SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)

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

                   For the Fiscal Year Ended December 31, 1997

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

        For the transition period from ______________ to _______________.

                           Commission File No. 0-23900

                             IDM ENVIRONMENTAL CORP.
                    -------------------------------------------
                (Name of registrant as specified in its charter)

            New Jersey                                          22-2194790
     ------------------------                             ----------------------
 (State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                            Identification Number)


               396 Whitehead Avenue, South River, New Jersey 08882
             --------------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Include Area Code:  (732) 390-9550

Securities Registered Pursuant to Section 12(b) of the Act:

    Title of Each Class                Name of Each Exchange on Which Registered
   --------------------               ------------------------------------------
         None                                           None

Securities Registered Pursuant to Section 12(g) of the Act:

                          Common Stock, $.001 par value
                                Class A Warrants
                         -------------------------------
                                (Title of Class)

     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 ninety (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]

     17,704,935  shares of common stock of the Registrant were outstanding as of
April 9, 1998.  As of such date,  the  aggregate  market value of the voting and
non-voting common equity held by  non-affiliates,  based on the closing price on
the Nasdaq National Market, was approximately $58,400,000.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's  definitive annual proxy statement to be filed
within 120 days of the  Registrant's  fiscal  year ended  December  31, 1997 are
incorporated by reference into Part III.

<PAGE>



                                TABLE OF CONTENTS

                                                                           Page
                                                                          ------

PART I

         ITEM 1.  BUSINESS..................................................   1
         ITEM 2.  PROPERTIES................................................  16
         ITEM 3.  LEGAL PROCEEDINGS ........................................  17
         ITEM 4.  SUBMISSION OF MATTERS TO A VOTE
                  OF SECURITY HOLDERS.......................................  18

PART II

         ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY
                  AND RELATED STOCKHOLDER MATTERS...........................  18
         ITEM 6.  SELECTED FINANCIAL DATA...................................  20
         ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS
                  OF FINANCIAL CONDITION AND RESULTS
                  OF OPERATIONS.............................................  21
         ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
                  ABOUT MARKET RISK.........................................  30
         ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............  31
         ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH
                  ACCOUNTANTS ON ACCOUNTING AND
                  FINANCIAL DISCLOSURE......................................  31

PART III

         ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
                  REGISTRANT...............................................   31
         ITEM 11. EXECUTIVE COMPENSATION...................................   31
         ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                  OWNERS AND MANAGEMENT....................................   31
         ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
                  TRANSACTIONS.............................................   31
         ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
                  REPORTS ON FORM 8-K......................................   31

SIGNATURES


<PAGE>


                                     PART I

     This Form 10-K contains  forward-looking  statements  within the meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange Act of 1934. The Company's actual results could differ  materially from
those set forth in the  forward-looking  statements.  Certain factors that might
cause such a difference are discussed in the section  entitled  "Certain Factors
Affecting Future Operating Results" beginning on page 29 of this Form 10-K.

ITEM 1.  BUSINESS

     IDM Environmental  Corp. (the "Company") is a global  diversified  services
company  offering a broad range of design,  engineering,  construction,  project
development and management,  and environmental  services and  technologies.  The
Company,  through its domestic and  international  affiliates and  subsidiaries,
offers  services and  technologies  in three  principal  areas:  Energy  Project
Development  and  Management,  Environmental  Remediation  and Plant  Relocation
Services.

     The Company's energy project  development and management  services ("Energy
Services")  are  provided  through  IDM  Energy  Corporation  and local  project
subsidiaries.  The Company  actively  entered the Energy Services market in 1997
and  expects  to begin  construction  of  energy  facilities  during  1998  with
operating  energy  facilities  expected to be  connected to the local grid in El
Salvador  by 1999.  The  Company  is  aggressively  pursuing  additional  energy
facility "build, own and operate" opportunities in Asia, Eastern Europe, Central
and South  America and expects to bring  additional  energy  facilities  on-line
beginning in 1999. Energy Services offered by the Company include project design
and development,  engineering, finance, ownership and, soon to be, operation for
conventional and other energy projects.

     The Company's  environmental  remediation  services,  the  historical  core
business of the Company,  encompass a broad array of  environmental  consulting,
engineering and remediation  services with an emphasis on the "hands-on"  phases
of  remediation  projects.  The Company is a leading  provider  of  full-service
turnkey  environmental  remediation and plant  decommissioning  services and has
established  a track  record of safety  and  excellence  in the  performance  of
projects for a wide range of private  sector,  public  utility and  governmental
clients  worldwide.  Additionally,  the Company has melded its core expertise in
engineering,  decommissioning  and  dismantlement  services  in  environmentally
sensitive settings to establish a position in the forefront of the nuclear power
plant decommissioning, site remediation and reindustrialization market.

     The  Company's  plant  relocation  services  encompass  a  broad  array  of
non-traditional  engineering projects,  with an emphasis on plant dismantlement,
relocation and reerection.  The Company has established itself as a world leader
in plant relocation services employing a proprietary,  integrated  matchmarking,
engineering,  dismantling  and  documentation  program that provide clients with
significant cost and schedule benefits when compared to traditional alternatives
for commencing plant operations.

     The  Company  is a New Jersey  corporation  formed in 1978.  Its  principal
offices are located at 396  Whitehead  Avenue,  South River,  New Jersey  08882,
telephone number (732) 390-9550.

Business Strategy

     The Company's business has evolved,  and continues to evolve, to capitalize
on market  opportunities.  The  Company  has added  strategic  capabilities  and
resources  through the years to move the business from its roots as a demolition
and deconstruction  company to a full service environmental  remediation company
and plant relocation  services company and, now, an energy project developer and
manager.

     In 1997,  the Company began to implement a strategic  plan to capitalize on
the Company's  strengths and market  opportunities  to position the Company as a
global  leader in providing  services and  technologies  in selected high growth
markets  with an emphasis on  developing  recurring  revenue  streams.  The core
elements  of the  Company's  strategic  plan are (1)  aggressive  entry into the
global energy production  development and plant management market, (2) narrowing
the focus of the  Company's  environmental  remediation  services  to  emphasize
specialized services and technologies in high growth, high margin niche markets,
and (3) emphasizing the Company's multi-disciplinary expertise and relationships
to  generate  growth in demand  for the  Company's  plant  relocation  services.
Management  believes that the Company's  ability to respond to  opportunities in
the market and deploy a broad array of technologies and expertise in a rapid and
cost  effective  manner  provides a competitive  advantage to the Company in its
efforts to achieve the elements of its strategic plan.


                                       1


<PAGE>


     Central to the Company's strategy is its commitment to generating long-term
recurring  revenue  streams as a  foundation  for the  Company's  other  project
specific  activities.  International  energy production projects are the core of
the Company's planned  recurring  revenue streams.  The Company's entry into the
energy production market began with the execution of a power purchase  agreement
in El Salvador  pursuant to which the Company  agreed to develop,  construct and
operate an energy production facility and the largest  Salvadorean  distribution
company  agreed to  purchase  energy from such  facility.  The Company has since
entered into preliminary  agreements  pursuant to which the Company's  operating
subsidiary  would  contract  with third  party  sources to  construct  an energy
generation facility,  supply equipment for such facility,  provide financing for
the construction of the facility and provide operations and maintenance services
for the facility.  The Company would own a controlling  interest in the facility
which is expected to generate substantial ongoing revenues and operating profits
to the  Company in  addition to  development  fees which the Company  expects to
realize from the project.  In  conjunction  with the  Company's  initial  energy
project in El  Salvador,  the  Company  expects to develop  expertise  in energy
project  operations  and  maintenance  services  which can be deployed in future
energy projects. Management anticipates that the El Salvador energy project will
begin construction during 1998 and be operational in 1999.

     Management has identified a number of potential  energy projects for future
development and is committed to identifying  additional project opportunities in
the future.  Management believes that one or more of the current energy projects
under  discussion  will  come to  fruition  during  1998  and  1999 and that the
commencement  of operations in El Salvador will add to the Company's  profile as
an energy  project  developer,  owner  and  operator  allowing  the  Company  to
aggressively  pursue  additional  opportunities to add to its recurring  revenue
base from the development and operation of energy projects.

     Within  the  Company's   historical   environmental   remediation  services
offerings,  the  Company  strategy  is to  concentrate  its  efforts  on  highly
specialized  environmental  projects where  competition is less intense,  profit
margins  are  generally  higher  and  proprietary   technology  and  engineering
expertise  are  valued  at a  premium.  With the  growth  and  evolution  of the
environmental  remediation  market  in  the  1990's,  various  segments  of  the
remediation  market  have  reached  maturity  and have become  characterized  by
intense  competition and minimal operating margins.  While the Company continues
to be active in the environmental  remediation  market, the Company expects that
bidding  or  negotiating  of future  remediation  contracts  will be  limited to
special situations in which higher margins can be generated by the deployment of
proprietary  technologies such as the Molecular Bonding Soil Remediation  System
and Life  International  Products'  superoxygenation  bioremediation  technology
licensed by the Company and the utilization of specialized engineering services.
In particular,  the Company is aggressively pursuing opportunities involving the
decommissioning  and remediation of large commercial  nuclear power  facilities,
which market management believes to be in an early growth stage.

     In the plant  relocation  services  area,  the  Company  will  continue  to
emphasize  its ever  broadening  expertise  in an array of  project  engineering
disciplines and the  establishment  of strong  relationships to drive demand for
its services.  With the Company's  historical  record of sourcing,  dismantling,
relocating  and reerecting  process plants and other  facilities as a timely and
cost effective  alternative to the  construction of new  facilities,  management
believes that the demand for such services,  particularly  in growing  economies
outside of the United States and western Europe,  will continue to grow and that
the Company will be a leading provider of those services worldwide.

     Supplementing  its core business  operations,  the Company has historically
sought out, and will continue to seek out,  opportunities  which are  compatible
with the Company's  existing expertise and capabilities to enhance the Company's
recurring and nonrecurring  revenues.  Illustrative of such opportunities is the
Company's acquisition of a license covering the bottling rights and distribution
of the Life International Products'  superoxygenation  process in southeast Asia
which license was acquired after the Company  acquired the rights to utilize the
technology for bioremediation purposes.



                                       2


<PAGE>


Industry Background

     Energy  Services  Industry.  Worldwide,  the energy industry is diverse and
growing increasingly competitive.  Management believes that economic development
in the previously  underdeveloped  nations of Eastern Europe, Asia and South and
Central  America has created,  and will continue to produce,  growing demand for
electrical power in those markets.  While many of the developing nations' energy
needs are served by  various  independent  energy  producers,  distributors  and
state,  municipal and privately owned utilities,  it is management's belief that
the energy needs of many of those nations are not currently met.

     In an effort to capitalize on the perceived growth in demand for electrical
power in developing  nations,  as well as  opportunities to deploy the Company's
proprietary  waste-to-energy technology and inventory of generators, the Company
has actively  entered the energy  market.  The Company has formed  alliances and
entered  into  agreements  with various  strategic  and  financing  partners and
industrial consumers and local governments to construct,  own and operate energy
production  facilities in Eastern European and Central American  markets.  While
other energy  producers  may  currently  serve those markets or enter into those
markets,  the Company has entered into, or expects to enter into Power  Purchase
Agreements  ("PPAs") in each of those markets whereby industrial or governmental
concerns  will  guarantee  the purchase of all or a  substantial  portion of the
energy  produced by such such  facilities.  Management  believes that additional
opportunities  to construct and operate energy  facilities will become available
as the industrialization of underdeveloped countries progresses.

     While management sees substantial opportunities in the international energy
market, that market is subject,  and will continue for the foreseeable future to
be  subject,  to a variety of risks and  uncertainties.  The energy  market is a
niche market which is served by a relatively  small number of large  competitors
operating in multiple markets and having  substantially  greater  resources than
the Company and by many local producers having  established  relationships  with
local industry and government.  In addition to competitive  risks, the operation
of energy facilities and the entry into new markets is subject to local economic
risks which may severely effect the demand for energy and the ability to finance
projects  and  pay  for  energy  production  in  underdeveloped   nations.   See
"Competition - Energy Services."

     Environmental  Services  Industry.  The "hands-on"  environmental  services
industry is a diverse and rapidly  changing  industry.  While the  industry  was
virtually nonexistent prior to the mid-1970's,  the overall worldwide market for
environmental  services has grown  rapidly  over the past two  decades.  Company
management estimates the worldwide environmental services market at $300 billion
for 1997.  Included  within such industry are numerous  specialty areas with the
largest  markets  being in solid waste  handling and disposal,  hazardous  waste
treatment  and  disposal,  air pollution  control,  water supply and  wastewater
treatment and analytical and environmental consulting services.

     The tremendous growth experienced in the 1980's and early 1990's within the
environmental  services  industry was driven by growing  public  concern for and
awareness of environmental issues which was accompanied by extensive legislation
and  governmental  regulation  aimed at protecting the environment and requiring
responsible  parties  to clean up  existing  environmental  hazards.  Since  the
enactment of the Resource  Conservation  and Recovery Act ("RCRA") in 1976,  the
federal   government  and  the  various  state  governments  have  significantly
increased the scope of governmental regulation relating to the environment.  See
"Regulation."

     As a result of the  growing  public  concern for  environmental  issues and
extensive  government  regulation,  virtually  every  industry  must now address
environmental  issues,  both with respect to future  operations as well as prior
operations.  While significant resources are being devoted to reducing pollution
and the discharge of hazardous waste into the environment,  many industries have
devoted,  or are facing the prospect of devoting,  even greater resources to the
clean up of existing hazards created by prior operations, some of which may have
been  terminated  years  earlier.  Such  clean  up  obligations  extend  to  the
remediation of so called "superfund"  sites,  including removal of structures on
such sites,  the  decommissioning,  dismantling and clean up of chemical plants,
nuclear  facilities,   utility  plants  and  other  facilities  where  hazardous
materials are generated and the clean up of facilities  which do not produce but
may use  environmentally  hazardous  materials which may be spilled or otherwise
discharged  into the  environment,  as well as to asbestos  abatement  and other
forms of environmental clean up. See "Environmental Services."



                                       3


<PAGE>


     In addition to private  companies which utilize  environmental  services to
close or clean  facilities  on a voluntary  basis or as a potential  responsible
party  under  government  compulsion,   governmental  agencies,  and  facilities
operated by such agencies,  particularly  the Department of Defense  ("DOD") and
the Department of Energy ("DOE"),  are becoming  larger  consumers of "hands-on"
environmental  services.  Spending  by the  federal  government  for  "hands-on"
environmental programs is expected to increase as a percentage of total funding.
Total funding for these programs in 1997 was approximately $6 billion by DOE and
$5 billion by DOD.  Of this  market,  the value of  "hands-on"  remediation  and
decommissioning services in 1997 was approximately $700 million for DOE and $600
million  for DOD.  In 1998,  the  portion  of the market  devoted to  "hands-on"
services is expected to double. State and local spending, as well as spending by
universities and other research institutions,  on "hands-on" environmental clean
up is also expected to increase.

     As the environmental services industry has grown and matured, the nature of
the  services  provided  and the nature of the service  providers  has  evolved.
Through  the late  1980's,  the  industry  was  largely  focused on early  stage
activities,  including site assessment,  identification of hazards and hazardous
sites, and identification and establishment of responsible parties. While actual
remediation activities took place at various sites, a significant portion of the
resources devoted in the  environmental  field went to consultants and attorneys
and the  number  of  sites  requiring  remediation  continued  to  grow.  Actual
remediation  or site  clean  up have  commanded  a  significant  portion  of the
environmental resources during the 1990's and are expected to continue to be the
focus of resources in the future.

     The rapid growth in demand for environmental services during the 1980's and
early 1990's has attracted many entrants into the environmental services market.
Despite the influx of entrants  into the market,  a  significant  portion of the
market is still controlled by larger architectural  engineering and construction
firms.  Such firms have typically been called in as consultants on large jobs to
plan and  oversee  environmental  operations  but  continue to  subcontract  out
asbestos and hazardous waste remediation, dismantling and demolition operations.
See "Competition."

     With the entry of  increasing  competition,  the market for  certain  labor
intensive low technology services,  such as asbestos abatement,  dismantling and
demolition,  has become saturated  resulting in lower margins in those segments.
Other segments of the market requiring  special skills and technologies have not
experienced  substantial  growth  or  entrance  of  competition  to date but are
expected to experience strong growth over the coming years. The Company believes
that nuclear  facilities  decommissioning  and  remediation  will be the primary
growth market in the environmental services field over the coming years.

     The Company  believes that it is widely  recognized  within the engineering
and industrial world for its expertise in  decontamination,  decommissioning and
dismantling services. The Company has worked with numerous top engineering firms
as well as Fortune 500 companies providing specialty  environmental  services in
the areas of decontamination and decommissioning.

     Plant Relocation  Services  Industry.  The plant  relocation  industry is a
highly  specialized  niche  market  business.  The  Company  believes  that  the
relocation  of  process  plants as a viable  option to  acquisition  or  on-site
construction  of new  facilities  has grown  rapidly  in recent  years  with the
industrialization of underdeveloped  countries,  particularly in Eastern Europe,
Asia and South America. It has been management's experience that the acquisition
and  relocation of existing  facilities can cost one-half or less of the cost of
acquiring  new  facilities.  Additionally,  as most large plants and  facilities
require  substantial  lead  time to  manufacture  and  deliver,  facilities  can
typically be brought operational in a significantly  shorter time period where a
suitable plant can be identified, acquired and relocated as compared to the time
required to manufacture new facilities.

     While  information  as to  the  worldwide  scope  and  size  of  the  plant
relocation  industry is not readily  available,  management  estimates  that the
worldwide  market for such services was in excess of $1 billion during 1997 with
a  substantial  majority of the demand for such  services  being  outside of the
United States.  Management expects that demand for plant relocation  services in
Asia will be  temporarily  curtailed  during  1998 as a result  of the  currency
crisis  experienced in that region during the second half of 1997 and into early
1998.  However,  management  believes that the cost and time benefits associated
with plant relocations will result in strong growth in demand for those services
over the next decade.



                                       4


<PAGE>


     The plant  relocation  market is served  by a variety  of  engineering  and
construction  firms  which  typically  offer  plant  relocation  services  as an
additional service to customers.  Management believes that the Company is one of
the few competitors in the plant relocation  industry offering those services as
a primary service as opposed to an additional service. Because of its experience
in  sourcing  and  relocating   plants  and  its  emphasis  on  providing  plant
relocations as a primary service, management believes that the Company is widely
recognized as a leader in the worldwide plant relocation services market.

Energy Project Development and Management Services

     In 1996,  the Company laid the groundwork for entry into the energy market.
In evaluating the potential markets for the Company's power generation equipment
inventory and  opportunities  for future growth and  establishment  of recurring
revenue streams, management identified the demand for energy in emerging markets
as a  business  opportunity  with the  potential  to meet each of the  Company's
criteria in those regards.

     After  evaluating  various  options  for entry into the  energy  production
market,  the Company acquired a license from Continental Waste Conversion,  Inc.
("CWC") pursuant to which the Company was granted the exclusive worldwide rights
(excluding Canada) to CWC's proprietary gasification technology that can convert
municipal  solid waste into  electrical  energy.  Through that  investment,  the
Company now offers  state-of-the-art  solutions  to  municipal  waste and energy
concerns worldwide. Management believes that this gasification technology offers
a number  of  significant  advantages  over  existing  waste-to-energy  or other
gasification  technologies,  including the production of  substantially  reduced
volumes  of  secondary   waste  ash  and  compliance  with  the  most  stringent
international clean air standards.

     With the  acquisition  of the  rights  to  deploy  the CWC  waste-to-energy
process and a strategic  inventory of surplus  generators,  the Company began to
actively pursue energy  production  opportunities  through the  establishment of
strategic  alliances and discussions  with industrial  concerns and governmental
entities in Central America, Eastern Europe and Asia.

     The Company's  international  energy production  operations and development
activities are anticipated to principally involve the development,  acquisition,
financing, promotion, and management of energy projects in emerging markets. The
objective  of the  Company is to  develop,  finance,  own and manage  integrated
energy projects worldwide through the utilization of the Company's  portfolio of
products and services.

     The  Company's  initial  international  activities  are expected to include
management  of direct and indirect  ownership  interests in and/or  operation of
energy  plants in El Salvador  and the nation of Georgia  and a  waste-to-energy
facility in Taiwan.  The Company,  as of the first quarter of 1998, was involved
in energy projects in early stages of development,  financing or construction in
those  countries.  The following is a brief  description of the Company's energy
projects which are in varying stages of development,  financing or construction;
thus the  information set forth below is subject to change.  In addition,  these
projects  are,  to varying  degrees,  subject to all the risks  associated  with
project development,  construction and financing in foreign countries, including
without  limitation,  the receipt of permits and consents,  the  availability of
project financing on acceptable terms, expropriation of assets, renegotiation of
contracts with foreign governments and political instability, as well as changes
in laws and policies governing operations of foreign-based businesses generally.
Other than as noted below,  there can be no assurances  that these projects will
commence commercial operations.

     El Salvador. The Company, through its wholly-owned  subsidiary,  Empresa de
Poder y Energia de El  Salvador,  S.A.  de C.V.  ("PESA"),  has  entered  into a
15-year power purchase  agreement to provide Compania de Alumbrado  Electrico de
San Salvador,  S.A. de C.V.  ("CAESS"),  a formerly  state-owned  El Salvadorean
electric  power  distribution  company,  with  a  minimum  of  approximately  40
megawatts  (MW) of electric power through the 15-year term. In order to meet the
minimum supply requirements under the agreement,  the Company plans to construct
a  power  generating  plant  with a  capacity  of 45 MW  (the  "Miravalle  Power
Project").



                                       5


<PAGE>




     The Company has entered into an initial  agreement with  Caterpillar  Power
Ventures,  Inc.  and  Caterpillar  Power  Ventures  International,   Ltd.,  both
subsidiaries of Caterpillar,  Inc.  (collectively,  "Caterpillar"),  pursuant to
which it is anticipated  that Caterpillar will participate as an equity investor
and lead  contractor on the  Miravalle  Power  Project.  Subject to execution of
definitive  agreements,  the initial  agreement  provides that  Caterpillar will
acquire a minority interest in the project in exchange for subordinated debt and
equity financing.  Additionally,  Caterpillar will provide turnkey  engineering,
procurement  and  construction  services as well as  operation  and  maintenance
services  for the  project.  The  estimated  capital  cost of the project is $56
million.

     Debt  financing  arrangements  for the balance of the cost of the Miravalle
Power  Project  are  expected  to  be  finalized  during  the  Spring  of  1998.
Construction  of the project is expected to commence  upon  finalizing  the debt
financing  arrangements.  The plant is expected to be operational  within twelve
months after commencement of construction.

     Georgia.  The  Company,  through its  wholly-owned  subsidiary,  IDM Energy
Corporation, in January of 1998, signed a Protocol of Intention ("POI") with the
Ministry for Fuel and Energy ("MFE") of the former Soviet state of Georgia under
which the  Company  will have the right to design,  construct,  own and  operate
electric  power  facilities  in the  region.  Under  the POI,  as  projects  are
selected,  the Company  shall have the  irrevocable  right of first  refusal for
their development. The Company and the MFE are developing an initial thirty five
year power  purchase  agreement  which will  establish the terms for the sale of
electric power from a generating facility or facilities with a capacity of up to
1,000 MW. An  agreement  is  expected to be  finalized  during the first half of
1998.  The Company and the MFE have  identified  eight  potential  projects  and
initial  development  work has  commenced.  The  Company  and the MFE will  also
jointly evaluate the feasibility of erecting high-voltage  transmission lines to
export electrical energy to other countries.

     The  anticipated  capital cost for  construction of facilities with a total
generating  capacity of 1,000 MW is  anticipated to be in the range of $500-$750
million,  dependent on final designs, fuel utilized and the number of facilities
constructed.  Financing  arrangements are expected to commence immediately after
the first  project has been  selected and a power  purchase  agreement  has been
executed.  Construction on such projects is expected to commence upon completion
of financing  arrangements  and commercial  operation is anticipated to commence
within twelve months after commencement of construction.

     Taiwan.  The Company,  through its newly formed  affiliate,  IDM Asia,  and
Five-Nines Technology Company, a leading Taiwanese waste management company, has
signed an  agreement  to jointly  develop a  100-tons-per-day  industrial  waste
processing  and energy  production  facility  in  Taipei,  Taiwan.  The  Company
anticipates  that the  project,  which is  expected  to cost  approximately  $22
million, will be funded through conventional project financing.  Several leading
Taiwanese  financial  institutions have expressed a strong interest in financing
the  project.  The  venture  would be among  the  first  and one of the  largest
privately owned industrial and energy production facilities in Taiwan.

     The Company and  Five-Nines  are  preparing a detailed  plant  design.  The
project is expected to utilize a unique,  proprietary  and  commercially  proven
technology for the treatment of a wide range of waste streams.  Necessary  steps
have been initiated to secure  environmental and regulatory permits. The Company
presently anticipates that preliminary commitments for project financing will be
secured  during the Summer of 1998 and that the facility will be  operational by
the Summer of 1999 subject to receipt of environmental and regulatory permits.

     In  addition  to the  projects  referenced  above,  the Company is actively
pursuing energy projects  elsewhere in Asia,  Eastern Europe,  South and Central
America.

     The  Company's  proposed   non-domestic   operations  are  subject  to  the
jurisdiction  of  numerous  governmental  agencies  in the  countries  in  which
projects  are expected to be located  with  respect to  environmental  and other
regulatory  matters.  Generally,  many of the  countries  in which  the  Company
expects  to do  business  have  recently  developed  or are in  the  process  of
developing  new  regulatory  and legal  structures  to  accommodate  private and
foreign-owned  businesses.  These  regulatory  and  legal  structures  and their
interpretation and application by administrative agencies are relatively new and
sometimes limited.  Many detailed rules and procedures are yet to be issued. The
interpretation  of  existing  rules can also be  expected  to evolve  over time.
Although  the  Company  believes  that its  operations  are,  and  will  be,  in
compliance in all material respects with all applicable  environmental  laws and
regulations in the applicable foreign  jurisdictions,  the Company also believes
that the operations of its proposed projects  eventually may be required to meet
standards  that are comparable in many respects to those in effect in the United
States and in countries  within the  European  Community.  In  addition,  as the
Company acquires additional  projects in various countries,  it will be affected
by the environmental and other regulatory restrictions of such countries.



                                       6


<PAGE>


Environmental Remediation Services

     General. The Company offers a variety of specialized environmental services
with an  emphasis  on plant  decontamination  and  decommissioning.  Many of the
projects undertaken by the Company are "cross-disciplinary" in nature, involving
one or more elements of dismantling,  hazardous waste remediation,  radiological
remediation,  asbestos  abatement,  plant relocation and other related services.
The Company's  services are generally  offered on a "lump sum" basis wherein the
Company bids to perform a complete job for a  predetermined  price or on a "time
and material" basis wherein the Company is paid certain  predetermined hourly or
per day rates for its services  plus a charge for  materials  used.  The Company
also  provides  services  on a fixed fee basis where the Company is paid for all
costs incurred plus a  predetermined  fee or profit margin without regard to the
time required to perform the job.  While the majority of the Company's  projects
are "lump sum" jobs, the Company generally will not bid on such projects without
an in-depth understanding of the scope of such projects.

     Many  contracts  awarded to the  Company  require  the Company to provide a
surety bond.  The Company's  ability to obtain bonding and the amount of bonding
required is determined by the  Company's net worth,  annual  revenues and liquid
working capital and the number and size of jobs being performed.  The larger the
project  and/or the more  projects in which the Company is engaged,  the greater
the Company's bonding,  net worth and liquid working capital  requirements.  The
bonding  requirements  which the Company must satisfy  vary  depending  upon the
nature of the job to be performed.  The Company  generally pays a fee to bonding
companies  which  typically  averages three to four percent of the amount of the
contract to be performed  with the  percentage  decreasing  as the Company's net
worth increases.  Because such fees are generally  payable at the beginning of a
job, the Company must maintain sufficient working capital reserves to permit the
Company  to pay such  fees and  secure  bonding  prior to  commencing  work on a
project. Additionally,  bonding companies will require the Company to provide as
security for the bonding company liquid working capital,  consisting of cash and
accounts  receivable,  in amounts based on the size of the contract in question.
For projects not involving radiological remediation,  the Company must generally
have  available  liquid  working  capital  in an  amount  equal  to 12.5% of the
contract  amount in order to secure  bonding.  With  respect  to jobs  involving
radioactive  materials,  the total bonding available to the Company is generally
based on having  available  liquid working  capital in an amount equal to 20% of
the contract amount.

     Where the  Company  has  adequate  bonding  capacity  to perform a job,  an
experienced member of the Company's management team will analyze the project and
develop  preliminary  plans,  schedules and cost estimates in order to prepare a
bid.  If the  Company  obtains a contract  to perform  the job being bid on, the
management  team,  working  from  the  preliminary  plans,  schedules  and  cost
estimates,  will develop  detailed work plans,  schedules and cost  estimates to
perform the job.  Such  planning  will include  securing  proper  equipment  and
materials and staffing the jobs with properly trained and experienced  personnel
to perform the job in a safe, efficient, competent and timely manner.

     Actual on-site services are supervised by Company employees pursuant to the
detailed plans developed by management.  Work is  subcontracted to third parties
based upon a large number of factors  including safety,  efficiency,  competency
and scheduling.

     In order to assure the safety,  quality  and  timeliness  of the  Company's
projects and to assure the Company's  ability to perform  projects,  the Company
provides extensive training to its entire full-time  workforce and goes to great
efforts to retain its trained workforce, many of whom have been with the Company
since inception.  By maintaining an experienced workforce and cross-training its
dismantlers,    riggers,    ironworkers,    equipment    operators,    laborers,
superintendents  and  foremen  in  OSHA  1910.120  hazardous  waste  procedures,
asbestos  abatement,  radiological  remediation  and other related  skills,  the
Company's  workforce can address  virtually every situation which may arise in a
remediation project. Management believes this level of training and expertise in
each of the major areas of remediation is unique to the Company.  In addition to
stringent  safety and  performance  standards and procedures  implemented by the
Company to assure safety,  quality and  timeliness,  the Company has established
strict  guidelines  for the handling and disposal of hazardous  materials.  Such
guidelines,  which are intended to protect the Company from potential  liability
as a generator or transporter of hazardous  materials,  include strict  policies
that the Company  contract only as an agent for  generators to remediate  sites,
that the Company never signs any waste manifest and that all  transportation  of
hazardous  materials  from  remediation  sites  be  subcontracted  to  qualified
transportation companies with extensive insurance coverage. See "Regulation."



                                       7


<PAGE>


     The Company's  environmental  services are primarily  provided on a project
basis in the areas of plant  dismantling  and  decommissioning,  hazardous waste
remediation, radiological remediation and asbestos abatement.

     Plant    Dismantling   and    Decommissioning.    Plant   dismantling   and
decommissioning is the historical core of the Company's operations and serves as
a foundation  for each of the  Company's  other  specialty  services.  Since its
inception, the Company has provided deconstruction services for numerous Fortune
500 companies with the bulk of such services  being provided in connection  with
the closure of chemical  process  plants.  Where  facilities have been closed or
abandoned due to age, safety  conditions or other factors,  the Company has been
called upon to disassemble such facilities on a piece by piece basis. Unlike the
traditional  destruction of buildings using wrecking balls and  explosives,  the
potential release of toxic chemicals or other hazardous  substances  produced or
present in such  facilities  requires  custom  dismantling  services in order to
assure safety and proper  identification and disposal of contaminated  materials
as well as the safety of the  laborers  involved.  Only  skilled  craftsmen  can
safely dismantle  contaminated  tanks and structures in government  mandated and
regulated personal protective equipment.  The scope and nature of deconstruction
services  provided  is  carefully  planned  based on the  nature of the  subject
facility  and the  contents  thereof as well as the  desires of the owner of the
facility.  Such  services  range from  dismantling  single  buildings  and small
unenclosed  chemical process facilities to the complete  deconstruction of large
manufacturing  facilities  including  multiple  buildings  and all equipment and
machinery within such buildings or on the site.

     The Company typically performs dismantling and decommissioning  services in
conjunction with other  environmental  and/or related services  performed by the
Company or by a team of  providers.  This  multi-disciplinary  team  approach is
expected to expand beyond  decommissioning  and hazardous waste  remediation and
management with the Company's  participation in a consortium with Duke Energy to
decommission,  clean-up and re-industrialize  seven nuclear power plant sites in
Germany. See "Radiological Remediation."

     Hazardous Waste  Remediation.  Hazardous waste remediation  encompasses the
clean  up  of  a  broad  range  of  hazardous   materials.   The   Comprehensive
Environmental  Response,  Compensation  and  Liability  Act  ("CERCLA")  and the
Resource  Conservation  and  Recovery  Act ("RCRA")  broadly  define  "hazardous
substances" which, if released,  may trigger reporting and clean up obligations.
The list of  "hazardous  substances"  covered  by these  laws is  extensive  and
includes  a  large  number  of  chemicals,   metals,  pesticides,   radiological
materials,  biological agents, explosives,  toxic pollutants and other materials
which may produce health concerns if released into the environment.  Both CERCLA
and RCRA impose  stringent  reporting,  liability  and clean up  obligations  on
owners and operators (including,  in some cases, former owners and operators) of
sites where specified  levels of hazardous  substances  have been released.  The
most  serious of these sites have been  designated  as  "superfund  sites" under
CERCLA.

     Under CERCLA,  the owners and operators of superfund sites at the time of a
release into the environment,  and the transporters of hazardous substances, may
be designated as Potential Responsible Parties ("PRP"), many of whom are Fortune
500 companies,  and, as such, may be liable for all or part of the clean up cost
at such site without regard to fault or the legality of the PRP's actions. While
PRP's may undertake clean up activities at superfund sites  voluntarily or under
government  compulsion,  the federal  government  and the EPA may  undertake the
clean up of some sites on its own and  subsequently  seek to identify and impose
liability for the cost of such clean up on PRP's. Additionally, most states have
environmental  regulations  comparable  to, or  supplementing,  EPA  regulations
wherein  private  parties can be  compelled to clean up hazards or the state can
undertake  the clean up of such  hazards  and seek  reimbursement  from  private
parties.



                                       8


<PAGE>




     The  Company  has  extensive  experience  working  with  PRP's,   including
Allied-Signal,  Exide, NL Industries,  Johnson Controls, AT&T and others, in the
clean up of hazardous  waste sites,  including  superfund  sites.  The Company's
services  at such  sites have  entailed  a  combination  of the  dismantling  of
facilities and actual  implementation  of remediation  techniques to the subject
hazards.  Many of the  projects  undertaken  by the  Company  at such  sites are
specialty jobs wherein major  architectural  engineering  firms contract to have
the Company perform complex  dismantling and deconstruction  jobs and to perform
actual  remediation of hazardous  materials in conjunction  with the dismantling
process.  While the Company maintains  existing  relations with numerous private
sector industrial PRP's and has performed site assessment and actual remediation
at various  sites,  the Company has  established,  and is seeking to strengthen,
relations  with the  major  architectural  engineering  firms  which  control  a
significant portion of the larger government projects,  including many superfund
sites.  Because of the general lack of expertise and  experience in  dismantling
and  deconstruction  at most  of the  major  engineering  firms,  and a  growing
reputation  with  such  firms,  the  Company  has  been  called  on to  serve on
remediation  teams with the  Company  handling  all aspects of  dismantling  and
deconstruction at hazardous waste remediation sites.

     Beginning  with  the  Company's  formation  of a  strategic  alliance  with
Solucorp  Industries  Ltd.  ("Solucorp")  during the third quarter of 1995,  the
Company offers soil remediation  services which enhances the Company's hazardous
waste  remediation  services.  Prior to formation of the alliance with Solucorp,
the Company offered soil remediation  services on a limited basis because of the
Company's belief that existing soil remediation  technologies  were unproven and
not  cost-effective.  Solucorp has developed a Molecular  Bonding System ("MBS")
soil  remediation  technology  utilized in the  stabilization of hazardous heavy
metal contaminated soils, sludges and other media.

     In 1996, the Company further expanded its hazardous waste services with the
acquisition  of a license  from,  and equity  interest  in,  Life  International
Products, Inc. ("Life") pursuant to which the Company began to market and employ
Life's  patented  superoxygenation  technology for long term  bioremediation  of
contaminated groundwater. Bioremediation involves the introduction of a bacteria
culture,  nutrients  and oxygen  into  contaminated  groundwater.  The  bacteria
culture feeds on organic pollutants  rendering the contaminated waters harmless.
An  essential  element in the  bioremediation  process is the  introduction  and
maintenance of high levels of oxygen into the  contaminated  water. The bacteria
culture consumes massive quantities of oxygen in the bioremediation  process and
low  levels of  oxygen or the  dissipation  of oxygen  from the water  slows the
bioremediation process.  Traditional  bioremediation processes have involved the
injection  of oxygen  into water  using an  aerator.  Management  believes  that
application  of  Life's  superoxygenation  process  enhances  bioremediation  of
contaminated  groundwater  by  increasing  the oxygen  content and the time such
oxygen  will  remain  in water as  compared  to  traditional  methods  of oxygen
injection.  As a result of more effective and longer  lasting oxygen  injection,
the Company believes that Life's superoxygenation process will increase the rate
of bioremediation  substantially  when compared to existing industry  practices.
Life  has  granted  the  Company  the  exclusive  license  to  utilize  the Life
oxygenation  process in the United  States,  Canada and Mexico for  purposes  of
bioremediation of contaminated  groundwater.  The Company's license runs through
September 2001 subject to renewal for  successive  five year terms provided that
certain minimum revenue requirements are met by the Company.

     Radiological   Remediation.   Radiological   remediation  services  consist
primarily of the  decontamination  and  dismantling  of facilities  employing or
producing  radioactive  materials  and the removal and  disposal of  radioactive
materials.  Typically,  such  services are utilized by utility  companies  which
operate nuclear plants, universities and other research facilities which utilize
radioactive  isotopes  in a variety of  research  projects,  and the DOE and DOD
which oversee nuclear weapons production.

     Utility  companies have now operated nuclear plants for more than 30 years.
Because of a combination of special interest pressure, worldwide competition for
electricity  customers  brought  about  by  widespread   de-regulation,   strict
government   oversight  and  high  operating  costs,  many  nuclear   generating
facilities have been prematurely closed. As other nuclear facilities continue to
age and public  skepticism  as to the safety of such  facilities  remains  high,
additional  plants are expected to close.  Due to the nature of such facilities,
utility  companies are expected to seek experienced  dismantling and remediation
specialists to decontaminate,  dismantle and decommission such facilities and to
assure proper handling and disposal of radioactive waste.



                                       9


<PAGE>




     Universities  and other research  facilities also operate nuclear  reactors
and utilize radioactive isotopes in research and teaching. With a decline in the
enrollment in nuclear engineering departments in recent years the utilization of
nuclear  reactors  and related  materials  in teaching has declined to the point
that some  programs  may be  dropped  or  significantly  curtailed.  Even  where
research is continuing at universities and in industry, the use of isotopes over
extended  periods has  created,  and is expected to continue to create  concerns
with respect to the disposal of radioactive materials and the decontamination of
facilities.  In order to safely  deal with  inactive  reactors  and  radioactive
contamination,  industry and universities, sometimes under government direction,
are seeking experienced  specialists to remove,  decontaminate and/or dispose of
abandoned  facilities  and  contaminated  materials  in and around  abandoned or
functional facilities.

     Finally, the DOD and DOE oversee the operations and are responsible for the
clean  up of  weapons  facilities  across  the  country.  Extensive  remediation
activities are expected to be required as many of such  facilities are closed as
a result of sharply reduced nuclear weapons production  following the end of the
Cold War. As with other owners and  operators of facilities  having  radioactive
waste and  contamination,  the federal government has sought, and is expected to
continue to seek,  experienced  specialists to decontaminate  and dismantle such
facilities and to remediate and dispose of  radioactive  waste in a safe manner.
The Company has skilled personnel with the necessary  experience and training to
dismantle  these  structures  in  government  mandated  and  regulated  personal
protective equipment.

     Management believes that radiological remediation is the greatest potential
growth area  within the  environmental  services  industry.  While the  asbestos
abatement and general  hazardous  remediation  markets have matured resulting in
slower  growth  in demand  for  those  services,  management  believes  that the
greatest growth in the radiological  remediation  market lies ahead. The DOD and
DOE have only recently begun actual  remediation of sites under their management
and management of the Company is not aware of any significant nuclear facilities
on which remediation efforts have been completed.  Additionally,  no significant
remediation  efforts have been undertaken to date to  management's  knowledge at
nuclear facilities in other countries,  including former  Soviet-bloc  countries
and states in which nuclear facilities were the prevalent sources of power.

     Management  believes that the Company is well  positioned to participate in
the future  remediation of such facilities.  The Company is presently on site at
DOD and DOE locations.

     The Company's  radiological and decommissioning  services are also expected
to be deployed in  connection  with the  provision of  radiological  remediation
services for six VVER 440 nuclear  power plants and one small  reactor  plant in
Germany.  A  consortium  including  the Company and Duke Energy have  reached an
agreement in principal  pursuant to which the  consortium  has been  selected to
participate  in the  privatization  and  re-industrialization  of those sites in
conjunction with the performance of radiological remediation services. Under the
terms of the project,  the German  government  will  transfer to the  consortium
control   of  a   state-owned   corporation   established   to   undertake   the
decommissioning  and  waste  management  of  the  facilities.   In  addition  to
decommissioning  and clean-up  activities,  the consortium  will  revitalize and
re-industrialize the sites with the objective of creating a minimum of 1,500 new
jobs at the site and in the Greifswald and Mecklenburg  Vorpommern regions. Site
redevelopment work has commenced.  Contract  negotiations for the acquisition of
the  state-owned  corporation  are ongoing  and  management  anticipates  that a
comprehensive  agreement  will be  finalized  during  the  second  half of 1998.
Project  engineering  is  expected to begin  immediately  after  execution  of a
definitive  agreement with the  decommissioning and remediation work expected to
last  approximately  10 years.  The German federal  government has established a
reserve  of DM 6.209  billion  (approximately  $3.65  billion)  to  finance  the
project.  The project  also  enjoys the  support of state and local  governments
which,  among  other  things,  have agreed to provide  necessary  infrastructure
improvements and other economic benefits to promote the  re-industrialization of
the sites.

     Asbestos  Abatement.  The United  States  Environmental  Protection  Agency
("EPA"),  and most,  if not all,  states,  have  enacted  rules and  regulations
governing  the  emission of asbestos  during the  renovation  or  demolition  of
facilities as well as during manufacturing and waste disposal operations.  These
regulations  have  effectively  required  inspection  for  and/or  abatement  of
asbestos  prior  to or in  conjunction  with the  renovation  or  demolition  of
buildings.   Requirements   imposed  by  real  estate   lenders  and   practical
considerations  as well as disclosure laws relating to real estate  transactions
have  effectively  resulted  in  asbestos  inspection  and,  where  appropriate,
abatement as a condition of most conveyances of real estate.



                                       10


<PAGE>



     The Company  provides  site  assessment,  planning and  asbestos  abatement
services to property  owners  desiring  to remodel or sell  properties  or abate
existing asbestos on site for health and liability reasons. Because the handling
and risk associated with the presence of asbestos varies depending upon the use,
volume and  nature of the  asbestos  present,  the  Company  will  evaluate  the
appropriate  means of  abatement  and  develop  a  detailed  plan  based on such
evaluation.  The  abatement  process  may range  from  encapsulation  of exposed
asbestos to the actual physical removal and disposal of the asbestos  containing
materials on the site.  Such materials may include  thermal  insulation  used on
boilers,  tanks,  hot and cold water  systems and heating,  ventilation  and air
conditioning  systems,  surfacing  materials used for acoustical,  decorative or
fireproofing  purposes  (asbestos  sprayed  or  trawled  on walls,  ceiling  and
structural  members) and other  materials  such as floor tiles,  ceiling  tiles,
roofing felt, concrete pipe, outdoor siding and fabrics.

     Upon development of a plan of abatement in compliance with applicable state
and federal  regulations,  the Company's work crew wearing protective  clothing,
head gear and breathing  apparatuses will physically remove  asbestos-containing
materials from the building. The building areas in which abatement work is being
performed  are sealed off and blowers or  ventilation  equipment are utilized to
create  negative  pressure  in the  building  to prevent  the escape of airborne
asbestos  from the building.  Upon  completion  of the  abatement  process,  the
asbestos  removed is disposed of in accordance  with  applicable  regulations by
transportation and disposal companies.

Plant Relocation Services

     In addition to its historical  dismantling and decommission  services,  the
Company  has  developed  as  a  primary  service  offering  the  relocation  and
re-assembly of plants.  Plant relocation and re-erection  projects are typically
bid on, planned and engineered in a manner similar to the Company's  dismantling
and decommissioning  services taking into account the special demands associated
with  transporting and re-erecting  such  facilities.  The Company has developed
proprietary  techniques and extensive  expertise for dismantling,  matchmarking,
relocation  engineering,  packaging,  documentation  and  re-erection  of entire
plants. See "Environmental Services - General."

     With the growth in the  economies  of numerous  third-world  countries  and
other countries which were historically non-industrialized, the Company believes
significant  opportunities  are available in the worldwide plant  relocation and
re-assembly  market.  Because  of the  time  and cost  savings  associated  with
relocating existing plants as compared to purchasing and starting-up new plants,
the  Company  believes  that  growing  industrial  concerns in South and Central
America,  Pacific Rim and Eastern  European  countries will view the acquisition
and  relocation  of  existing  plants  as  the  preferred  method  of  expanding
operations.  Typical of such  opportunities was the Company's  completion during
1996 of the  acquisition,  relocation and  refurbishing  of a  1,400-ton-per-day
ammonia plant from Lake Charles,  Louisiana to Karachi,  Pakistan, a site of the
largest fertilizer producer in Pakistan.

Other Specialty Project Engineering Services.

     In addition to the  Company's  principal  services,  the Company  routinely
evaluates   projects   requiring   specialized   engineering   services   of   a
multi-disciplinary  nature.  Where projects require the extension of specialized
engineering  services  across  disciplines  and where the Company  possesses the
disciplines  required to perform  those  services,  the Company  will attempt to
negotiate to provide a package of specialized  services.  The Company  typically
seeks opportunities to perform specialty  engineering services on projects where
the need to deploy  expertise  in  multiple  fields  offers  provides  favorable
margins.

     While  the  Company's  specialty  project  engineering   services  are  not
generally  subject to being  categorized  based on their  non-recurring  nature,
typical service offerings have included providing drilling and grouting services
on the East Dam reservoir project in California.

Other Services, Products and Investments

     The  Company  has  entered  into   selected   strategic   investments   and
undertakings in conjunction  with, and which  supplement,  its core  operations.
Those investments and undertakings, as of the first quarter of 1998, include (1)
an  equity  investment  in Life  International  Products,  Inc.,  (2) an  equity
investment in Seven Star International Holdings, Inc. ("Seven Star") which holds
a license to distribute beverages incorporating Life's superoxygenation  process
and (3) an alliance with Universal  Process  Equipment,  Inc. ("UPE") to buy and
sell surplus equipment.



                                       11


<PAGE>




     At the time of the Company's initial  acquisition of a license from Life to
utilize Life's patented superoxygenation process in bioremediation,  the Company
also  acquired a ten percent (10%) equity  interest in Life for $1 million.  The
Company,  in 1997,  invested an additional  $375,000 in Life to maintain its ten
percent equity interest.

     During 1997, the Company and Jin Xin (Holding),  Inc. each acquired a fifty
percent  (50%)  interest in Seven Star, a BVI company.  The Company  contributed
$300,000 to the capital of Seven Star and Jin Xin contributed  $300,000 to Seven
Star. In December of 1997,  Seven Star agreed to acquire the exclusive rights to
distribute   beverages    incorporating,    and   otherwise   exploit,    Life's
superoxygenation  process in a territory  consisting of the People's Republic of
China (including Hong Kong),  Taiwan,  Indonesia and Singapore.  Pursuant to the
terms of the license,  Seven Star paid a minimum guarantee payment in the amount
of $400,000  to Life and will pay ongoing  royalties  based on a  percentage  of
revenues realized from licensing of the Life process, subject to certain minimum
royalty  requirements.  Seven Star  intends to  sublicense  the Life process and
management believes that initial sublicensing fees and ongoing minimum royalties
from  potential  sublicensees  will be sufficient to recoup at least the minimum
guarantee  payment paid by Seven Star as well as the minimum ongoing  royalties.
In December of 1997,  Seven Star  entered into an initial  sublicense  agreement
with Zheng Zhou Wo Li Beverage Limited covering a territory  consisting of Zheng
Zhou,  Henan,  in the  People's  Republic of China and  providing  for a minimum
guarantee payment of $600,000 and royalties and minimum royalty  requirements in
excess of those under Seven Star's license with Life. As of the end of the first
quarter of 1998,  the  minimum  guarantee  payment of Zheng Zhou Wo Li  Beverage
Limited  had not been made and  royalty  payments  had no yet  commenced.  Seven
Star's  ability  to  successfully  exploit  the Life  process  is subject to the
numerous risks associated with operation in Asia,  including the recent currency
crisis  which has impaired  the growth  prospects in the region,  as well as the
risks and uncertainties  associated with  identifying,  doing business with, and
enforcing   contracts   with  Seven  Star's   prospective   local  partners  and
sublicensees.

     In addition to its core service  business and efforts relating to Life, the
Company is engaged in the purchase and sale of surplus equipment. The Company in
conducting  its  dismantling  and  plant  relocation  operations  has  developed
extensive expertise in identifying and purchasing equipment.  Frequently,  where
plants are being  dismantled  but not  relocated,  the  Company has been able to
acquire  equipment,  with no future  value to the owner,  at  favorable  prices.
Because of the nature  and cost of  acquiring,  transporting  and  storing  such
equipment pending the sale thereof,  historically,  the Company would frequently
enter into joint  venture  arrangements  with  sellers or other  persons  having
available  storage  capacity  wherein  the  Company  would take a fifty  percent
interest in the equipment  and the equipment  would be held at the joint venture
partner's  facilities until such time as the Company  identified a purchaser for
such equipment.

     In September of 1995,  the Company  entered into an alliance with Universal
Process Equipment ("UPE") to carry on all future surplus equipment  purchase and
sales  operations.  UPE is one of the world's largest  marketers of new and used
process equipment.  Pursuant to an Agreement for Commissions and Joint Ventures,
the Company directs all inquiries to buy or sell used process  equipment to UPE.
UPE, in turn, will utilize its marketing resources to satisfy such inquiries and
will pay  prescribed  commissions  to the  Company  based on the  nature of each
transaction.  Where UPE  chooses  not to, or is unable to,  acquire  items,  the
Company will continue to be able to acquire such equipment for its own account.

     In conjunction  with the formation of the strategic  alliance with UPE, the
Company sold  substantially  all of its  inventory of glass lined  equipment and
process  equipment to UPE and an affiliated  company.  The Company  retained its
inventory of generators and other selected items.

     The  Company  expects  that  from  time to time in the  future it will have
opportunities to invest or participate in ventures outside of, but connected to,
its core businesses.  Management will evaluate any such opportunities and, where
management deems the potential of such  opportunities to merit  participation or
investment,  the Company may enter into additional  ventures outside of its core
businesses.



                                       12


<PAGE>


Marketing

     The Company,  in marketing its services,  relies principally on the efforts
of its operating and executive  management team who regularly call upon existing
and prospective customers.  The Company,  through the efforts of its management,
has  established  working  relationships  with numerous  Fortune 500  industrial
concerns as well as major national architectural  engineering firms, the DOD and
the DOE and many  smaller  and medium  size  industrial  and  engineering  firms
worldwide.  The Company  supplements  the efforts of its  management  by regular
advertising in  international  trade  publications,  direct mailings to selected
industrial  and  engineering  firms,   strategic   telemarketing,   and  regular
participation in industry conferences and trade shows.

     As noted above,  marketing  efforts  with  respect to MBS soil  remediation
applications is handled jointly by the Company, through its management team, and
Solucorp  while surplus  equipment  marketing is now handled  principally by UPE
pursuant  to the  Company's  strategic  alliance  with  UPE  and  Seven  Star is
principally marketing its sublicenses to exploit the Life process in Asia.

Regulation

     Environmental Regulations. The Company and, in particular, its clients, are
subject to extensive and evolving environmental laws and regulations. These laws
and  regulations  are  directly  related to the demand for many of the  services
offered by the Company and often subject the Company to stringent  regulation in
the conduct of its operations. The principal environmental legislation affecting
the Company and its clients is described below.

     -- Resource Conservation and Recovery Act of 1976 ("RCRA").  RCRA regulates
the  treatment,  storage and disposal of hazardous and solid  wastes.  RCRA has,
therefore,  created a need generally for some of the types of services  provided
by the Company.  The 1984 Hazardous and Solid Waste  Amendments to RCRA ("HSWA")
expanded  RCRA's  scope by  providing  for the listing of  additional  wastes as
"hazardous" and lowering the quantity threshold of wastes subject to regulation.
HSWA also imposes  restrictions on land disposal of certain  wastes,  prescribes
more stringent  management  standards for hazardous waste disposal  sites,  sets
standards for  underground  storage tanks and provides for  "corrective"  action
procedures. Under RCRA, liability and stringent management standards are imposed
on a person who is an RCRA permit holder, namely, a "generator" or "transporter"
of hazardous waste, or an "owner" or "operator" of a waste treatment, storage or
disposal  facility.  Both the EPA and states  with  authorized  hazardous  waste
programs can bring several types of  enforcement  actions under RCRA,  including
administrative  orders and actions  seeking civil and criminal  penalties.  RCRA
also provides for private causes of action as an additional enforcement tool.

     -- Comprehensive Environmental Response,  Compensation and Liability Act of
1980.  CERCLA , also known as the Superfund Act,  addresses  cleanup of sites at
which  there  has been or may be a  release  of  hazardous  substances  into the
environment. CERCLA assigns liability for costs of cleanup and damage to natural
resources to any person who, currently or at the time of disposal of a hazardous
substance,  owned or operated any facility at which  hazardous  substances  were
deposited,  to any person who by agreement or otherwise arranged for disposal or
treatment,  or arranged with a transporter for transport of hazardous substances
owned or possessed by such person for disposal or  treatment,  and to any person
who  accepted  hazardous  substances  for  transport  to disposal  or  treatment
facilities  or sites from  which  there is a release  or  threatened  release of
hazardous  substances.  CERCLA authorizes the Federal government either to clean
up these sites itself or to order  persons  responsible  for the situation to do
so.  CERCLA  created a fund to be used by the Federal  government to pay for the
cleanup  efforts.  Where the  Federal  government  expends  money  for  remedial
activities, it must seek reimbursement from the potentially responsible parties.
Where the EPA performs remedial work with superfund dollars,  it frequently sues
potentially  responsible  parties for  reimbursement  under the "cost  recovery"
authority  of Section  107 of CERCLA.  The EPA may also issue an  administrative
order seeking to compel potentially responsible parties to perform remedial work
with their own funds under the  "abatement"  authority of Section 106 of CERCLA.
In lieu of instigating such actions,  the EPA may also seek through negotiations
to  persuade  such  parties  to  perform  and/or  pay for any and all  stages of
remedial action at a site in discharge of their liabilities under CERCLA.



                                       13


<PAGE>



     CERCLA provides that transporters and persons arranging for the disposal of
hazardous  waste may be jointly and  severally  liable for the costs of remedial
action at the site to which the  hazardous  waste is  taken.  While the  Company
attempts to minimize such exposure by contracting only with qualified  hazardous
waste transporters meeting certain minimum insurance  requirements and by having
the  generator  select the disposal  site and method there can be no  assurances
that the Company will be successful in so limiting such exposure.  Under Section
101(20)(B)  of CERCLA,  when a common or contract  carrier  delivers a hazardous
substance to a site  selected by the shipper,  the carrier is not  considered to
have caused or  contributed to any release at such disposal  facility  resulting
from circumstances or conditions beyond its control.

     The Superfund  Amendments and  Reauthorization  Act ("SARA") was enacted in
1986 and authorized  increased  Federal  expenditure  and imposes more stringent
cleanup  standards and  accelerated  timetables.  SARA also contains  provisions
which expand the enforcement powers of the EPA.

     While there can be no assurance,  management believes that, even apart from
funding authorized by RCRA and CERCLA,  industry and governmental  entities will
continue to try to resolve  hazardous waste problems due to their need to comply
with other statutory  requirements and to avoid  liabilities to private parties.
Although  the  liabilities  imposed by CERCLA are more  directly  related to the
Company's clients,  they could under certain  circumstances apply to some of the
activities of the Company,  including  failure to properly design or implement a
cleanup,  removal  or  remedial  action  plan  or to  achieve  required  cleanup
standards  and  activities  related to the  transport  and disposal of hazardous
substances.  Such  liabilities  can be joint and several where other parties are
involved.

     -- Clean Air Act and 1990 Amendments. The Clean Air Act requires compliance
with ambient air quality standards and empowers the EPA to establish and enforce
limits on the emission of various  pollutants from specific types of facilities.
The 1990 amendments  modify the Clean Air Act in a number of significant  areas.
Among other things, they establish emissions  allowances for sulfur and nitrogen
oxides,  establish  strict new  requirements  applicable to ozone  emissions and
other air toxics,  establish a national  permit program for all major sources of
pollutants and create  significant new penalties,  both civil and criminal,  for
violations of the Clean Air Act.

     Included  within the scope of the Clean Air Act are rules issued by the EPA
known as National Emissions  Standards for Hazardous Air Pollutants  ("NESHAP").
NESHAP specifically  regulates the emission of asbestos during manufacturing and
waste  disposal   operations  and  the  renovation  and  demolition  of  certain
facilities.  Authority  to  implement  and  enforce  NESHAP  standards  has been
delegated to the various states which have implemented  licensing  requirements,
notice  requirements and procedures with respect to asbestos abatement and other
rules governing the handling and disposal of asbestos.

     -- Clean Water Act of 1972 ("CWA"). Originally enacted as the Federal Water
Pollution Control Act, but renamed as the Clean Water Act in 1977, CWA regulates
the discharge of pollutants  into the surface waters of the United  States.  CWA
established   a  system  of  minimum   national   efficiency   standards  on  an
industry-by-industry  basis,  water quality  standards,  and a discharge  permit
program.   It  also  contains  special  provisions   addressing   accidental  or
unintentional spills of oil and hazardous substances into waterways.

     --  Other  Federal  and  State  Environmental  Regulations.  The  Company's
services  are also used by its clients in  complying  with,  among  others,  the
following  Federal  laws:  the Toxic  Substances  Control Act, the Safe Drinking
Water Act, the Hazardous Materials  Transportation Act and the Oil Pollution Act
of 1990. In addition,  many states have passed  superfund-type  legislation  and
other  regulations and policies to cover more detailed  aspects of environmental
impairment and the remediation thereof.  This legislation  addresses such topics
as air  pollution,  underground  storage  tanks,  water  quality,  solid  waste,
hazardous  materials,   surface   impoundments,   site  cleanup  and  wastewater
discharge.  Most states also regulate the transportation of hazardous wastes and
certain flammable liquids within their borders by requiring that special permits
be obtained in advance of such transportation.

     Other   Regulations.   In  addition  to  a  broad  array  of  environmental
regulations  relating to the activities of the Company,  the Company's  business
and  proposed  businesses,   are  subject  to  a  variety  of  non-environmental
regulations.  Included in the regulations which may effect the Company's current
business  are  regulations  governing  occupational  safety  and  health,  wage,
overtime and other employment matters and dealings with governmental agencies.



                                       14


<PAGE>



     The  Company's  proposed  operations  relating to the  licensing  of Life's
superoxygenation  process for beverages may be subject to potential  regulations
governing such matters as food and beverage safety and processes,  packaging and
marketing,  among  other  matters.   Additionally,   the  Company's  anticipated
commencement  of  energy  production   operations  may  be  subject  to  various
regulations  governing rates, safety of operations,  and financing,  among other
matters.  While the Company anticipates that its licensing activities related to
the Life process and energy  production  activities will be conducted outside of
the United States in lesser developed  countries where extensive  regulation may
currently be lacking, it can be expected that some of those countries will adopt
extensive regulation governing those activities similar to the United States.

Competition

     Energy Services.  Due to the substantial  barriers to entry into the market
and the prevalence of purchase agreements,  competition within the energy market
is limited in most  developing  countries,  including  the  markets in which the
Company expects to operate.  While a variety of independent energy producers and
private and government owned utilities may provide energy in some of the markets
in which the Company expects to operate, it is anticipated that the Company will
have power  production  agreements  in place in most markets  which will provide
contractual  commitments to purchase a significant  portion,  if not all, of the
energy  produced  from the  Company's  planned  facilities.  Further,  while the
Company is focused on  establishing a niche  position in the individual  project
100 MW or less market,  management  believes that the primary competitors in the
energy market generally concentrate on large projects (i.e., 200 MW or greater).
Accordingly,  competition  for  the  sale  of  energy  is  not  expected  to  be
significant for the foreseeable future in the Company's markets. However, should
those markets grow and undergo  deregulation  similar to that experienced in the
United States,  it can be expected that new competitors will enter those markets
increasing pricing and competitive pressures.  Further, while established energy
production  operations  in  developing  markets are expected to be isolated from
competition  in the near term,  competition  for contracts to provide  energy in
markets may be intense.  In light of the  opening of the United  States  utility
markets to competition,  many participants with substantially  greater resources
than the Company have actively begun efforts to establish  energy  operations in
developing countries around the world.

     Environmental  Services.  The  environmental  services  industry  is highly
competitive and fragmented. Because of the diverse nature of the industry, there
are many  competitors,  both large and small.  Many  segments  of the  industry,
including a  significant  portion of  superfund  and other large  projects,  are
dominated by large  national  architectural  engineering  firms such as Bechtel,
Flour, Westinghouse,  Foster Wheeler and ICF Kaiser. Additionally,  many smaller
engineering  firms,  construction  firms,  consulting  firms and other specialty
firms have  entered the  industry in recent  years and  additional  firms can be
expected to enter the industry in the future. Many of the firms competing in the
environmental  services industry have significantly  greater financial resources
and more established market positions than the Company.

     While  many  firms  are  active  in  the  environmental  services  industry
providing site  assessment,  consulting  and  engineering  services,  management
believes   that  the  number  of  firms  having   expertise  in,  and  offering,
dismantling,    decommissioning   and   deconstruction   services   within   the
environmental  services  industry  is limited.  The  Company  maintains a highly
trained and qualified  workforce  and has  extensive  experience in planning and
implementing decontamination and decommissioning projects in a safe manner. Such
expertise and experience has allowed the Company to successfully  compete within
the  industry  and  to  secure  contracts  from  industrial  firms  as  well  as
engineering  firms which lack experience in  environmental  decontamination  and
deconstruction.  Because the Company,  unlike most engineering firms, is staffed
by  experienced  and  skilled   decontamination/deconstruction   personnel,  the
involvement of  engineering  firms is often limited to project  management  with
actual hands-on services being provided by the Company's  personnel.  Because of
the need for certain permits and licenses,  specialized equipment,  OSHA-trained
employees and the need to be knowledgeable of and to comply with federal,  state
and local environmental laws, regulations and requirements, the Company believes
there are  significant  barriers  to entry into the  environmental  dismantling,
decommissioning and deconstruction business. There can be no assurance, however,
that  other  firms,  including  the  major  engineering  firms  which  control a
significant portion of superfund and government contracts,  will not expand into
or develop expertise in the areas in which the Company  specializes,  decreasing
any competitive advantage which the Company may enjoy. The Company believes that
its  expertise  and ability to provide full  service,  turnkey  remediation  and
decommissioning  services and its  utilization of  state-of-the-art  remediation
techniques,  such as the Life  oxygenation  process and the MBS soil remediation
process,  will continue to allow it to compete  effectively in the environmental
services  industry  and to  capitalize  on the  expected  growth in  demand  for
services in the nuclear facilities arena.



                                       15


<PAGE>


     Plant Relocation  Services.  Plant relocation services are a niche business
and  competition  within the segment is limited.  Management  believes  that the
Company is one of the dominant firms within such industry.  While demolition and
dismantling firms offer similar  services,  the primary  competition  within the
plant relocation  industry is from various large  engineering  firms which offer
services  in the form of  construction  management  as  consultants  to  owners.
However,  most firms which  offer  relocation  services  do so as an  additional
service and not as a primary  service.  The Company  advertises  and markets its
relocation  services as a primary  service.  Competition  with  respect to other
specialty  project  engineering  services  is  believed  to be  limited to large
engineering  firms.  Management  believes that the Company's  ability to provide
highly  specialized  cross-disciplinary  engineering  services  will allow it to
compete successfully in this market.

Employees

     At January 31,  1998,  the Company  employed  approximately  237  full-time
employees,  11 of whom were management and administrative  personnel, 45 of whom
were clerical  personnel and 181 of whom were field personnel.  The Company also
employs  additional  field  personnel  on  a  temporary  basis  when  needed  to
adequately staff projects. All permanent field personnel employed by the Company
are  skilled  craftsmen  with an  average  of over ten  years  service  with the
Company,  they are OSHA-trained and asbestos trained to perform their respective
duties.  Temporary  employees are regularly  hired on location by the Company to
staff  jobs  performed  away  from  the  immediate  vicinity  of  the  Company's
headquarters.  The Company carefully reviews the training and  qualifications of
all  temporary  workers to assure that all such workers are qualified to perform
the work in question.  In all such  instances,  Company  supervisors and foremen
will plan, supervise and oversee all aspects of work performed by such temporary
workers.

     The  Company  believes  that  it  enjoys  good  relations  with  all of its
employees.   Each  of  the  Company's   executive  officers  have  entered  into
confidentiality  and  noncompetition  agreements  with the Company.  None of the
Company's  permanent  full-time employees are unionized or subject to collective
bargaining  agreements  and the Company has  experienced  no work  stoppages  or
strikes.  Some of the  temporary  personnel  hired by the  Company  may be union
members  where the job in question and local  conditions  as a practical  matter
require such personnel.

ITEM 2.  PROPERTIES

     The principal  offices of the Company are located on a 7.5 acre site at 396
Whitehead  Avenue,  South  River,  New Jersey,  in a 6,925 square foot two story
office  building and an adjoining  7,600 square foot two story office  building.
Also located on such site is a 4,248 square foot one story storage/work area and
a 5,700  square  foot  warehouse  facility.  Such  facilities  are leased by the
Company from L&G  Associates,  an affiliate  of the Company  controlled  by Joel
Freedman and Frank Falco, pursuant to a fifteen year lease expiring May 31, 2011
and  providing for monthly  rental  installments  of $22,500,  subject to annual
adjustments  based on the  Consumer  Price  Index,  plus  insurance,  taxes  and
maintenance costs.

     The Company also  maintains 3 regional  offices which are leased from third
parties in  locations  which are  adjacent to  strategic  growth areas and major
environmental projects.

     Management  believes that the Company's  properties are adequate to support
the Company's current and anticipated operations.



                                       16


<PAGE>




ITEM 3.  LEGAL PROCEEDINGS

     On August 15, 1996, the U.S.  Department of Labor,  Occupational Safety and
Health  Administration  ("OSHA") issued a willful  citation and  notification of
penalty  in the  amount  of  $147,000  on the  Company  in  connection  with the
accidental  death of an employee of one of the Company's  subcontractors  on the
United Illuminating Steel Point Project job site in Bridgeport,  Connecticut.  A
complaint was filed against the Company by the Secretary of Labor, United States
Department  of Labor on  September  30,  1996.  The  Company is  contesting  the
Citations and Notification of Penalty.

     On February  11,  1997,  the  Company was served with a lawsuit  naming the
Company as a co-defendant in a wrongful death cause of action arising out of the
accidental death of an employee of a subcontractor.  The suit, styled The Estate
of Percey L. Richard,  and Percey D. Richard, a minor by next of friend Patricia
Cunningham v. American  Wrecking Corp.  and its  successors,  IDM  Environmental
Corp.  and  its  successors,  SECO  Corp.  and its  successors,  all  joint  and
individually,  and all unknown  persons,  Case No.  2:97CV  filed in the Federal
District  Court for the  Northern  District of  Indiana,  arises out of the same
facts alleged in the above referenced  administrative  proceeding  instituted by
the Occupational  Safety and Health  Administration.  Plaintiff seeks damages of
$45 million. Management believes that the suit, as it relates to the Company, is
without merit and intends to vigorously contest the cause of action. Pursuant to
its subcontract  with American  Wrecking,  the Company is now being defended and
indemnified by the insurance carrier for American Wrecking.

     In November of 1996, a shareholder filed a class action lawsuit against the
Company and certain directors and officers of the Company.  The suit,  captioned
Arthur  Goldberg v. Joel A. Freedman,  Frank A. Falco,  James R. Harrigan,  John
Klosek and IDM Environmental  Corp., Docket No. L-11783-96 in the Superior Court
of New Jersey,  Middlesex County, as subsequently  amended in June 1997, alleges
that the Company disseminated false and misleading financial  information to the
investing  public  between March 8, 1996 and November 18, 1996 and seeks damages
in an  unspecified  amount to  compensate  investors who purchased the Company's
securities  between the indicated  dates as well as the  disgorgement of profits
allegedly  received by some of the  individual  defendants  from sales of common
stock  during that period.  The Company  believes the cause of action is without
merit and intends to vigorously contest such cause of action.

     Prior to the oral argument  before the Court on the  defendants'  motion to
dismiss the amended complaint,  the parties reached an agreement in principle to
settle all claims,  subject to notice to the class, hearing before the Court and
Court  approval.  It is  contemplated  that, for  settlement  purposes only, the
parties  will  stipulate  to  a  settlement  class  consisting  of  all  persons
(excluding defendants) who purchased the Company's securities from March 8, 1996
through  June 5, 1997,  and that the action will be  dismissed  and  appropriate
releases  provided in consideration  for a payment to the stipulated  settlement
class by the Company's insurer. Management expects that the matter will be fully
resolved this calendar year.

     In April of 1997,  the Company and its  subsidiary,  Global Waste & Energy,
Inc.,  were  named as  co-defendants  in a cause of  action  styled  Enviropower
Industries, Inc. v. IDM Environmental Corp., Global Waste & Energy, Inc., et al,
filed in the Court of Queen's  Bench of  Alberta,  Judicial  District of Calgary
(Action  No.  9701-04774).   The  plaintiff,   Enviropower  (formerly  known  as
Continental Waste Conversion  International,  Inc., has alleged that the license
granted  to  the  Company  to  utilize  and  market  Enviropower's   proprietary
gasification  technology was granted without proper  corporate  authority due to
the lack of  shareholder  approval.  The plaintiff  has asserted the  subsequent
employment by Global Waste & Energy of two former  officers of  Enviropower as a
basis for its  allegations.  Enviropower  is seeking to have the license and all
other agreements  between  Enviropower and the Company declared null and void in
addition  to seeking  damages  for alleged  lost  profits and other  unspecified
damages.  The Company, in June of 1997, filed a separate cause of action against
Enviropower  seeking injunctive relief against  Enviropower,  seeking to enforce
the agreements  with  Envirpower  and to collect  amounts owed to the Company by
Enviropower.  On  September  19,  1997,  the  Company  was  awarded  an  interim
injunction against Enviropower  recognizing its exclusive rights to the licensed
technology  throughout the pendency of the action and until further order of the
court.



                                       17


<PAGE>

     In  addition  to the  foregoing,  the  Company is  periodically  subject to
lawsuits  and  administrative  proceedings  arising  in the  ordinary  course of
business.  Management  believes  that the  outcome  of such  lawsuits  and other
proceedings  will not  individually or in the aggregate have a material  adverse
effect on the Company's financial condition, operations or cash flows.

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

     On November 4, 1997, a special  meeting of  shareholders of the Company was
held.  The only matter  voted upon at such meeting was the approval of issuances
of shares in excess of 1,997,130 on conversion of the 7%  Convertible  Notes and
Warrants,  which  proposal  was  approved by a vote of  6,637,665  For,  230,690
Against and 47,475 Abstentions and Broker Non-Votes.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

     The  Company's  common  stock  trades on The Nasdaq  Stock Market under the
symbol  "IDMC." The  Company's  common stock  commenced  quotation on the Nasdaq
Small-Cap market following  completion of the Company's  initial public offering
in April of 1994.  Subsequently,  on August 31, 1994, the Company's common stock
commenced  quotation on the Nasdaq National  Market System.  The following table
sets forth the high and low sales prices for the Company's common stock for each
quarterly period during the last two fiscal years:

                                                      High             Low
                                                     ------           ------

         First Quarter, ended March 1996             $8.438            $2.875
         Second Quarter, ended June 1996              8.656             5.688
         Third Quarter, ended September 1996          7.625             5.250
         Fourth Quarter, ended December 1996          6.250             1.938

         First Quarter, ended March 1997              3.188             1.656
         Second Quarter, ended June 1997              2.938             0.888
         Third Quarter, ended September 1997          7.313             1.875
         Fourth Quarter, ended December 1997          8.625             5.063

     The  quotations  reflect   inter-dealer   prices  without  retail  mark-up,
mark-down or commission and may not represent actual transactions.

     At April 9, 1998, the bid price of the Common Stock was $3.50.

Holders

     As of April 9,  1998,  there  were  approximately  78 holders of record and
4,500 beneficial owners of the Common Stock of the Company.

Dividends

     The  Company  has never  declared  or paid any cash  dividend on its Common
Stock and does not expect to declare or pay any such dividend in the foreseeable
future.



                                       18


<PAGE>

Sales of Unregistered Securities

     - Series C 7% Convertible Preferred Stock.

     (a) On February  13,  1998,  the Company  sold 3,600  shares of Series C 7%
Convertible Preferred Stock and 2,350,000 Four Year $5.00 Warrants.

     (b) The securities were issued to five accredited investors.

     (c)  The  aggregate   sales  price  of  such   securities  was  $3,600,000.
Commissions totaling 10% were paid in connection with the placement.

     (d) The  securities  were offered  pursuant to  Regulation D. The offer was
directed  exclusively to a limited number of accredited investor without general
solicitation or advertising and based on representations from the investors that
such  investors  were  acquiring for  investment.  The  securities  bear legends
restricting the resale thereof.

     (e) The Series C Preferred  Stock is  convertible  into Common Stock at the
lesser of (i) $4.50 per share or (ii) 75% of the  average  closing  bid price of
the Common Stock during the five trading days prior to conversion. The Four Year
$5.00 Warrants are exercisable for a four year period at the lesser of $5.00 per
share or the lowest conversion price of the Series C Preferred Stock. Conversion
of the Series C Preferred  Stock and exercise of the Four Year $5.00 Warrants is
subject to the  issuance  of a maximum of  3,285,438  shares of Common  Stock on
conversion  unless the shareholders of the Company have approved issuance beyond
that level upon conversion.  In the absence of shareholder approval of issuances
above  3,285,438  shares,  the holders of Series C Preferred Stock and Four Year
$5.00 Warrants  remaining  outstanding  if and when  3,285,438  shares have been
issued will have the right to demand  redemption of the Series C Preferred Stock
at $1,250 per share plus accrued  dividends and to demand redemption of the Four
Year $5.00  Warrants at the pre-tax  profit such holders would have realized had
the Four Year $5.00 Warrants been exercised at the time  redemption is demanded.
Further,  the Company has the right,  upon notice to the holders,  to redeem any
Series C Preferred Stock submitted for conversion at a price of $2.75 or less at
125% of the principal  amount of such Series C Preferred  Stock plus accrued and
unpaid  dividends.  The Series C Preferred  Stock pays dividends at 7% per annum
payable quarterly and on conversion or at redemption in cash or Common Stock, at
the Company's option.

     - Lock-Up Warrants

     (a) On February 11, 1998,  the Company  issued  1,270,000  Three Year $4.50
Warrants (the "Lock-Up Warrants").

     (b) The Lock-Up were issued to three accredited investors.

     (c) The Lock-Up  Warrants were issued in conjunction  with the execution of
Lock-Up  Agreements by the holders of $3.00 Warrants of the Company  whereby the
holders  of such  warrants  agreed not to resell  any  shares  underlying  those
warrants prior to July 30, 1998.

     (d) The  Lock-Up  were  offered  pursuant  to Section  4(2).  The offer was
directed  exclusively to a limited number of accredited investor without general
solicitation or advertising and based on representations from the investors that
such  investors  were  acquiring for  investment.  The  securities  bear legends
restricting the resale thereof.

     (e) The Lock-Up  Warrants are  exercisable for a three year period at $4.50
per share.



                                       19


<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

     The following tables set forth, for the periods and at the dates indicated,
selected  consolidated  financial  and  operating  data  for  the  Company.  The
financial  data was derived from the  consolidated  financial  statements of the
Company  and  should  be  read  in  conjunction   with  the  Company's   audited
consolidated  financial statements included in the Index to Financial Statements
on page 35 of this  report.  See also,  Item 7,  "Management's  Discussion  and
Analysis of Financial Condition and Results of Operations."

<TABLE>


                                                                         Years ended December 31,
                                             -----------------------------------------------------------------------------
                                               1997              1996               1995               1994           1993
                                             -------           -------             -------            ------         ------
                                                                  (in thousands, except per share data)
<S>                                          <C>               <C>                 <C>                <C>            <C>

Income Statement Data:
Operating revenues:
  Contract revenues........................ $ 17,826          $ 20,808            $ 33,866           $ 25,362        $ 14,436
  Equipment and scrap revenues.............       96               834               5,537              3,150           4,368
  Other....................................        -                 -                   -                 22             342
                                             -------          --------             -------            -------         -------  
    Total operating revenues...............   17,922            21,642              39,403             28,534          19,146
Cost of sales:
  Direct job costs.........................   17,002            21,492              30,433             20,449          11,539
  Unusual job costs........................        -                 -               3,300                  -               - 
  Cost of equipment........................      647               943               2,977              1,651           1,379
                                             -------          --------             -------            -------         -------
Gross profit (loss)................... . .       273              (793)              2,693              6,434           6,228
Operating expenses:
  General and administrative.......... . .    10,538             9,567               7,637              5,418           4,514
  Depreciation and amortization............      723               668                 653                344             432
  Settlement expense.......................        -                 -                   -                  -               -   
                                             -------          --------    
Income (loss) from operations..............  (10,988)          (11,028)             (5,597)               672           1,282
Interest income (expense), net.............     (513)               30                 200                (36)           (233)
Other income (expense), net................        -                 -                   -                  -              81
                                             -------          --------             -------            -------         -------
Income (loss) before income taxes..........  (11,501)          (10,998)             (5,397)               636           1,130
Provision (credit) for income taxes........   (1,561)           (1,850)             (1,530)               312             434
                                             -------          --------             -------            -------         -------  
Net income (loss).......................... $ (9,940)         $ (9,148)           $ (3,867)           $   324         $   696
                                             =======          ========             =======            =======         =======
Net income (loss) on common stock.......... $(11,224)         $ (9,148)           $ (3,867)           $   324         $   696
                                             =======          ========             =======            =======         =======
Net income (loss) per share................ $  (1.00)          $ (1.13)            $ (0.67)           $  0.06        $  0.29
                                             =======          ========             =======            =======         =======
Weighted average shares outstanding.......11,212,690         8,089,472           5,815,565          5,577,977      2,333,334
                                          ==========         =========           =========          =========      =========

Balance Sheet Data (at period end):
Working capital............................  $(1,149)          $6,122            $ 10,293            $ 12,070       $    622
Total assets.............................     27,151           22,203              22,028              22,257          9,302
Long-term liabilities......................      259              164               4,004                   -             69
Minority interest..........................        -            1,034                   -                   -              -
Shareholders' equity.......................   18,079           13,461              10,940              13,829          1,726


</TABLE>


                                       20


<PAGE>

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

     This Form 10-K contains  forward-looking  statements  within the meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange Act of 1934. The Company's actual results could differ  materially from
those set forth in the  forward-looking  statements.  Certain factors that might
cause such a difference are discussed in the section  entitled  "Certain Factors
Affecting Future Operating Results" beginning on page 29 of this Form 10-K.

General

     The Company's business has evolved,  and continues to evolve, to capitalize
on market  opportunities.  The  Company  has added  strategic  capabilities  and
resources  through the years to move the business from its roots as a demolition
and deconstruction  company to a full service environmental  remediation company
and plant relocation  services company and, now, an energy project developer and
manager.  The Company's  revenues were  historically  derived primarily from (1)
contract  decontamination  and  decommissioning  services  in a broad  range  of
industrial and environmentally  sensitive settings,  including,  but not limited
to, plant  dismantlement and relocation  services,  asbestos abatement services,
and  remediation of  contaminated  soil and  groundwater;  and (2) equipment and
scrap sales. The Company's operations have been characterized by fluctuations in
revenues  and   operating   profits  as  projects   begin  and  end.   With  the
implementation  of a strategic  shift in the  Company's  business  in 1997,  the
Company  expects to generate a growing base of recurring  revenues and operating
profits from energy projects and long-term  nuclear  facilities  decommissioning
and  remediation  projects  while  supplementing  such revenues and profits with
revenues  from  the  Company's  traditional  environmental  services  and  plant
relocation services projects.

     The Company's  environmental  remediation  services are provided as primary
contractor or as subcontractor to industrial concerns and governmental and other
entities. Generally, such entities own or operate manufacturing or process plant
facilities which facilities are being abandoned,  relocated or otherwise require
varying  degrees of  dismantling  or  deconstruction  work or  remediation  of a
variety of  environmental  hazards.  Because of the nature of the  operations at
such facilities,  the Company's services typically involve varying environmental
concerns  which require the  application of  specialized  deconstruction  and/or
remediation  techniques.  In accordance with industry practice, the Company will
typically develop a preliminary work plan for each project and will enter into a
contract to perform the required services.  The Company's projects are performed
primarily  on a "lump sum" basis  wherein the Company bids to perform a complete
job for a  predetermined  price or on a "time and  material"  basis  wherein the
Company  charges  predetermined  hourly or per day rates for specified  services
plus a charge for materials used.  Additionally,  the Company provides  services
pursuant  to "fixed  fee"  contracts  wherein  the Company is paid for all costs
incurred  plus a  predetermined  fee  or  profit  margin.  Because  of the  risk
associated with lump sum contracts,  the Company  generally will not bid on such
jobs unless the Company has a thorough  understanding of the scope of the job in
question and an  established  history of  performing  such jobs within the price
established  in the contract or the contract  provides  for  adjustments  to the
price based on industry  practices and scope of work. While the Company performs
decontamination  and  decommissioning  services directly for numerous industrial
concerns with whom the Company has existing  relations and with other industrial
concerns with whom the Company may establish  relationships from time to time, a
portion of the Company's services are also provided on a subcontractor basis for
engineering  firms which are called in to develop and implement  hazardous waste
remediation  plans but which lack expertise in dismantling or  deconstruction or
specialized remediation processes.

     In  addition  to  offering   environmental   remediation  services  to  its
customers,   in  connection  with  such  services,  the  Company  has  extensive
experience in, and offers,  plant relocation and reconstruction  services to its
customers.

     Since  1995,  equipment  and scrap  sales  operations  have been  conducted
principally  through an  alliance  with  Universal  Process  Equipment  ("UPE").
Because  of  the   Company's   continual   involvement   with  firms   requiring
decontamination  and  decommissioning  services as well as plant  relocation and
reconstruction  services,  the  Company has  developed  extensive  expertise  in
identifying  salvageable  equipment  and  scrap  and is  often  able to  acquire
equipment on favorable  terms from customers who would otherwise have no ongoing
use for such  equipment or otherwise  lack the knowledge and expertise to market
such equipment.  Pursuant to the Company's  alliance with UPE, surplus equipment
and scrap  identified  by the Company  must  generally be offered to UPE and UPE
assumes  the  marketing  efforts  with  respect to such  items with the  Company
receiving commissions or a share of profits from the resale of such items.



                                       21


<PAGE>


     The  Company's job expenses are  primarily  labor and labor related  costs,
including  salaries to laborers,  supervisors  and foremen,  out-of-town  living
expenses,  payroll taxes, training,  insurance and benefits.  Additionally,  the
Company's job expenses include bonding and job related insurance cost,  repairs,
maintenance  and  rental of job  equipment,  job  materials  and  supplies,  and
transportation  and dumping costs,  among others.  Direct job costs tend to vary
proportionally with service revenues.

     Cost of surplus  equipment sales includes the actual cost of such equipment
as well as freight charges to transport such equipment and costs of refurbishing
certain  equipment.  Such costs vary with the volume of sales, the nature of the
equipment sold and the Company's  ability to acquire such equipment on favorable
terms.  The Company  generally  has no cost for scrap  materials as the value of
salvageable scrap is generally  factored into the price when bidding on jobs and
no payment is made by the Company for such scrap.

     In  addition  to direct job costs and cost of surplus  equipment  and scrap
sales, the Company incurs various general and administrative expenses to support
its operations.  The largest of such expenses is salaries paid to management and
administrative personnel.  Other significant general and administrative expenses
include rent on the Company's facilities, general insurance, promotional expense
and general office expense.  Selling, general and administrative expenses during
1996 and 1997 have included substantial  expenses  attributable to the Company's
efforts to reposition  itself as an energy  project  developer and manager and a
leading provider of nuclear facilities decommissioning and remediation services.

Results of Operations

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

     Revenues.  The Company's total revenues  decreased by  approximately  17.1%
from $21.6 million for the year ended December 31, 1996 to $17.9 million for the
year ended December 31, 1997.  Contract  service income decreased for the period
by 14.4% from $20.8  million in 1996 to $17.8  million in 1997.  The decrease in
contract  service income was  attributable  to a lower volume due to the Company
being more  selective in bidding only  projects with higher gross  margins.  The
environmental remediation business has been marked by increasing competition and
pressure on job margins.  In light of such  operating  environment,  the Company
during 1997 opted to only pursue specialized niche projects where projects risks
could be limited and higher margins attained.  Surplus equipment and scrap sales
decreased  by 85.4% from  $834,000  from the year  ended  December  31,  1996 to
$96,000 in 1997 due  primarily  to the sale in 1996 of  $634,000  of glass lined
brewery tanks.
 
     Cost of sales.  Cost of sales,  which  includes  direct job costs,  cost of
equipment sales, and write-down of the Company's  surplus  generator  inventory,
decreased by  approximately  21.4% from $22.4  million for 1996 to $17.6 million
for 1997.  Direct job costs  decreased by 20.9% during 1997 and  decreased  from
103.3% to 95.4% of contract income. The primary elements of such decrease in job
costs were  materials and supplies,  job salaries,  subcontracting  and disposal
expense. The lower gross margins during 1996 was attributable  primarily to cost
overruns  on  several  contracts,  including  the Los Alamos  project  where the
Company is  presently  seeking  to recover  $2.1  million  of  additional  costs
incurred as a result of change orders from clients.

     Cost of equipment  sales  decreased  92.7% during 1997 and  decreased  from
77.1% to 49.0% of equipment  revenues.  The decrease in cost of equipment  sales
and the  increase  in gross  margin  was  attributable  to the  sale,  in a bulk
transaction, of $634,000 in tanks mentioned previously during 1996.

     In addition to the routine changes  discussed  above, the Company's cost of
sales  reflects a write-down of the  Company's  surplus  generator  inventory of
$600,000 in 1997 and $300,000 in 1996.



                                       22


<PAGE>


     General and administrative  expense.  General and  administrative  expenses
increased by 9.4% from $9.6 million  (44.4% of gross  revenues) in 1996 to $10.5
million  (58.8%  of gross  revenues)  in  1997.  The  increase  in  general  and
administrative  expenses  was  primarily  attributable  to the  write-down  of a
portion of the Company's notes receivable from UPE ($1,200,000).

     Depreciation and amortization. Depreciation and amortization expense stayed
approximately the same $0.7 million in both years.


     Loss from  operations.  Loss from operations was basically the same in both
years  ($11.0  million).  As a  percentage  of  revenues,  loss from  operations
increased  from  50.9%  in 1996 to  61.3% in 1997.  The  increase  in loss  from
operations percent of revenues was attributable to the lower volume in 1997.

     Interest  income and expense.  The Company  experienced  an increase in net
interest expense from $0.0 million in 1996 to $0.5 million in 1997. The increase
in interest expense was primarily  attributable to $0.7 million  amortization of
debt discount on the convertible notes issued during 1997.

     Income taxes.  The Company's  credit for income taxes  decreased  from $1.9
million in 1996 to $1.6  million in 1997.  The decrease in the income tax credit
for 1997 was primarily  attributable to a higher valuation allowance against the
net operating loss from foreign operations.

     Miscellaneous.  During fiscal years 1996 and 1997, the Company  provided no
post retirement benefits subject to FAS 106.
 
     As a result of the foregoing,  the Company  reported a loss before taxes of
$11,501,000  and a net loss of $9,940,000  for 1997 as compared to a loss before
taxes  of  $10,998,000  and a net  loss of  $9,148,000  for  1996.  The net loss
attributable  to common stock was  increased by the  preferred  stock  dividends
($174,000) and an accounting  "deemed  dividend"  ($1,110,000)  arising from the
amortization  of the  beneficial  conversion  feature of the Company's  Series B
Preferred Stock. The Company is calculating earning per share to comply with the
recent SEC staff position on accounting for  securities  issued with  beneficial
conversion  features.  This  accounting  requires  that the Company  reflect the
difference  between  the  market  price of the  company's  common  stock and the
applicable  conversion rate on the convertible  preferred stock as a dividend at
the issue date (the beneficial  conversion feature totaling  $1,109,589) and has
amortized the dividend  over a 180 day period from February 12, 1997,  the issue
date of the convertible preferred stock.

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

     Revenues.  The Company's total revenues  decreased by  approximately  45.2%
from $39.4 million for the year ended December 31, 1995 to $21.6 million for the
year ended December 31, 1996.  Contract  service income decreased for the period
by 38.6% from $33.9  million in 1995 to $20.8  million in 1996.  The decrease in
contract  service income was  attributable to a combination of (1) completion in
early 1996 of a contract to dismantle  and relocate an ammonia plant to Pakistan
(the "FFC Contract")  which accounted for $13.4 million of revenues in 1995, (2)
delays in the commencement of several  contracts  awarded to IDM in 1996 and (3)
the reversal of $2.1  million in  previously  accrued  revenues and gross margin
associated  with change order claims under  negotiation  with two customers that
have not been resolved at year end. Surplus  equipment and scrap sales decreased
by 85.4% from $5.5 million from the year ended December 31, 1995 to $0.8 million
in 1996  due to the  sale in 1995 of $4  million  of  glass  lined  and  process
equipment in connection with the formation of the Company's  marketing  alliance
with UPE.

     Cost of sales.  Cost of sales,  which  includes  direct job costs,  cost of
equipment  sales,  unusual job costs,  and  write-down of the Company's  surplus
generator inventory,  decreased by approximately 39% from $36.7 million for 1995
to $22.4 million for 1996.  Direct job costs  decreased by 29.4% during 1996 and
increased from 89.9% to 103.3% of contract income.  The primary elements of such
decrease in job costs were materials and supplies, job salaries,  subcontracting
and disposal expense. The decrease in such job costs was primarily  attributable
to the decreased  level of activity  following  completion of the performance of
the  FFC  Contract.   The   deterioration  in  gross  margins  during  1996  was
attributable  to a combination of (1) bidding new contracts at lower than normal
margins  in order to  penetrate  strategic  markets  serviced  by the  Company's
regional offices and (2) cost overruns on several  contracts,  including the Los
Alamos  project where the Company is presently in  negotiations  to recover $2.1
million of additional costs incurred as a result of change orders from clients.



                                       23


<PAGE>


     Cost of equipment  sales  decreased  78.6% during 1996 and  increased  from
53.8% to 77.1% of equipment  and scrap sales  revenues.  The decrease in cost of
equipment sales and the decrease in gross margin was attributable the sale, in a
bulk transaction, of $4,000,000 of surplus equipment to UPE during 1995.

     In addition to the routine changes  discussed  above, the Company's cost of
sales reflects one time charges of $3.3 million in unusual job costs during 1995
and a write-down of the  Company's  surplus  generator  inventory of $300,000 in
1996.

     General and administrative  expense.  General and  administrative  expenses
increased by 26.3% from $7.6 million  (19.2% of gross  revenues) in 1995 to $9.6
million  (44.4%  of gross  revenues)  in  1996.  The  increase  in  general  and
administrative  expenses was primarily  attributable to a combination of (1) the
general and administrative  expenses of Global Waste & Energy, the Company's 90%
owned  subsidiary  which was  established  during the year  ($665,000),  (2) the
write-down of a portion of the Company's  notes  receivable  from UPE ($630,000)
and (3) increased legal fees ($394,000).

     Depreciation and amortization. Depreciation and amortization expense stayed
approximately the same $0.7 million in both years.

     Loss from operations.  Loss from operations  increased from $5.6 million in
1995 to $11.0 million in 1996. As a percentage of revenues, loss from operations
increased  from  14.2%  in 1995 to  50.9% in 1996.  The  increase  in loss  from
operations was  attributable  to the deferral of several large  contracts  which
were expected to commence in 1996.

     Interest income and expense. The Company experienced a decrease in interest
income  from $0.3  million in 1995 to $0.2  million in 1996 and an  increase  in
interest expense from $0.1 million in 1995 to $0.2 million in 1996. The decrease
in interest  income and increase in interest  expense was  attributable to lower
levels of funds  available for investment  due to the loss sustained  during the
year and a full year of interest  expense on $0.6 million of equipment  financed
in December 1995.

     Income taxes.  The Company's  credit for income taxes  increased  from $1.5
million in 1995 to $1.9  million in 1996.  The increase in the income tax credit
for 1996 was attributable to the higher operating loss.

     Miscellaneous.  During fiscal years 1995 and 1996, the Company  provided no
post retirement benefits subject to FAS 106.

     As a result  of the  foregoing,  the  Company  reported  a net loss of $9.1
million in 1996 as compared to a net loss of $3.9 in 1995.

Liquidity and Capital Resources

     At December  31,  1997,  the  Company  had a deficit in working  capital of
approximately  $1.1  million,  including a cash  balance of $0.6  million.  This
compares to working  capital of $6.1  million and a cash balance of $1.0 million
at December 31, 1996. The $7.2 million  decrease in working capital and decrease
in cash is  attributable  to the $11.5 million  pre-tax loss and $4.9 million in
cash used in investing  activities  of which the  investment  in and advances to
unconsolidated  affiliates of $3.5 million was the largest  item.  Those amounts
were  partially  offset by the  receipt of $6.5  million  from the  exercise  of
outstanding  warrants and options during the year;  $5.5 million in net proceeds
from Convertible  Securities issuance,  less $0.7 million for principal payments
on debt, for a total of approximately  $11 million in cash provided by financing
activities.

     Approximately  $0.5 million of working capital  consisted of unbilled costs
and  estimated  earnings on ongoing  projects.  Such  amounts are expected to be
received during 1998 as projects progress with all such amounts being payable to
the Company by the completion of such projects.



                                       24


<PAGE>


     Also included in the Company's working capital balance at December 31, 1997
was $0.6 million of surplus equipment inventory (net of a $0.9 million valuation
reserve)  held for sale  which  gross  inventory  level  was  identical  to that
reported at December 31, 1996.  The  inventory  reflects the  Company's  sale of
substantially all of its surplus equipment inventory,  other than generators, to
UPE in  connection  with the  formation of a marketing  alliance with UPE during
1995. The Company's remaining inventory consists of nineteen (19) generator sets
with a total  electrical  capacity  of 242,500  kilowatts  per hour  (KWH).  The
estimated  market price of the Company's  generator  inventory is twelve million
dollars.  Twelve (12) of the  generators are steam driven and range in size from
12,500  kilowatts to 33,000  kilowatts  (KW).  Seven (7) of the  generators  are
diesel  driven  and  range in size from  1,000 to 9,000  kilowatts  (KW).  These
generator sets should not be considered as obsolete or outdated  inventory since
its design and  technology  has not changed  much over the years.  They are very
long lead items (15-18 months), experience and project specific and as such they
are not to be compared with  disposable  items.  It is the  Company's  intent to
incorporate this inventory in future projects.

     The Company had available at December 31, 1997,  approximately  $19,775,000
of operating  loss  carry-forwards  that may be applied  against  future taxable
income.  $2,350,000  of such losses  expire in the year 2010 , $9,225,000 in the
year 2011,  and the balance the  following  year.  Based on the reported loss to
date it will take  approximately  $12.2 million dollars in future taxable income
to recover the reported  deferred tax asset of  $4,170,000 at December 31, 1997.
In assessing  the  realizability  of deferred tax assets,  management  considers
whether it is more likely than not that some  portion or all of the deferred tax
assets will be  realized.  The  ultimate  realization  of deferred tax assets is
dependent  upon the  generation of future  taxable  income during the periods in
which temporary  differences  become deductible and the net operating losses can
be carried  forward.  In  determining  such  projected  future  taxable  income,
management  has considered the company's  historical  results of operation,  the
current  economic  environment  with the company's  core  industries  and future
business activities which the company has positioned itself. Management believes
the company will realize taxable income in future years.  However,  based on the
company's  substantial  losses over the past three years,  the current  contract
commitments  in the backlog,  and carry forward  limitations  governed by state,
federal and foreign tax agencies, management believes it is more likely than not
that the company will not realize its entire net deferred tax asset. A valuation
allowance of $6,357,000 has been established by management as a reduction of the
company's deferred tax assets of $10,527,000.  Management  believes that the net
deferred tax asset will be realized  through  future taxable  income,  primarily
from the  substantial  revenue to be derived from projects such as the Miravalle
Power  Project   and/or  the  Greifswald   Nuclear  Plant   Decommissioning/Site
Revitalization Project. Management believes that the income generated from these
projects  will be more than  sufficient  to realize  the  deferred  tax asset at
December 31, 1997. 

     The  Company's  accounts  receivable  decreased by 27.2% from 1996 to 1997.
Such  decrease  in  accounts  receivable  was  attributable  to lower  levels of
business activity.  As a percentage of revenues,  accounts receivable  decreased
from 26.0% in 1996 to 22.8% in 1997.  The decrease in accounts  receivable  as a
percentage of revenues reflects lower sales in the fourth quarter of 1997 versus
1996.  Accounts  receivable  as a percentage  of fourth  quarter  revenues was a
comparable 87% and 88% in 1997 and 1996, respectively.

     Year-end  receivables as a percentage of fourth quarter  revenue  increased
substantially  from  53.0% in 1994 to 103.5% in 1995 and 88% in 1996.  The ratio
dropped to 53% at December  31, 1994  because the Company  received a $4,184,000
payment on a major  contract  on December  23,  1994.  If this  payment had been
received after year end, the ratio would have been a more comparable 98.4%.

     Unbilled  revenue as a percentage  of quarterly  contract  income was 0% at
December 31, 1993,  31% at December 31, 1994,  56% at December 31, 1995,  26% at
December  31, 1996 and 11% at December  30, 1997.  Also,  accounts  payable have
constantly  decreased  since  1994  whereas  accounts  receivable  and  unbilled
revenues have increased  substantially during this period. Prior to going public
in April 1994,  most of the  Company's  revenues  were  generated in the private
sector.  Many of these contracts had substantial initial  mobilization  payments
and generated positive cash flow during the life of the contract. Since then the
company has been successful,  as a result of its growth strategy, in obtaining a
number of government  contracts at major  Department of Energy and Department of
Defense  sites.  This work was obtained as a direct  result of opening three new
regional  offices.  The experience  with these  contracts has been negative cash
flows until we near contract completion.  This is due to the requirement that we
submit a schedule and a schedule of values at the  beginning of the job and bill
according  to the percent  complete of each item in the schedule of values - not
the costs we have  incurred.  Our jobs of any size are at a risk of being  front
end cost loaded when there is little  progress to report  (i.e.,  we cannot bill
until the structure is demolished).  The Company is aware of this problem and is
trying to remedy it by maximizing  mobilization costs in the schedule of values,
requiring  subcontractors to bill on the same basis and aggressively negotiating
better (less front end cost loaded) schedule of values.



                                       25


<PAGE>


     Initially the Company tried to increase  payment terms to vendors by paying
them after the Company received our payment. This method was unsuccessful.  Many
vendors put the Company on a COD basis and its D&B rating weakened because D&B's
file showed  "increased  slowness in the company's  payment  record." This lower
rating  hurt the  Company in attempts  to  establish  credit  with new  vendors.
Because IDM is a growing company and trying to establish good relationships with
its vendors,  the company is now paying its vendors within terms to fifteen days
late and attempting to improve its D&B "paydex  rating." The paydex rating of 60
is much worse than the  average of the lower  quartile  for the  industry  of 68
(median for the industry is 75).

     As a result of the loss incurred  during 1997,  operating  activities  used
$6.4 million in cash during 1997. The Company also used $4.9 million in cash for
investing  activities  during 1997 for (1) maintenance of a 10% interest in Life
for $415,000,  (2) the acquisition of certain property,  plant and equipment and
other assets for $873,000,  (3) an investment in and advances to  unconsolidated
affiliates of $3,453,000,  and (4) advances and loans to certain officers in the
amount of $161,000.  Cash flows from financing  activities totaled $10.9 million
during 1997 and consisted  principally of (1) $6.5 million in proceeds  received
from the  exercise of various  warrants  and  options,  (2) $5.5  million in net
proceeds  from  convertible  securities  issuances  and (3)  ($0.7)  million  in
principal payments in long-term debt.

     In addition to the foregoing  items which impacted the Company's cash flows
during  1997,  the  Company  carried  out  several  non-cash   transactions  and
transactions  with  subsidiaries  not  reflected  in  the  Company's  cash  flow
statements.  Among the non-cash  transactions  entered into during 1997 were (1)
the beneficial  conversion feature on the convertible notes of $4,819,000 and on
the  convertible  preferred  stock of $1,110,000 and, (2) the conversion of $0.3
million of  convertible  preferred  stock into common stock.  Transactions  with
subsidiaries  during 1997 related  principally to the  capitalization of various
subsidiaries formed to deploy the Company's Kocee Gas Generator  technology.  At
December  31,  1997,  the  Company  had  loaned  $2.5  million  to its 90% owned
subsidiary,  Global Waste and Energy, Inc. Such loan is repayable on demand with
interest at 9.25%.

     The Company  requires  substantial  working  capital to support its ongoing
operations.  As is common in the environmental  services  industry,  payment for
services  rendered by the Company are  generally  received  pursuant to specific
draw  schedules  after  services  are  rendered.  Thus,  pending  the receipt of
payments for services  rendered,  the Company must  typically  fund  substantial
project costs,  including  significant  labor and bonding costs,  from financing
sources  within and outside of the Company.  Certain  contracts,  in  particular
those with United States governmental agencies, may provide for payment terms of
up to 90 days or more and may  require the  posting of  substantial  performance
bonds which are generally not released until completion of a project.

     Prior to the completion of the Company's public  offering,  operations were
historically funded through a combination of operating cash flow, term notes and
bank lines of credit. Following the public offering, the Company paid off all of
its then existing bank debt. At December 31, 1997,  the Company had no bank debt
and no  significant  long-term  debt and was  funding  its  operations  entirely
through cash on hand and operating cash flow.

     With the  substantial  increase  in  volume  and size of jobs on which  the
Company  performed  services  during 1995,  and as a result of the incurrence of
costs  relating to the opening of  additional  offices and to otherwise  support
growth,  the Company  experienced  shortages in working capital during the third
quarter of 1995.  In  September  of 1995,  after  evaluating  various  financing
options,  the Company sold $5 million of 7% convertible  notes (the "Convertible
Notes") to various  non-U.S.  investors.  The Company received net proceeds from
the sale of the Convertible Notes of approximately $4.2 million. The Convertible
Notes were due on September  15, 1997 and accrued  interest at the rate of seven
percent  per  annum  payable  upon  maturity  only if the  notes  have  not been
converted into Common Stock. The holders of the Convertible Notes were entitled,
at their option, to convert such notes into shares of the Company's Common Stock
at a  conversion  price for each share  equal to the lessor of the  closing  bid
price of the Common Stock on September 15, 1995 ($5.00),  or eighty-two  percent
(82%)  of the  closing  bid  price  of the  Common  Stock  on the day  prior  to
conversion.  As of December 31, 1995,  $1,358,000 of the  Convertible  Notes had
been  converted  resulting  in the issuance of 453,366  shares of Common  Stock.
During 1996,  the  remaining  $3,642,000  of  Convertible  Notes were  converted
resulting in the issuance of 1,143,903 shares of Common Stock.



                                       26


<PAGE>


     In February of 1997,  the Company  sold 300  shares,  or $3.0  million,  of
Series B Convertible  Preferred  Stock to provide funding for the Company's East
Dam project and other  projects on which the Company  commenced  work during the
first half of 1997. The Series B Preferred  Shares are  convertible  into Common
Stock commencing 91 days after issuance at the lesser of (i) 120% of the average
closing  price of the Common Stock over the five  trading-day  period  preceding
closing ($2.67) or 82% of the average closing price of the Common Stock over the
five trading-day  period preceding  conversion for conversion  occurring between
the 91st and 120th day following closing, (ii) 110% of the average closing price
of the Common Stock over the five trading-day  period preceding closing ($2.475)
or  79% of  the  average  closing  price  of the  Common  Stock  over  the  five
trading-day  period preceding  conversion for conversion  occurring  between the
121st and 150th day following  closing,  (iii) 100% of the average closing price
of the Common Stock over the five trading-day  period preceding closing ($2.225)
or  76% of  the  average  closing  price  of the  Common  Stock  over  the  five
trading-day  period preceding  conversion for conversion  occurring  between the
151st and 180th day  following  closing,  and (iv) 100% of the  average  closing
price of the Common Stock over the five  trading-day  period  preceding  closing
($2.225) or 73% of the average  closing  price of the Common Stock over the five
trading-day period preceding conversion for conversion occurring on or after the
181st day  following  closing.  The Series B Preferred  Shares pay a 7% dividend
payable on conversion or at redemption in cash or Common Stock, at the Company's
option. All Series B Preferred Shares remaining outstanding on February 12, 2000
shall be  automatically  converted  into Common Stock.  On August 13, 1997,  the
Company completed a private placement of $3,025,000 of 7% Convertible Notes (the
"Convertible  Notes")  and  2,675,000  three  year  Warrants  (the  "Three  Year
Warrants").

     The Convertible  Notes are  convertible  into Common Stock at the lesser of
(i) $2.75 per share or (ii) 75% of the  average  closing bid price of the Common
Stock during the five trading days prior to conversion.  The Three Year Warrants
are  exercisable for a three year period at the lesser of $3.00 per share or the
lowest conversion price of the Convertible Notes.  Conversion of the Convertible
Notes and  exercise of the Three Year  Warrants was subject to the issuance of a
maximum  of  1,997,130   shares  of  Common  Stock  on  conversion   unless  the
shareholders  of  the  Company   approved   issuances  beyond  that  level  upon
conversion.  Shareholder  approval  of  issuances  beyond  1,997,130  shares was
received on November 4, 1997. Further, the Company has the right, upon notice to
the holders, to redeem any Convertible Notes submitted for conversion at a price
of $2.75 or less at 125% of the principal amount of such Convertible  Notes. The
Convertible  Notes pay interest at 7% payable  quarterly and on conversion or at
redemption in cash or Common Stock, at the Company's option. In the event that a
registration  statement covering the shares underlying the Convertible Notes has
not been declared effective within 90 days or 180 days after the issuance of the
Convertible Notes, the interest rate on the Convertible Notes shall be increased
to 18% and  24%,  respectively,  from  those  dates  until  such a  registration
statement becomes effective.  The registration  statement was declared effective
in January 9, 1998. The amount of additional interest expense was $54,500.

     The value, totaling $4,718,750, of the discounted conversion feature on the
notes  and the  value of the  warrants  has  been  accounted  for as  additional
interest via a debit to debt discount and a credit to paid-in-capital.  The debt
discount has been  calculated as the fixed  discount from the market at the date
of sale based upon the common  stock's  trading  price of $4 per share on August
13th.  This  interest is being  amortized  over the three year life of the debt.
During 1997, $600,000 was amortized and recorded as interest expense.

     On  February  13.  1998,  the  Company  sold  3,600  shares  of Series C 7%
Convertible  Preferred  Stock  and  2,350,000  Four  Year  $5.00  Warrants.  The
securities were issued to five accredited  investors.  The aggregate sales price
of such  securities  was  $3,600,000.  Commissions  totaling  10%  were  paid in
connection  with  the  placement.   The  securities  were  offered  pursuant  to
Regulation  D. The  offer  was  directed  exclusively  to a  limited  number  of
accredited  investor  without  general  solicitation or advertising and based on
representations  from the  investors  that such  investors  were  acquiring  for
investment The  securities  bear legends  restricting  the resale  thereof.  The
Series C Preferred  Stock is convertible  into Common Stock at the lesser of (i)
$4.50 per share or (11) 75% of the average closing bid price of the Common Stock
during the five trading days prior to  conversion.  The Four Year $5.00 Warrants
are  exercisable  for a four year period at the lesser of $5.00 per share or the
lowest  conversion  price of the Series C  Preferred  Stock.  Conversion  of the
Series C Preferred Stock and exercise of the Four Year $5.00 Warrants is subject
to the issuance of a maximum of 3,285,438  shares of Common Stock on  conversion
unless the shareholders of the Company have approved  issuance beyond that level
upon  conversion.  In the absence of  shareholder  approval of  issuances  above
3,285,438  shares,  the holders of Series C Preferred  Stock and Four Year $5.00
Warrants  remaining  outstanding if and when  3,285,438  shares have been issued
will have the right to demand  redemption  of the  Series C  Preferred  Stock at
$1,250 per share plus accrued  dividends  and to demand  redemption  of the Four
Year $5.00  Warrants at the pre-tax  profit such holders would have realized had
the Four Year $5.00 Warrants been exercised at the time  redemption is demanded.
Further,  the Company has the right,  upon notice to the holders,  to redeem any
Series C Preferred Stock submitted for conversion at a price or $2.75 of less at
125% of the principal  amount of such Series C Preferred  Stock plus accrued and
unpaid  dividends.  The Series C Preferred  Stock pays dividends at 7% per annum
payable quarterly and on conversion or at redemption in cash or Common Stock, at
the Company's option.

     On  February  11,  1998,  the  Company  issued  1,270,000  Three Year $4.50
Warrants (the "Lock-Up  Warrants").  The Lock-Up were issued to three accredited
investors. The Lock-Up Warrants were issued in conjunction with the execution of
Lock-Up  Agreements by the holders of $3.00 Warrants of the Company  whereby the
holders  of such  warrants  agreed not to resell  any  shares  underlying  those
warrants  prior to July 30, 1998.  The Lock-Up were offered  pursuant to Section
4(2).  The offer was  directed  exclusively  to a limited  number of  accredited
investor   without   general   solicitation   or   advertising   and   based  on
representations  from the  investors  that such  investors  were  acquiring  for
investment.  The securities bear legends  restricting  the resale  thereof.  The
Lock-Up Warrants are exercisable for a three year period at $4.50 per share.

     On January 8, 1998, the Company made a $300,000  payment  representing  its
one half share of the  capital of Seven Star  International  Holding,  Inc.  ("7
Star"). 7 Star is a joint venture between IDM and Jin Xin and is incorporated in
The British  Virgin  Islands.  7 Star has entered into a license  agreement with
Life International  Products,  Inc. ("Life") for the right to process,  produce,
promote and sell Life products in the Peoples  Republic of China (including Hong
Kong), Taiwan, Indonesia and Singapore. The license agreement requires a minimum
royalty of  $400,000  for the first year  which was paid upon  execution  of the
license agreement.


     Other than funds provided by operations and the potential  receipt of funds
from the exercise of outstanding warrants,  the Company presently has no sources
of financing or  commitments  to provide  financing.  A total of 440,000 Class A
Warrants  issued in connection  with the Company's  initial public offering were
outstanding  and exercisable at December 31, 1997. Such warrants are exercisable
to purchase two shares of common  stock each for a price of $9.00,  or $4.50 per
share.  The warrants are exercisable  until April of 1999 unless earlier called.
The Company may call the  warrants if the closing bid price of the common  stock
equals  or  exceeds  $9.00  for a period of  twenty  consecutive  trading  days.
Exercise  of the  warrants  would  provide  gross  proceeds  to the  Company  of
approximately  $4.0  million and result in the  issuance  of .9 million  shares.
There can be no assurance,  however,  when, if ever,  any or all of the warrants
will be exercised.



                                       27


<PAGE>


     Other than funding the Company's  bonding and other job costs,  the Company
does  not  anticipate  any  substantial  demands  on the  liquidity  or  capital
resources of the Company during the following twelve months.

     Management  believes  that the Company's  working  capital is sufficient to
meet the Company's  anticipated  needs for at least the following twelve months,
including the performance of all existing contracts of the Company.  However, as
the Company is presently  pursuing bids on multiple large projects,  the Company
may be required to seek new bank lines of credit or other  financing in order to
facilitate  the  performance  of jobs if the volume and size of  projects  being
performed  by  the  Company  increases  substantially.   While  the  Company  is
conducting  ongoing  discussions with various  potential  lenders with a view to
establishing available bank lines of credit if and when needed to support future
growth,  the Company  presently has no commitments from any bank or other lender
to provide financing if such financing becomes necessary to support growth.

The Year 2000 Issue

     Many existing  computer  programs use only two digits to identify a year in
the date field.  These programs were designed and developed without  considering
the  impact  of the  upcoming  change in the  century.  If not  corrected,  many
computer  applications  could fail or create erroneous results by or at the Year
2000. The Year 2000 issue affects virtually all companies and organizations. The
Company has  reviewed  its  accounting  software  and has  determined  since the
software it is using has four digits to identify  the year that it does not have
a problem

Certain Factors Affecting Future Operating Results


     This Form 10-K contains  forward-looking  statements  within the meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange Act of 1934. The Company's actual results could differ  materially from
those set forth in the  forward-looking  statements.  Certain factors that might
cause such a difference  include the  following:  possible  fluctuations  in the
growth  and  demand  for  energy in  markets  in which the  Company  may seek to
establish energy production operations; intense competition for establishment of
energy production operations in growing economies; currency, economic, financing
and other risks inherent in establishing  energy  operations in foreign markets;
uncertainty  regarding the rate of growth in demand for nuclear  decommissioning
and site  revitalization  services;  continued delays in awarding and commencing
contracts;   delays  in  payment  on  contracts   occasioned  by  dealings  with
governmental and foreign entities;  changes in accepted remediation technologies
and  techniques;  fluctuations  in operating  costs  associated  with changes in
project specifications and general economic conditions; substantial fluctuations
in revenues resulting from completion and replacement of contracts and delays in
contracts; economic conditions affecting the ability of prospective customers to
finance projects; and other factors generally affecting the timing and financing
of projects.  In addition to the foregoing,  the following  specific factors may
affect the Company's future operating results.


     At December  31,  1997,  the  Company was on-site on projects  with a total
leave in value of  services  yet to be  performed  of $31  million.  The largest
projects on which the Company was on-site at December 31, 1997 were the East Dam
project in  Southern  California  with an  approximate  value of  services to be
performed  of $15  million  and  Bechtel  Jacobs  with an  approximate  value of
services to be performed of $8 million.  Both contracts are expected to be fully
completed by the end of 1998.

     In addition to its existing contracts, the Company is presently bidding on,
or  proposes to bid on,  numerous  projects  in order to replace  revenues  from
projects  which will be  completed  during 1998 and to increase the total dollar
volume of projects under  contract.  Management  anticipates  that the Company's
efforts to bid on and secure new contracts  will focus on projects  which can be
readily serviced from the regional offices opened by the Company during 1994 and
1995 as well as  certain  large  international  plant  relocation  projects  and
nuclear  decommissioning  projects  which the  Company  intends to  pursue.  The
Company's  regional  offices,  particularly  the Oak  Ridge,  Tennessee  and Los
Alamos,  New Mexico  offices are  strategically  located in areas  having a high
concentration of prospective  governmental and private  remediation sites. While
bidding to perform services at such sites is expected to be highly  competitive,
management  believes that the Company's  existing  presence on adjacent projects
combined  with its proven  expertise  and  resources  will allow the  Company to
successfully bid on and perform substantial additional projects based out of its
regional offices.

     In  addition  to  remediation  and plant  relocation  projects on which the
Company is presently bidding or negotiating, the Company during 1997 entered the
energy  production  and  services  market.  The Company  expects to begin energy
projects and nuclear  decommissioning  projects at the following prospects by as
early as the  second  half of  1998,  which  are  representative  of the  future
direction in which the Company plans to embark:



                                       28


<PAGE>



     Miravalle  Power  Project.  The Company has signed a 15 year power purchase
     agreement  pursuant  to which it will  construct,  own and  operate a power
     production facility to supply  approximately 45 megawatts of electric power
     to El  Salvador's  leading  power  distribution  company.  The  Company has
     entered into an initial agreement with Caterpillar Power Ventures, Inc. and
     Caterpillar  Power  Ventures   International  Ltd.,  both  subsidiaries  of
     Caterpillar,  Inc.,  pursuant to which it is anticipated  that  Caterpillar
     will participate as an equity investor and lead contractor on the Miravalle
     Power  Project.  The Company,  at April 15, 1998,  was  finalizing  project
     financing  and  expects to begin  construction  of a $55  million  facility
     shortly.  Construction  on this  project is expected to take about one year
     with the plant scheduled to be operational and supplying electricity by the
     middle of 1999.

     Initial  estimates of the value of the supply  contract  were $360 million.
     However,  with the privatization of the energy distribution  industry in El
     Salvador  shortly after the Company  finalized its supply  contract,  lower
     power  rates  originally  sought by the  Salvadorean  government  are being
     eliminated.  With realistic  prospects of power tariffs as much as doubling
     over the next two years,  the value of the power supply  contract  could be
     substantially higher than initially projected.


     Greifswald Nuclear Plant  Decommissioning/Site  Revitalization Project. The
     Company  is a  principal  member of a  consortium  selected  by the  German
     Government   to  negotiate   the   revitalization/reindustrialization   and
     privatization of the  Energiewerke  Nord site in Lubmin,  Germany.  Nuclear
     decommissioning  and associated  cleanup and maintenance  activities at the
     site  will take  about 10 years to  complete.  The  German  Government  has
     appropriated DM 6.209 billion for the project.

     The  revitalization  and  reindustrialization  of the site is  expected  to
     provide  numerous  additional  opportunities  for  the  Company,  including
     attracting  new  investment in the region,  upgrading  infrastructure;  and
     possibly new construction project. The Company, and its consortium partners
     (which  includes Duke Energy),  have committed to create a minimum of 1,500
     new jobs at the site in the Greifswald and Mecklenberg-Vorpommem region and
     have identified and negotiated with numerous multinational high-technology,
     biotechnology  and basic  manufacturing  companies  desiring to establish a
     presence   at  the  site.   The  first   investor,   Foremost-Magellan,   a
     Taiwanese/American  high  technology  holding  company,  has  committed  to
     establish operations in the region and at the site.


     Georgia  Project.  The Company has signed a Protocol of Intention  with the
     Ministry  of Fuel and Energy in the former  Soviet  state of Georgia  under
     which  the  Company  will  have the  right to  construct,  own and  operate
     electric energy facilities in the region.  The Company,  at April 15, 1998,
     was actively developing the most financially attractive projects in Georgia
     with the intent of signing a 35-year power  purchase  agreement  which will
     establish  the  terms  for  the  sale of  electric  power  from  generating
     facilities with a capacity of up to 1,000 megawatts.

     In addition to the above projects which are in advanced stages, the Company
is presently in discussions  involving 21 distinct  energy  production  projects
worldwide.  The  Company  believes  that the  successful  commencement  of power
production  operations  in El Salvador  will  enhance its position in the energy
production  market and that  ongoing  discussions  will result in the  Company's
participation  in the  development  of  multiple  energy  production  facilities
providing 1,500  megawatts or more of electric  energy to various  countries and
cities in Asia, Central and South America and Eastern Europe.

     The Company also believes  that  successful  implementation  of the planned
decommissioning and site  revitalization  activities at the Greifswald site will
open the door for numerous  opportunities  to provide similar long term services
at nuclear facilities throughout the world,  including in Western Europe and the
United States.


     While the Company  anticipates  that entry into the energy  production  and
nuclear facilities  decommissioning and site revitalization  market will provide
significant  opportunities for sustainable growth in both revenues and operating
profits,  entry into those markets requires  substantial capital commitments and
involves   certain   risks.    Undertaking   energy   production   and   nuclear
decommissioning  projects can be expected to require capital  expenditures of as
little as several  million  dollars  to  hundreds  of  millions  of dollars  per
project.  The Company does not currently have the necessary capital resources to
undertake such ventures without third party financing.  The Company  anticipates
that it will take on equity  partners  and seek third  party debt  financing  to
finance  substantial  portions of the  projects  which it expects to  undertake.
While the Company has been successful in attracting substantial partners in both
its El  Salvador  energy  project  and its German  nuclear  decommissioning/site
revitalization  project,  the Company has no commitments from potential partners
and  financing  sources to provide  funding for future  projects and there is no
assurance  that such partners and financing  sources will be available,  or will
provide  financing on acceptable terms, if and when the Company commences future
projects.


Impact of Inflation

     Inflation  has not been a major  factor  in the  Company's  business  since
inception.  There can be no assurances that this will continue.  However,  it is
anticipated  that any  increases in costs to the Company can be passed on to its
customers in the form of higher prices.



                                       29


<PAGE>


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not applicable

ITEM 8.  FINANCIAL STATEMENTS  AND SUPPLEMENTARY DATA

     The  consolidated  financial  statements of the Company,  together with the
independent  auditors'  report  thereon of Samuel Klein and Company,  appears on
pages F-1 through  F-33 of this report.  See Index to Financial  Statements  on
page 35 of this report.

ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

         Not applicable

                                    PART III

ITEM 10.  DIRECTORS,   EXECUTIVE   OFFICERS,   PROMOTERS  AND  CONTROL  PERSONS;
          COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

     The  information  required by this Item will be  included  in a  definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after the close of the Company's  fiscal year. Such  information is incorporated
herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

     The  information  required by this Item will be  included  in a  definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after the close of the Company's  fiscal year. Such  information is incorporated
herein by reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  information  required by this Item will be  included  in a  definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after the close of the Company's  fiscal year. Such  information is incorporated
herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  required by this Item will be  included  in a  definitive
proxy statement, pursuant to Regulation 14A, to be filed not later than 120 days
after the close of the Company's  fiscal year. Such  information is incorporated
herein by reference.

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a)  The following documents are filed as a part of this Report:

          (1)  Consolidated   Financial  Statements:   See  Index  to  Financial
               Statements  on page 35 of this report for  financial  statements
               and supplementary data filed as part of this report.

          (2)  Financial Statement Schedules

                  None



                                       30


<PAGE>

         (3)      Exhibits
<TABLE>


    Exhibit
    Number                                   Description of Exhibit
  ----------                               --------------------------
     <S>       <C>


      3.1       Restated Certificate of Incorporation of IDM Environmental Corp. (1)
      3.2       Bylaws, as amended, of IDM Environmental Corp. (3)
      4.1       Specimen Common Stock Certificate (1)
      4.2       Specimen Class A Warrant Certificate (1)
      4.3       Form of Warrant Agreement (1)
      4.4       Certificate of Designation fixing terms of Series A Junior Participating Preferred
                Stock (2)
      4.5       Certificate of Designation fixing terms of Series B Preferred Stock (6)
      4.6*      Certificate of Designation fixing terms of Series C Preferred Stock
      4.7       Warrant Agreement dated February 12, 1997 (6)
     10.1       Lease Agreement between International Dismantling & Machinery Corporation
                and L&G Associates dated March 1, 1993 for site in South River, New Jersey (1)
     10.2+      1993 Incentive Stock Option Plan, as amended (3)
     10.3+      1995 Incentive Stock Option Plan (3)
     10.4+*     1998 Comprehensive Stock Option and Award Plan
     10.5+      Employment Agreement between the Company and Joel Freedman, as amended,
                dated February 1, 1996 (3)
     10.6+      Employment Agreement between the Company and Frank Falco, as amended,
                dated February 1, 1996 (3)
     10.7+*     Amendment, dated September of 1997, to Employment Agreement between the Company and Joel Freedman
     10.8+*     Amendment, dated September of 1997, to Employment Agreement between the Company and Frank Falco
     10.9+*     Second  Amendment,  dated  February  1998,  to  Employment  Agreement  between the Company and Joel
                Freedman
     10.10+*    Second Amendment, dated February 1998, to Employment Agreement between the Company and Frank Falco
     10.11+*    Nonqualified Stock Option Agreement between the Company and Joel Freedman
     10.12+*    Nonqualified Stock Option Agreement between the Company and Frank Falco
     10.13      Alexander Charles Lentes Stock Option (7)
     10.14      Bernd Muller Stock Option (7)
     10.15*     Stock Option Agreement with M.H. Meyerson & Co., Inc. dated August, 1997
     10.16*     Nonqualified Stock Option Grant, dated January 8, 1998, between the Company and The Boston Group
     10.17      Amended and Restated Warrant Agreement with Rochon Capital Group Ltd. (7)
     10.18*     Consulting Agreement dated May 23, 1997 between the Company and Ron Logerwell
     10.19      Form of Agreement regarding confidential information and competition by
                employees (1)
     10.20      Form of Severance Agreement (3)
     10.21      Voting Agreement (1)
     10.22      Share Rights Agreement dated April 1, 1996 (2)
     10.23      License Agreement dated June 30, 1996 with Life International Products (4)
     10.24      Agreement dated July 19, 1996 with Continental Waste Conversion, Inc. (4)
     10.25      License  Agreement  dated July 18, 1996 with  Continental  Waste  Conversion,  Inc. and Continental
                Waste Conversion International, Inc. (4)
     10.26      Promissory Note in the amount of $160,000  (Canadian)  dated July 22, 1996 from  Continental  Waste
                Conversion, Inc. to Continental Waste Conversion International (4)
</TABLE>



                                       31


<PAGE>

<TABLE>
     <S>       <C>

     10.27      Pledge and Security  Agreement dated July 19, 1996 between  Continental Waste Conversion,  Inc. and
                Continental Waste Conversion International, Inc. (4)
     10.28      Form of 7% Convertible Note due January 31, 1999 (5)
     10.29      Form of Three Year $3.00 Warrant (5)
     10.30*     Protocol of Intention dated January 20, 1998 re: Georgia power plant
     10.31*     License  Agreement  dated  December 15, 1997 between Life  International  Products,  Inc. and Seven
                Star International Holding, Inc.
     10.32*     Form of Lock-Up Agreement
     10.33*     Form of Lock-Up Warrant
     10.34*     Form of Four Year $5.00 Warrant
     10.35*     Consulting Agreement dated March 1997 with SAGA Promotions, Inc.
     10.36*     Stock Option Grant dated February 1998 to SAGA Promotions, Inc.
     10.37*     Stock Option Grant dated February 1998 to Aaron Lehman
     10.38*     Revised Memorandum of Understanding dated March 1998 re: Taiwan waste-to-energy project
     10.39*     Modification to Power Purchase Contract dated November 1997 re: El Salvador power project
     21.1*      List of subsidiaries
     23.1*      Consent of Samuel Klein and Company
     27.*       Financial Data Schedule
                                
+        Compensatory plan or management agreement.
*        Filed herewith
(1)      Incorporated by reference to the respective  exhibits filed with  Registrant's  Registration  Statement on
         Form SB-2 (Commission File No. 33-66466) declared  effective by the Securities and Exchange  Commission on
         April 20, 1994
(2)      Incorporated by reference to the respective  exhibits filed with  Registrant's  Current Report on Form 8-K
         dated April 1, 1996
(3)      Incorporated  by  reference to the  respective  exhibits  filed with  Registrant's  Annual  Report on Form
         10-KSB for the year ended December 31, 1995
(4)      Incorporated  by reference to the respective  exhibits filed with  Registrant's  Quarterly  Report on Form
         10-Q for the quarter ended September 30, 1996
(5)      Incorporated  by reference to the respective  exhibits filed with  Registrant's  Quarterly  Report on Form
         10-Q for the quarter ended June 30, 1997
(6)      Incorporated by reference to the respective  exhibits filed with  Registrant's  Annual Report on Form 10-K
         for the year ended December 31, 1996
(7)      Incorporated by reference to the respective  exhibits filed with  Registrant's  Registration  Statement on
         Form S-3 (Commission File No. 333-28485)  declared effective by the Securities and Exchange  Commission on
         January 9, 1998

</TABLE>

(b)      Reports on Form 8-K

          No reports on Form 8-K were filed  during the quarter  ended  December
          31, 1997.



                                       32


<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) 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.

                                                 IDM ENVIRONMENTAL CORP.



                                                 By:/s/  Joel Freedman
                                                   -------------------------
                                                        Joel Freedman
                                                        President

Dated:   April 15, 1998

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


    Signature                      Title                             Date
   -----------                    ------                            ------



 /s/ Joel A. Freedman      President, Chief Executive Officer     April 15, 1998
---------------------      (Principal Executive Officer) and
Joel A. Freedman           Director
                                    

/s/ Frank A. Falco         Executive Vice President, Chief        April 15, 1998
---------------------      Operating Officer and Chairman
Frank A. Falco             of the Board of Directors         
                                    

/s/ Michael B. Killeen     Treasurer (Principal Accounting        April 15, 1998
----------------------     and Financial Officer) and Director
Michael B. Killeen                  


---------------------                                             --------, 1998
Richard Keller             Director  


---------------------                                             --------, 1998
Frank Patti                Director

/s/ Robert McGuinness
---------------------    
Robert McGuinness          Director                               April 15, 1998



                                       33


<PAGE>


                 IDM ENVIRONMENTAL CORPORATION AND SUBSIDIARIES

                   Index to Consolidated Financial Statements


                                                                           Page
                                                                          ------

Independent Auditor's Report................................................ F-1


Consolidated Balance Sheets as of December 31, 1997 and 1996...............  F-2


Consolidated Statements of Operations for the Years ended December 31, 1997,
   1996 and 1995...........................................................  F-3


Consolidated Statements of Stockholders' Equity for the Years ended December 
   31, 1997, 1996 and 1995.................................................  F-4


Consolidated Statements of Cash Flows for the Years ended December 31, 1997,
   1996 and 1995...........................................................  F-5


Notes to Consolidated Financial Statements.................................  F-7



                                       34


<PAGE>

                          INDEPENDENT AUDITOR'S REPORT




The Board of Directors and Stockholders
IDM Environmental Corp. and Subsidiaries
South River, New Jersey


We  have  audited  the   accompanying   consolidated   balance   sheets  of  IDM
Environmental  Corp. and  Subsidiaries  as of December 31, 1997 and 1996 and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for each of the three years in the period ended  December 31, 1997.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated financial position of IDM Environmental
Corp.  and  Subsidiaries  as of December  31, 1997 and 1996,  and the results of
operations  and cash  flows  for each of the  three  years in the  period  ended
December 31, 1997, in conformity with generally accepted accounting principles.





                                                  /s/  Samuel Klein and Company
                                                  
                                                   SAMUEL KLEIN AND COMPANY

Newark, New Jersey
April 8, 1998

<PAGE>



                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<TABLE>


                                                                                                     December 31,
ASSETS                                                                                          1997              1996
                                                                                           ---------------   ---------------
<S>                                                                                       <C>                <C>

Current Assets:
  Cash and cash equivalents                                                               $       602,242    $    1,001,254
  Accounts receivable                                                                           4,094,408         5,626,208
  Stock subscription receivable                                                                                     775,862
  Notes receivable - current                                                                      116,457         1,274,773
  Inventory                                                                                       582,517         1,182,517
  Costs and estimated earnings in excess of billings                                              455,823         1,655,754
  Bonding deposits                                                                                  9,157            55,472
  Due from officers                                                                               369,541           208,676
  Prepaid expenses and other current assets                                                     1,433,068         1,884,977
                                                                                           ---------------   ---------------
     Total Current Assets                                                                       7,663,213        13,665,493

Investment in and Advances to Unconsolidated Affiliates, at cost                                3,453,309
Investment in Affiliate, at cost                                                                1,715,000         1,300,000
Notes Receivable - long term                                                                    1,381,155         1,572,238
Debt Discount and Issuance Costs                                                                4,610,166                 -
Deferred income taxes                                                                           4,170,000         2,609,000
Property, Plant and Equipment                                                                   3,277,116         2,742,650
Other Assets                                                                                      880,746           313,246
                                                                                           ---------------   ---------------
                                                                                         
                                                                                         $     27,150,705   $    22,202,627
                                                                                           ===============   ===============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Current portion of long-term debt                                                      $      3,566,393    $      351,127
  Accounts payable and accrued expenses                                                         5,159,635         7,105,827
  Billings in excess of costs and estimated earnings                                               86,604            86,496
                                                                                           ---------------   ---------------
     Total Current Liabilities                                                                  8,812,632         7,543,450
                                                                                                              
Long-Term Debt                                                                                    258,686           164,034

Minority Interest                                                                                                 1,034,483
                                                                                           ---------------   ---------------
     Total Liabilities                                                                          9,071,318         8,741,967
                                                                                           ---------------   ---------------

Commitments and Contingencies

Stockholders' Equity:
  Common stock, authorized 30,000,000 shares $.001 par value, issued
   and outstanding 14,513 073 in 1997 and 9,602,730 in 1996                                        14,513             9,603
  Additional paid-in capital                                                                   38,497,705        25,359,465
  Convertible preferred stock, authorized 1,000,000 shares $1.00 par value, issued and
  outstanding 270 shares in 1997 stated at conversion value of $10,000 per share                2,700,000                 -

  Retained earnings (deficit)                                                                (23,132,831)      (11,908,408)
                                                                                           ---------------   ---------------
                                                                                               18,079,387        13,460,660
                                                                                           ---------------   ---------------

                                                                                          
                                                                                          $    27,150,705    $   22,202,627
                                                                                           ===============   ===============
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-2

<PAGE>


                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>


                                                                                 For the Years Ended December 31,
                                                                             1997               1996              1995
                                                                       -----------------   ---------------   ---------------
<S>                                                                   <C>                 <C>                 <C>

Revenue:
  Contract income                                                      $     17,825,849   $    20,807,491   $    33,865,680
  Sale of equipment                                                              96,050           834,355         5,131,504
  Sale of scrap                                                                       -                 -           406,187
                                                                       -----------------   ---------------   ---------------
                                                                             17,921,899        21,641,846        39,403,371
                                                                       -----------------   ---------------   ---------------
Cost of Sales:
  Direct job costs                                                           17,002,308        21,491,328        30,432,547
  Unusual job costs                                                                   -                 -         3,300,000
  Cost of equipment sales                                                        47,057           643,242         2,977,484
  Write-down of inventory surplus                                               600,000           300,000                 -
                                                                       -----------------   ---------------   ---------------
                                                                             17,649,365        22,434,570        36,710,031
                                                                       -----------------   ---------------   ---------------

Gross Profit (Loss)                                                             272,534         (792,724)         2,693,340
                                                                       -----------------   ---------------   ---------------

Operating Expenses:
  General and administrative expenses                                        10,537,677         9,567,435         7,637,621
  Depreciation and amortization                                                 723,415           668,227           653,273
                                                                       -----------------   ---------------   ---------------
                                                                             11,261,092        10,235,662         8,290,894
                                                                       -----------------   ---------------   ---------------

Loss from Operations                                                       (10,988,558)      (11,028,386)       (5,597,554)

Other Income (Expense):
  Interest income (expense)                                                   (512,768)            30,542           200,141
                                                                       -----------------   ---------------   ---------------

Loss before Credit for Income Taxes                                        (11,501,326)      (10,997,844)       (5,397,413)

Credit for Income Taxes                                                     (1,561,000)       (1,850,000)       (1,530,000)
                                                                       -----------------   ---------------   ---------------

Net Loss                                                                    (9,940,326)       (9,147,844)       (3,867,413)

Preferred Stock Dividends including amortization of beneficial
   conversion feature of $1,109,589 amortized over 180 days                   1,284,097
                                                                       -----------------   ---------------   ---------------

Net Loss on Common Stock                                              
                                                                      $    (11,224,423)  $    (9,147,844)   $  (3,867,413)
                                                                       =================   ===============   ===============

Loss per Share:
  Basic loss per share                                                          $(1.00)           $(1.13)           $(0.67)
                                                                       =================   ===============   ===============

  Diluted loss per share                                                        $(1.00)           $(1.13)           $(0.67)
                                                                       =================   ===============   ===============

  Basic common shares outstanding                                            11,212,690         8,089,472         5,815,565
                                                                       =================   ===============   ===============

  Diluted common shares outstanding                                          11,212,690         8,089,472         5,815,565
                                                                       =================   ===============   ===============
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-3

<PAGE>



                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>


                                                                                  Additional        Convertible         Retained
                                                         Common Stock               Paid-in          Preferred          Earnings
                                                  ---------------------------
                                                    Shares         Amount           Capital            Stock            (Deficit)
                                                  ------------   ------------   ----------------   ---------------   ---------------
<S>                                               <C>            <C>            <C>                 <C>                 <C>   

                                                               
Balances - January 1, 1995                          5,783,334         $5,783        $12,716,381                           $1,106,849

Surrender and Retirement of Common                                                                                                 -
  Stock by Officer                                   (36,621)           (37)          (192,223)
Conversion of Convertible Notes                                                                                                    -
   to Common Stock                                    453,366            454          1,169,737
Net Loss for the Year Ended
   December 31, 1995                                        -              -                  -                          (3,867,413)
                                                  ------------   ------------   ----------------                     ---------------
Balances - December 31, 1995                        6,200,079          6,200         13,693,895                          (2,760,564)

Surrender and Retirement of
  Common Stock by Officer                            (92,214)           (92)          (670,488)                                    -
Conversion of Convertible Notes
   to Common Stock                                  1,143,903          1,144          3,319,108                                    -
Class A Warrants Exercised                          2,102,000          2,102          6,954,348                                    -

Private Placement Warrants                              7,500              8             33,742                                    -

Exercise of Underwriters Options                      300,000            300          1,979,700                                    -

Common Stock Options Exercised                         41,462             41             55,248                                    -

Issuance of Non Qualified Options, pursuant
   to a consulting agreement                                -              -            210,312                                    -
Retirement of Common Stock, pursuant to
  a stock repurchase plan                           (100,000)          (100)          (216,400)                                    -
Net Loss for the Year Ended
   December 31, 1996                                        -              -                  -                          (9,147,844)
                                                  ------------   ------------   ----------------   ---------------   ---------------
Balances - December 31, 1996                        9,602,730          9,603         25,359,465                         (11,908,408)
Issuance of Convertible
   Preferred Stock February 1997                                                                       $3,000,000
Conversion of Preferred Stock
   to Common Stock                                    192,925            193            289,237         (300,000)

Class A Warrants Exercised                          4,517,028          4,517          6,166,483

Stock Options Plan Exercises                           45,390             45             62,996

Issuance of Non-Qualified Options,
  pursuant to consulting agreements                                                     456,340
Preferred Stock Beneficial Conversion feature                                         1,109,589

Preferred Stock Dividends                                                                                                (1,284,097)

Exercise of Non-Qualified Consulting Options          155,000            155            234,845

Discounted Conversion feature on
  Convertible Notes and Warrants                                                      4,818,750
Net Loss  for the year ended
  December 31, 1997                                                                                                      (9,940,326)
                                                  ------------   ------------   ----------------   ---------------   ---------------
Balances - December 31, 1997                           
                                                   14,513,073        $14,513        $38,497,705        $2,700,000     $ (23,132,831)
                                                  ============   ============   ================   ===============   ===============
</TABLE>


  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-4

<PAGE>



                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>


                                                                    For the Years Ended December 31,
                                                                1997              1996             1995
                                                              -------            -------          -------
<S>                                                         <C>                 <C>                 <C>

Cash Flows from Operating Activities:
  Net income (loss)                                         $   (9,940,326)     $  (9,147,844)      $  (3,867,413)
  Adjustments to reconcile net income (loss) to net 
cash used in operating activities:
      Deferred taxes                                            (1,561,000)        (1,956,400)           (400,000)
      Depreciation and amortization                                831,937            668,227             653,273
      Amortization of debt discount                                612,864                  -                   -
      Compensation cost on consultant stock options                456,340                  -                   -
      Write-down of surplus inventory                              600,000            300,000                   -
      Provision for loss on notes receivable                     1,300,000            630,000                   -
      Decrease (Increase) In:                                            -                  -                   -
        Accounts receivable                                      1,531,800            989,922          (1,947,644)
        Inventory -                                                      -          2,972,875
        Notes receivable                                            49,399           (283,893)         (3,193,118)
        Costs and estimated earnings in excess of billings       1,199,931          1,978,298          (1,008,812)
        Prepaid expenses and other current assets                  451,909         (1,119,033)           (149,181)
        Bonding deposits                                            46,315            827,691           1,510,494
        Recoverable income taxes                                         -          1,114,442          (1,088,005)
 
      Increase (Decrease) In:
        Accounts payable and accrued expenses                  (1,937,675)          1,361,671          (1,845,521)
        Billings in excess of costs and estimated earnings            108            (833,079)            853,584
        Income taxes payable                                            -                   -            (477,600)
                                                               ----------          ----------          ----------
          Net cash used in operating activities                (6,358,398)         (5,469,998)         (7,987,068)
                                                               ----------          ----------          ----------
 
Cash Flows from Investing Activities:
  Acquisition of property, plant and equipment                   (305,533)           (574,832)           (639,417)
  Investment in affiliate                                        (415,000)         (1,300,000)                  -
  Investment in and advances to unconsolidated affiliates      (3,453,309)                  -                   -
  Acquisition of other assets                                    (567,500)           (313,246)                  -
  Loans and advances to officers                                 (160,865)           (330,768)           (349,632)
                                                               -----------         ----------           --------- 
          Net cash used in investing activities                (4,902,207)         (2,518,846)           (989,049)
                                                               -----------        -----------           ---------

 
Cash Flows from Financing Activities:
  Net proceeds from convertible bond issuance                          -                   -           4,185,000
  Net proceeds from convertible note issuance                  2,780,000                   -                   -
  Net proceeds from convertible preferred stock issuance       2,722,500                   -                   -
  Principal payments on long-term debt                          (676,819)           (371,109)           (193,922)
  Preferred stock dividends                                     (174,508)                  -                   -
  Purchase and retirement of common stock                              -            (216,500)                  -
  Contribution from minority interest                                  -             258,621                   -
  Repurchase of minority interest                               (258,621)                  -                   -
  Proceeds from exercise of stock options and warrants         6,469,041           9,235,800                   -
                                                              ----------           ----------           --------
          Net cash provided by financing activities           10,861,593           8,906,812           3,991,078
                                                              ----------           ----------          ---------
 
Increase (Decrease) in Cash and Cash Equivalents               (399,012)             917,968          (4,985,039)
 
Cash and Cash Equivalents, beginning of year                  1,001,254               83,286           5,068,325
                                                              ---------
Cash and Cash Equivalents, end of year                      $   602,242        $   1,001,254           $  83,286 
                                                              =========           ==========           =========

</TABLE>

                    

                                      F-5

<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Continued)
<TABLE>


                                                                                             For the Years Ended December 31,
                                                                                           1997            1996             1995
                                                                                       -------------   --------------   ------------
<S>                                                                                    <C>             <C>              <C>


                                            
Supplementary Disclosures of Cash Flow Information:

  Cash paid during the year for:
    Interest                                                                            $    184,631     $     65,694    $    35,550
                                                                                       =============   ==============   ============
    Income taxes                                                                                                   
                                                                                                        $          -    $    488,802
                                                                                       =============   ==============   ============
Supplemental Disclosure of Noncash Investing and Financing Activities:
  Property, plant and equipment financing                                              $    961,737    $      195,821   $    693,324
                                                                                       =============   ==============   ============
  Repayment of officer's loan through surrender of common stock                        $    670,580    $      192,260
                                                                                       =============   ==============   ============
  Conversion of convertible promissory notes to common stock                           $  3,320,252    $    1,170,191
                                                                                       =============   ==============   ============
  Sale to minority stockholder with stock subscription receivable                      $    775,862    $           -
                                                                                       =============   ==============   ============
  Cancellation of stock subscription receivable                                        $    775,862    $           -    $          -
                                                                                       =============   ==============   ============
  Conversion of preferred stock to common stock                                        $    300,000
                                                                                       =============   ==============   ============
  Beneficial conversion feature debt discount on convertible notes                     $  4,818,750
                                                                                       =============   ==============   ============
  Beneficial conversion feature preferred stock                                        $  1,109,589
                                                                                       =============   ==============   ============

</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-6

<PAGE>


                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company
-----------

IDM Environmental Corp.  (collectively with its subsidiaries  referred to herein
as the  "Company") is a global  diversified  services  company  offering a broad
range of design, engineering,  construction, project development and management,
plant  operations  and  environmental  services and  technologies.  The Company,
through  its  domestic  and  international  subsidiaries,  offers  services  and
technologies in three principal areas: Power Project  Development and Operation,
Specialty Project Engineering and Environmental Remediation.

The Company is also active in the development and  commercialization of a number
of proprietary technologies in the fields of  bioremediation/superoxygenation of
water,  gasification of solid wastes and soil  remediation . In 1995 the Company
formed two  subsidiaries to conduct  business in specific regions which required
domiciled entities. During 1996 the Company formed two subsidiaries and acquired
through  assignment  the rights,  title and  interest of certain  contracts  and
agreements  and two  inactive  corporations  in order  to  conduct  business  in
specific regions of North and South America and East Asia.


Principals of Consolidation and Basis of Presentation
-----------------------------------------------------

The  accompanying  financial  statements  consolidate the accounts of the parent
company and all of its wholly owned and majority owned subsidiaries. Investments
in unconsolidated affiliated joint ventures in which ownership of the venture is
between 20% and 50% are  accounted for under the equity method for balance sheet
presentation  and  the  proportionate  consolidation  method  for  revenues  and
expenses of the joint venture.  Investments in affiliates representing less than
20% of the ownership of such companies are accounted for under the cost method.


Translation of Foreign Currencies
---------------------------------

Assets and liabilities of foreign  operations,  where the functional currency is
the local  currency,  are  translated  into U.S.  dollars at the fiscal year end
exchange rate. The related  translation  adjustments are required to be recorded
as cumulative  translation  adjustments,  a separate  component of shareholders'
equity.  Revenues  and  expenses are  required to be  translated  using  average
exchange rates prevailing  during the year.  Foreign currency  transaction gains
and losses,  as well as translation  adjustments  for assets and  liabilities of
foreign operations where the functional  currency is the dollar, are included in
net income (loss). Foreign currency realized and unrealized gains and losses for
the years presented were not material.


Revenue Recognition
-------------------

The  consolidated  financial  statements  have been prepared on the basis of the
percentage  of  completion  method of  accounting.  Under this  method  contract
revenue  is  determined  by  applying  to the  total  estimated  income  on each
contract, a percentage which is equal to the ratio of contract costs incurred to
date to the most recent  estimate  of total costs which will have been  incurred
upon the completion of the contract.  Costs and estimated  earnings in excess of
billings  represents  additional  earnings over billings,  based upon percentage
completed,  as  outlined  above.  Similarly,  billings  in  excess  of costs and
estimated  earnings  represent excess of amounts billed over income  recognized.
Provisions for estimated losses on uncompleted  contracts are made in the period
in which such losses are determined. Billings on long-term contracts are done on
a monthly  basis.  Unbilled  amounts  on  long-term  contracts  include  amounts
recognized in revenues under the percentage of completion  method of accounting,
but not billed to the  customer at year end. It is expected  that such  billings
will be made as contracts are completed. Unbilled amounts on long-term contracts
are not  separately  stated as they are not  material.  Retentions  on long-term
contracts  are  balances  billed but not paid by  customers  which,  pursuant to
retainage  provisions in contracts,  are due upon completion of the contract and
acceptance by the customer.  Substantially all retentions are deemed collectible
within one year.



                                      F-7

<PAGE>


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.


Cash and Cash Equivalents
-------------------------

For financial  statement  purposes,  short-term  investments  with a maturity of
ninety  days  or  less  and  highly  liquid   investments  are  considered  cash
equivalents.


Inventory
---------

Inventory  consists  of  used  equipment  and is  stated  at the  lower  of cost
(specific identification) or market.

Unamortized Debt Discount and Issuance Costs
--------------------------------------------

Costs in  connection  with the  issuance  of the 7%  Convertible  Notes  and the
Convertible  Preferred  Stock are amortized and charged to operations  using the
straight line method over the terms of the respective  issues.  Upon conversion,
any  unamortized  costs are  charged to  additional  paid in capital  net of tax
effect.


Deferred Issue Costs
--------------------

Costs in  connection  with the  issuance  of the 7%  Convertible  Notes  and the
Convertible  Preferred  Stock are amortized and charged to operations  using the
straight line method over the term of the convertible  issue.  Upon  conversion,
any  unamortized  costs are  charged to  additional  paid in capital  net of tax
effect.


Property, Plant and Equipment
-----------------------------

Property  plant  and  equipment  are  recorded  at cost.  Depreciation  has been
calculated   using  the  estimated   useful  lives  of  the  assets.   Leasehold
improvements  are amortized  over the lesser of the term of the related lease or
the estimated useful lives of the assets. The depreciation  method and estimated
useful lives of the assets are generally as follows:


                               Estimated               Method of
     Asset                    Useful Life             Depreciation
   ---------                ----------------         --------------

Office equipment                3 - 10                Straight-line
Furniture and fixtures          3 - 10                Straight-line
Leasehold improvements          5 - 31.5              Straight-line
Transportation equipment        3 - 5                 Straight-line
Job equipment                   7 - 10                Straight-line


Costs of repairs and  maintenance  are  charged to  operations  as incurred  and
additions and  betterments  are  capitalized.  Upon retirement or disposition of
assets,  the cost and accumulated  depreciation are eliminated from the accounts
and any gain or loss is reflected in the statement of operations.


                                      F-8

<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)


Income Taxes
------------

Income  taxes have been  provided  for based on the  provisions  of Statement of
Financial  Accounting  Standards No. 109,  "Accounting  for Income Taxes" ("SFAS
109").  SFAS 109 requires the recognition of deferred tax liabilities and assets
for the expected  future tax  consequences  of events that have been included in
the  financial  statements  or tax  returns.  Under this  method,  deferred  tax
liabilities  and assets  are  determined  based on the  difference  between  the
financial  statement  carrying  amounts and tax bases of assets and  liabilities
using  enacted  tax rates in effect  in the years in which the  differences  are
expected to reverse.  Valuation  allowances  are  established  when necessary to
reduce deferred tax assets to the amount expected to be realized.


Accounting for Stock-Based Compensation
---------------------------------------

The Company has elected to follow  Accounting  Principles  Board  Opinion No. 25
"Accounting  for Stock  Issue to  Employees"  ("APB 25") in  accounting  for its
employee  stock  options  plans.  Under APB 25, when the  exercise  price of the
Company's  employee  stock  options  equals or is above the market  price of the
underlying stock on the date of grant, no compensation expense is recognized.

In  accounting  for  options  granted  to  persons  other  than  employees,  the
provisions of Financial  Accounting Standards Board Statement No. 123, "Accounts
for Stock Based Compensation"  ("FASB 123") were applied.  According to FASB 123
the  fair  value  of  these  options  was  estimated  at the  grant  date  using
Black-Scholes option pricing model.


Impairment of Long-Lived Assets
-------------------------------

Effective January 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 121 ("SFAS  121"),  "Accounting  for the  Impairment of Long-Lived
Assets and for  Long-Lived  Assets to be Disposed of." SFAS 121 requires that if
facts and  circumstances  indicate that the cost of fixed assets or other assets
may be impaired, an evaluation of recoverability would be performed by comparing
the estimated future  undiscounted  pre-tax cash flows associated with the asset
to the asset's  carrying  value to determine if a write-down  to market value or
discounted pre-tax cash flow value would be required.

Earnings (Loss) Per Share
-------------------------

As of December 31, the Financial Accounting Standards Board issued Statement No.
128,  "Earnings Per Share" ("SFAS No. 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  the
dilutive  effects of  options,  warrants  and  convertible  securities.  Diluted
earnings  per share is very similar to the  previously  reported  fully  diluted
earnings per share.  Diluted earnings per share reflects the potential  dilution
that could occur if  securities  or other  agreements to issue common stock were
exercised  or  converted  into  common  stock.  Dilutive  earnings  per share is
computed  based upon the weighted  average  number of common shares and dilutive
common equivalent  shares  outstanding.  Common stock options,  which are common
stock  equivalents,  had an  anti-dilutive  effect on earnings  per share and no
effect on the weighted  average number of common shares.  All net loss per share
amounts for all periods  presented have been restated to conform to SFAS No. 128
requirements.

Reclassifications
-----------------

Certain  reclassifications  have been made to the prior year balances to conform
to the current year presentation.



                                      F-9


<PAGE>



2.  ACQUISITIONS AND INVESTMENTS IN AFFILIATES

On July 11, 1996,  effective June 30, 1996,  the Company,  pursuant to a license
agreement  entered  into  between the Company  and Life  International  Products
("Life"),  acquired a 10%  interest  in Life for  $1,300,000.  The  Company  has
recorded its  investment at cost.  In addition to acquiring a 10% interest,  the
Company  entered into an exclusive  licensing  agreement  with Life  pursuant to
which  the  Company  shall  market  and  employ  Life's  patented  environmental
remediation technology for long term bioremediation of contaminated ground water
throughout  North  America.  On  November  3,  1997,  the  Company  invested  an
additional $415,000 in Life to maintain its 10% interest.

Pursuant to such license agreement, the Company agreed to fund the operation and
expenses  associated  with the  marketing  plan and allocate  revenues from such
agreement for (1) repayment of Life's cost in connection with  manufacturing and
(2) any actual  expenses  of both the Company  and Life  regarding  the sale and
marketing of this  technology.  The balance (the "Net Revenues") shall be shared
between  the  Company  and Life,  20% and 80%  respectively,  with a minimum net
revenue payment of $400,000 due to Life. This agreement,  as amended November 1,
1996,  provides that Life is to be paid this minimum net revenue relating to and
for the period of amendment  to October 1, 1998.  Subsequent  to such time,  the
Company and Life agree to negotiate in good faith as to future minimum  revenues
and agreement terms. For the year ended December 31, 1997, no revenues have been
recognized.  

On July 19,  1996 the  Company,  through a newly  formed  90% owned  subsidiary,
Global Waste & Energy, Inc. ("Global Delaware"), a Delaware corporation, entered
into an agreement with Enviropower  Industries Inc. (formerly  Continental Waste
Conversion, Inc. ("CWC").) Pursuant to this agreement, Global Delaware acquired,
in exchange  for a 10%  interest in Global  Delaware and a loan through a wholly
owned  subsidiary of Global  Delaware of $160,000  (Canadian)  or  approximately
$116,550  (U.S.),  the exclusive  worldwide rights  (excluding  Canada) to CWC's
proprietary  Kocee  Gas  Generator  waste  treatment  technology  that  converts
municipal solid waste,  including tires and plastics into electrical  energy. In
addition,  the  Company  committed  to loan up to  $1,350,000  over a four month
period  to  Global  Delaware  to carry on this  newly  acquired  waste-to-energy
business. F-9

2.  ACQUISITIONS AND INVESTMENTS IN AFFILIATES (continued)

At closing the  Company  made an initial  loan of  $600,000  to Global  Delaware
repayable  upon demand  with  interest  at 9.25%.  As of  December  31, 1997 the
Company had loaned a total of $2,491,000 to Global  Delaware.  The  consolidated
financial  statements  include  results of operations of Global Delaware and its
subsidiaries  from July 19,  1996,  and  therefore  all  intercompany  loans and
transactions have been eliminated within the consolidated  financial  statements
of the Company.

In conjunction with the July 19, 1996 agreement, Global Delaware formed a wholly
owned Alberta, Canada subsidiary, Global Waste & Energy, Inc. ("Global Alberta")
and through this company acquired from CWC through assignment the rights,  title
and interest of certain  contracts and agreements and two inactive  corporations
domiciled in El Salvador and East Asia.  These companies were acquired to market
and  develop  systems  relating  to the  disposal of  domestic,  industrial  and
agricultural waste and generation of electrical energy by means of gas generator
technology.

On October 18, 1996, Global Alberta entered into a subscription agreement with a
minority  investor,  pursuant to which the minority  investor  had  committed to
purchase  a 45%  interest  in  the El  Salvador  corporation  for  approximately
$1,000,000  U.S. As of December 31, 1996,  $258,621 had been  received  from the
minority investor.  During 1997 the Company repurchased from this investor their
45% equity interest for their initial  investment of $258,621 and a cancellation
of the stock subscription receivable.

As further  discussed in Note 11, CWC has filed a claim disputing the agreements
against the Company.  On March 20, 1998  Enviropower  Industries  Inc.  filed an
assignment in bankruptcy.  As a result,  the Company wrote off the $116,550 loan
as of December 31, 1997.



                                      F-10


<PAGE>

During 1996 and 1997, the Company entered into joint venture  agreements for the
purposes of completing  construction realted projects,  totalling  approximately
$20,225,000,  specifically  for work to be performed  on the  Eastside  Resevoir
Project   for  the  Water   District  of  Southern   California   and   building
decommisioning  and  equipment  removal at IBM  Microelectronics  Hudson  Valley
Research Park, East Fishkill, N.Y.

These joint ventures, in which the Company holds equity interest at 49% and 50%,
are  accounted  for using the equity  method of  accounting  for  balance  sheet
presentation and are presented in the balance sheet classification  "Investments
in and Advances to  Unconsolidated  Affiliates".  The Company has included their
proportionate  share of revenues  and expenses  related to these joint  ventures
within its  statement  of  operations  for the year  ended  December  31,  1997.
Included  with  revenues  and direct job costs are  $3,303,968  and  $3,040,476,
respectively.

3.  UNUSUAL JOB COSTS

The  Company  recorded a one-time  pre-tax  charge of  $3,300,000  in the fourth
quarter of 1995. This charge arose from a contract interpretation issue with one
of its international  customers with regard to transportation costs. The dispute
specifically related to the overseas transportation costs which were outside the
ordinary and typical  business  activities of the Company.  The Company does not
anticipate  entering into any future  contracts that require the Company to have
responsibility  for overseas  transportation  costs.  The Company absorbed these
costs to avoid  the  expense  and  uncertainty  of  mediation,  arbitration  and
litigation,  and in anticipation of a significant amount of business expected to
be awarded to the Company by the  customer in the future.  It was  recorded as a
separate  line item in the  Consolidated  Statement of  Operations  for the year
ended December 31, 1995, because of its "unusual" nature.


4.  ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:
                                                          December 31,
                                                    1997               1996
                                                   ------             ------
     Trade accounts receivable             
                                           $   4,594,408     $    5,826,208
     Allowance for doubtful accounts            (500,000)          (200,000)
                                           --------------    ---------------
                                           
                                           $   4,094,408     $    5,626,208
                                           ==============    ===============
                             


5.  NOTES RECEIVABLE

On September 29, 1995,  the Company  entered into two agreements for the sale of
equipment inventory with Universal Process Equipment,  Inc. and their affiliate,
Bethlehem Corporation  (collectively "UPE"), a non-public company with principle
operations in North America, and one of the world's largest marketers of new and
processed equipment.  Pursuant to the terms of such agreements, the Company sold
substantially  all of its glass lined  equipment  and process  equipment  for an
aggregate  minimum  consideration  of $4  million.  The  purchase  price of such
equipment is payable from one third of the net sales  proceeds of such equipment
received by UPE,  which amount may exceed $4 million.  The unpaid portion of the
purchase price of such  equipment  shall bear interest at the average LIBOR base
rate over the previous  twelve month period and any amounts not previously  paid
under the agreement  shall be payable in full on September 29, 2000. At December
31, 1996 the average twelve month rate was 5.53%. At December 31, 1997 and 1996,
$3,211,153 and $3,144,476,  respectively,  was outstanding (including interest).
During the fourth quarter of 1997 and 1996 management  provided a $1,200,000 and
a $630,000 reserve against the outstanding balance.



                                      F-11


<PAGE>


On June 7, 1996,  the  Company  loaned  $250,000 to  Solucorp  Industries,  Ltd.
("Solucorp"), an environmental company with which the Company had entered into a
September 7, 1995 Joint Marketing and Operation  Agreement relating to the cross
marketing of Solucorp's soil remediation  process and the Company's products and
services.  The note executed June 7, 1996 (and further amended October 4, 1996),
is  secured  by  shares of  Solucorp's  common  stock.  The terms of the note as
amended  require the repayment of principal with interest at 10.25% per annum in
eleven consecutive monthly payments of $22,448 commencing November 1, 1996, with
an initial payment of $23,202 due upon the signing of the amended agreement.  At
December 31, 1997,  $216,457  remains  outstanding  (including  interest) and is
included within current  portion of Note Receivable net of a $100,000  allowance
for uncollectability.

Total  interest  income earned from these notes for the years ended December 31,
1997, 1996 and 1995 was $107,879, $184,394 and $44,523, respectively.


6.  COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

Information  with respect to the billing status of  uncompleted  contracts is as
follows:

                                                             December 31,
                                                       1997               1996
                                                      ------             ------
   Costs incurred on uncompleted contracts      
                                               $   10,108,306    $    15,683,597
   Estimated earnings (loss)                        2,331,313        (1,917,659)
                                              ---------------    ---------------
                                                   12,439,619         13,765,938
   Less:  Billings to date                         12,070,400         12,196,680
                                              ---------------    ---------------
                                               
                                               $      369,219    $     1,569,258
                                              ===============    ===============



 Included in the accompanying balance sheets under the following captions:



<TABLE>

                                                                       December 31,
                                                                  1997               1996
                                                                 ------             ------
<S>                                                             <C>                <C>

  Costs and estimated earnings in excess of billings 
                                                                $455,823           $ 1,655,754
  Billings in excess of costs and estimated earnings             (86,604)              (86,496)
                                                             ------------          ------------
                                                            
                                                               $ 369,219          $ 1,569,258
                                                           ==============         =============

</TABLE>


                                      F-12


<PAGE>


7.  INVENTORY

Inventory consists of the following:

                                                           December 31,
                                                      1997               1996
                                                     -----              ------
    Purchased equipment ready for sale      
                                                $    582,517       $  1,182,517
                                                =============      =============

During the fourth  quarter of 1997 and 1996,  management  provided a  write-down
against  the  Company's  inventory  of surplus  power  generating  equipment  of
$600,000 and $300,000,  respectively.  Management  believes the write-downs were
necessary  due to the lack of sales  activity and delays in the  utilization  of
this equipment within projects currently being negotiated by the Company.

The  profitability  of the  Company's  surplus  equipment and scrap sales may be
impacted in the future by potential inventory related uncertainties.  Because of
the nature of the inventory items  purchased and sold by the Company,  ownership
of such inventory items is not evidenced by documents of title. Further, because
of the  Company's  practice of acquiring  surplus  equipment  from  customers in
connection with the performance of jobs and because of the expense of relocating
and storing such items,  many inventory items are held pursuant to joint venture
arrangements at the joint venture partner's site pending the sale of such items.
Because such  inventory  practices do not lend  themselves to typical  inventory
control  procedures,  the  Company may be  susceptible  to  incurring  inventory
related losses arising from fraud, theft or claims of third parties. The Company
is aware of no such losses to date and would assert its rights against the party
from whom any items of  inventory  were  purchased  in the event of third  party
claims with  respect to title to inventory  items.  Accordingly,  no  additional
valuation  reserves  with  respect  to  potential  inventory  losses  have  been
established.


8.  PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following:

<TABLE>

                                                                    December 31,
                                                               1997               1996
                                                              ------             ------
    <S>                                                    <C>                 <C>

    Office equipment                                       $ 403,846         $ 401,771
    Furniture and fixtures                                   494,117           398,377
    Leasehold improvements                                 1,018,885         1,150,853
    Transportation equipment                                 778,011           795,719
    Job equipment                                          4,872,313         3,704,740
    Land Improvements                                        131,968                -
                                                      --------------    --------------
                                                           7,699,140          6,451,460
    Less:  Accumulated depreciation and amortization       4,422,024          3,708,810
                                                     ---------------    ---------------
                                                          $3,277,116         $2,742,650
                                                     ===============    ===============

</TABLE>



During the year ended December 31, 1997,  $148,526 in  depreciation  expense was
charged to job costs.



                                      F-13


<PAGE>



9.   LONG-TERM DEBT

7% Convertible Notes, Due September, 1997
-----------------------------------------

During the quarter ended September 30, 1995, the Company  completed a $5,000,000
private  placement  offering of 7%  convertible  notes  pursuant to Regulation S
under the Securities  Act of 1933, as amended.  The notes were due September 15,
1997. The holders of the notes were entitled,  at their option, to convert on or
after November 15, 1995 one third of the original  principal amount of the notes
into the shares of common  stock of the Company at a  conversion  price for each
share  equal to the  lessor  of the  closing  bid price of the  common  stock on
September 15, 1995 ($5.00) or 82% of the market price of the common stock at the
date of  conversion.  The remaining two thirds of the principal  amount of notes
could be converted on the same terms,  one third after December 15, 1995 and one
third after January 15, 1996, respectively. In the event the notes are converted
within one year of their issuance, no interest shall be payable on the converted
portion  of such  shares.  As of  December  31,  1997,  all the  notes  had been
converted into 1,597,269 shares of the Company's common stock.

Due to the lack of a fixed  conversion  price or other  mechanism  to limit  the
total number of shares  exercisable  upon conversion of the debt, an inadvertent
violation of the rules  applicable  to NASDAQ  National  Market  Securities  was
determined  to have  occurred  during the first  quarter of 1996. To remedy such
problem,  the Company  imposed a cap on conversions  which could not be exceeded
unless the  shareholders of the Company first approved the issuance of shares on
conversion in an aggregate amount exceeding 20% of the outstanding shares on the
date  of the  convertible  note  issuances.  Consequently,  the  balance  of the
Convertible  Notes  outstanding at March 31, 1996  amounting to $1,750,000  were
subject to a cap on conversions imposed by the Company to assure compliance with
NASDAQ rules.  The Company  submitted a proposal to its shareholders at its 1996
annual   shareholders   meeting  to  permit  the  conversion  of  the  remaining
Convertible  Notes.  The proposal was  approved and the  remaining  Notes became
convertible  with the conversion price being reduced from 82% of the closing bid
price to 80% of such price and all interest  accrued on such  Convertible  Notes
being payable in shares of common stock.


9.  LONG-TERM DEBT (continued)

In connection with the issuance of the convertible notes, the Company paid total
offering costs of  approximately  $815,000.  Such costs have been capitalized as
deferred  issuance costs and are being  amortized over the term of the notes. To
the extent the notes were converted,  all or an allocable  portion of such costs
were charged against paid in capital net of tax effect. As of December 31, 1996,
$201,775 was amortized and $613,225 of unamortized  deferred  issuance costs and
($103,668)  in accrued  interest  (net of the tax effect of $69,117) was charged
(credited)  to  paid  in  capital  in  connection  with  the  conversion  of the
$5,000,000 of convertible notes.

7% Convertible Notes, Due January 1999
--------------------------------------

On August 13, 1997, the Company  completed a private  placement of $3,025,000 of
7% Convertible Notes (the "Convertible Notes") and 2,675,000 three year Warrants
(the "Three Year Warrants").

The  Convertible  Notes are  convertible  into Common Stock at the lesser of (i)
$2.75 per share or (ii) 75% of the average closing bid price of the Common Stock
during the five trading days prior to  conversion.  The Three Year  Warrants are
exercisable  for a three  year  period  at the  lesser of $3.00 per share or the
lowest conversion price of the Convertible Notes.  Conversion of the Convertible
Notes and  exercise of the Three Year  Warrants was subject to the issuance of a
maximum  of  1,997,130   shares  of  Common  Stock  on  conversion   unless  the
shareholders of the Company approved issuance beyond that level upon conversion.
Shareholder  approval of issuance  beyond  1,997,130 was received on November 4,
1997. Further,  the Company has the right, upon notice to the holders, to redeem
any  Convertible  Notes  submitted for conversion at a price of $2.75 or less at
125% of the principal  amount of such Convertible  Notes. The Convertible  Notes
pay interest at 7% payable  quarterly and on conversion or at redemption in cash
or Common  Stock,  at the  Company's  option.  In the event that a  registration
statement  covering  the share  underlying  the  Convertible  Notes has not been
declared  effective  within  90 days  or 180  days  after  the  issuance  of the
Convertible Notes, the interest rate on the Convertible Notes shall be increased
to 18% and  24%,  respectively,  from  those  dates  until  such a  registration
statement becomes effective. As a registration was not declared effective within
the 90 days  required  under the terms of the  agreement,  the company  incurred
$46,215 in additional interest. On January 8, 1998


Long-term debt consists of the following:

<TABLE>
                                                                                                         December 31,
                                                                                                  1997               1996
                                                                                                 ------             ------
<S>                                                                                              <C>                <C>

  Debentures:
    7% convertible notes, due January 1999                                                        $ 3,025,000     $     -
  Notes Payable:
    Note,  payable in monthly installments of $2,650 through February 1997,                                 -
      secured by equipment                                                                                          5,300
    Note, payable in monthly installments of $1,207 including
      interest at approximately 8.25% per annum through September 2000, secured by equipment           42,249      55,528
   
    Note, payable in monthly installments of $27,316 including
      interest at approximately 7.9% per annum through November 1997, secured by equipment                  -     277,040
   
    Note, payable in monthly installments of $547 including interest
      at approximately 11.9% per annum through February 1998, secured by equipment                        912       5,930
    Note, payable in monthly installments of $1,082 including interest at approximately
      24% per annum through April, 2001, secured by equipment                                          28,730
  Capital Lease Obligations:
    Capital lease, payable in monthly installments of $3,569 including interest approximately
      11.15% per annum through May 2000, secured by equipment                                         109,070     144,517

    Capital lease, payable in monthly installments of $1,508 including interest approximately
      11.4% per annum through September 1998, secured by equipment                                     12,080      26,846
    Note, payable in monthly installments of $793 including interest at approximately 10.2%
       per annum through February 2000, secured by equipment                                           16,803           -
    Capital lease, payable in monthly installments of $35,513 including interest at approximately
       10.7% per annum through March 1999, secured by equipment                                       471,631           -
    Capital lease, payable in monthly installments of $6,614 including interest at approximately
       10.7% per annum through October 1999, secured by equipment                                     118,604           -
                                                                                                --------------  ----------
                                                                                                    3,825,079     515,161
  Less:  Current portion                                                                            3,566,393     351,127
                                                                                                --------------  ----------
                                                                                                $     258,686   $ 164,034
                                                                                                ==============  ==========

</TABLE>


                                      F-15

<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)


9.   LONG-TERM DEBT (continued)
 
At December 31, 1997,  maturities  of long-term  debt  (including  capital lease
obligations)  are as follows:  


               1998           $ 3,566,393
               1998               186,710  
               2000                56,976 
               2001                15,000
                              -----------
                              $ 3,825,079 
                             ============


10.  PROVISION (CREDIT) FOR INCOME TAXES

Credit for income taxes is as follows:

                                                December 31,
                                 1997              1996               1995
                                ------            ------             ------
                               Current:
      Federal                      $ -               $ -        $ (940,200)
      State                          -                 -          (189,800)
      Foreign                        -                 -                  -
                        ---------------   ---------------    --------------
                                     -                 -        (1,130,000)
                        ---------------   ---------------    --------------
   Deferred:
      Federal              (1,906,000)       (1,530,000)          (273,700)
      State                    230,000         (205,000)          (126,300)
      Foreign                  115,000         (115,000)                  -
                        ---------------   ---------------    --------------
                           (1,561,000)       (1,850,000)          (400,000)
                        ---------------   ---------------    --------------
                       
                       $   (1,561,000)    $  (1,850,000)     $  (1,530,000)
                        ===============   ===============    ==============

                                      F-16

<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)



10.  CREDIT FOR INCOME TAXES (continued)

The  Company's  effective  tax rate was  (13.6%)  in 1997 and  (16.8%)  in 1996.
Reconciliation  of these rates and the U.S.  statutory  rates are  summarized as
follows:

<TABLE>

                                                            Years Ended December 31,
                                         1997                          1996                           1995
                                        ------                        ------                         ------
                                  Amount        Percent        Amount         Percent        Amount        Percent
                                 -------       --------       -------        --------       --------       -------
<S>                             <C>            <C>            <C>            <C>            <C>            <C>

         Taxes at
         Statutory rate       $  (3,910,000)   (34.0%)        $ (3,739,000)  (34.0)%      $(1,835,100)    (34.0%)
                                                                    
         State taxes net of
         federal tax effect        (480,500)    (4.2)             (551,000)   (5.0)          (211,800)     (3.9)
         Foreign tax loss
         carryforward               390,500      3.4               291,000     2.6                  -         -
         Increase in
         valuation allowance      2,479,300     21.6             2,175,100    19.8           418,700       7.8
         Other                      (48,800)    (0.4)              (26,100)    0.2            98,200       1.8
                              ---------------  ----------  --------------- ----------- ---------------  -----------
                              $  (1,561,000)   (13.6%)      $   (1,850,000)  (16.8%)     $ (1,530,000)    (28.3%)
                              ===============  ==========  =============== =========== ===============  ===========                
                              

</TABLE>


Certain  items of income and  expense  are  recognized  in  different  years for
financial reporting and income tax purposes.  Deferred income taxes are provided
in recognition of these temporary differences.  The components of these deferred
income tax assets are as follows:

<TABLE>

                                                                            December 31,
                                                                  1997          1996               1995
                                                                 ------        ------             ------
<S>                                                             <C>           <C>                <C>

         Deferred Tax Assets:
         Accounts and notes receivable allowances               $  1,028,800   $  351,000         $ 84,000              
                                                                   
         Inventory allowance                                         381,000      126,900                -
         Other inventory cost                                         20,000       19,800           19,800
         Net operating loss carryforward                           9,135,400    5,143,900          967,500
         Fixed assets                                              (148,300)     (131,300)               -
         Other                                                      110,100        44,500                -
                                                              ---------------  ------------    ------------
                                                                 10,527,000     5,554,800        1,071,300
         Valuation allowance                                     (6,357,000)   (2,945,800)        (418,700)
                                                              ---------------  ------------    ------------
         Total deferred tax assets                            $   4,170,000    $2,609,000       $  652,600
                                                              ===============  ============    ============

</TABLE>

At  December  31,  1997 the Company had net  operating  loss  carryforwards  for
federal income tax purposes of approximately $19,550,000, of which approximately
$2,350,000 expires in the year 2010, $9,060,000 in the year 2011 and the balance
of $8,150,000 in the following year. In assessing the  realizability of deferred
tax assets,  management  considers  whether it is more likely than not that some
portion  or all of the  deferred  tax  assets  will be  realized.  The  ultimate
realization  of deferred tax assets is dependent  upon the  generation of future
taxable  income  during  the  periods  in  which  temporary   difference  become
deductible and the net operating losses can be carried  forward.  In determining
such projected  future taxable  income,  management has considered the Company's
historical  results of operation,  the current economic  environment  within the
Company's core industries and future business  activities  which the company has
positioned itself.  Management  believes the Company will realize taxable income
in future years.  However,  based on the Company's  substantial  losses over the
past three years,  the current  contract  commitments in the backlog,  and carry
forward  limitations  governed  by state,  federal  and  foreign  tax  agencies,
management believes it is more likely than not that the Company will not realize
its entire net deferred tax asset. A valuation  allowance of $6,357,000 has been
established by management as a reduction of the Company's deferred tax assets of
$10,527,000.  Management believes that the net deferred asset of $4,170,000 will
be realized through future taxable income.



                                      F-17

<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)
                                                                 


11. COMMITMENTS AND CONTINGENCIES

Employment Contracts and Agreements
-----------------------------------

On February 1, 1996, and effective  January 1, 1996,  Joel A. Freedman and Frank
A. Falco each  entered  into  employment  agreements,  superseding  their  prior
employment  agreements,  with the  Company  on  substantially  identical  terms.
Pursuant to such  agreement,  Mr. Freedman and Mr. Falco each receive (i) a base
salary of  $250,000  per year plus 2% of  operating  profits;  (ii)  bonuses  as
determined by the Board of Directors;  and (iii)  participation  in any employee
benefit  plans  and  fringe  benefit  arrangements  generally  available  to the
Company's  employees.  For purposes of computing the salary of Messrs.  Freedman
and Falco,  operating  profits are defined as net income from operations  before
deduction of interest expense,  income taxes,  depreciation and amortization and
other non-cash charges to income.

In addition to their cash compensation,  Messrs. Freedman and Falco will receive
certain  bonuses in the form of common stock of the Company (the "Stock  Bonus")
if the Company meets  certain  earnings  criteria.  Pursuant to such Stock Bonus
arrangements,  the Company will issue stock to Messrs.  Freedman and Falco in an
aggregate  amount of up to 15% of the total  issued  and  outstanding  shares of
common stock of the Company as measured at the time(s) of issuance. The criteria
for issuing such shares is as follows:  (i) if pre-tax net income for any one of
the years from 1994 to 2005  equals or exceeds  $2,500,000,  shares in an amount
equal to 5% of total issued and outstanding common stock of the Company shall be
issued;  (ii) if pre tax net  income  for any one of the years from 1994 to 2005
equals or exceeds $3,500,000, shares equal to 5% of total issued and outstanding
common stock of the company shall be issued; and (iii) if pre-tax net income for
any one of the years  from 1994 to 2005  equals or  exceeds  $6,000,000,  shares
equal to 5% of total issued and outstanding common stock of the Company shall be
issued. For purposes of determining  satisfaction of the above criteria, each of
the criteria may only be satisfied in one of the measuring years but two or more
of such criteria may be satisfied in the same year (e.g.  pre-tax earnings of $6
million in any one year will satisfy each of the three  criteria thus  resulting
in the issuance of the full 15%, but pre-tax earnings of $2.5 million in each of
the years will only satisfy the first  criteria  for one year thus  resulting in
the issuance of only 5% of the possible  15%).  Pre-tax net income for each year
shall be  determined,  and the right to receive  shares shall vest,  on April 30
following  each fiscal  year.  In  computing  pre-tax net income for purposes of
determining  whether  the above  criteria  has been  satisfied,  any  charges to
earnings  arising  solely as a result of the issuance of shares  pursuant to the
stock bonus arrangement shall be excluded.

On  February  18,  1998 they  each  entered  into the  second  amendment  of the
employment  agreement  wherein  the stock  bonus  provision  was  deleted in its
entirety and replaced  with a stock option  grant.  The Company  granted to each
Messrs.  Freedman and Falco a five year option to purchase  from the Company Two
Million Two Hundred Fifty Thousand (2,250,000) shares of the common stock of the
Company,  $0.001 par value at an exercise price of $3.719 per share,  the market
value of the Company's common stock at the date of grant. The Company obtained a
fairness opinion and valuations  report from independent  sources that estimated
the fair market value for each of these  options to be  $7,017,750  at the grant
date using the Black Scholes value option pricing model.

For the years ended December 31, 1997,  1996 and 1995 the  compensation  expense
for the two officers,  including board approved bonuses, was $480,000,  $480,000
and $250,000 each, respectively. For 1996, the board approved bonuses to be paid
to Mr.  Freedman  and Mr.  Falco  to  increase  their  minimum  guaranteed  cash
compensation to $480,000 each.

The employment  agreements  prohibit Mr.  Freedman and Mr. Falco from competing,
directly or indirectly, with the Company or disclosing confidential matters with
respect to the Company for two years after  termination of  employment.  Each of
such  agreements  expires  on March 31,  2005 and are  thereafter  automatically
extended  for one-year  periods  unless  there is a notice of  termination  from
either the Company or the employee.



                                      F-18


<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)



11. COMMITMENTS AND CONTINGENCIES (continued)

In the event of their  disability,  Messrs.  Freedman  and Falco are entitled to
continue  their full salary at the date of  disability  for a period of one year
after which time the Company  may  terminate  the  employment  of such  disabled
employee without further compensation.  In the event of death during the term of
employment,  the estate of Mr. Freedman and Mr. Falco, as appropriate,  shall be
entitled  to  three  months  salary.  In the  event  of the  termination  of Mr.
Freedman's  or Mr.  Falco's  employment  within  one year of the  occurrence  of
various  change  in  control  events,  or in the event of  termination  of their
employment  by the Company for any reason  other than death or  disability,  the
Company must pay or provide to Mr.  Freedman  and/or Mr. Falco,  as appropriate;
(i) a lump sum payment equal to 2.99 times his average  annual gross income from
the  company  for the  five  tax  year  period  ending  before  the date of such
termination;  (ii) a lump sum  payment  equal to three  times  the  value of all
"in-the-money"  stock  options held by such persons at the date of  termination;
and (iii) continued  participation in all employee benefit programs for a period
of three years, provided that the employee may, at his election,  receive a lump
sum cash  payment  equal  to the  value of such  benefits  in lieu of  continued
participation in such benefit plans.  Additionally,  in the event of a change in
control during the term of their contracts,  Messrs.  Freedman and Falco will be
deemed to have earned in full the Stock Bonuses provided for in their employment
contracts. As used in the employment agreements of Messrs. Freedman and Falco, a
"change in control" is defined to be (i) the acquisition of 15% of the Company's
common stock;  (ii) a change in majority  composition  of the Board of Directors
within any two year period; or (iii) a failure to elect either of such employees
to the Board when such  employee is standing for  election;  provided,  however,
that such events  shall not  constitute a change in control if a majority of the
Directors  immediately prior to such "change in control" approve the transaction
or event otherwise constituting a "change of control."

On July 19, 1996, Global Alberta entered into employment agreements with the two
principle  officers of Global Alberta for terms through June 30, 1999.  Pursuant
to such  agreement,  the two  officers  each are to receive an annual  salary of
$240,000 (Canadian) through the term of the agreement. The annual salary in U.S.
dollars is  approximately  $168,000,  utilizing  the exchange  rate  existing at
December 31, 1997.

On February 11, 1996,  the Company  entered into  agreements  with its executive
employees  pursuant  to  which  such  employees  have  agreed  to  maintain  the
confidentiality  of certain  information and have agreed to not compete with the
Company  within 250 miles of the  Company's  principal  places of business for a
period of three years following the termination of such persons' employment with
the Company.  Additionally, the Company has entered into agreements with each of
its executive  officers,  other than Messrs.  Freedman and Falco,  which provide
that such  officers  shall be entitled to; (i) a lump sum payment  equal to 2.99
times his average  annual gross  income from the company for the three  tax-year
period ending before the date of such termination; (ii) a lump sum payment equal
to three  times  the  value of all  "in-the-money"  stock  options  held by such
persons at the date of  termination;  and (iii) continued  participation  in all
employee  benefit  plans or programs for a period of three years,  provided that
the employee may, at his election,  receive a lump sum cash payment equal to the
value of such benefits in lieu of continued participation in such benefit plans.

For  purposes  of such  agreements,  a change in  control is defined in the same
manner as in the  employment  agreements of Messrs.  Freedman and Falco,  except
that failure of either Mr. Freedman or Mr. Falco to be elected when standing for
election as a director  shall not  constitute a "change in control" for purposes
thereof.

In addition to the foregoing employment and change of control arrangements,  the
Company's 1993 and 1995 Stock Option Plans provide that all outstanding  options
shall become fully vested and exercisable in the event of a change in control.

Litigation
----------
 
The Company is periodically  subject to lawsuits and administrative  proceedings
arising in the ordinary course of business.  Management believes that no pending
lawsuits  or  administrative  proceeding  is likely to have a  material  adverse
effect on the condition or results of operations of the Company.



                                      F-19


<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)




11.  COMMITMENTS AND CONTINGENCIES (continued)

Litigation (continued)
----------------------

On August 15, 1996, the U.S. Department of Labor, Occupational Safety and Health
Administration ("OSHA") issued a willful citation and notification of penalty in
the amount of $147,000 on the Company in connection with the accidental death of
an employee of one of the Company's  subcontractors  on the United  Illuminating
Steel Point Project job site in Bridgeport,  Connecticut.  A complaint was filed
against the Company by the Secretary of Labor, United States Department of Labor
on September 30, 1996. The Company is contesting the Citations and  Notification
of Penalty.

In November of 1996,  a  shareholder  filed a class action  lawsuit  against the
Company and certain  directors and officers of the Company.  The suit,  filed in
the Superior Court of New Jersey,  Middlesex County, as subsequently  amended in
June 1997, alleges that the Company  disseminated false and misleading financial
information to the investing  public between March 8, 1996 and November 18, 1996
and seeks damages in an unspecified amount to compensate investors who purchased
the  Company's   securities   between  the  indicated  dates,  as  well  as  the
disgorgement of profits allegedly received by some of the individual  defendants
from sales of common stock during that period.

Prior to the oral argument before the Court on defendants' motion to dismiss the
amended  complaint,  the parties reached an agreement in principle to settle all
claims,  subject  to notice to the  class,  hearing  before  the Court and Court
approval.  It is  contemplated  that, for settlement  purposes only, the parties
will  stipulate  to a  settlement  class  consisting  of all persons  (excluding
defendants)  who purchased the Company's  securities  from March 8, 1996 through
June 5, 1997,  and that the action will be dismissed  and  appropriate  releases
provided in consideration for a payment to the stipulated settlement class of by
the Company's insurer. Management expects that the matter will be fully resolved
this calendar year.

On April 1,  1997,  Enviropower  Industries  Inc.,  formerly  Continental  Waste
Conversion  Inc.  ("Enviropower"),  commenced  an  action  in court in  Calgary,
Alberta (Action No. 9701-04774) against IDM Environmental  Corp., Global Waste &
Energy  Inc.,  formerly  Continental  Waste  Conversion  International,  Inc., a
Delaware  Corporation  ("Global  Delaware"),  Global  Waste  and  Energy,  Inc.,
formerly Continental Waste Conversion International Inc., an Alberta Corporation
("Global   Alberta")   together  with  two  former  officers  and  directors  of
Enviropower who are now employed by Global  Alberta.  IDM owns 90% of the issued
and  outstanding  shares of Global  Delaware.  Global  Alberta is a wholly owned
subsidiary of Global Delaware. The action arose from the agreements entered into
between Enviropower and IDM on or about July 19, 1996 (the "Agreements"),  which
provided,  among other things,  for the grant to Global Alberta of Enviropower's
right,  title and interest in certain  worldwide  marketing and sales agreements
and to an exclusive,  irrevocable  license  granted to Global Delaware to market
and use certain technology outside Canada in connection with the environmentally
safe conversion of certain domestic industrial and agricultural solid waste into
energy (the "Technology"). Enviropower is seeking to set aside the Agreements on
the alleged  basis that its  shareholders  did not approve the  transaction.  In
addition,  Enviropower  is claiming  damages for loss of its right to market and
use the Technology  outside of Canada resulting in an alleged  estimated loss of
$30 million.  Enviropower also seeks  indemnification for liabilities  allegedly
incurred by Global Alberta in the name of Enviropower in the amount of $363,000,
a  declaration  that  all  profits,  interest  and  benefits  arising  from  the
Agreements be paid to  Enviropower,  punitive  damaged of $1 million,  costs and
interest plus such further and other relief as is more  particularly  set out in
the Statement of Claim.

At present, while Enviropower has filed a Notice to Produce documents and Notice
to Select an  Officer  on May 30,  1997,  it has not  advanced  the claim in any
respect  subsequent to that time, in large part due to its apparent  insolvency.
On March 20, 1998, Enviropower filed an assignment in bankruptcy.

IDM,  Global Alberta and Global  Delaware are vigorously  defending this matter.
Currently,  an  application  for  security for costs is scheduled to be heard on
April 8, 1998.  IDM seeks an Order  compelling  Enviropower to post security for
the costs it will likely  incur in  defending  against  Enviropower's  frivolous
claim. If the court orders that security must be posted and if Enviropower fails
to do so, an Order to dismiss the action will  probably be entered.  The Company
believes  this claim is without  merit and  intends to  continue  to  vigorously
contest it. 



                                      F-20

<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)




Operating Leases
----------------


The  Company  currently  leases  its office and  warehouse  facilities  from L&G
Associates ("L&G"), a related partnership owned by the principal shareholders of
the Company,  as further discussed in Note 13, Related Parties.  The Company has
also  entered  into  leases for other  facilities  outside  of New Jersey  under
operating lease agreements with terms ranging from two to five years.

A schedule of the future minimum payments under operating leases is as follows:

                                                    Related             Other
                   Year ending December 31,          Party            Operating
                  ------------------------          -------          -----------
                        1998                       295,032            191,310
                        1999                       295,032            183,986
                        2000                       295,032            177,108
                        2001                       295,032            123,237
                        2002                       295,032                  -
                     Thereafter                  2,655,288                  -
                                            ---------------    ---------------
                                            $    4,130,448      $     675,641
                                            ===============    ===============  
                                                

As  further   discussed  in  Note  13,  the  Company  incurred   renovation  and
construction  cost at their New Jersey facility which premises are leased from a
related party. The cost of these improvements,  totaling approximately $448,000,
by agreement entered into in 1994 and amended May 16, 1996, will be charged over
fifteen (15) years,  through May 31, 2011, in lieu of lease  payments.  The cost
allocation is reflected as amortization at a rate equal to the lease terms.

Other
-----

The  Company  is  contingently   liable  to  sureties  under  general  indemnity
agreements.  The Company  agrees to indemnify the sureties for any payments made
on contracts of suretyship, guaranty or indemnity. The Company believes that all
contingent  liabilities  will be satisfied by their  performance on the specific
bonded contracts involved.

12.  RETIREMENT SAVINGS PLAN

In July of 1992, the Company  amended an existing profit sharing plan to convert
such plan to a retirement  savings plan (the "401(k) Plan") under section 401(k)
of the Internal  Revenue Code. The 401(k) Plan generally covers all employees of
the Company who have completed two years of service with the Company.  Employees
may elect to defer, in the form of  contributions  to the 401(k) Plan, up to 15%
of their annual compensation,  subject to the federal maximum limit. The Company
may,  at its  own  discretion,  contribute  to the  plan.  The  Company  did not
contribute to the 401(k) Plan during the years ended December 31, 1997, 1996 and
1995.



                                      F-21


<PAGE>


13.  RELATED PARTIES

Officer Loans and Advances
--------------------------

From time to time the Company has made loans and  advances to the two  principal
shareholders, directors and officers of the Company.



                                      F-21


<PAGE>


                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)




13.  RELATED PARTIES (continued)

On September 1, 1995, Joel Freedman,  the President and Chief Executive  Officer
of the Company,  surrendered to the Company 36,621 shares of his common stock of
the  Company  at $5.25 per  share,  the  average  closing  market  price for the
previous  month,  as payment in full of loans from the  Company in the amount of
$192,260. Such shares have been canceled.

At  December  31,  1995,  the  Company had a  receivable  due from Frank  Falco,
chairman of the Board of Directors and Chief  Operating  Officer of the Company,
of $552,479  including  interest at 7% per annum.  On April 1, 1996,  Mr.  Falco
surrendered  to the Company  92,214 shares of his common stock of the Company at
$7.272 per share,  the average  closing market price for the previous  month, as
payment in full of loans from the  Company in the amount of  $670,580,  the then
current balance. Such shares have been canceled.

At December 31, 1997, the company has  receivables due from Mr. Freedman and Mr.
Falco for $7,965 and $361,576, respectively, including interest at 7% per annum,
which is expected to be repaid during 1998.

Leases
------

The  Company  leases  its  offices  and  yard  storage  facilities  from  L  & G
Associates,  a related  partnership  owned by the principal  stockholders of the
Company.

On March 1, 1993, the Company  entered into a five year lease  agreement on such
property, which includes two additional parcels of land. Pursuant to such lease,
the  Company  will  pay  base  rent  of  $270,000  annually  subject  to  annual
adjustments  based on the  consumer  price  index,  plus  costs of  maintenance,
insurance and taxes.

In 1994,  the Company  and L&G  Associates  ("L&G")  entered  into an  agreement
regarding  the  construction  and/or  renovation  of expanded  facilities on the
premises presently leased by the Company from L&G and the renovation and leasing
of an adjoining property. The expanded facilities were needed to support current
operations  and  anticipated  future growth.  The Board of Directors  formed the
Building Committee to review the terms and fairness of such proposed  expansion.
In November of 1994,  the parties  agreed in principal with respect to the terms
of the  proposed  expansion  and the  Building  Committee  determined  that such
expansion  met the  Company's  needs  and was on terms  which  were  fair to the
Company.  Based on such agreement and determination,  the Company in November of
1994 commenced  renovation and construction on such sites of which one facility,
office space (7,600  square  feet),  was  completed  during the third quarter of
1995,  and the  second  facility,  warehouse  space  (5,700  square  feet),  was
completed  during the third quarter of 1996.  Renovation of such office space by
the company at an approximate  cost of $303,000  constitutes  payment in full of
rent for the  initial  term of the  lease of such  office  space.  The  Company,
however,  shall be  responsible  for all taxes,  utilities,  insurance and other
costs of occupying  the office space during the initial  term.  Construction  of
such warehouse space by the Company at an estimated cost of $145,000.


Leases
------

constitutes  payment in full of rent for the  initial  term of the lease of such
warehouse  space.  The Company,  however,  shall be  responsible  for all taxes,
utilities, insurance and other costs of occupying the warehouse space during the
initial term.  The total cost of the  renovations  was to be amortized  over the
initial terms of the lease. On May 16, 1996 the leases were amended and extended
15  years  to May 31,  2011.  The  amortization  associated  to the  cost of the
renovation was extended  through the terms of the modified  lease.  Amortization
expense  related to these costs for the years ended December 31, 1996,  1995 and
1994 was $42,014, $24,991 and $0, respectively. For the years ended December 31,
1997,  1996 and  1995  the  rent  paid  was  $302,412,  $292,884  and  $285,050,
respectively.   Future  minimum  rental  payments  are  reflected  in  Note  11,
Commitments and Contingencies.



                                      F-22


<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)



14.  MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK


The Company  earned more than 10% of its  revenue  from a different  customer in
both 1996 and 1995. In 1997 the Company earned more than 10% of its revenue from
each of two different customers. For the years ended December 31, 1997, 1996 and
1954 the revenues were $8,443,000, $2,745,000 and $12,900,000, respectively.

Concentrations  of credit risk with respect to trade  receivables is limited due
to the large number of customers  comprising  the  Company's  customer  base. As
discussed  in Note 5 the  Company  has a note  receivable  from UPE which is not
expected to be fully  collected  within the coming  year,  therefore  there is a
concentration of credit risk.


15.  STOCKHOLDERS' EQUITY

Preferred Stock
---------------

In July of 1993, the Company  offered and sold ten units at $50,000 per unit, or
an  aggregate  of  $500,000.  Each  unit  consisted  of 500  shares  of Series A
Preferred Stock, 6,000 shares of common stock and 5,000 warrants, exercisable to
purchase  one share of common  stock at $5 per share  until July 31,  1996.  The
preferred stock had a 9% per annum cumulative dividend,  payable quarterly.  The
holders of the Series A  Preferred  Stock had the right to "put" such  shares to
the Company at a price of $100 per share after the Company  attained a net worth
of $3,000,000 or more or at any time after January 15, 1994. The Company had the
right to  redeem  the  Series A  Preferred  Stock at $100 per  share on or after
August 1, 1995. The Company had also agreed to include the shares underlying the
warrants  included  in such  units in any  registration  statement  filed by the
Company  following the Company's initial public offering at no cost to such unit
holders.  On  April  29,  1994,  the  Company  redeemed  all of the  outstanding
Preferred Stock at the request of the preferred shareholders.

On July 14,  1997,  the Company  filed an  amendment  to its  corporate  charter
authorizing it to issue up to 1,000 shares of Preferred Stock, $1.00 par value.

Convertible Preferred Stock
---------------------------

On February  12, 1997 (the  "closing  date") the Company  entered into a private
placement  wherein  it  offered  and sold  300  shares  of  $10,000  Series  "B"
Convertible  Preferred Stock (the "preferred shares") in private transactions to
selected investors who qualify as "accredited  investors" (within the meaning of
Rule 501(a)  promulgated  under the  Securities  Act of 1933,  as amended).  The
preferred  shares will be convertible  into shares of the Company's common stock
beginning  on the 91st  calendar  day after the closing  date  according  to the
following:

                                               Lower of x or y
                                        x                           y
       Calendar Days               Closing Date              Conversion Date
       After Closing              Average Times               Average Times
         91 - 120                      120%                        82%
         121 - 150                     110%                        79%
         151 - 180                     100%                        76%
            180                        100%                        73%


The conversion date average is the average closing bid price of the common stock
as  calculated  over the five  trading  day  period  ending on the  trading  day
preceding the date on which the holder  transmits (by  telecopier) his notice to
convert.  Each  preferred  share will be convertible  into the Company's  common
stock (the "conversion shares") determined by dividing $10,000 by the applicable
conversion  price. The preferred shares mature on February 12, 2000, and on that
date each preferred  share then  outstanding  shall  automatically  convert into
conversion shares at the then current conversion price. The preferred shares pay
an annual 7%  dividend.  The  dividends  are  payable  only upon  conversion  or
redemption  of the preferred  shares and are payable  either in shares of common
stock (the  "dividend  shares") at the average  market price of the common stock
over the five trading days  preceding  the  conversion  date or in cash,  at the
option of the Company.

The Company agreed to register the dividend  shares,  the conversion  shares and
the penalty shares in a registration  statement  filed by the Company at no cost
to the holders of such shares. The registration statement was declared effective
by the Commission on January 9, 1998.

The  Company  shall  have the  option to  redeem  any  conversion  for which the
conversion  price is less than $1.80 per share for cash in the amount of $12,200
per preferred share plus accrued dividends.

In  connection  with this  transaction  the Company  paid a fee of $195,000  and
$25,000 in expenses to the placement  agent.  In addition,  the Company  granted
100,000 warrants to the placement agent. Each warrant is exercisable to purchase
one share of common  stock at $2.40 per share,  as amended  by  agreement  dated
November 21, 1997  commencing  on February 12, 1998 and expiring on February 12,
2002. The Company has granted demand and piggy-back  registration  rights to the
holders of these warrants.

During the  year-ended  December  31,  1997,  30 shares  with a stated  value of
$300,000 were converted into 192,925 shares of the Company's common stock.

Common Stock
------------

On June 22,  1993,  the Company  filed an amended and  restated  Certificate  of
Incorporation to give effect to a 30,000 for 1 stock split and to simultaneously
reduce the post-split  authorized  shares of common stock to 20,000,000  shares,
$.001 par value and to authorize  1,000,000 shares of preferred stock, $1.00 par
value. All references to number of shares, except shares authorized,  and to per
share information in the financial statements, have been adjusted to reflect the
stock split on a retroactive basis.

On June 9, 1997 at the Company's annual stockholders  meeting,  the shareholders
approved  a proposal  to amend the  restated  Certificate  of  Incorporation  to
increase  the  number of  authorized  shares of common  stock to thirty  million
shares.

In January of 1994, the principal  shareholders  of the Company  surrendered for
cancellation  an aggregate of 666,666 shares of common stock.  All references to
number of shares, except shares authorized,  and to per share information in the
financial   statements,   have  been  adjusted  to  reflect  the  surrender  and
cancellation of such shares on a retroactive basis.

The Company  completed an initial public  offering of 3,450,000  units(including
units sold  pursuant  to the  underwriter's  overallotment  options) in April of
1994.  Each Unit  consisted of one share of the  Company's  common stock and one
Class A Warrant.  The  Company  received  $11,792,588  from the  proceeds of the
offering, after the payment of all offering costs.

On September 1, 1995, Joel Freedman, a principal shareholder, director and Chief
Executive Officer of the Company  surrendered  36,621 shares of his common stock
in repayment of his officer's loan.

From  November  1995 through  December 31, 1996,  the Company  issued  1,597,269
shares of common stock in exchange for the  cancellation  of  $5,000,000  of the
Company's 7% convertible notes.

On April 1, 1996,  Frank  Falco,  a principal  shareholder,  director  and Chief
Operating Officer of the Company,  surrendered 92,214 shares of his common stock
in repayment of his officer's loan.

15.  STOCKHOLDERS' EQUITY (continued)



                                      F-23



<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)



On November  15, 1996,  the board of  directors of the Company  approved a stock
repurchase  plan whereby the Company may,  from time to time,  repurchase on the
open market  shares in its common stock in an amount up to $750,000.  During the
year ended December 31, 1996,  the Company  repurchased  for retirement  100,000
shares at a price of $216,500.

During the  year-ended  December 31, 1997,  $300,000 of the Company's  Preferred
Stock were converted into $92,925 shares of the Company's common stock.

Common Stock Purchase Warrants and Options
------------------------------------------

The Company has  authorized  and in July of 1993,  issued  50,000  warrants (the
"Private  Placement  Warrants") to purchase common stock. The Private  Placement
Warrants are  exercisable to purchase one share of common stock per warrant at a
price of $5.00 per share until August 1, 1996 and are not redeemable. In January
of 1994, the Company  granted to the holders of the Private  Placement  Warrants
"piggy-back"  registration rights pursuant to which the holders of such warrants
may include the shares  underlying such warrants in any  registration  statement
subsequently  filed by the  Company  at no cost to the  holders  of the  Private
Placement  Warrants.  During the year ended  December  31, 1996,  7,500  Private
Placement  Warrants were exercised,  7,500 shares were issued in connection with
the  exercises  and  resulted in net  proceeds  to the  Company of $33,750.  The
remaining 42,500 Private Placement Warrants expired and were canceled.

The  Company's  Class A Warrants are  separately  transferrable  and entitle the
holder to  purchase  two shares of common  stock at $4.50 per share  (subject to
adjustment,  which occurred). The Class A Warrants are exercisable commencing on
April 20, 1995 and expiring  April 20, 1999.  Any or all of the Class A Warrants
may be redeemed by the Company at a price of $.05 per  warrant,  upon the giving
of 30 days written  notice and provided that the closing bid price of the common
stock for a period of twenty (20)  consecutive  trading  days ending  within ten
(10) days of the notice of redemption  has equaled or exceeded  $9.00 per share.
During the year ended December 31, 1996 and 1997, 1,051,000 and $2,258,514 Class
A Warrants  were  exercised,  2,102,000  and  4,517,028  shares  were  issued in
connection  with the  exercises  and  resulted in net proceeds to the Company of
$6,956,450 and $6,171,000.

During  the year ended  December  31,  1997,  2,258,514  Class A  Warrants  were
exercised, 4,517,028 shares were issued, resulting in $6,171,000 net proceeds to
the Company.

In connection with the Offering, the Company sold to the Underwriter for nominal
consideration,  an option for the  purchase of up to 300,000  units (the "option
units").  Each option unit consisted of one share of the Company's  common stock
and one Class A Warrant.  Each option unit was  exercisable  at a price of $6.60
per option unit during the period  beginning April 20, 1996 and continuing until
April 20,  1999.  The option  units could be  exercised  as to all or any lesser
number of option units and contained  provisions  which required,  under certain
circumstances,  the Company to register the option units underlying such options
for sale to the public. The option units were nontransferable except to officers
of the  Underwriter,  members  of the  underwriting  group and their  respective
officers and partners.  The option unit exercise  price and the number of option
units  covered by the option were subject to  adjustment  to protect the holders
thereof  against  dilution in certain  events.  During May 1996,  all the option
units were  exercised and the company  received net proceeds of  $1,979,700  and
issued 300,000 shares of the Company's common stock. As of December 31, 1996 all
300,000  Class A  Warrants  issued in  connection  with the  underwriter  option
remained outstanding.

Common Stock Purchase Warrants and Options (continued)
------------------------------------------------------

On June 17, 1993, the Company  adopted the IDM  Environmental  Corp.  1993 Stock
Option Plan (formerly  International  Dismantling & Machinery  Corp.  1993 Stock
Option Plan) (the "Stock Option  Plan").  Pursuant to the Stock Option Plan, the
Company has reserved 475,000 shares of common stock for issuance pursuant to the
grant of incentive stock options and nonqualified stock options.

15.  STOCKHOLDERS' EQUITY (continued)



                                      F-24


<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)


On April 11, 1994,  the Board of Directors  granted  options under the Company's
1993 Stock Option Plan to certain  employees and a Director to purchase  445,400
and 5,000  shares,  respectively,  of the  Company's  common  stock at $4.00 per
share, the fair market value of the Company's common stock at the date of grant.
The options are incentive stock options,  except for the Director's stock option
which is a nonqualified  stock option.  The options are exercisable  until April
2004.  Twenty  percent of the options  vest three months from the date of grant.
The balance of the options vest at a rate of twenty  percent per year on each of
the four anniversary dates subsequent to the grant of the options.

On June 2,  1994,  the  Company  granted  a total of 5,000 non  qualified  stock
options to two of the directors to purchase common stock at $6.25 per share, the
fair market value of the  Company's  common stock at the date of the grant.  The
options vest at the same rate as the initial grant.

On December  28,  1994,  the Company  granted  options to certain  employees  to
purchase  29,700  shares of the Company's  common stock at $4.38 per share,  the
fair market value of the  Company's  common  stock at the date of the grant.  On
August 9, 1995,  the  Company  granted an option to a new  employee  to purchase
5,000 shares of the Company's  common stock at $5.25 per share,  the fair market
value of the  Company's  common stock at the date of grant.  The options vest at
the same rate as the first grant.

On January 8, 1996, the Company  amended the terms of its 1993 Stock Option Plan
to add provisions allowing for the cashless exercise of options issued under the
plan and providing for the  automatic  vesting of all options  granted under the
plan in the event of certain changes in control of the Company. Pursuant to such
cashless exercise provisions, holders of options may, as payment of the exercise
price,  have IDM  withhold the number of shares of common stock at the then fair
market value of the Company's common stock, less the exercise price, of which is
equal to the  aggregate  exercise  price of the shares of common stock  issuable
upon exercise of the option.  Under such provision of the  accelerated  vesting,
notwithstanding  any  vesting  schedule  set  forth  in  any  individual  option
agreement,  all options granted under the 1993 Plan will become fully vested and
exercisable  in the event a person or group,  other than Joel  Freedman or Frank
Falco,  acquire in excess of 15% of common stock of IDM unless such  acquisition
is approved by the Board.

On January 8, 1996, the Company's  Compensation Committee and Board of Directors
adopted  and  approved  a new  stock  option  plan  for  the  Company,  the  IDM
Environmental Corp. 1995 Stock Option Plan (the "1995 Plan"),  under which stock
option  awards  may be made  to  employees,  directors  and  consultants  of the
Company.  The 1995 Plan became effective on the date it was adopted by the Board
of Directors, subject to the approval of the Company's shareholders, and it will
remain  effective  until the tenth  anniversary  of the  effective  date  unless
terminated earlier by the Board of Directors.  Pursuant to the plan, the Company
has reserved  500,000 shares of common stock for issuance  pursuant to the grant
of incentive stock options and non qualified stock options.  On January 8, 1996,
the Company  granted  options to certain  employees and  consultants to purchase
69,000 shares of the Company's  common stock at $2.94 per share, the fair market
value  of the  Company's  common  stock at the date of the  grant  (41,500  have
vested).  In  addition,  on January 8, 1996,  the  Company  approved,  effective
November 20, 1995,  the granting of 40,000  options to purchase  common stock at
$3.72 per share, the fair market value of the Company's common stock at the date
of the grant, to certain  consultants (all options were vested).  The balance of
the 69,000 options vest at a rate of twenty percent per year on each of the four
anniversary  dates  subsequent  to the grant of the options.  Also on January 8,
1996, the Company granted 75,000 options each to Messrs.,  Falco and Freedman at
$3.23 per share,  110% of the fair market value of the Company's  common stockat
the date of grant.


On May 23, 1996, the Company granted vested options to the outside directors,  a
consultant  and an employee to purchase  50,000  shares at $8.25 per share,  the
fair market value of the  Company's  common  stock at the date of grant.

On June 28, 1996 the Company  adopted and  approved a new stock option plan (the
"1996  consulting  options")  under which  nonqualified  stock options have been
granted to a  consultant  for the right to acquire  50,000  shares of its common
stock at




                                      F-25


<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)



$3.23 per share.  The options,  which are fully vested and  exercisable  through
June 28, 2006, were granted  pursuant to a consultant  agreement that expires on
June 30,  1997.  The fair market  value of these shares at the date of grant was
$7.44.  The  difference  between the exercise price and the fair market value of
the Company's common stock at date of grant (the "intrinsic value") reflects the
compensation for the consulting services.

On May 22, 1997, the Company  granted vested options to certain of its employees
to purchase 52,950 shares at $2 a share,  the fair market value of the Company's
common stockat the date of grant. In addition, the Company agreed to reprice all
options granted on or before May 22, 1997 to the same$2 per share.

On June 10, 1997,  the Company  granted  vested  options to three of its outside
directors for each to purchase 5,000 shares at $2.5312, the fair market value of
the Company's common stock at date of grant.

On July 23,  1997,  the Company  granted  vested  options in the amount of 5,000
shares for a consultant, and 5,000 shares for each of three officers at $2.5625,
the fair  market  value of the  Company's  common  stock  at date of  grant.  In
addition,  the Company  granted a vested option to purchase  100,000 shares each
for Mr. Falco and Mr.  Freedman at $2.81875  per share,  110% of the fair market
value of the Company's common stock at the date of grant.

On August 26, 1997, the Company granted a vested option to its proposed  nominee
for director for 5,000 shares at $4.6875, the fair market value of the Company's
common stock at the date of grant.

During 1997 45,390  options  issued  under the 1993 and 1995 stock  option plans
were exercised resulting in net proceeds of $63,042.

During 1997 the Company issued to six  consultants  options to purchase  395,000
shares of the Company's  common stock at exercise  prices  ranging from $1.25 to
$4.50. In accordance with FAS 123 the fair value of these options were estimated
at the grant date using the  Black-Scholes  value option pricing model resulting
in the  recording  of $456,340 as  compensation  costs of  consultants  options.
During 1997 155,000 of these options were exercised resulting in net proceeds to
the Company of $235,000.

As  referred  to in Note  1,  the  Company  has  elected  to  follow  Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related  Interpretations  in accounting  for its employee  stock options
because,  as discussed below, the alternative fair value accounting provided for
under  FASB  Statement  No.  123  ("FASB  123"),   "Accounting  for  Stock-Based
Compensation,"  requires use of option  valuation models that were not developed
for use in valuing  employee stock  options.  Under APB 25, because the exercise
price of the Company's  employee  stock  options  equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.

The Company's  1993 and 1995  Incentive  Stock Option Plans have  authorized the
granting of options to key employees and management  personnel for up to 975,000
shares of the Company's  common stock.  Options granted have terms between 5 and
10 years and become  fully  exercisable  ranging  from 0 to 4 years of continued
employment.

Pro forma information regarding net income and earnings per share is required by
FASB 123,  and has been  determined  as if the  Company  had  accounted  for the
employee stock options under the fair value method of that  statement.  The fair
value for these options was estimated at the date of  implementation of FASB 123
using a Black-Scholes  option pricing model with the following  weighted average
assumptions for 1997, 1996 and 1995, respectively, with ranges as follows:

<TABLE>

                                                                        1997         1996          1995
                                                                       ------       -----         ------
<S>                                                                    <C>         <C>            <C>

 Risk-Free interest                                                     5.65%       4.39 - 6.40%    5.65 - 6.72%
 Dividend yields                                                           0%            0%              0%
 Volatility factors of the expected market price of the Company's
     Common Stock                                                       .914%       .720 - .865%    .594 - .700%     
 Expected life of options                                            1 - 5 years     2 - 5 years     4 - 5 years

</TABLE>


Fair values for future options are to be estimated at the date of grant.



                                      F-26


<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)



The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the Company's stock options have  characteristics  significantly  different from
those of traded options, and because changes in subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its stock options.  In  management's  opinion  existing  stock option  valuation
models do not  provide a reliable  single  measure of the fair value of employee
stock  options  that  have  vesting  provisions  and  are not  transferable.  In
addition,   option  pricing  models  require  the  input  of  highly  subjective
assumptions, including expected stock price volatility.


Common Stock Purchase Warrants and Options (continued)
-----------------------------------------------------

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options'  vesting  period.  In accordance  with
FASB 123, only stock options  granted  during the years ended December 31, 1997,
1996 and 1995 have been  included for the  Company's  pro forma  information  as
follows:


<TABLE>


                                            1997           1996           1997
                                           ------         ------          -----   
          <S>                           <C>               <C>             <C>


         Pro forma net loss               $(11,885,575)   $(9,700,064)     $(3,882,441)
                                                          
         Pro forma loss per share:
             Primary                            $(1.06)   $     (1.20)          $(.067)
                                                               
             Fully diluted                      $(1.06)   $     (1.20)          $(.067)
                                                                     
</TABLE>


The Company recognized $0, $63,094 and $0 (net of tax effect and relating to the
1996 consulting  options) of  compensation  expense for the years ended December
31, 1997,  1996 and 1995,  respectively.  An additional  $661,152,  $552,220 and
$15,028 of  compensation  expense (net of tax effect) would be recognized  under
implementation of FASB 123.

A summary of changes in common  stock  options  under the 1993 plan during 1997,
1996, 1995 and 1994 is as follows:

<TABLE>

                                                                                                          Weighted
                                                                                                          Average
                                                                       Number          Price per          Exercise 
                                                                     of Shares           Share             Price
                                                                    -----------        ----------       ----------
          <S>                                                       <C>                 <C>              <C>

         January 1, 1994                                                       -                 -               -
           Granted during 1994                                           485,100             $2.00           $2.00
           Canceled during 1994                                         (30,521)              4.00            4.00
                                                                    ------------
         Outstanding at December 31, 1994                                454,579                              2.00

           Granted during 1995                                             5,000              2.00            2.00
           Canceled during 1995                                          (4,050)              4.00            4.00
                                                                    ------------
         Outstanding at December 31, 1995                                455,529                              2.00

           Canceled during 1996                                         (63,967)              4.00            4.00
           Exercised during 1996                                        (20,910)              4.00            4.00
                                                                    ------------
           Outstanding at December 31, 1996                              370,652
         Granted during 1997                                              92,950     $2.00 - $4.69           $2.08
         Canceled during 1997                                           (20,168)              2.00            2.00
         Exercised during 1997                                          (38,759)              2.00            2.00
                                                                    ------------
         Outstanding at December 31, 1997                                404,675
                                                                    ============
         Options exercisable at December 31,  1997                       340,779       $2.00 - 4.69          $2.09
                                                                    ============
         Available for Future Grant                                       10,652
                                                                    ============

</TABLE>




                                      F-27


<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)



Common Stock Purchase Warrants and Options (continued)
-----------------------------------------------------


A summary of the 1995 plan activity  which  occurred  during 1997 and 1996 is as
follows:

<TABLE>


                                                                                                 Weighted
                                                                                                 Average
                                                           Number of          Price per          Exercise 
                                                             Shares             Share              Price
                                                           ---------         ----------          -------
          <S>                                             <C>               <C>                  <C>

         Outstanding, January 1, 1996                               -                  -                        -
           Granted during 1996                                309,000              $2.00         $2.00
           Exercised during 1996                              (20,552)             $3.72          3.72
           Canceled during 1996                                (9,448)             $3.72          3.72
                                                        --------------
         Outstanding at December 31, 1996                     279,000                             2.00
           Granted during 1997                                200,000              $2.82          2.82  
           Exercised during 1997                               (6,631)              2.00          2.00  
           Canceled during 1997                                (3,369)             $2.00          2.00  
                                                        --------------
         Outstanding at December 31, 1997                     469,000
                                                       ===============

         Options Exercisable at December 31, 1997             458,000                            $2.36
                                                       ===============

         Available for future grants                            3,817
                                                       ===============

</TABLE>


In addition,  as of December 31, 1996, the 50,000 options granted under the 1996
consulting  options remain  outstanding at a weighted  average exercise price of
$3.23.  

The  weighted  average  fair value of  options  granted  during the years  ended
December 31, 1997 and 1996 for the 1993 plan,  1995 plan and the 1996 consulting
options were as follows:

                                                   1997       1996        1995
                                                  -----      ------      ------
     Stock Prices Equal to Exercise Price          1.29       3.51        2.30
     Stock Prices in Excess of Exercise Price      2.53       5.20           -
     Stock Prices Less than Exercise Price         0.78       1.28           -



                                      F-28


<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)



15.  STOCKHOLDERS' EQUITY (continued)

Shareholder's Rights Plan
-------------------------

On April 1, 1996,  the Board of Directors  adopted and  approved a  "Shareholder
Rights Plan" in order to preserve for  stockholders  the long-term  value of the
Company  in the event of a  take-over.  To put the Plan into  effect,  the Board
declared a dividend of one Right for each share of common stock  outstanding  to
stockholders  of record at the close of  business  on April 1, 1996.  Each right
represents the right to purchase one one-hundredth of a share of a new series of
preferred  stock without  voting rights par value $1.00 per share.  The exercise
price for each right is $20.00. Each right expires December 31, 2005.


The  rights  are not  exercisable  and  are not  transferrable  apart  from  the
Company's  common stock until the tenth day after such time as a person or group
acquires  beneficial  ownership of 15% or more of the Company's  common stock or
the  tenth  business  day (or such  later  time as the  board of  directors  may
determine)  after a person or group  announces  its  intention  to  commence  or
commences a tender or exchange offer the  consummation  of which would result in
beneficial ownership by a person or group of 15% or more of the Company's common
stock.  As soon as  practicable  after the rights become  exercisable,  separate
right  certificates  would be issued and the rights would  become  transferrable
apart from the Company's  common  stock.  In the event a person or group were to
acquire a 15% or greater  position in the Company,  each right then  outstanding
would  "flip in" and become a right to receive  that  number of shares of common
stock of the Company which at the time of the 15% acquisition had a market value
of two times the exercise  price of the rights.  The acquirer who  triggered the
rights would become excluded from the "flip-in"  because his rights would become
null and void upon his triggering the acquisition.  The rights are redeemable by
the Company's  Board of Directors at a price of $.01 per right at any time prior
to the  acquisition by a person or group of beneficial  ownership of 15% or more
of the Company's  common stock. The redemption of the rights may be effective at
such time, on such basis,  and with such conditions as the board of directors in
its sole  discretion may establish.  Thus, the rights would not interfere with a
negotiated  merger or a white knight  transaction,  even after a hostile  tender
offer has been commenced.





                                      F-29


<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)



16.  Subsequent Events

Series C 7% Convertible Preferred Stock
---------------------------------------

     (a) On February  13.  1998,  the Company  sold 3,600  shares of Series C 7%
Convertible Preferred Stock and 2,350,000 Four Year $5.00 Warrants.

     (b) The securities were issued to five accredited investors.

     (c)  The  aggregate   sales  price  of  such   securities  was  $3,600,000.
Commissions totaling 10% were paid in connection with the placement.

     (d) The  securities  were offered  pursuant to  Regulation D. The offer was
directed  exclusively to a limited number of accredited investor without general
solicitation or advertising and based on representations from the investors that
such  investors  were  acquiring  for  investment  The  securities  bear legends
restricting the resale thereof.

     (e) The Series C Preferred  Stock is  convertible  into Common Stock at the
lesser of (i) $4.50 per share or (11) 75% of the  average  closing  bid price of
the Common Stock during the five trading days prior to conversion. The Four Year
$5.00 Warrants are exercisable for a four year period at the lesser of $5.00 per
share or the lowest conversion price of the Series C Preferred Stock. Conversion
of the Series C Preferred  Stock and exercise of the Four Year $5.00 Warrants is
subject to the  issuance  of a maximum of  3,285,438  shares of Common  Stock on
conversion  unless the shareholders of the Company have approved issuance beyond
that level upon conversion.  In the absence of shareholder approval of issuances
above  3,285,438  shares,  the holders of Series C Preferred Stock and Four Year
$5.00 Warrants  remaining  outstanding  if and when  3,285,438  shares have been
issued will have the right to demand  redemption of the Series C Preferred Stock
at $1,250 per share plus accrued  dividends and to demand redemption of the Four
Year $5.00  Warrants at the pre-tax  profit such holders would have realized had
the Four Year $5.00 Warrants been exercised at the time  redemption is demanded.
Further,  the Company has the right,  upon notice to the holders,  to redeem any
Series C Preferred Stock submitted for conversion at a price or $2.75 of less at
125% of the principal  amount of such Series C Preferred  Stock plus accrued and
unpaid  dividends.  The Series C Preferred  Stock pays dividends at 7% per annum
payable quarterly and on conversion or at redemption in cash or Common Stock, at
the Company's option.

The Company also granted an  immediately  exercisable  option to a consultant to
purchase  1,200,000  shares of common  stock at an exercise  price of $3.719 per
share,  the fair  market  value at the date of  grant.  The  options  expire  on
February 18,  2000.  Neither the option nor the shares of common stock have been
registered under the Securities Act of 1933, as amended.



                                      F-30

<PAGE>


                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)


Lock-Up Warrants
----------------

(a) On February 11, 1998, the Company issued 1,270,000 Three Year $4.50 Warrants
(the "Lock-Up Warrants").

(b) The Lock-Up were issued to three accredited investors.

(c) The  Lock-Up  Warrants  were issued in  conjunction  with the  execution  of
Lock-Up  Agreements by the holders of $3.00 Warrants of the Company  whereby the
holders  of such  warrants  agreed not to resell  any  shares  underlying  those
warrants prior to July 30, 1998.

(d) The Lock-Up were offered  pursuant to Section  4(2).  The offer was directed
exclusively  to  a  limited  number  of  accredited   investor  without  general
solicitation or advertising and based on representations from the investors that
such  investors  were  acquiring for  investment.  The  securities  bear legends
restricting the resale thereof

(e) The Lock-Up  Warrants are  exercisable  for a three year period at $4.50 per
share.



                                      F-31