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, 1996

[ ]  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 Identification Number)
 incorporation or organization)

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

Registrant's Telephone Number, Include Area Code:  (908) 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]

     As of March 10, 1997,  9,602,730  shares of common stock of the  Registrant
were  outstanding.  As of such date,  the  aggregate  market value of the voting
stock held by  non-affiliates,  based on the  average bid and asked price on the
Nasdaq National Market, was approximately $21,841,809.

                       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, 1996 are
incorporated by reference into Part III.
<PAGE>
                                TABLE OF CONTENTS

                                                                           Page
                                                                           ----
PART I

   ITEM 1.   BUSINESS................................................        1
   ITEM 2.   PROPERTIES..............................................       11
   ITEM 3.   LEGAL PROCEEDINGS.......................................       11
   ITEM 4.   SUBMISSION OF MATTERS TO A VOTE
             OF SECURITY HOLDERS.....................................       12

PART II

   ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY
             AND RELATED STOCKHOLDER MATTERS.........................       12
   ITEM 6.   SELECTED FINANCIAL DATA.................................       15
   ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
             CONDITION AND RESULTS OF OPERATIONS.....................       16
   ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............       24
   ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
             ON ACCOUNTING AND FINANCIAL DISCLOSURE..................       24

PART III

   ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......       25
   ITEM 11.  EXECUTIVE COMPENSATION..................................       25
   ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
             OWNERS AND MANAGEMENT...................................       25
   ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........       25
   ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
             FORM 8-K................................................       26


SIGNATURES...........................................................       28

<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 23 of this Form 10-K.

ITEM 1. BUSINESS

General and Development of Business

     IDM  Environmental  Corp.  (the  "Company")  is a  New  Jersey  corporation
originally formed under the name International  Dismantling & Machinery Corp. in
1978 to  provide  specialized  contract  services  with  an  emphasis  on  plant
decommissioning, dismantlement, deconstruction and environmental remediation. In
April of 1994, the Company completed an initial public offering (the "Offering")
of common stock and warrants  which  provided  approximately  $12 million of net
proceeds to the Company.

     The Company has  developed  expertise  in the fields of plant  dismantling,
plant  deconstruction  and  relocation,   asbestos  abatement,  hazardous  waste
remediation   and   radiological   remediation.   Unlike   many   architectural,
construction and engineering firms which have entered the environmental services
field, the Company does not offer diverse design,  construction,  consulting and
engineering  services.  Instead,  the  Company has  concentrated  its efforts on
providing hands-on specialized  contracting  services.  To that end, the Company
has devoted  substantial  funding and resources to training its work force, many
of whom  have  been  with the  Company  since  inception,  in each of the  major
environmental   fields,   being   asbestos,   radioactive  and  hazardous  waste
remediation.  Management believes that the Company is one of the few, if not the
only,  company  having an entire full time  workforce  trained in all three such
areas. As the danger of performing  remediation  services  becomes more apparent
and the emphasis on safety  increases,  management  believes that the demand for
thoroughly  trained and skilled labor, such as that offered by the Company,  has
grown and will continue to grow. See "Services Offered" and "Employees."

     In addition to providing remediation and abatement services, as an integral
part of the Company's business, the Company is involved in the purchase and sale
of  surplus   equipment  and  process  plants,   including  the  relocation  and
reinstallation of such facilities.  Such surplus  equipment  purchases and sales
are integrated with the offering of services by the Company;  thus, allowing the
Company to bid contracts more aggressively  where surplus equipment revenues are
available to supplement service revenues. See "Surplus Equipment Sales."

     During 1996,  the Company  secured two  strategic  licenses  which  further
broadened the range of services  offered by the Company.  The first such license
was acquired from, and an equity  interest was purchased in, Life  International
Products  ("Life")  pursuant  to which the  Company  began to market  and employ
Life's  patented  superoxygenation  process for enriching  water with oxygen for
long term  bioremediation of contaminated  groundwater.  The second such license
was acquired from Continental Waste  Conversion,  Inc. ("CWC") pursuant to which
the Company was granted the sole and exclusive rights to use and otherwise fully
exploit CWC's proprietary  gasification technology worldwide,  except in Canada.
Through  those  licenses,  the Company now offers  state-of-the-art  groundwater
remediation  services  in  North  America  and  state-of-the-art   solutions  to
municipal waste and energy concerns worldwide.


                                       1
<PAGE>
Environmental Services Industry

     The  "hands-on"  environmental  services  industry is a diverse and rapidly
growing  industry.  While the industry was  virtually  nonexistent  prior to the
mid-1970's, according to industry publications, the overall worldwide market for
environmental  services  was  estimated  at $300  billion  for  1996,  including
approximately  $140 billion in the United States, and is expected to continue to
grow at a 4% to 6% pace.  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 within the  environmental  services industry has been
driven by growing public concern for and awareness of environmental issues which
has been 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  "Services  Offered -  Hazardous  Waste
Remediation."

     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 1996 was  approximately  $5.6 billion by DOE
and $2.5  billion  by DOD.  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.  Company
management  believes  that the  industry  has  evolved to the point that  actual
remediation  or  site  clean  up  will  command  a  significant  portion  of the
environmental resources through the end of the 1990's and beyond.

     While the rapid growth in demand for  environmental  services has attracted
many entrants into the environmental  services market, a significant  portion of
the market is still controlled by larger  architectural  engineering 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."


                                       2
<PAGE>
     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.

Services Offered

     The Company offers a variety of specialized  environmental services with an
emphasis on plant  decontamination and  decommissioning.  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 Company has  substantial  experience in planning and
bidding lump sum projects and generally will not bid on such projects without an
in-depth  understanding  of the scope of such  projects,  the Company  generally
attempts to perform jobs on a "time and materials" basis.

     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 in
question 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


                                        3
<PAGE>
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."

     While the Company provides  consulting  services and feasibility studies in
conjunction with its projects,  the Company's services are primarily provided on
a  project  basis  in  the  areas  of  plant  dismantling,  decommissioning  and
relocation,  asbestos  abatement,  hazardous waste  remediation and radiological
remediation.

     Plant Dismantling,  Decommissioning  and Relocation.  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.

     In addition to its dismantling  services,  in many instances the Company is
called upon to not only  dismantle a plant but also to relocate and  re-assemble
such plant.  The Company has  developed  proprietary  techniques  and  extensive
expertise for  dismantling,  matchmarking,  relocation  engineering,  packaging,
documentation and re-erection of entire plants.

     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 world-wide 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 and Pacific Rim 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.

     Asbestos Abatement.  Based principally upon the authority granted under the
federal Clean Air Act, the United States Environmental Protection Agency ("EPA")
has 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.  Additionally,  most,  if not  all,  states  have  enacted
regulations  at least as stringent  as federal  regulations  and are  regulating
certain matters not covered by the federal  regulations.  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.


                                       4
<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.  Additionally,  the
Company  offers  such  services  in  conjunction   with  its   dismantling   and
decommissioning services when appropriate.

     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 called for 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
some or all 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.

     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.

     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.


                                       5
<PAGE>
     Additionally,  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.

     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,  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.

     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.

Proprietary Technologies

     During  1996,  the Company made two  strategic  investments  which  further
broadened the range of services  offered by the Company and provided the Company
with the right to utilize certain proprietary technologies in its business.

     The first such  investment  involved 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.  Life holds
patents on an oxygenation  process which it believes results in higher levels of
oxygen being  retained in fluids for longer  periods of time than other existing
oxygenation  processes.  Life's patented  process has a broad array of potential
applications.  Life has granted the Company the exclusive license to utilize the
Life oxygenation process in the United States, Canada and Mexico for purposes of


                                       6
<PAGE>
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.  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.

     In  addition  to its  acquisition  of  the  license  to  utilize  the  Life
superoxygenation process, the Company acquired a 10% equity interest in Life.

     The second  investment  in  technology  during  1996  involved  the license
received 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.

Surplus Equipment Sales

     In addition to offering a broad array of specialty  environmental services,
the Company was  previously  engaged in the direct  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.

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.  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.


                                        7
<PAGE>
     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.

Regulation

     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.

     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.


                                        8
<PAGE>
     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
Occupational Safety and Health 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.

Competition

     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  Haliburton.   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


                                        9
<PAGE>
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 its utilization of  state-of-the-art  remediation  techniques,
such as the Life oxygenation process and the Solucorp soil remediation  process,
will continue to allow it to compete  effectively in the environmental  services
industry.

     As with the  Company's  other  services,  the asbestos  abatement  services
offered  by the  Company  are  offered  in  competition  with a large  number of
competitors.  While there are  numerous  firms which  offer  asbestos  abatement
services,  including  a number  of firms  which  are  larger  than the  Company,
management  believes  that no single firm  dominates  such industry but that the
Company  is among a number  of firms  which  are  widely  recognized  for  their
expertise in asbestos  abatement.  Management believes that the Company enjoys a
number of  competitive  advantages  in  offering  asbestos  abatement  services,
including the Company's ability to offer asbestos  abatement  services as a part
of a broad range of services in virtually any environmental  setting without the
need to  subcontract  with outside  firms and the fact that all of the Company's
full time work force is asbestos trained and licensed.

     Competition  within the  equipment and scrap sales segment of the Company's
operations also is fragmented. While many companies engage in various aspects of
the  equipment  and  scrap  sales  market,  competition  within  such  market is
generally  dominated by a handful of national  firms,  including  the  Company's
marketing  partner,  UPE.  While there are other firms which are larger and sell
more equipment than the Company, management believes that the Company, with UPE,
is one of the  primary  competitors  within  such  market.  Unlike  most  of the
competitors  in such  market  which  are  engaged  in scrap  purchase  and sales
exclusively,  the Company's equipment and scrap sales operations are an integral
part of the Company's service operations. Management believes that the Company's
ability to dismantle  machinery and its ability to deal directly with sellers of
scrap in connection with providing  other  environmental  services  provides the
Company  with a  competitive  advantage  in  acquiring  equipment  and  scrap at
favorable  prices which in turn allows the Company to price such  equipment  for
resale at favorable prices.

     Finally,  unlike the other  service  aspects of its  business,  competition
within  the plant  relocation  segment of the  Company's  business  is  limited.
Management  believes  that the Company is one of the dominant  firms within such
industry.  While  demolition  and  dismantling  firms offer such  services,  the
primary  competition  within  the  plant  relocation  industry  is from  various
engineering  firms which offer such  services.  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.

Employees

     At December 31, 1996,  the Company  employed  approximately  191  full-time
employees,  37 of whom were management and administrative  personnel, 23 of whom
were clerical  personnel and 131 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.


                                       10
<PAGE>
     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  5 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.

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 is based on the same facts
as gave rise to the above referenced administrative proceeding instituted by the
Occupational Safety and Health  Administration and 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.

     In October of 1996,  the Company filed suit in the District  Court of Bexar
County, Texas, 166th Judicial District,  IDM Environmental Corp. v. H.B. Zachary
                                         ---------------------------------------
and  Company and Harold B.  Cockburn,  (Cause No. 96-  CI14834).  The Company is
------------------------------------
seeking additional compensation for services rendered under a subcontract to the
defendant as a result of the defendant's  misrepresentations  as to the scope of
work,   failure  to  cooperate  and  active   interference  with  the  Company's
performance.

     In November of 1996, a shareholder filed a class action lawsuit against the
Company and certain  directors  and  officers of the Company.  The suit,  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,  alleges  that the  Company  disseminated  false and
misleading financial  information to the investing public between March 27, 1996


                                       11
<PAGE>
and November 18, 1996 and seeks damages in an  unspecified  amount to compensate
investors who purchased the Company's  common stock between the indicated  dates
as well as the  disgorgement  of profits  allegedly  received by 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.

     In April of 1997,  the Company and its  subsidiary,  Global Waste & Energy,
Inc., were named as co-defendents in a cause of action styled  Continental Waste
                                                               -----------------
Conversion 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,  CWC,  has alleged  that the license
granted to the  Company to utilize  and market  CWC'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 CWC as a  basis  for  its
allegations. CWC is seeking to have the license and all other agreements between
CWC and the Company  declared  null and void in addition to seeking  damages for
alleged lost profits and other amounts. The Company believes the suit is without
merit and intends to vigorously contest the cause of action.

     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

     No matters were submitted to a vote of the Company's  shareholders  through
the  solicitation  of proxies,  or otherwise,  during the fourth  quarter of the
Company's fiscal year ended December 31, 1996.

                                     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 1995                   $6.500            $4.563
Second Quarter, ended June 1995                    7.875             4.625
Third Quarter, ended September 1995                5.875             4.063
Fourth Quarter, ended December 1995                5.500             3.438


                                       12

<PAGE>
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

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

     At March 10, 1997, the bid price of the Common Stock was $2-7/16.

Holders

     As of March 10,  1997,  there were  approximately  72 holders of record and
1935 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.

Sales of Unregistered Securities

     (a) On  February 12,  1997,  the  Company  sold  300  shares  of  Series  B
Convertible Preferred Stock at $10,000 per share.

     (b) The securities were sold to four accredited investors.

     (c) The aggregate sales price of such securities was $3,000,000.  A six and
one-half  percent  (6.5%)  commission  was paid  with  respect  to such  sale in
addition to a $25,000 expense  allowance and a five year warrant  exercisable to
acquire up to 100,000 shares at $3.32813 per share.

     (d) The  securities  were offered  pursuant to  Regulation D. The offer was
directed  exclusively to accredited  investors  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 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 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 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 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 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.  Conversion of
the  Series B  Preferred  Stock is  subject  to the  issuance  of a  maximum  of
1,915,000  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  1,915,000  shares,  all shares of
Series B Preferred Stock remaining outstanding if and when 1,915,000 shares have
been issued will be subject to  mandatory  redemption  by the Company at $11,000
per share.  Further,  the Company has the right, upon notice to the holders,  to
redeem for $12,200 per share any shares of Series B  Preferred  Stock  submitted
for conversion at a price of $1.80 or less. 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


                                       13
<PAGE>
February  12,  2000 shall be  automatically  converted  into Common  Stock.  The
Warrants are exercisable for a period of three years at a price equal to 150% of
the price of the Common Stock at closing.


                                       14
<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 29 of this  report.  See also,  Item 7,  "Management's  Discussion  and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>

                                                               Years ended December 31,
                                            --------------------------------------------------------
                                              1996        1995         1994        1993        1992
                                            --------    --------     --------    --------     ------
                                                        (in thousands, except per share data)
<S>                                         <C>         <C>          <C>         <C>          <C>
Income Statement Data:
Operating revenues:
  Contract revenues......................   $ 20,808    $ 33,866     $ 25,362    $ 14,436     $ 14,601
  Equipment and scrap revenues...........        834       5,537        3,150       4,368        4,256
  Other..................................          -           -           22         342           39
                                            --------    --------     --------    --------     --------
    Total operating revenues.............     21,642      39,403       28,534      19,146       18,896
Cost of sales:
  Direct job costs.......................     21,492      30,433       20,449      11,539       12,436
  Unusual job costs......................          -       3,300            -           -            -
  Cost of equipment......................        943       2,977        1,651       1,379        1,148
                                            --------    --------     --------    --------     --------
Gross profit (loss)......................       (793)      2,693        6,434       6,228        5,401
Operating expenses:
  General and administrative.............      9,567       7,637        5,418       4,514        4,286
  Depreciation and amortization..........        668         653          344         432          390
  Settlement expense.....................          -          -             -           -          195
                                            --------    --------     --------    --------     --------
Income (loss) from operations............                 (5,597)         672       1,282          531
Interest income (expense), net...........         30         200          (36)       (233)        (306)
Other income.............................          -           -            -          81            -
                                            --------    --------     --------    --------     --------
Income (loss) before income taxes            (10,998)     (5,397)         636       1,130          225
Provision (credit) for income taxes......     (1,850)     (1,530)         312         434           10(1)
                                            --------    --------     --------    --------     --------
Net income (loss)........................     (9,148)   $ (3,867)    $    324    $    696     $    215(1)
                                            ========    ========     ========    ========     ========
Net income (loss) per share..............   $  (1.13)   $  (0.67)    $   0.06    $   0.29     $   0.09(1)
                                            ========    ========     ========    ========     ========
Weighted average shares outstanding......   8,089,472   5,815,565    5,577,977   2,333,334    2,333,334
                                            =========   =========    =========   =========    =========

Balance Sheet Data (at period end):
Working capital..........................   $  8,731    $ 10,293     $ 12,070    $    622     $  1,162
Total assets.............................     22,203      22,028       22,257       9,302        7,608
Long-term liabilities....................        164       4,004            -          69           10
Minority interest........................      1,034           -            -           -            -
Shareholders' equity.....................     13,461      10,940       13,829       1,726        1,053
</TABLE>
------------------------

(1)  Prior to January 1, 1993, the Company was an S Corporation for tax purposes
     and, therefore,  paid no federal income taxes. Pro forma net income for the
     year ended December 31, 1992,  assuming the Company were subject to federal
     income tax,  would have been $147,980,  or $0.06 per share,  net of federal
     income tax expense of $77,000.


                                       15
<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 23 of this Form 10-K.

General

     The  Company was  incorporated  in 1978 as a  dismantling,  deconstruction,
demolition and equipment provider and has evolved into a specialty environmental
services company. The Company's revenues are 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 contract  decontamination  and  decommissioning  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 decontamination and decommissioning 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.

     Equipment  and scrap  sales  operations  are  conducted  both as a separate
profit  center  and  as  an  adjunct  to  the  Company's   decontamination   and
decommissioning operations.  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.  The Company  historically  maintained  an  inventory of
surplus equipment and regularly acquired additional  equipment and entire plants
from its customers as well as other sources where the Company could acquire such
equipment on favorable terms. The Company conducted ongoing marketing efforts on
a worldwide  basis in order to place such  equipment.  In September of 1995, the
Company sold  substantially all of its surplus equipment  inventory,  other than
generators,  to Universal Process Equipment ("UPE") and entered into an alliance
with UPE to jointly  carry on all future  surplus  equipment  purchase and sales
operations.


                                       16
<PAGE>
     Due to the  nature  of the  Company's  service  operations,  the  Company's
ability to generate  service  revenues is dependent on a number of factors.  The
primary factors which have historically  affected the Company's  decontamination
and decommissioning and remediation service revenues have been the Company's net
worth,  liquid working  capital and bonding  capacity.  Because  virtually every
major job undertaken by the Company requires the Company to provide bonding, the
number and size of jobs which the Company has historically been, and will in the
future be,  able to perform is  dependent  on the  Company's  bonding  capacity.
Generally,  bonding  requirements  and bonding capacity are a direct function of
the Company's net worth and available  liquid working  capital,  the size of the
job undertaken and the number of jobs being performed, with larger jobs and more
numerous jobs  requiring  higher net worth,  higher liquid  working  capital and
higher  bonding.  Prior to the Company's  initial  public  offering in 1994, the
Company was  historically  limited in the size and number of jobs which it could
perform  because of its  limited net worth and  available  working  capital.  In
addition  to net  worth,  liquid  working  capital  and  bonding  capacity,  the
Company's  revenues are influenced by such factors as job pricing,  demonstrated
expertise  and range of  services  offered and name  recognition.  None of these
factors have, in management's opinion, negatively impacted the Company's revenue
producing  capability  to date.  In fact,  management  believes that the Company
benefits from its surplus  equipment and scrap sales operations which permit the
Company to offer favorable job pricing as well as from a favorable reputation as
a provider of expert services in a broad range of areas.

     The Company's  service revenues  exhibit certain seasonal  characteristics.
While  dismantling and remediation  projects arise  periodically  throughout the
year, many entities  requiring the Company's services tend to delay expenditures
until the summer  months or until as late as  possible in the  entities'  fiscal
years.  Additionally,  due to the nature of the various  services offered by the
Company,   projects  are  often   delayed  by  inclement   weather   conditions,
particularly in the northeast.  Accordingly, the Company's service revenues tend
to be higher in the  summer  and fall  months and lower in the winter and spring
months.

     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.  Prior to its initial  public  offering in 1994,  the
Company  historically  paid out  substantially all of its net income annually to
Joel Freedman and Frank Falco, the Company's founders and principal officers and
shareholders,  as salary. Other significant general and administrative  expenses
include rent on the Company's facilities, general insurance, promotional expense
and general office expense.

Results of Operations

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


                                       17
<PAGE>
associated  with change order claims under  negotiation  with two customers that
have not been resolved to date.  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,  a  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
jmargins 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.

     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.

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

     Revenues.  The Company's total revenues  increased by  approximately  38.1%
from $28.5 million for the year ended December 31, 1994 to $39.4 million for the
year ended December 31, 1995.  Contract  service income increased for the period


                                       18
<PAGE>
by 33.5% from $25.4  million in 1994 to $33.9  million in 1995.  The increase in
contract  service  income was  attributable  to a  combination  of the Company's
successfully  bidding on and performing a larger number of contracts during 1995
using the proceeds of the Company's  initial public offering and the performance
of larger dollar volume contracts during 1995. In particular,  services provided
with respect to the "FFC Contract"  accounted for $13.4 million of revenues,  or
approximately 34% of total revenues, during 1995. The FFC Contract accounted for
$12.8 million of the Company's revenues during 1994.

     Cost of sales. Cost of sales, which includes direct job costs,  unusual job
costs and cost of equipment sales,  increased by approximately  66.1% from $22.1
million for 1994 to $36.7 million for 1995.  Direct job costs increased by 48.8%
during 1995 and increased  from 80.6% to 89.9% of contract  income.  The primary
elements  of such  increase  in job  costs  were  materials  and  supplies,  job
salaries,  subcontracting and dumping expense.  Materials and supplies increased
from $2.6  million  (exclusive  of a plant  purchase) in 1994 to $7.5 million in
1995;  job  salaries  increased  from $4.6  million for 1994 to $5.3 million for
1995; and,  subcontracting  and disposal expense  increased from $1.8 million in
1994 to $9.3  million in 1995.  The  increase  in these job costs was  primarily
attributable  to the  increased  level of activity  following  completion of the
Company's  initial public offering in 1994, in particular the performance of the
FFC Contract which required the purchase, disassembly and relocation of a plant.
The decrease in the gross margin was  attributable to  successfully  bidding new
work at lower  than  normal  margins  in order to  penetrate  strategic  markets
serviced by the Company's newly opened regional offices.

     Cost of equipment  sales  increased  80.3% during 1995 and  increased  from
52.4% to 53.8% of equipment  and scrap sales  revenues.  The increase in cost of
equipment sales and the decrease in gross margin was attributable the sale, in a
bulk transaction, of $4.0 million of surplus equipment to UPE.

     In  addition  to the  foregoing,  included  in cost of sales was a one-time
pre-tax  charge of $3.3  million in the fourth  quarter  of 1995  classified  as
unusual job costs. This charge arose from a contract  interpretation  issue with
an  international  customer  with regard to  transportation  costs.  The dispute
specifically relates 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 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. Is was recorded as a separate line
item in the  consolidated  Statement  of  Operations  because  of its  "unusual"
nature. The $3.3 million represents 9.7% of contract income for the year.

     General and administrative  expense.  General and  administrative  expenses
increased  by 41.0% from $5.4  million  for 1994 to $7.6  million  in 1995.  The
increase in general and  administrative  expenses was primarily  attributable to
(i) increased  marketing expenses  associated with bidding on a larger number of
jobs,  (ii) the costs of opening and  operating  three new  regional  offices to
support  ongoing and future jobs,  (iii) increased  payroll  attributable to the
hiring of  additional  support  personnel  as well as a  restoration  of certain
salary  reductions  implemented in June of 1994,  and (iv) the costs  associated
with the Company's status as a publicly held corporation.  Each of the principal
areas in which  general  and  administrative  expense  increased  during 1995 is
expected to facilitate future revenue growth and the Company's ability to bid on
and perform jobs in strategic growth regions.

     Depreciation  and  amortization.   Depreciation  and  amortization  expense
increased  from $0.3  million in 1994 to $0.7 million in 1995 as a result of the
acquisition  of  property,  plant and  equipment  in the amount of $1.3  million
during  the year and as a  result  of  amortizing  note  issuance  costs of $0.1
million  associated  with the Company's  placement of $5 million of  convertible
notes in September of 1995.

     Income (loss) from operations. Income (loss) from operations decreased from
income  of  $0.7  million  in  1994 to a loss of  $5.6  million  in  1995.  As a
percentage of revenues,  income (loss) from  operations  decreased  from 2.4% in


                                       19
<PAGE>
1994 to (14.2%) in 1995. The decrease in income from  operations,  both in total
and as a  percentage  of  revenues,  was  attributable  to the unusual job costs
associated with the FFC Contract  (discussed above) and increases in general and
administrative expense accompanying the opening of three regional offices.

     Interest  income and  expense.  The  Company  experienced  an  increase  in
interest income from $0.1 million in 1994 to $0.3 million in 1995 and a decrease
in interest  expense from $133,000 in 1994 to $110,000 in 1995.  The increase in
interest income and decrease in interest expense was attributable to the receipt
of proceeds from the Company's  initial public offering which proceeds were used
in part to pay off all bank debt with the  balance  of such  funds  invested  in
temporary  investments and the receipt of funds from the sale of $5.0 million of
convertible notes ("Convertible Notes") in September of 1995.

     Income taxes. The Company's  provision  (credit) for income taxes decreased
from $0.3 million in 1994 to ($1.5  million) in 1995. The decrease in income tax
expense for 1995 was attributable to the loss incurred in 1995.

     Miscellaneous.  During fiscal years 1994 and 1995, the Company  provided no
post retirement benefits subject to FAS 106.

     As a result  of the  foregoing,  the  Company  reported  a net loss of $3.9
million in 1995 as compared to net income of $0.3 million for 1994.

Liquidity and Capital Resources

     At December 31, 1996, the Company had approximately $8.7 million of working
capital,  including  a cash  balance of $1  million.  This  compares  to working
capital of $10.3  million and a cash  balance of $0.1  million at  December  31,
1995.  The $1.6  million  decrease in working  capital  and  increase in cash is
primarily  attributable  to the  receipt  of $9  million  from the  exercise  of
outstanding  warrants  and options  during the year which was offset by the loss
for the year.

     Approximately $0.1 million of the Company's working capital at December 31,
1996 consisted of cash performance bonds and related  refundable  deposits which
the Company had posted in connection  with the  performance of various  projects
which are  expected to be completed  within  twelve  months,  at which time such
deposits are expected to be released to the Company.  An additional $1.7 million
of working capital consisted of unbilled costs and estimated earnings on ongoing
projects. Again such amounts are expected to be received during 1997 as projects
progress with all such amounts being payable to the Company by the completion of
such projects.

     Also included in the Company's working capital balance at December 31, 1996
was $1.2 million of surplus equipment inventory (net of a $0.3 million valuation
reserve)  held for sale  which  gross  inventory  level  was  identical  to that
reported at December 31, 1995.  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 surplus equipment  inventory consists  principally
of 15 generators which the Company acquired in a joint venture  arrangement with
a major surplus  equipment  dealer.  Management  believes that there is a strong
demand for  generators  such as those which the Company  holds in inventory  and
that such generators will provide an adequate  inventory to meet the anticipated
demand for such generators for at least the next two years.

     The  Company's  accounts  receivable  decreased by 15.0% from 1995 to 1996.
Such  decrease  in  accounts  receivable  was  attributable  to lower  levels of
business activity.  As a percentage of revenues,  accounts receivable  increased
from 16.8% in 1995 to 26% in 1996.  The  increase  in accounts  receivable  as a
percentage of revenues reflects lower sales in the fourth quarter of 1996 versus
1995.  Government contracts,  and certain private industry contracts,  typically
include  terms  where  payment  is often  deferred  for up to 90 days  following
completion of work.  While the Company attempts to negotiate  favorable  payment
terms whereby the Company realizes substantial cash flows throughout the life of
a  contract,  contracts  with United  States  governmental  agencies,  including
existing  projects  on which the  Company is  presently  on site and a number of
projects on which the Company is  bidding,  cannot be expected to include  terms
which are considered favorable.

     As a result of the loss incurred  during 1996,  operating  activities  used
$5.5 million in cash during 1996. The company also used $2.5 million in cash for
investing  activities  during 1996 for (1) an  acquisition  of a 10% interest in


                                       20
<PAGE>
Life for $1.3  million,  (2) the  acquisition  of  certain  property,  plant and
equipment  and other  assets for  $888,000 and (3) advances and loans to certain
officers in the amount of $330,768. Cash flows from financing activities totaled
$8.9 million during 1996 and consisted principally of (1) proceeds received from
the exercise various warrants and options, including $6.96 million received from
the exercise of 1,051,000  Class A Warrants and $1.98 million  received from the
exercise of the  underwriter's  option issued in  connection  with the Company's
initial  public  offering and (2)  subscription  proceeds  totaling  $258,621 as
partial  payment  for  the  sale  of a 45%  equity  interest  in an El  Salvador
subsidiary  formed by the Company to carry out the  deployment  of the Kocee Gas
Generator technology in El Salvador.

     In  November  of  1996,  the  Company's  board  of  directors   approved  a
discretionary  stock repurchase plan whereby the Company may, from time to time,
repurchase  on the open  market  shares of its  common  stock in an amount up to
$750,000.  Repurchases  of 100,000  shares for  $216,500  during 1996  partially
offset cash flows from the financing activities discussed above.

     In addition to the foregoing  items which impacted the Company's cash flows
during  1996,  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 1996 were (1)
the receipt of a subscription  receivable in the amount of $775,862 representing
the  balance  of the sales  price of the  minority  interest  being  sold in the
Company's  El  Salvador  subsidiary,  (2) the  conversion  of $3.32  million  of
convertible  notes into common stock, and (3) the repayment of $670,580 of loans
to officers through the surrender of 92,214 shares of common stock. Transactions
with  subsidiaries  during 1996 related  principally  to the  capitalization  of
various  subsidiaries  formed  to  deploy  the  Company's  Kocee  Gas  Generator
technology. At December 31, 1996, the Company had loaned $1.2 million to its 90%
owned subsidiary,  Global Wasted & Energy, Inc. Such loan is repayable on demand
with  interest  at  9.25%.  In  connection  with the  acquisition  of the  Kocee
technology,  the  Company  also loaned  $160,000  (Canadian),  or  approximately
$116,500 (United States), to Continental Waste Conversion, Inc., the licensor of
the technology.

     The Company  requires  substantial  working  capital to support its ongoing
operations.  As is common in the environmental  services  industry,  payment for


                                       21
<PAGE>
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.  As noted,  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, 1996,  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.

     Subsequent to December 31, 1996, 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 anticipates  commencing 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.

     Conversion  of the Series B  Preferred  Shares is subject to a cap on total
shares issuable pursuant to conversion to 1,915,000 shares,  provided,  however,
that  the  Company  will  submit  a  proposal  to  its  shareholders  to  permit
conversions  in  excess  of such  cap in which  case  such  conversions  will be
permitted.  In the event the shareholders do not approve  issuances in excess of
the cap the Company will be required to redeem any remaining  shares of Series B
Preferred Stock if the cap is reached at $11,000 per share. Conversions are also
subject to the Company's right to redeem any Series B Preferred Shares submitted
for  conversion at a price of $1.80 per share or less.  Subject to the Company's
satisfaction  of certain  notice  requirements,  the Company may redeem any such
shares  of Series B  Preferred  Stock  submitted  for  conversion  at a price of
$12,200 per share.


                                       22
<PAGE>
     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 2,399,000 Class A
Warrants  issued in connection  with the Company's  initial public offering were
outstanding  and exercisable at December 31, 1996. 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  $21.6  million and result in the issuance of 4.8 million  shares.
There can be no assurance,  however,  when, if ever,  any or all of the warrants
will be exercised.

     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.

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: delays in awarding and commencing
contracts, and payment on contracts occasioned by dealings with governmental and
foreign entities;  changes in accepted remediation  technologies and techniques;
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,  1996,  the  Company was on-site on projects  with a total
value of  services  yet to be  performed  of $41  million  and the  Company  had
additional contracts awarded but not yet begun valued at $6 million. The largest
projects on which the Company was on-site at December 31, 1996 were the East Dam
project in  Southern  California  with an  approximate  value of  services to be
performed of $15 million and Manafort and Tonawanda with an approximate value of
services to be performed of $6 million each. All three contracts are expected to
be fully  completed  by the end of 1997.  Included in the projects for which the
Company was on-site at  December  31, 1996 was the Los Alamos  project for which
the Company's  billings for 1996 totaled $1.1 million and  management  estimates
that as much as $7 million will be billed on such project during 1997.  However,
based on the nature of the project and delays  experienced in commencing work on
such project,  the timing of performing services and total billings with respect
to the Los Alamos  project is subject to periodic  adjustment.  Of the contracts
awarded but not yet begun at December  31,  1996,  the largest such project is a
major chemical company facility with an approximate  value of $1.5 million which
is expected to commence in the first quarter of 1997.

     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 1997 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 which the


                                       23
<PAGE>
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 is presently  involved
in negotiations with respect to the initial deployment of the Company's recently
acquired Kocee Gas Generator technology in El Salvador.  The Company has entered
into a preliminary  agreement  with a prospective  equity partner to install and
operate a  waste-to-energy  facility  in El  Salvador  with the  equity  partner
expected  to  contribute  $13.5  million  and the  Company to  contribute  $16.5
million.  Assuming  the Company can  successfully  consummate a  transaction  to
install and operate a waste-to-energy facility,  management anticipates that the
Company  will  realize  substantial  ongoing  revenues  from  operation  of such
facility  as  well  as  revenues   generated  in  connection  with  the  initial
installation of such facility. Further, management anticipates that a successful
initial  installation  and  operation  of the Kocee Gas  Generator  will lead to
additional  opportunities to deploy such technology.  There can be no assurance,
however,  that the Company will be successful in  consummating  a transaction to
deploy the Kocee Gas  Generator  technology  in El Salvador or elsewhere  or, if
such technology can be deployed, that such facilities can operate profitably. At
April 11,  1997,  CWC, the  licensor of the Kocee  technology  was in default in
repayment  of the $160,000  (Canadian)  loan from the Company and had filed suit
against the Company  attempting to void the various agreements with the Company.
While the Company  believes CWC's suit is wholly without merit,  the pendency of
such  suit or an  adverse  outcome  in such suit  could  materially  hinder  the
Company's  efforts  to deploy  the Kocee Gas  Generator  technology.  See "Legal
Proceedings."

     While management  expects  operating results to improve during 1997 for the
reasons  discussed above, the Company  anticipates that it may incur a charge to
earnings  in one or more of the years  commencing  in 1995 and ending in 2005 in
connection with the possible issuance of shares of Common Stock to the Company's
principal  officers  pursuant to the terms of their employment with the Company.
Under their  respective  employment  agreement  Messrs.  Freedman  and Falco are
entitled to receive  certain  bonuses in the form of stock of the Company in the
event  certain  earnings  criteria are  satisfied.  Pursuant to such stock bonus
arrangements,  the Company will issue stock to Messrs.  Freedman and Falco in an
amount 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 such
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.

     Because of the  compensatory  nature of the stock bonus  arrangement,  each
issuance of shares pursuant to such arrangement will result in a non-cash charge
to the Company's earnings.  The amount of such compensation charge will be equal
to the fair market value of the shares issued at the date of issuance. While the
amount of such  future  charges  to  earnings,  if any,  and the  timing of such
charges cannot be estimated at this time due to the uncertainty as to the future
satisfaction  of the earnings  criteria  and the future value of the stock,  any
such future charges to earnings can be expected to be substantial.


                                       24
<PAGE>
     Finally,  the Company's  future  operating  results are also expected to be
materially  impacted by the Company's  alliance with Universal Process Equipment
("UPE") to market its surplus  equipment  inventory.  Pursuant to such alliance,
the Company sold  substantially  all of its surplus equipment  inventory,  other
than  generators,  to UPE for an  aggregate  of not less than $4  million.  Such
purchase  price is  payable  from one  third of the net sales  proceeds  of such
equipment  received by UPE.  The unpaid  portion of the  purchase  price of such
equipment  shall bear interest at LIBOR and any amounts not previously  paid are
payable in full on  September  29,  2000.  Accordingly,  the Company  expects to
report  higher  interest  income  until such time as the  purchase  price of the
equipment  sold to UPE is paid in full.  Additionally,  should  one-third of the
proceeds  from the sale of such  equipment  exceed $4 million,  the Company will
recognize additional income from the sale of such equipment.

     With  the  formation  of the  alliance  with  UPE,  the  Company's  surplus
equipment  marketing  efforts will be  substantially  reduced as such  marketing
efforts will be principally the responsibility of UPE. All future inquiries with
respect to the  purchase and sale of surplus  equipment  will be directed by the
Company to UPE. UPE, in turn,  will utilize its  marketing  resources to satisfy
such  inquiries  and will pay the Company  prescribed  commissions  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.

     While the  alliance  with UPE will  reduce  the profit  margins  previously
enjoyed by the  Company on the sale of surplus  equipment,  management  believes
that the  formation  of such  alliance  will allow the Company to  substantially
increase the turnover of surplus equipment, reducing holding costs and inventory
risks  and  increasing  the  overall  profitability  of  its  surplus  equipment
business.  Further,  formation of such alliance will allow the Company to reduce
its costs associated with marketing such surplus  equipment and allow management
to focus on the Company's core business.

     Historically, the Company generally acquired its surplus inventory items in
connection with the performance of jobs,  which the Company  believes allowed it
to acquire such items on generally favorable terms allowing the Company to enjoy
substantial profit margins on the resale of such items. Because of the specialty
nature of much of the surplus  equipment  inventory  which the Company sold, the
turn-over of such inventory was typically limited to 50% per year and the mix of
such  inventory  sold  substantially  impacted  the  Company's  equipment  sales
revenues and profit margins in any particular year. While the Company has turned
over the majority of its surplus equipment  marketing efforts to UPE pursuant to
their joint  marketing  alliance,  the Company will  continue to seek  strategic
opportunities to acquire and sell surplus equipment  inventory so as to maximize
profits from such activities.

     The  Company is involved  in a number of legal and  administrative  matters
which may affect the Company's operations and financial condition. These matters
are more fully  discussed  in Item 4 above and in the notes to the  Consolidated
Financial  Statements.  While the Company does not expect to suffer  significant
adverse effects from such legal and administrative  matters,  the nature of such
proceedings is  unpredictable  and there can be no assurance that the outcome of
such may not have a material adverse effect on the Company.

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.

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-28 of this report. See Index to Financial Statements on page
29 of this report.

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

         Not applicable


                                       25
<PAGE>
                                    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 29 of this  report  for
          financial  statements  and  supplementary  data  filed as part of this
          report.

     (2)  Financial Statement Schedules

          None

     (3)  Exhibits


 Exhibit
  Number                          Description of Exhibit
 -------- ----------------------------------------------------------------------

     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
     4.6* Warrant Agreement dated January 12, 1997


                                       26
<PAGE>
    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  Employment  Agreement  between the Company  and Joel  Freedman,  as
          amended, dated February 1, 1996 (3)
  ++10.5  Employment  Agreement  between  the  Company  and Frank  Falco,  as
          amended, dated February 1, 1996 (3)
    10.6  Form of Agreement regarding  confidential  information and competition
          by by employees (1)
    10.7  Form of Severance Agreement (3)
    10.8  Teaming  Agreement,  dated  November  20, 1991 between the Company and
          Ebasco  Environmental  relating to the Rocky Mountain  Arsenal project
          (1)
    10.9  Voting Agreement (1)
    10.10 Share Rights Agreement dated April 1, 1996 (2)
    10.11 License  Agreement  dated  June  30,  1996  with  Life   International
          Products (4)
    10.12 Agreement dated July 19, 1996 with Continental Waste Conversion,  Inc.
          (4)
    10.13 License   Agreement  dated  July  18,  1996  with  Continental   Waste
          Conversion, Inc. and Continental Waste Conversion International,  Inc.
          (4)
    10.14 Promissory  Note in the amount of $160,000  (Canadian)  dated July 22,
          1996 from  Continental  Waste  Conversion,  Inc. to Continental  Waste
          Conversion International, Inc. (4)
    10.15 Pledge and Security Agreement dated July 19, 1996 between  Continental
          Waste Conversion, Inc. and Continental Waste Conversion International,
          Inc. (4)
    22.1* 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

(b)  Reports on Form 8-K

     No reports on Form 8-K were filed  during the quarter  ended  December  31,
     1996.


                                       27
<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, 1997


     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, 1997
-------------------------   (Principal Executive Officer) and
Joel A. Freedman            Director


/s/ Frank A Falco           Executive Vice President, Chief       April 15, 1997
-------------------------   Operating Officer and Chairman
Frank A. Falco              of the Board of Directors


/s/ Michael B. Killeen      Treasurer (Principal Accounting       April 15, 1997
-------------------------   and Financial Officer) and Director
Michael B. Killeen


                            Director                              April   , 1997
-------------------------   
Mori Aaron Schweitzer


                            Director                              April   , 1997
-------------------------
Frank Patti


/s/ Robert McGuinness       Director                              April 15, 1997
--------------------------
Robert McGuinness


                                       28
<PAGE>
                 IDM ENVIRONMENTAL CORPORATION AND SUBSIDIARIES

                   Index to Consolidated Financial Statements

                                                                         Page
                                                                        Number
                                                                        ------

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

Consolidated Balance Sheets as of December 31, 1996 and 1995............   F-2

Consolidated Statements of Operations for the Years ended
  December 31, 1996, 1995 and 1994......................................   F-3

Consolidated Statements of Stockholders' Equity for the Years
  ended December 31, 1996, 1995 and 1994................................   F-4

Consolidated Statements of Cash Flows for the Years ended
  December 31, 1996, 1995 and 1994......................................   F-5

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


                                      29
<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, 1996 and 1995 and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for each of the three years in the period ended  December 31, 1996.  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, 1996 and 1995,  and the results of
operations  and cash  flows  for each of the  three  years in the  period  ended
December 31, 1996, in conformity with generally accepted accounting principles.



                                     /s/ Samuel Klein and Company
                                     -------------------------------------------
                                     SAMUEL KLEIN AND COMPANY

Newark, New Jersey
April 4, 1997


                                       F-1
<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                     December 31,
ASSETS                                          1996              1995
                                            ===========     ===========
<S>                                         <C>             <C>
Current Assets:
  Cash and cash equivalents                 $ 1,001,254     $    83,286
  Accounts receivable                         5,626,208       6,616,130
  Stock subscription receivable                 775,862               -
  Notes receivable - current                  1,274,773       1,596,559
  Inventory                                   1,182,517       1,482,517
  Costs and estimated earnings in
   excess of billings                         1,655,754       3,634,052
  Bonding deposits                               55,472         883,163
  Deferred income taxes                       2,609,000         652,600
  Recoverable income taxes                            -       1,114,442
  Due from officers                             208,676         548,488
  Prepaid expenses and other 
   current assets                             1,884,977         765,944
                                            -----------     -----------
     Total Current Assets                    16,274,493      17,377,181

Investment in Affiliate, at cost              1,300,000               -
Notes Receivable - long term                  1,572,238       1,596,559
Deferred Issuance Costs                               -         506,586
Property, Plant and Equipment                 2,742,650       2,547,406
Other Assets                                    313,246               -
                                            -----------     -----------
                                            $22,202,627     $22,027,732
                                            ===========     ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Current portion of long-term debt         $   351,127     $   327,974
  Accounts payable and accrued expenses       7,105,827       5,836,510
  Billings in excess of costs and
   estimated earnings                            86,496         919,575
                                            -----------     -----------
     Total Current Liabilities                7,543,450       7,084,059

Long-Term Debt                                  164,034       4,004,142

Minority Interest                             1,034,483               -
                                            -----------     -----------
     Total Liabilities                        8,741,967      11,088,201
                                            -----------     -----------

Commitments and Contingencies

Stockholders' Equity:
  Common stock, authorized 20,000,000
   shares $.001 par value, issued
   and outstanding 9,602,730 in 1996
   and 6,200,079 in 1995                          9,603           6,200
  Additional paid-in capital                 25,359,465      13,693,895
  Retained earnings (deficit)               (11,908,408)     (2,760,564)
                                            -----------     -----------
                                             13,460,660      10,939,531
                                            -----------     -----------

                                            $22,202,627     $22,027,732
                                            ===========     ============
</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>
<CAPTION>

                                                 For the Years Ended December 31,
                                              1996            1995            1994
                                           -----------     -----------     -----------
<S>                                        <C>             <C>             <C>  
Revenue:
  Contract income                          $20,807,491     $33,865,680     $25,362,286
  Sale of equipment                            834,355       5,131,504       2,659,459
  Sale of scrap                                      -         406,187         490,469
  Miscellaneous                                      -               -          21,565
                                           -----------     -----------     -----------
                                            21,641,846      39,403,371      28,533,779
                                           -----------     -----------     -----------
Cost of Sales:
  Direct job costs                          21,491,328      30,432,547      20,448,617
  Unusual job costs                                  -       3,300,000               -
  Cost of equipment sales                      643,242       2,977,484       1,651,205
  Write-down of inventory surplus              300,000               -               -
                                           -----------     -----------     -----------
                                            22,434,570      36,710,031      22,099,822
                                           -----------     -----------     -----------

Gross Profit (Loss)                           (792,724)      2,693,340       6,433,957
                                           -----------     -----------     -----------

Operating Expenses:
  General and administrative expenses        9,567,435       7,637,621       5,418,243
  Depreciation and amortization                668,227         653,273         343,732
                                           -----------     -----------     -----------
                                            10,235,662       8,290,894       5,761,975
                                           -----------     -----------     -----------

Income (Loss) from Operations              (11,028,386)     (5,597,554)        671,982

Other Income (Expense):
  Interest income (expense)                     30,542         200,141         (36,342)
                                           -----------     -----------     -----------

Income (Loss) before Provision (Credit)
 for Income Taxes                          (10,997,844)     (5,397,413)        635,640

Provision (Credit) for Income Taxes         (1,850,000)     (1,530,000)        312,000
                                           -----------     -----------     -----------

Net Income (Loss)                          $(9,147,844)    $(3,867,413)    $   323,640
                                           ===========     ===========     ===========

Earnings (Loss) per Share:
  Primary earnings (loss) per share        $     (1.13)    $     (0.67)    $      0.06
                                           ===========     ===========     ===========

  Fully diluted earnings (loss) per share  $     (1.13)    $     (0.67)    $      0.06
                                           ===========     ===========     ===========

  Primary common shares outstanding          8,089,472       5,815,565       5,577,977
                                           ===========     ===========     ===========

  Fully diluted common shares outstanding    8,089,472       5,815,565       5,577,977
                                           ===========     ===========     ===========
</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, 1996, 1995 AND 1994

<TABLE>
<CAPTION>

                                                           Common Stock       Additional        Retained
                                                       ===================     Paid-in          Earnings
                                                         Shares     Amount      Capital         (Deficit)
                                                       =========    ======    ===========     ============
<S>                                                    <C>          <C>       <C>             <C>
Balances - January 1, 1994                             2,333,334    $2,333    $   927,243     $    797,178

Net Proceeds from Initial Public Offering              3,450,000     3,450     11,789,138                -

Net Income for the Year Ended December 31, 1994                -         -              -          323,640

Less Dividends                                                 -         -              -          (13,969)
                                                       ---------    ------    -----------      -----------

Balances - December 31, 1994                           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)
                                                       =========    ======    ===========     ============
</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>
<CAPTION>

                                                           For the Years Ended December 31,
                                                        1996             1995             1994
                                                    -----------     ------------    -----------
<S>                                                 <C>             <C>             <C>
Cash Flows from Operating Activities:
  Net income (loss)                                 $(9,147,844)    $(3,867,413)    $   323,640
  Adjustments to reconcile net income
   (loss) to net cash used in
   operating activities:
     Deferred taxes                                  (1,956,400)       (400,000)       (165,600)
     Depreciation and amortization                      668,227         653,273         343,732
     Write-down of surplus inventory                    300,000               -               -
     Provision for loss on notes receivable             630,000               -               -
     Decrease (Increase) In:
       Accounts receivable                              989,922      (1,947,644)       (230,774)
       Inventory                                              -       2,972,875      (1,979,506)
       Notes receivable                                (283,893)     (3,193,118)               -
       Costs and estimated earnings in 
        excess of billings                            1,978,298      (1,008,812)     (2,625,240)
       Prepaid expenses and other current assets     (1,119,033)       (149,181)       (265,581)
       Bonding deposits                                 827,691       1,510,494      (2,368,850)
       Recoverable income taxes                       1,114,442      (1,088,005)        (26,437)

     Increase (Decrease) In:
       Accounts payable and accrued expenses          1,361,671      (1,845,521)      3,400,835
       Billings in excess of costs
        and estimated earnings                         (833,079)        853,584          (1,142)
       Income taxes payable                                   -        (477,600)        (35,400)
                                                    -----------      ----------      ----------
         Net cash used in operating activities       (5,469,998)     (7,987,068)     (3,630,323)
                                                    -----------      ----------      ----------

Cash Flows from Investing Activities:
  Acquisition of property, plant and equipment         (574,832)       (639,417)       (479,543)
  Investment in affiliate                            (1,300,000)              -               -
  Acquisition of other assets                          (313,246)              -               -
  Loans and advances to officers                       (330,768)       (349,632)       (283,096)
                                                    -----------     -----------     -----------
         Net cash used in investing activities       (2,518,846)       (989,049)       (762,639)
                                                    -----------     -----------     -----------

Cash Flows from Financing Activities:
  Net proceeds from convertible bond issuance                 -       4,185,000               -
  Decrease in deferred offering costs                         -               -         183,247
  Repayment of notes payable - bank                           -               -      (2,054,000)
  Principal payments on long-term debt                 (371,109)       (193,922)        (90,446)
  Redemption of redeemable preferred stock                    -               -        (500,000)
  Net proceeds from public offering                           -               -      11,792,588
  Dividends paid                                              -               -         (13,969)
  Purchase and retirement of common stock              (216,500)              -               -
  Contribution from minority interest                   258,621               -               -
  Proceeds from exercise of stock
   options and warrants                               9,235,800               -               -
                                                    -----------     -----------     -----------
         Net cash provided by financing activities    8,906,812       3,991,078       9,317,420
                                                    -----------     -----------     -----------

Increase (Decrease) in Cash and Cash Equivalents        917,968      (4,985,039)      4,924,458

Cash and Cash Equivalents, beginning of year             83,286       5,068,325         143,867
                                                    -----------     -----------     -----------
Cash and Cash Equivalents, end of year              $ 1,001,254     $    83,286     $ 5,068,325
                                                    ===========     ===========     ===========
</TABLE>


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


                                       F-5
<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (continued)
<TABLE>
<CAPTION>


                                                   For the Years Ended December 31,
                                                  1996           1995         1994
                                               ----------    ----------    ---------
<S>                                            <C>           <C>           <C>
Supplementary Disclosures of
 Cash Flow Information:

  Cash paid during the year for:
    Interest                                   $   65,694    $   35,550    $124,945
                                               ==========    ==========    ========
    Income taxes                               $        -    $  488,802    $641,158
                                               ==========    ==========    ========
Supplemental Disclosure of Noncash
 Investing and Financing Activities:
  Property, plant and equipment financing      $  195,821    $  693,324    $132,772
                                               ==========    ==========    ========
  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    $        -    $      -
                                               ==========    ==========    ========
</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 national  provider of contract  environmental  services
specializing in plant  decontamination and  decommissioning.  The Company serves
private  industry,  utilities  and  governmental  entities in the areas of plant
dismantling,   plant   deconstruction   and  relocation,   asbestos   abatement,
radiological  remediation  and hazardous  waste  remediation,  among others.  In
addition  to  offering  environmental  services,  the  Company  buys  and  sells
equipment and entire plants and offers  relocation and  reinstallation  services
with  respect  to such  plants and  equipment.  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.  All
significant  intercompany  accounts and  transactions  have been  eliminated  in
consolidation.  Investments  in  affiliates  representing  20%  to  50%  of  the
ownership  of  such  companies  are  accounted  for  under  the  equity  method.
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.

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.


                                       F-7
<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)


1.   THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

Deferred Issue Costs

Costs in connection with the issuance of the 7% Convertible Notes were amortized
and charged to  operations  using the straight  line method over the term of the
notes. Upon conversion, any unamortized costs were 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.

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.


                                       F-8
<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)


1.   THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Accounting for Stock-Based Compensation

In October 1995, the Financial  Accounting  Standards Board issued Statement No.
123, "Accounting for Stock-Based  Compensation," which is effective for the year
ending  December 31, 1996.  As  permitted by the new  standard,  the Company has
continued  to apply  accounting  prescribed  by APB  Opinion  No. 25 and include
additional footnote disclosures.

Earnings (Loss) Per Share

Primary  earnings  (loss)  per  common  share and  common  equivalent  share are
computed  on  the  basis  of  the  weighted  average  number  of  common  shares
outstanding  during each year and include  shares assumed issued on the exercise
of all common stock  equivalents,  such as,  dilutive stock options and warrants
and the purchase of treasury stock with the proceeds at the average market price
for the period.  Fully  diluted  earnings per share  assumes the exercise of all
dilutive common stock equivalents and all other potentially  dilutive securities
and the purchase of treasury  stock at the higher of the market price at the end
of the year or the average market price during the year. If the number of shares
of  common  stock  that can be  purchased  with the  exercise  of  common  stock
equivalents  exceeds twenty percent (20%) of the then common stock  outstanding,
the Company  utilizes  the  modified  treasury  stock method which calls for net
income to be adjusted  for  interest  expense on  reduction of debt and interest
income from short-term  investments,  net of related tax effect,  for the unused
proceeds.

Reclassifications

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

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.

Pursuant  to such  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, 1996, 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  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
<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)


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, 1996 the
Company had loaned a total of $1,200,000 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  has  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 has been  received  from the
minority  investor.  The  balance  of  the  commitment  is  reflected  as  stock
subscription receivable.

As further  discussed in Note 16, CWC has filed a claim disputing the agreements
against the Company.

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,
                                           1996           1995
                                       ----------     ----------
Trade accounts receivable              $5,826,208     $6,816,130
Allowance for doubtful accounts          (200,000)      (200,000)
                                       ----------     ----------
                                       $5,626,208     $6,616,130
                                       ==========     ==========


                                      F-10
<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)


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, 1996 and 1995,
$3,144,476 and $3,193,118,  respectively,  was outstanding (including interest).
During the fourth quarter of 1996 management provided a $630,000 reserve against
the  outstanding  balance and expects that  approximately  50% of the  aggregate
minimum  consideration  will be received  within the following year, net of such
reserve.

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, 1996,  $215,985  remains  outstanding  (including  interest) and is
included within current portion of Note Receivable.

On July 19, 1996, a subsidiary of the Company,  in connection with the agreement
with CWC (described in Note 2), loaned to CWC $160,000  Canadian ( approximately
$116,550 U.S.).  The loan is secured by the 10% interest in Global Delaware held
by CWC, and provides repayment terms of 18 consecutive  installments  commencing
January 2, 1997.  As of the date of this  report CWC has made no payment and the
loan is delinquent.

Total  interest  income earned from these notes for the years ended December 31,
1996, 1995 and 1994 was $184,394, $44,523 and $0, respectively.


6.   COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

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


                                                     December 31,
                                               1996               1995
                                           -------------     --------------
Costs incurred on uncompleted contracts    $  15,683,597     $   34,608,617
Estimated earnings (loss)                     (1,917,659)         3,310,624
                                           -------------     --------------
                                              13,765,938         37,919,241
Less:  Billings to date                       12,196,680         35,204,764
                                           -------------     --------------
                                           $   1,569,258     $    2,714,477
                                           =============     ==============


                                      F-11
<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)


6.   COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS (continued)

Included in the accompanying balance sheets under the following captions:


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

Costs and estimated earnings
 in excess of billings                 $   1,655,754      $   3,634,052
Billings in excess of costs
 and estimated earnings                      (86,496)          (919,575)
                                       -------------      -------------
                                       $    1,569,258     $   2,714,477
                                       ==============     =============

7.   INVENTORY

Inventory consists of the following:


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

Purchased equipment ready for sale        $    1,182,517     $    1,482,517
                                          ==============     ==============

During the fourth  quarter of 1996,  management  provided a $300,000  write-down
against  the  Company's   inventory  of  surplus  power  generating   equipment.
Management  believes  the  write-down  was  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.


                                      F-12
<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)


8.   PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following:

                                                December 31,
                                           1996          1995
                                        ----------    ----------
Office equipment                        $  401,771    $  370,937
Furniture and fixtures                     398,377       347,584
Leasehold improvements                   1,150,853       912,840
Transportation equipment                   795,719       706,819
Job equipment                            3,704,740     3,198,127
                                        ----------    ----------
                                         6,451,460     5,536,307
Less:  Accumulated depreciation
 and amortization                        3,708,810     3,133,401
                                        ----------    ----------
                                         2,742,650     2,402,906
Construction in progress                         -       144,500
                                        ----------    ----------
                                        $2,742,650    $2,547,406
                                        ==========    ==========


9.   LONG-TERM DEBT

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,  1996,  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.


                                      F-13
<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)


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.

Long-term debt consists of the following:

                                                             December 31,
                                                        1996           1995
                                                      --------      ----------
Debentures:

  7% convertible notes, due September 1997            $      -      $3,641,667

Notes Payable:

  Note,  payable in monthly installments
   of $2,650 through February 1997, 
   secured by equipment                                  5,300               -

  Note, payable in monthly installments
   of $1,476 including interest at 
   approximately 8.25% per annum through
   September 2000, secured by equipment                 55,528          68,806

  Note, payable in monthly installments
   of $5,770 plus interest at approximately
   7.35% per annum through January 1996,
   secured by equipment                                      -           5,790

  Note, payable in monthly installments of 
   $27,316 including interest at approximately
   7.9% per annum through November 1997, 
   secured by equipment                                277,040         604,450

  Note, payable in monthly installments of
   $547 including interest at approximately 
   11.9% per annum through February 1998,
   secured by equipment                                  5,930          11,403

Capital Lease Obligations:

  Capital lease, payable in monthly 
   installments of $3,569 including interest
   at approximately 11.15% per annum through
   May 2000, secured by equipment                      144,517               -

  Capital lease, payable in monthly
   installments of $1,508 including interest
   at approximately 11.4% per annum through
   September 1998, secured by equipment                 26,846               -
                                                      --------      ----------
                                                       515,161       4,332,116
Less:  Current portion                                 351,127         327,974
                                                      --------      ----------
                                                      $164,034      $4,004,142
                                                      ========      ==========


                                      F-14
<PAGE>
9.  LONG-TERM DEBT (continued)

At December 31, 1996,  maturities  of long-term  debt  (including  capital lease
obligations) are as follows:

          1997               $ 351,127
          1998                  58,401
          1999                  47,207
          2000                  44,792
          2001                  13,634
                             ---------
                             $ 515,161
                             =========

10.  PROVISION (CREDIT) FOR INCOME TAXES

Provision (Credit) for income taxes is as follows:

                                        December 31,
                          1996               1995            1994
                     -------------     -------------    -------------
Current:
   Federal           $           -     $    (940,200)   $     370,800
   State                         -          (189,800)         106,800
   Foreign                       -                 -
                     -------------     -------------    -------------
                                 -        (1,130,000)         477,600
                     -------------     -------------    -------------
Deferred:
   Federal              (1,530,000)         (273,700)       (131,300)
   State                  (205,000)         (126,300)        (34,300)
   Foreign                (115,000)                -               -
                     -------------     -------------    ------------
                        (1,850,000)         (400,000)       (165,600)
                     -------------     -------------    ------------
                     $  (1,850,000)    $  (1,530,000)   $    312,000
                     =============     =============    ============


                                      F-15
<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)


10.  PROVISION (CREDIT) FOR INCOME TAXES (continued)

The  Company's  effective  tax rate was  (16.8%)  in 1996 and  (28.3%)  in 1995.
Reconciliation  of these rates and the U.S.  statutory  rates are  summarized as
follows:
<TABLE>
<CAPTION>

                                                    Years Ended December 31,
                                   1996                         1995                  1994
                                   ----                         ----                  ----
                            Amount       Percent        Amount      Percent     Amount     Percent
                         -----------     -------    -----------     -------    --------    -------
<S>                      <C>             <C>        <C>             <C>        <C>          <C>
Taxes at
Statutory rate           $(3,739,000)    (34.0%)    $(1,835,100)    (34.0%)    $216,100     34.0%
State taxes net of
federal tax effect          (135,000)     (1.2)        (211,800)      (3.9)      48,600      7.6
Foreign tax loss
carryforward                 291,000       2.6                -          -            -        -
Increase in valuation
allowance                  1,725,000      15.7          418,700        7.8            -        -
Other                          8,000       0.1           98,200        1.8       47,300      7.5
                         -----------    ------      -----------     ------     --------    -----
                         $(1,850,000)   (16.8%)     $(1,530,000)     (28.3%)   $312,000     49.1%
                         ===========    ======      ===========     ======     ========    =====
</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>
<CAPTION>

                                                           December 31,
                                               1996            1995         1994
                                               ----            ----         ----
<S>                                         <C>            <C>            <C> 
Deferred Tax Assets:
Accounts and notes receivable allowances    $   351,000    $   84,000     $ 84,000
Inventory allowance                             126,900             -            -
Other inventory cost                             19,800        19,800      160,000
Net operating loss carryforward               5,143,900       967,500            -
Fixed assets                                   (131,300)            -            -
Other                                            44,500             -        8,600
                                            -----------    ----------     --------
                                              5,554,800     1,071,300      252,600
Valuation allowance                          (2,945,800)     (418,700)           -
                                            -----------    ----------     --------
Total deferred tax assets                   $ 2,609,000    $  652,600     $252,600
                                            ===========    ==========     ========
</TABLE>


                                      F-16
<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)


10.  PROVISION (CREDIT) FOR INCOME TAXES (continued)

The  Company  has  available  at December  31,  1996  approximately  $11,575,000
operating loss carry-forwards that may be applied against future taxable income.
$2,350,000 expires in the year 2010 and the balance the following year.

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. Such salary,  including the incentive portion,
is paid  pursuant to a draw  schedule  based on annual  forecasts  of  operating
income  with any  difference  in  actual  salary  and draw paid  being  added or
subtracted from the following  year's draw. For each of the calendar years 1994,
1995 and 1996, Messrs. Freedman and Falco's draws, based on forecasted operating
profits were $360,000, $277,500 and $360,000, respectively.

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.

For the years ended December 31, 1996,  1995 and 1994 the  compensation  expense
for the two officers,  including board approved bonuses,  was $507,750,  250,000
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 balance of $55,500 will be applied to reduce
1997 compensation.

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-17
<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  $173,760,  utilizing  the exchange  rate  existing at
December 31, 1996.

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 financial condition or results of operations of the Company.


                                      F-18
<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,  alleges that the Company
disseminated false and misleading financial  information to the investing public
between March 27, 1996 and November 18, 1996 and seeks damages in an unspecified
amount to compensate  investors who purchased the Company's common stock between
the indicated dates as well as the disgorgement of profits allegedly received by
the  individual  defendants  from sales of common stock during that period.  The
Company believes this action is without merit and intends to vigorously  contest
this matter.

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
------------------------             -----            ---------
1997                             $      295,032    $       218,290
1998                                    295,032            191,310
1999                                    295,032            183,986
2000                                    295,032            177,108
2001                                    295,032            123,237
Thereafter                            2,950,320                  -
                                 --------------    ---------------
                                 $    4,425,480    $       893,931
                                 ==============    ===============

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.


                                      F-19
<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)


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, 1996, 1995 and
1994.

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.

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, 1996, the company has  receivables due from Mr. Freedman and Mr.
Falco for $5,636 and $203,040, respectively, including interest at 7% per annum,
which is expected to be repaid during 1997.

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.


                                      F-20
<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)


13.  RELATED PARTIES (continued)

Leases (continued)

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,
1996,  1995 and  1994  the  rent  paid  was  $292,884,  $285,050  and  $276,750,
respectively.   Future  minimum  rental  payments  are  reflected  in  Note  11,
Commitments and Contingencies.

14.  MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK

The Company  earned more than 10% of its  revenue  from a different  customer in
each year.  For the years ended  December 31,  1996,  1995 and 1994 the revenues
were $2,745,000, $12,900,000 and $3,494,000, 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.

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.

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.


                                      F-21
<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

15.  STOCKHOLDERS' EQUITY (continued)

Common Stock (continued)

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.

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.

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,  1,051,000  Class A  Warrants  were
exercised,  2,102,000  shares were issued in  connection  with the exercises and
resulted in net proceeds to the Company of $6,956,450.

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.

                                      F-22
<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)


15.  STOCKHOLDERS' EQUITY (continued)

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.

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 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 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 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 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,  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 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 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 at the date of grant.


                                      F-23
<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)


STOCKHOLDERS' EQUITY (continued)

Common Stock Purchase Warrants and Options (continued)

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 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 $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 at date of grant (the "intrinsic value") reflects the compensation for the
consulting services.

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 1996 and 1995, respectively, with ranges as follows:


                                                1996                  1995
                                                ----                  ----
Risk-Free interest                          4.39 - 6.40%          5.65 - 6.22%
Dividend yields                                       0%                    0%
Volatility factors of the expected
 market price of the Company's
 Common Stock                               .720 - .865%          .594 - .700%
Expected life of options                     2 - 5 years           4 - 5 years

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

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.


                                      F-24
<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)


15.  STOCKHOLDERS' EQUITY (continued)

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, 1996
and 1995 have been included for the Company's pro forma information as follows:


                                             1996               1995
                                             ----               ----
Pro forma net loss                       $(9,700,064)       $(3,882,441)

Pro forma loss per share:

    Primary                              $     (1.20)       $     (0.67)

    Fully diluted                        $     (1.20)       $     (0.67)


The  Company  recognized  $63,094(net  of tax  effect and  relating  to the 1996
consulting options) and $0 of compensation  expense for the years ended December
31,  1996  and  1995,  respectively.  An  additional  $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 1996,
1995 and 1994 is as follows:

<TABLE>
<CAPTION>
                                                                Weighted
                                                                Average
                                     Number     Price per       Exercise
                                   of Shares     Share           Price
                                   ---------    ---------       --------
<S>                                 <C>         <C>              <C>
January 1, 1994                           -         -                -
  Granted                           485,100     $4.00- $6.25     $4.05
  Canceled                          (30,521)     4.00             4.00
                                    -------
Outstanding at December 31, 1994    454,579                       4.05

  Granted                             5,000      4.38             4.38
  Canceled                           (4,050)     4.00             4.00
                                    -------
Outstanding at December 31, 1995    455,529                       4.05

  Canceled                          (63,967)     4.00             4.00
  Exercised                         (20,910)     4.00             4.00
                                    -------
Outstanding at December 31, 1996    370,652                       4.05
                                    =======

Options exercisable at
 December 31,  1996                 224,391     $4.00 - $6.25    $4.06
                                    =======
Available for Future Grant           83,438
                                    =======
</TABLE>


                                      F-25
<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (continued)


15.  STOCKHOLDERS' EQUITY (continued)

Common Stock Purchase Warrants and Options (continued)

The weighted average  remaining  contractual life of the outstanding  options is
7.40 years.

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

<TABLE>
<CAPTION>
                                                                           Weighted
                                                                            Average
                                              Number of     Price per      Exercise
                                               Shares         Share         Price
                                              ---------   -------------    --------
<S>                                           <C>         <C>    <C>
Outstanding, January 1, 1996                        -         -                 -
  Granted during 1996                         309,000     $2.94 - $8.25     $4.04
  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                        4.08
                                              =======

Options Exercisable at December 31, 1996      257,000                        4.17
                                              =======

Available for future grants                   200,448
                                              =======
</TABLE>

The weighted average  remaining  contractual life of the outstanding  options is
9.07 years.

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  remaining  contractual  life of the  outstanding
options is 9.5 years.

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


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


                                      F-26
<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.

16.  SUBSEQUENT EVENTS

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%


                                      F-27
<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

16.  SUBSEQUENT EVENTS (continued)

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 16, 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.  If the  registration  statement is not declared
effective by the Commission on or before May 13, 1997, the Company will have the
obligation to pay penalty  payments at the rate of $200 per preferred  share per
month until the registration  statement is declared  effective.  The Company has
the option to pay the penalty payments in cash or shares of common stock.

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 $3.32813 per share  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.

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, filed in the Federal District
Court for the Northern  District of Indiana,  is based on the same facts as gave
rise  to  the  aforementioned  administrative  proceeding  instituted  by  OSHA.
Management  believes  thet the suit,  as it relates to the  Company,  is without
merit, and intends to vigorously contest this claim. In addition the Company has
insurance in place to protect against such events.

On April 1, 1997 ("CWC") commenced litigation against the Company and two of its
subsidiaries, Global Delaware and Global Alberta, and the two principal officers
of Global  Alberta.  CWC alleges that the  agreements  entered into (see Note 2)
whereby  CWC  granted  to  Global  Delaware  the  exclusive  world  wide  rights
(excluding  Canada)  to the  proprietary  Kocee Gas  Generator  waste  treatment
technology  in exchange for a 10% interest in Global  Delaware  should be voided
because  amongst  other  claims  CWC did not  obtain  proper  approvals  and the
transaction was not consummated on an arms length basis. Their claim alleges the
loss of revenues  estimated  at $30 million.  Prior to the closing,  the Company
obtained  the legal  opinion of CWC's  counsel  that states "CWC has full power,
without  limitation in any way, to enter into the agreements,  and all necessary
corporate  steps and  proceedings  have been  taken so that the  agreements  are
properly granted and executed and delivered as binding  obligations of CWC". The
Company  believes this claim is without merit and intends to vigorously  contest
this claim.


                                      F-28