
     such option was canceled  pursuant to the  agreement of the Company and Mr.
     Ross. During 1994, Mr. Ross was issued options to purchase 67,500 shares of
     the  Company's  common stock at a $1.00 per share for loans and  guarantees
     and not as compensation  for services  rendered.  During 1995, Mr. Ross was
     assigned  416,081  shares of common  stock  from  former  officers  and was
     granted options by the Company to purchase  478,176 shares of the Company's
     common stock at $.75 per share. Such shares and options were not issued for
     services rendered but related to financing matters.

(2)  Mr. Katsoulis was appointed a director and  President/CEO of the Company in
     March 1994.  Subsequently  Mr. Katsoulis  resigned as  President/CEO  and a
     director of the  Company.  Mr.  Katsoulis  had  previously  entered into an
     Employment  Agreement  with the Company but such  agreement was  terminated
     pursuant to the agreement of the Company and Mr. Katsoulis.  In March 1994,
     the Company granted Mr.  Katsoulis an Option to purchase  833,334 shares of
     the

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

                                      24

<PAGE>


                                       EMERALD CAPITAL INVESTMENTS, INC.
                                           (A Development Stage Company)
                                           Notes to Financial Statements
                                                               Continued

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



     Company's common stock at $.05 per share. Such option was not exercisable 
     in 1994. In 1995, such option was canceled pursuant to the agreement of the
     Company and Mr. Katsoulis.

(3)  Mr.  Holmes was appointed a director and  executive  vice  president of the
     Company in March 1994.  In March 1994,  the Company  granted Mr.  Holmes an
     option to purchase 833,333 shares of the Company's common stock at $.05 per
     share.  Such  option  was  subject  to  certain   conditions  and  was  not
     exercisable  in 1994.  In 1995,  such option was  canceled  pursuant to the
     Agreement of the Company and Mr. Holmes. Mr. Holmes is no longer an officer
     or director of the Company.

(4)  Mr.  Morris  was  president  of the  Company  until  March 5,  1994.  He is
     currently a director and the secretary of the Company.  Mr. Morris was paid
     $8,000 as cash  compensation by the Company during 1995. In March 1994, the
     Company  granted  Mr.  Morris an option to purchase  350,000  shares of the
     Company's  common  stock at $.05 per  share.  Such  option  was  subject to
     certain  conditions and was not  exercisable in 1994. In 1995,  such option
     was  canceled  pursuant to the  agreement  of the  Company and Mr.  Morris.
     During 1994. Mr. Morris was issued options to purchase 67,500 shares of the
     Company's  common stock at $1.00 per share in  consideration  for loans and
     guarantees  and not as  compensation  for services  rendered.  In 1995, Mr.
     Morris was assigned  159,593 shares of the Company's  common stock from two
     former officers and was granted options by the Company to purchase  202,500
     shares of common stock in  connection  with  financing  matters and not for
     services rendered.

Stock Options Granted in the Last Fiscal Year

      No stock options were granted to management  during 1996. During 1995, the
Company  granted  Douglas P. Morris an option to purchase  202,500 shares of the
Company's  common  stock and Frank H. Ross,  III an option to  purchase  478,176
shares of the  Company's  common  stock in  consideration  for loans made to the
Company by these  individuals and for their guarantee of certain bank financing.
These options were not issued for services rendered.

Aggregate Option Exercises and Number/Value of Unexercised Options

      The  following  table  provides  information  concerning  the  exercise of
options during the last fiscal year by persons named in the Summary Compensation
Table,  the number of unexercised  options held by such person at the end of the
last fiscal year, and the value of such unexercised options as of such date:

<TABLE>
<CAPTION>
                                                      Nature of                Value of Unexercised
               Shares Acquired   Values          Unexercised Options          In-the Money Options
Name           on Exercise (#)  Realized ($)        at 12/31/96                at 12/31/96(1)
---------------------------------------------------------------------------------------------------------
                                                 Exercisable  Unexercisable   Exercisable  Unexercisable
<S>                 <C>           <C>            <C>              <C>            <C>          <C>

Douglas P. Morris   -0-           -0-            470,000(2)       -0-            -0-          -0-
Frank H. Ross, III  -0-           -0-            545,676(3)       -0-            -0-          -0-

</TABLE>


      (1) An "In-the-Money" stock option is an option for which the market price
      of the Company's  Common Stock  underlying the option on December  31,1996
      exceeded the option  exercised  price. At December  31,1996,  there was no
      market for the Company's securities.

      (2) Mr. Morris was granted  200,000 of these options in 1992, all of which
      are exercisable at $.25 per share and which carry piggy back  registration
      rights such 200,000  options expire December 31, 1996. In 1994, Mr. Morris
      was  granted  an option  to  purchase  30,000  share at $1.00 per share as
      additional  consideration  for a loan he made to the Company.  Such option
      expires  December 31, 1998. In 1994, Mr. Morris was also granted an option
      to purchase 37,500 shares of the Company's common stock at $1.00 per share
      as  additional  consideration  for his personal  guarantee of a bank loan.
      Such option expires

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



                                      25

<PAGE>


                                       EMERALD CAPITAL INVESTMENTS, INC.
                                           (A Development Stage Company)
                                           Notes to Financial Statements
                                                               Continued

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



      March 31,  1998.  In 1995,  Mr.  Morris was  granted  options to  purchase
      202,500  shares  of the  Company's  common  stock  at $.75  per  share  in
      consideration for loans and loan guarantees. Such options expire in 1999.

      (3) In 1994,  Mr. Ross was granted an option to purchase  30,000  share at
      $1.00  per  share as  additional  consideration  for a loan he made to the
      Company. Such option expires December 31, 1998. In 1994, Mr. Ross was also
      granted an option to purchase 37,500 shares of the Company's  common stock
      at $1.00 per share as additional  consideration for his personal guarantee
      of a bank loan.  Such option expires March 31, 1998. In 1995, Mr. Ross was
      granted options to purchase  478,176 shares of the Company's  common stock
      at $.75 per share in  consideration  for loans and loan  guarantees.  Such
      options expire in 1999.

Compensation of Directors

      The Company's  non-employee  directors are not paid for Board of Directors
Meeting attended.

ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      A. Security  Ownership of Certain  Beneficial  Owners. The following table
sets  forth   information   regarding  shares  of  the  Company's  common  stock
beneficially owned as of March 30, 1997 by: (1) each officer and director of the
Company; (ii) all officers and directors as a group; and (iii) each person known
by the Company to beneficially  own 5 percent or more of the outstanding  shares
of the Company's common stock.

      Name and Address of         Amount and Nature of            Percent of
      Beneficial Owner        Beneficial Ownership(1)          Class Ownership

      Douglas P. Morris(2)               746,259                     11%
      330 East Main Street
      Second Floor
      Barrington, Illinois 60010-3218

      Frank H. Ross, III(3)            1,526,969                     22%
      536 Eton Drive
      Barrington, IL 60010

      Henry O'bartuch, II(4)             499,334                      7%
      150 South Dundee Road
      East Dundee, IL 60118

      All Officers and
      Directors as a
      Group (3 persons)                2,772,562                     39%

(1)  There were  5,808,698  shares issued and  outstanding as of March 30, 1997.
     For  purposes  of  disclosure  of shares  outstanding  and shares  owned by
     persons listed above,  all shares  issuable within 60 days are deemed to be
     issued and outstanding  pursuant to rules and regulations of the Securities
     and  Exchange  Commission.  Currently,  the  above-referenced  persons  own
     options to  purchase  1,265,343  shares  which are  currently  exercisable.
     Therefore,  for the sole  purpose of the above set forth  chart,  there are
     deemed to be 7,074,041 shares issued and outstanding.


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                                      26

<PAGE>


                                       EMERALD CAPITAL INVESTMENTS, INC.
                                           (A Development Stage Company)
                                           Notes to Financial Statements
                                                               Continued

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(2)  A total of 276,259 of these shares are shares owned of record by Mr. Morris
     or his  affiliates.  The remaining  470,000  shares listed as own relate to
     currently exercisable options to purchase 470,000 shares.

(3)  A total of 981,293 of these  shares are shares owned of record by Mr. Ross.
     The remaining  545,676 shares listed above relate to currently  exercisable
     options to purchase 545,676 shares.

(4)  A total of  249,667  of these  shares  are  shares  owned of  record by Mr.
     O'bartuch.  The remaining  249,667  shares listed above relate to currently
     exercisable options to purchase 249,667 shares.


      B.    Security Ownership of Management.  See Item 11(a) above.

     C.  Changes  in  Control.   No  changes  in  control  of  the  Company  are
contemplated.  The Company is seeking  acquisitions  of other  companies.  If an
acquisition is effected,  of which there can be no assurance,  the Company would
likely issue such number of shares to the owners of the acquired  company  which
would give them control of the Company.

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      On November 7, 1994,  the  Company  borrowed a total of $150,000  from two
directors  and one  shareholder  of the Company.  The Company  needed  immediate
capital to fund its operations  and was unable to obtain bank financing  without
an addition infusion of capital. As additional  consideration for such loan, the
Company  issued  9,000  shares of its common  stock to each Frank H. Ross,  III,
Douglas P. Morris and James G.  Blackburn  and granted each of them an option to
purchase  30,000  shares of the  Company's  common stock at $.75 per share.  The
options expire  December 31, 1998.  This loan was secured by the assets of Waste
Reduction  Technologies,  Inc. The loan was extended three  additional  quarters
during 1995. Each extension resulted in a grant of an additional 9,000 shares of
common stock and an option to purchase 30,000 shares of common stock for each of
these individuals. The additional options expire December 31, 1999. The loan was
deemed  repaid and the security  interest was  released in  connection  with the
Company's 1995 recapitalization plan which included the sale of WRTI and CTR.

      On December 22, 1994, the Company  obtained a line of credit from Bank One
in the amount of $250,000. Bank One agreed to provide the line of credit only if
the Board  members  would  personally  guarantee  the  loan.  Three of the Board
Members and Mr. James G.  Blackburn,  a  shareholder  of the Company,  agreed to
guarantee the line of credit in  consideration  of the Company  granting certain
options to them and issuing shares of the Company's common stock to them. On the
basis of the Company's  inducements,  the personal guarantees were given and the
line of credit was obtained.  The Company needed to obtain  additional  funds in
order to continue  its  operations.  As  consideration  for Frank H. Ross,  III,
Douglas P. Morris and James G. Blackburn  guaranteeing such line of credit,  the
Company  issued each of them 11,250  shares of the  Company's  common  stock and
options to purchase  37,500 shares of the  Company's  common stock at a price of
$.75 per share. The Options expire March 31, 1999. The personal  guarantees were
extended three  additional  quarters during 1995.  Each extension  resulted in a
grant of an  additional  11,250 shares of common stock and an option to purchase
37,500 shares of common stock for each of these individuals. The

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                                      27

<PAGE>


                                       EMERALD CAPITAL INVESTMENTS, INC.
                                           (A Development Stage Company)
                                           Notes to Financial Statements
                                                               Continued

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additional  options expire December 31, 1999. These guarantees were released and
the  line  of  credit  paid in  connection  with  the  Company's  December  1995
recapitalization plan.

     7. In 1993, Douglas P. Morris, the current president of the Company, loaned
$25,000  to the  Company  to  enable  it to repay  certain  liabilities  and for
professional  fees.  Such loan was due on demand and had an interest rate of 10%
per annum.  In 1994,  Mr. Morris  converted this loan into 100,000 shares of the
Company's  common stock.  Mr. Morris  subsequently  sold such 100,000  shares of
common stock to James G. Blackburn at $.10 per share in a private transaction.

     During 1993,  Douglas P. Morris  purchased  50,000  shares of the Company's
common stock for an aggregate of $15,000.  The sale of such shares was part of a
private placement of 166,667 shares for $50,000.  The offering proceeds was used
to  repay  certain  liabilities  of the  Company  related  to  the  Ho Lee  Chow
operations.

      On March 15, 1994,  Mr. Ross became an employee of the  Company.  Prior to
this date,  Mr. Ross  provided  financial  services  to the Company  through the
consulting firm of Ross-Payne & Associates, Inc. Fees for services rendered from
September,  1993  through  march 14,  1994  amounted  to  $43,420.  The  Company
continues to utilize the  capabilities  of Ross-Payne & Associates,  Inc. in the
areas of accounting,  marketing,  and  administrative  services.  Fees for these
services for the calendar year 1994 amounted to $39,505.

Sale of WRTI and CTR

      In December  1995,  the  Company  completed a  recapitalization  plan.  In
connection with the plan, the Company sold its shares of WRTI and CTR to a group
of Buyers,  one of which was William Holmes,  who, at the time of such sale, was
an officer and director of the Company.  (See "Item 1.") In connection with this
transaction  and the  forgiveness  of certain debt owed to secured  creditors of
WRTI and CTR, Mr. Holmes  transferred all 620,809 of his shares of the Company's
common stock to the following secured creditors of the Company:

            Frank H. Ross, III             259,281
            Douglas P. Morris               78,593
            Bruce Johnson                   78,593
            Bill Pragalz                    78,593
            James Blackburn                 78,593
            Kirk Ferguson                   47,156

      The plan also included the  assignment of 350,000  shares of the Company's
common stock owned by Thomas F. Katsoulis, a former officer and director, to the
above referenced  persons as additional  consideration  of their  forgiveness of
debt owed by the Company. Such shares were assigned to the following persons:



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                                      28

<PAGE>


                                       EMERALD CAPITAL INVESTMENTS, INC.
                                           (A Development Stage Company)
                                           Notes to Financial Statements
                                                               Continued

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            Frank H. Ross, III             156,800
            Douglas P. Morris               81,000
            Bruce Johnson                   81,000
            Bill Pragalz                    12,000
            James Blackburn                 12,000
            Kirk Ferguson                    7,200

      In 1995,  the Company  issued  approximately  308,000  shares of stock for
services  which  had  been  rendered  in 1994 in  connection  with  the  initial
acquisition of WRTI by the Company and with a private placement of the Company's
securities.  A total of 250,257 of such shares were issued to ACAP Financial for
fees in the Company's 1994 private  placement.  A total of 58,584 of such shares
were issued to James  Blackburn for finders fees related to the  acquisition  of
WRTI in 1994.  These  shares were  authorized  for issuance in 1994 but were not
actually issued until 1995.

                                    PART IV

ITEM 13.      EXHIBITS AND REPORTS ON FORM 8-K

      A.    Exhibits.

     3.1 Certificate of Incorporation - incorporated by reference to Exhibit 3.1
to Registration Statement on Form S-18 (SEC File No. 33-30365-C)

     3.2 Bylaws -  incorporated  by  reference  to Exhibit  3.2 to  Registration
Statement on Form S-18 (SEC File No. 33-30365-C).

     10.1 Agreement and Plan of  Reorganization  - incorporated  by reference to
Form 8-K filed  March 7,  1994.  This  Agreement  pertains  to the  Registrant's
acquisition of Waste Reduction Technology, Inc.

     10.2 Stock Acquisition Agreement. Attached.

     B. The  Company  filed no Form 8-K's  during  the  quarter  ended  December
31,1996.

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                                      29

<PAGE>


                                       EMERALD CAPITAL INVESTMENTS, INC.
                                           (A Development Stage Company)
                                           Notes to Financial Statements
                                                               Continued

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                                  SIGNATURES


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

                                    EMERALD CAPITAL INVESTMENTS, INC.



Date: April 15, 1997                By: /s/ Frank H. Ross, III
                                        ----------------------
                                                Frank H. Ross, III
                                                Principal Executive
                                                Principal Financial Officer

      In  accordance  with the Exchange  Act, this Report has been signed by the
following  persons on behalf of the  Registrant and in the capacities and on the
dates indicated:

Signature                     Capacity                      Date


/s/ Frank H. Ross, III        President/ CEO
Frank H. Ross, III            Treasurer/Director            April 15, 1997


/s/ Douglas P. Morris         Secretary/Director            April 15, 1997
Douglas P. Morris


/s/ Henry O'bartuch, II             Director                April 15, 1997
Henry O'bartuch, II

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