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, 1998

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

        For the transition period from ______________ to _______________.

                           Commission File No. 0-23900

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

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


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

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

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

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

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

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

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports);  and (2) has been subject to such
filing requirements for the past ninety (90) days. Yes  X   No
                                                       ---    ----

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     30,552,971  shares of common stock of the Registrant were outstanding as of
March 15, 1999. As of such date,  the  aggregate  market value of the voting and
non-voting common equity held by  non-affiliates,  based on the closing price on
the Nasdaq National Market, was approximately $10.2 million.

                       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, 1998 are
incorporated by reference into Part III.

<PAGE>

                                TABLE OF CONTENTS

                                                                           Page

PART I

         ITEM 1.  BUSINESS ..............................................     1
         ITEM 2.  PROPERTIES.............................................    18
         ITEM 3.  LEGAL PROCEEDINGS......................................    18
         ITEM 4.  SUBMISSION OF MATTERS TO A VOTE
                  OF SECURITY HOLDERS....................................    20

PART II

         ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY
                  AND RELATED STOCKHOLDER MATTERS........................    20
         ITEM 6.  SELECTED FINANCIAL DATA................................    21
         ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS
                  OF FINANCIAL CONDITION AND RESULTS
                  OF OPERATIONS..........................................    22
         ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
                  ABOUT MARKET RISK......................................    32
         ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............    32
         ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH
                  ACCOUNTANTS ON ACCOUNTING AND
                  FINANCIAL DISCLOSURE...................................    32

PART III

         ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
                  REGISTRANT.............................................    33
         ITEM 11. EXECUTIVE
                  COMPENSATION...........................................    33
         ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                  OWNERS AND MANAGEMENT..................................    33
         ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
                  TRANSACTIONS...........................................    33

PART IV

         ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
                  REPORTS ON FORM 8-K....................................    34

SIGNATURES


                                     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 31 of this Form 10-K.

ITEM 1. BUSINESS

     IDM Environmental Corp. (the "Company") is a global,  diversified  services
and project development  company offering a broad range of design,  engineering,
construction, project development and management, and environmental services and
technologies to government and private industry  clients.  We utilize those same
capabilities to build,  own or lease,  and operate  energy,  waste treatment and
similar  facilities.  Through our  domestic  and  international  affiliates  and
subsidiaries,  we  offer  services  and  technologies,  and  operate,  in  three
principal   areas:   Energy  and  Waste  Project   Development  and  Management,
Environmental Remediation and Plant Relocation.

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

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

     Our energy and waste treatment project  development and management services
("Energy and Waste  Services") are provided  through IDM Energy  Corporation and
local project  subsidiaries.  We actively  entered the Energy and Waste Services
market in 1997 following our acquisition of the rights to utilize and deploy the
proprietary  "G-2"  solid  waste  gasification  technology  and rights  under an
accompanying   power  purchase  agreement  to  deploy  that  technology  in  the
construction  and operation of a 30 MW  waste-to-energy  project in El Salvador.
Since our entry into the Energy and Waste Services market,  we have aggressively
pursued  opportunities to build,  own and operate  conventional and other energy
and waste  treatment  facilities.  We  completed  the  acquisition  of our first
operating  energy  facility,  a 42 MW  hydroelectric  plant,  in the Republic of
Georgia,  in the  first  quarter  of 1999.  With the  change in  control  of our
distribution partner in El Salvador,  our planned energy facility in El Salvador
has been revised to increase  the capacity of the facility  from 30 MW to 60 MW.
At year-end  1998, we had acquired the plant site and all required  construction
permits,  had completed  all  conceptual  engineering  studies and design of the
plant and were  involved in  negotiations  to sell energy in excess of the 30 MW
presently  under  contract  and to secure a fuel  supply and  financing  for the
project.  We  expect to  finalize  all  arrangements  for the  construction  and
operation  of the  expanded  energy  facility  in El  Salvador  during 1999 with
operating  energy  facilities  expected to be  connected to the local grid in El
Salvador  in 2000.  We have also  entered  into a  memorandum  of  understanding
pursuant to which  construction  and operation of a waste treatment  facility in
Taiwan is expected to commence during 1999.  Additionally,  we are  aggressively
pursuing additional energy and waste treatment facility "build, own and operate"
opportunities in Asia,  Eastern Europe,  Central and South America and expect to
bring  additional  facilities  on-line  beginning  in 1999.  In  addition to our
current and planned ownership and operation of energy and waste  facilities,  we
offer a broad  range of Energy and Waste  Services  to  government  and  private
industry  clients,  including project design and development,  engineering,  and
operation and management for  conventional  and other energy and waste treatment
projects. See "Energy and Waste Project Development and Management Services."

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


                                       1
<PAGE>

Business Strategy

     Our business has evolved,  and continues to evolve, to capitalize on market
opportunities.  We have added strategic  capabilities and resources  through the
years to move the  business  from its roots as a demolition  and  deconstruction
company  to a  full  service  environmental  remediation  and  plant  relocation
services  company and,  now, an energy and waste  treatment  project  developer,
manager, owner and operator. Supplementing our strengths and capabilities in our
core businesses, we have added strategic investments in technologies,  with both
industrial and consumer applications, and real estate holdings.

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

     Central to our strategy is a commitment to generating  long-term  recurring
revenue  streams as a  foundation  for our other  project  specific  activities.
International energy production and waste treatment projects are the core of our
planned  recurring  revenue  streams.  Our entry into the energy  production and
waste treatment markets began with the acquisition,  in 1997, of the proprietary
"G-2" waste  gasification  technology  and rights  under an  accompanying  power
purchase  agreement to deploy that technology in the  construction and operation
of a 30  MW  waste-to-energy  project  in  El  Salvador.  Privatization  of  the
Salvadorean distribution company,  combined with a decision to modify the nature
of the project to a more traditional energy production facility and increase the
capacity  of  the  plant,   has  resulted  in  delays  in  the  commencement  of
construction of the facility and the  anticipated  commencement of operations of
the plant.  We anticipate  that  arrangements  for the purchase of fuel, sale of
excess energy and financing of the plant will be finalized  during 1999 and that
construction of the plant will begin in 1999 with the plant becoming operational
in 2000. On  completion,  we expect to own an interest in the facility  which is
expected to generate  substantial ongoing revenues and operating profits for the
Company in  addition  to  development  fees which we expect to realize  from the
project.  In conjunction  with our energy  project in El Salvador,  we expect to
develop  expertise in energy project  operations and maintenance  services which
can be deployed in future energy projects.

     In conjunction with our initial efforts in El Salvador,  we have identified
a  number  of  potential   energy   projects,   waste  treatment   projects  and
waste-to-energy projects for future development and are committed to identifying
additional project  opportunities in the future. We completed the acquisition of
our  first  operating  energy  facility,  a 42 MW  hydroelectric  plant,  in the
Republic of Georgia,  in the first  quarter of 1999. We believe that one or more
of the current energy and waste projects under  discussion will come to fruition
during 1999 and 2000 and that the  commencement of operations in the Republic of
Georgia  and,  ultimately,  in El Salvador  will add to our profile as an energy
project  developer,  owner  and  operator  allowing  us to  aggressively  pursue
additional  opportunities  to  add  to  our  recurring  revenue  base  from  the
development  and operation of energy and waste treatment  projects.  See "Energy
and Waste Project Development and Management Services."

     Within our historical  environmental  remediation  services offerings,  our
strategy  is to  concentrate  our  efforts on highly  specialized  environmental
projects where competition is less intense,  profit margins are generally higher
and proprietary  technology and  engineering  expertise are valued at a premium.
With the growth and  evolution of the  environmental  remediation  market in the
1990's,  various  segments of the remediation  market have reached  maturity and
have become  characterized by intense competition and minimal operating margins.
While we  continue  to be active in the  environmental  remediation  market,  we
expect that  bidding or  negotiating  of future  remediation  contracts  will be
limited to special  situations  in which higher  margins can be generated by the
deployment  of  proprietary  technologies  and the  utilization  of  specialized
engineering services. In particular,  we are aggressively pursuing opportunities
involving the  decommissioning and remediation of large commercial nuclear power
facilities, which market we believe to be in an early growth stage.


                                       2
<PAGE>

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

     Supplementing our core business  operations,  we have  historically  sought
out, and will continue to seek out,  opportunities which are compatible with our
existing  expertise and  capabilities to enhance our recurring and  nonrecurring
revenues.  Illustrative  of such  opportunities  are (1) our  investment in Life
International  Products ("Life"),  (2) our formation of Seven Star International
Holdings,  Inc.  ("Seven  Star") to distribute  Life water products in southeast
Asia and to pursue other  opportunities  in southeast  Asia, (3)  acquisition by
Seven Star of a license  covering the bottling  rights and  distribution  of the
Life  superoxygenation  process in southeast Asia, and (4) our acquisition of an
interest in Kortmann  Polonia,  a Polish  company with  substantial  real estate
holdings. See "Other Services, Products and Investments."

Industry Background

     Environmental  Services Industry.  The environmental  remediation industry,
for all intents and  purposes,  emerged in the 1970's from the  enactment of the
"Superfund" legislation in 1976 and, subsequently, the Resource Conservation and
Recovery Act  ("RCRA")  legislation  in 1984.  These  landmark and  far-reaching
pieces of legislation made owners  responsible and liable for the  environmental
damage  caused by the  present  and past  operations  and  established  a strict
framework to regulate certain materials,  designated as hazardous by regulation,
from cradle to grave.

     Virtually  overnight,  many  corporations  faced  billions  of  dollars  in
potential liabilities that were nearly impossible to quantify. In addition, many
owners faced significant capital and operational cost increases to bring current
operations  into  full  compliance  with  the new  regulations,  or  face  large
penalties,  even  potential  shutdowns.  The  impact  of  these  factors  to the
corporate  "bottom line" forced owners to undertake  immediate  action to assess
the extent of the problem and quickly move to quantify these liabilities.

     Federal  regulations  mandated a prescriptive and bureaucratic  process for
the   performance   of   site   cleanups.   This   process   consisted   of   an
investigative/assessment  phase,  followed by a detailed  engineering and design
phase,  finally  culminating in the "hands-on"  implementation  phase. The first
phase  consisted  of the  following  major tasks:  Preliminary  Assessments/Site
Investigations  (PA/SI),  Remedial  Investigations/Feasibility  Studies (RI/FS),
Engineering Evaluations/Cost Analysis (EE/CA) and lengthy, often contentious and
controversial,  public  hearings  that  would  ultimately  lead  to  the  formal
selection of a specific  Remedial Action  Alternative  that would be legally set
forth in a Record of Decision  (ROD)  document  following  approvals by Federal,
State and local regulators.  The  implementation of the selected Remedial Action
Alternative  would involve two major phases,  the Remedial  Design phase and the
Remedial  Action  phase.  Each of these phases would be performed by a different
company.  The  combination of undefined  liabilities and the threat of a growing
regulatory enforcement  environment,  quickly created a market for environmental
services in the billions of dollars annually, that grew at double digit rates.

     Throughout the 1980s,  the government  continued to impose new  regulations
and expand the National  Priority List (NPL) of  "Superfund"  sites to more than
1,200 sites. With a seemingly unbounded demand for these services,  the industry
saw a quantum  increase in the number of  companies  providing  these  services.
During this period, billions of dollars were spent for environmental remediation
services, but very few actual cleanups were completed.

     As the 1980s drew to a close,  the unbridled growth of the industry came to
an abrupt halt as a result of several major factors,  including (1)  questioning
by government  administrators  and owners of the validity of a process that cost
so much money and yielded  virtually no tangible  results,  (2) recognition that
the cost associated with achieving  regulatory-imposed  cleanup standards,  that
would require that all sites be restored to "pristine"  conditions regardless of
location or future use, would be impossible to bear, even by the government, and
(3)  technological and operational  advances,  including the completion of plant
modifications  to reduce or eliminate the  generation of hazardous  wastes,  the
implementation of large scale waste  minimization  programs,  the application of
advanced treatment technologies and the advancements in computer technology that
allow for the  cost-effective  application  of analytical  risk  assessments  to
preclude the need for further cleanup actions.


                                       3
<PAGE>

     As the industry has been  transformed  in the 1990s,  in recent years,  the
environmental  remediation  industry  has been  characterized  by an  increasing
number  of  well-capitalized  competitors,  reduced  government  enforcement  of
environmental  regulations  and  regulatory  uncertainty.  This has  resulted in
reduced  commercial  spending  on  environmental  cleanup  and  intense  pricing
competition  for hazardous waste cleanup  projects.  Lower demand in the private
sector has been offset to some extent by new major project  opportunities in the
public sector,  primarily  comprehensive  cleanup projects at U.S. Department of
Defense ("DOD") and Department of Energy ("DOE") installations,  which require a
broad range of project  management  and field  execution  skills,  limiting  the
number of potential  bidders.  With the shift in the  environmental  remediation
industry during the 1990s, successful industry participants must possess (1) the
ability to undertake complex cleanup actions involving multiple contaminants and
multiple contaminated media under a single integrated contract,  (2) the ability
to deploy advanced  cleanup  technologies to reduce the cost and schedule of the
cleanup action as well as eliminate future potential liability for a site owner,
and (3) the ability to  incorporate  assessment  and  analytical  tools into the
cleanup  project as a way to reduce costs,  ensure full compliance with the laws
and  regulations,  ensure  safety  and  maintain  the  project  focused  towards
completion.  Ultimately,  consumers  of  environmental  services  in the present
environment  look for  completion  of site cleanups  quickly,  safely and at the
lowest cost.

     With the expanded  focus on cleanup of DOD and DOE  installations,  DOD and
DOE have become the largest customers for environmental  remediation services in
the U.S.  during  the  1990s and are  expected  to  continue  to be such for the
foreseeable  future.  DOE is responsible for managing a program charged with the
cleanup of the vast U.S.  nuclear weapons  complex.  Funding for the DOE nuclear
weapons  cleanup program is  approximately  $5.8 billion  annually,  of which an
estimated $1 billion is devoted to  "hands-on"  work.  DOD and the Army Corps of
Engineers are  responsible  for managing a program  charged with the cleanup and
downsizing of the vast complex of military bases, command centers,  research and
development  facilities and defense  production plants under the jurisdiction of
the DOD.  Funding for the DOD cleanup  program,  including  funding for the Base
Realignment and Closure program,  is  approximately  $2.9 billion  annually,  of
which an estimated $400 million is devoted to "hands-on"  work. Both the DOE and
DOD cleanup efforts have evolved in recent years to place a growing  emphasis on
completion  of  "hands-on"   cleanup  work  and   implementation  of  innovative
privatization,  investment  recovery,  reindustrialization  and  other  measures
designed to complete  cleanup  projects in the minimum amount of time and at the
lowest net cost to the agencies.

     In addition  to DOD and DOE  cleanup  projects,  which  represent  the most
concentrated   market  segments  within  the  United  States  for  environmental
remediation services, state and local government managed and funded cleanups and
private  sector  owned and  financed  cleanups  represent  distinct  markets for
environmental  services in the U.S. State and local government  cleanup projects
are estimated to represent a $600 million annual  market,  of which an estimated
$100 million are devoted to "hands-on"  work.  Domestic  private  sector cleanup
projects are estimated to represent a $8.6 billion  annual  market,  of which an
estimated $1.7 billion are devoted to "hands-on" work.

     Outside of the U.S., the enactment of stringent  environmental  regulations
in the  industrialized  nations  of  Europe  and  in  industrialized  and  newly
industrialized  Pacific Rim  nations  has  created a new and growing  market for
environmental   remediation   services,   with  international  cleanup  projects
estimated at $7 billion  annually,  of which an estimated $1 billion are devoted
to "hands-on" work.

     Plant Relocation  Services  Industry.  The plant  relocation  industry is a
highly  specialized  niche market business.  Large scale plant  relocations came
into  popularity  in the 1970s.  The  relocation  of process  plants as a viable
option to  acquisition  or  on-site  construction  of new  facilities  has grown
rapidly in recent years with the industrialization of underdeveloped  countries,
particularly  in  Eastern  Europe,  Asia  and  South  America.  It has  been our
experience that the  acquisition and relocation of existing  facilities can cost
one-half or less of the cost of acquiring new facilities.  Additionally, as most
large plants and facilities  require  substantial  lead time to manufacture  and
deliver,  facilities  can typically be brought  operational  in a  significantly
shorter  time period  where a suitable  plant can be  identified,  acquired  and
relocated as compared to the time required to manufacture new facilities.


                                       4
<PAGE>

     While  information  as to  the  worldwide  scope  and  size  of  the  plant
relocation  industry is not readily  available,  we believe  that a  substantial
majority  of the demand for such  services is outside of the United  States.  We
believe that demand for plant  relocation  services in Asia has been temporarily
curtailed as a result of the currency  crisis  experienced in that region during
the second  half of 1997 and into 1998.  However,  we believe  that the cost and
time benefits  associated with plant relocations will result in strong growth in
demand for those services over the next decade.

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

     Energy and Waste Treatment  Services  Industry.  Worldwide,  the energy and
waste treatment industries are diverse and growing increasingly competitive.  We
believe that economic  development in the previously  underdeveloped  nations of
Eastern  Europe,  Asia and South  and  Central  America  has  created,  and will
continue to produce,  growing demand for electrical  power in those markets.  In
the waste  treatment  market,  a wide variety of factors have  contributed  to a
growing  worldwide  demand for innovative  and  cost-effective  long-term  waste
treatment  and disposal  alternatives.  The driving  forces behind the growth in
demand for such alternatives include: (1) identification of solid waste disposal
as a top priority of the U.S.  Environmental  Protection Agency ("EPA"), (2) the
enactment  of  tax  credits  and  disposal  taxes  in the  U.S.  as a  means  of
discouraging  land filling in favor of "clean"  technologies,  (3) the advent of
proven  waste-to-energy   technologies,   (4)  the  enactment  of  international
legislation  restricting the export of industrial wastes from "rich" nations for
disposal in lesser developed nations,  and (5) the increase in waste produced as
a result of the explosive growth in urban areas in developing nations.

     While many of the  developing  nations'  energy needs are served by various
independent  energy producers,  distributors and state,  municipal and privately
owned utilities, it is our belief that the energy needs of many of those nations
are not  currently  met.  Likewise,  while we believe that waste  treatment is a
growing concern globally,  economic development in the previously underdeveloped
nations of Eastern Europe,  Asia and South and Central America has created,  and
is expected to continue to produce,  the  greatest  growth in demand for proven,
safe and cost-effective  waste treatment solutions in those markets.  While many
of the  developing  nations'  waste  treatment and disposal  needs are served by
landfilling and various alternatives offered by municipal and private operators,
it is our belief that the waste treatment needs of many of those nations are not
currently met.

     In an effort to capitalize on the perceived growth in demand for electrical
power  and  waste  treatment  alternatives  in  developing  nations,  as well as
opportunities to deploy our proprietary waste-to-energy technology and inventory
of generators,  we have actively entered the energy and waste treatment markets.
We have  acquired  our  first  energy  facility,  a  hydroelectric  plant in the
Republic of Georgia,  and have formed alliances and entered into agreements with
various  strategic and  financing  partners and  industrial  consumers and local
governments  to  construct,  own and operate  energy  production  facilities  in
Eastern European and Central American markets and waste treatment  facilities in
Taiwan.  While other energy producers may currently serve those markets or enter
into those markets, we have entered into, or expect to enter into power purchase
agreements  ("PPAs") in each of those markets whereby industrial or governmental
concerns  will  guarantee  the purchase of all or a  substantial  portion of the
energy produced by such facilities.  We believe that the successful commencement
of energy  production and waste treatment  operations in Georgia and Taiwan will
make  additional  opportunities  to  construct  and  operate  energy  and  waste
treatment  facilities  available  as  the  industrialization  of  underdeveloped
countries  progresses.  See "Energy and Waste Project Development and Management
Services."

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


                                       5
<PAGE>

Environmental Remediation Services

     General. We offer a variety of specialized  environmental  services with an
emphasis on plant  decontamination  and  decommissioning.  Many of the  projects
which we undertake  are  "cross-disciplinary"  in nature,  involving one or more
elements of dismantling, hazardous waste remediation,  radiological remediation,
asbestos  abatement,  plant relocation and other related services.  Our services
are generally offered on a "lump sum" basis wherein we bid to perform a complete
job for a  predetermined  price or on a "time and material" basis wherein we are
paid certain  predetermined  hourly or per day rates for services  plus a charge
for materials used. We also provide services on a "cost plus" basis where we are
paid for all costs  incurred plus a  predetermined  fee or profit margin without
regard to the time  required  to  perform  the job.  While the  majority  of our
projects  are priced on a "lump sum" basis,  we  generally  will not bid on such
projects without an in-depth understanding of the scope of such projects.

     Many  contracts  awarded to us require a surety bond. Our ability to obtain
bonding  and the  amount of bonding  required  is  determined  by our 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 we are
engaged,  the  greater  our  bonding,  net  worth  and  liquid  working  capital
requirements. The bonding requirements which we must satisfy vary depending upon
the  nature  of the  job to be  performed.  We  generally  pay a fee to  bonding
companies which  typically  averages three percent of the amount of the contract
to be  performed  with the  percentage  decreasing  as our net worth  increases.
Because  such fees are  generally  payable at the  beginning  of a job,  we must
maintain  sufficient  working capital reserves to permit us to pay such fees and
secure  bonding prior to  commencing  work on a project.  Additionally,  bonding
companies will require us 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,  we 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
us is generally  based on having  available  liquid working capital in an amount
equal to 20% of the contract amount.

     Where we have adequate  bonding  capacity to perform a job, an  experienced
member of our management  team will analyze the project and develop  preliminary
plans,  schedules  and cost  estimates in order to prepare a bid. If we obtain 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 our 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 our projects and
to assure our ability to perform projects,  we provide extensive training to our
entire  full-time  workforce  and go to great  efforts  to  retain  our  trained
workforce,  many of whom have been with us since  inception.  By  maintaining an
experienced workforce and cross-training our dismantlers,  riggers, ironworkers,
equipment  operators,  laborers,  superintendents  and foremen in OSHA  1910.120
hazardous waste procedures,  asbestos  abatement,  radiological  remediation and
other related skills,  our workforce can address virtually every situation which
may arise in a  remediation  project.  We  believe  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 to assure safety, quality and timeliness, we have established strict
guidelines  for  the  handling  and  disposal  of  hazardous   materials.   Such
guidelines,  which are intended to protect the Company from potential  liability
as a generator or transporter of hazardous  materials,  include strict  policies
that we contract  only as an agent for  generators to remediate  sites,  that we
never sign 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."

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



                                       6
<PAGE>

     Plant    Dismantling   and    Decommissioning.    Plant   dismantling   and
decommissioning  is the  historical  core  of our  operations  and  serves  as a
foundation for each of our other specialty  services.  Since inception,  we have
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, we have 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.

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

     Hazardous Waste  Remediation.  Hazardous waste remediation  encompasses the
clean  up  of  a  broad  range  of  hazardous   materials.   The   Comprehensive
Environmental  Response,  Compensation  and  Liability Act  ("CERCLA")  and 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.

     We have 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.  Our 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 which we have undertaken at such sites are specialty jobs wherein major
architectural  engineering firms contract to have us perform complex dismantling
and deconstruction jobs and to perform actual remediation of hazardous materials
in  conjunction  with  the  dismantling  process.  While  we  maintain  existing
relations with numerous private sector  industrial PRP's and have performed site
assessment and actual remediation at various sites, we have established, and are
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,  we have  been  called  on to  serve  on
remediation teams and have handled all aspects of dismantling and deconstruction
at hazardous waste remediation sites.


                                       7
<PAGE>

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

     In  1996,  we  further  expanded  our  hazardous  waste  services  with the
acquisition  of a license  from Life  pursuant to which we acquired an exclusive
license to market and employ Life's  patented  superoxygenation  technology  for
long term  bioremediation  of  contaminated  groundwater  in the United  States,
Canada  and  Mexico.  Life's  superoxygenation  process is  designed  to enhance
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.  Our  license  runs for a period  of twelve  months  from the
delivery by Life of a commercially viable unit subject to renewal for successive
terms provided that we meet certain minimum revenue requirements.

     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 intervention of activists, worldwide competition for
electricity  customers  brought about by a growing  deregulated  market,  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 these facilities,
utility  companies are expected to seek experienced  dismantling and remediation
specialists to decontaminate,  dismantle and decommission such facilities and to
properly handle and dispose 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  have been 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 a market for
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 functioning
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  underway and are expected to be required for many years to come
as these  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. We have skilled personnel with the necessary
experience and training to dismantle these  structures in a safe,  efficient and
regulatory compliant manner.

     We believe that radiological  remediation is the greatest  potential growth
area within the environmental  services  industry.  While the asbestos abatement
and general  hazardous  remediation  markets  have  matured  resulting in slower
growth in demand for those services,  we believe that the greatest growth in the
radiological remediation market lies ahead. The DOD and DOE in recent years have
pressed site managers for clear progress in actually cleaning up these sites vis
a vis  studying  the problem.  Additionally,  a major  market  exists at nuclear
facilities in other countries, including former Soviet-bloc countries and states
in which nuclear facilities were the prevalent sources of power.


                                       8
<PAGE>

     We  believe  that we are  well  positioned  to  participate  in the  future
remediation  of  such  facilities.  We are  presently  on  site  at DOD  and DOE
locations, including, among others, the Oak Ridge East Tennessee Technology Park
(the "Oak Ridge Project").

     Our  radiological  and  decommissioning  services  are also  expected to be
deployed in connection with the provision of radiological  remediation  services
for six VVER 440 nuclear power plants and one small reactor plant in Germany.  A
team led by Duke Energy has been selected to  participate  in the  privatization
and  re-industrialization  of those sites in conjunction with the performance of
radiological  remediation  services.  Under the terms of the project, the German
government  will  transfer  to  the  Duke  led  team  control  of a  state-owned
corporation,   Energiewerke   Nord   ("EWN"),   established   to  undertake  the
decommissioning  and  waste  management  of  the  facilities.   In  addition  to
decommissioning   and  clean-up   activities,   the  team  will  revitalize  and
re-industrialize the sites with the objective of creating a minimum of 1,500 new
jobs at the site and in the Greifswald and Mecklenburg  Vorpommern regions. Work
involving  reindustrialization of the site has commenced.  Contract negotiations
for the  acquisition of the  state-owned  corporation are ongoing and management
anticipates  that a comprehensive  agreement will be finalized during the second
half of  1999.  Project  engineering  is  expected  to begin  immediately  after
execution of a definitive  agreement with the  decommissioning  and  remediation
work expected to last  approximately 10 years. The German federal government has
established  a reserve of DM 6.209  billion  (approximately  $3.65  billion)  to
finance  the  project.  The  project  also enjoys the support of state and local
governments  which,  among  other  things,  have  agreed  to  provide  necessary
infrastructure   improvements  and  other  economic   benefits  to  promote  the
re-industrialization of the sites.

     In  August  1998,  we  entered  into a  Memorandum  of  Understanding  (the
"Magellan  MOU") with  Magellan  Biotechnology,  a unit of a  Taiwanese-American
high-technology  holding  company,  which  calls  for  the  construction  of  an
aquaculture  complex at the EWN site.  Under the Magellan MOU, it is anticipated
that we will  provide  construction  and  management  services  relating  to the
refurbishment   of  the  buildings   which  will  house  the  complex  and  site
infrastructure  as well as providing  certain equipment and materials to support
the planned  operations.  It is anticipated that the aquaculture complex will be
developed in two phases, beginning with a test phase designed to demonstrate the
viability  of  the  facility   followed  by   construction   of  a  large  scale
indoor/outdoor production facility. Construction activities on the test phase of
the  aquaculture  complex are  expected to begin during the second half of 1999.
The total cost of developing the facility is estimated at $25 million.

     In conjunction with our undertaking to revitalize and  re-industrialize the
EWN site and  attract  jobs,  during  1998,  we  formed  a  consortium  with IVO
Energienlagen GmbH ("IVO"), a leading Scandinavian utility company,  relating to
the planned  construction  and  operation  of a power plant at the EWN site.  In
September 1998, the government of Mecklenburg  Vorpommern announced that a basic
agreement  and land  contract had been entered into with the IDM/IVO  consortium
which calls for the development and  construction of a Combine Cycle Power Plant
at the EWN site which will initially produce 750 MW. With future  expansion,  we
expect to increase  the capacity of the plant to 1,700 MW. The  commencement  of
construction  of the power plant is subject to execution of final  documentation
and satisfactory financing  arrangements.  Additionally,  the various rights and
responsibilities of IDM and IVO relative to the development and operation of the
plant have not, as yet, been finalized. Subject to finalization of the foregoing
contractual  matters,  the power plant is expected to be operational by 2003. We
anticipate that IVO will assume all responsibility for development and financing
of the proposed power plant. We expect to perform other revitalization functions
necessary to support the IVO plant and expect to realize  revenues from both our
revitalization efforts to support the plant and development fees relating to our
efforts to bring the IVO plant to the EWN site.

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



                                       9
<PAGE>

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

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

Plant Relocation Services

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

     With the growth in the  economies  of numerous  third-world  countries  and
other  countries  which  were   historically   non-industrialized,   we  believe
significant  opportunities  are available in the worldwide plant  relocation and
re-assembly  market.  Because  of the  time  and cost  savings  associated  with
relocating existing plants as compared to purchasing and starting-up new plants,
we believe  that  growing  industrial  concerns  in South and  Central  America,
Pacific  Rim and  Eastern  European  countries  will  view the  acquisition  and
relocation of existing plants as the preferred  method of expanding  operations.
Typical of such opportunities was our 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.

Energy and Waste Treatment Project Development and Management Services

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

     After  evaluating  various  options  for entry into the  energy  production
market, we acquired a license from Continental  Waste  Conversion,  Inc. ("CWC")
pursuant to which we were  granted the  exclusive  worldwide  rights  (excluding
Canada) to CWC's proprietary  gasification technology that can convert municipal
solid waste into  electrical  energy.  As a result of the  bankruptcy of CWC, in
1998 we  acquired  full and  exclusive  worldwide  title to the CWC  technology.
Through that investment,  we now offer  state-of-the-art  solutions to municipal
waste  and  energy  concerns  worldwide.   We  believe  that  this  gasification
technology   offers  a  number   of   significant   advantages   over   existing
waste-to-energy or other gasification technologies,  including the production of
substantially  reduced  volumes of secondary  waste ash and compliance  with the
most stringent international clean air standards.

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


                                       10
<PAGE>

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

     Our initial international  activities are expected to include management of
direct and indirect ownership  interests in and/or operation of energy plants in
El  Salvador  and the  Republic  of Georgia  and a waste  treatment  facility in
Taiwan. As of the first quarter of 1999, we had completed the acquisition of our
first operating  energy facility in the Republic of Georgia and were involved in
energy and waste treatment projects in early stages of development, financing or
construction in numerous other countries.  The following is a brief  description
of our  energy  and waste  treatment  projects  which are in  varying  stages of
development,  financing or construction; thus the information set forth below is
subject to change. In addition,  these projects are, to varying degrees, subject
to all the risks associated with project development, construction and financing
in foreign countries,  including without limitation,  the receipt of permits and
consents,   the   availability  of  project   financing  on  acceptable   terms,
expropriation of assets, renegotiation of contracts with foreign governments and
political  instability,  as  well as  changes  in laws  and  policies  governing
operations of  foreign-based  businesses  generally.  Other than as noted below,
there  can  be no  assurances  that  these  projects  will  commence  commercial
operations.

     Georgia Energy Projects.  In November of 1998, we, through our wholly-owned
subsidiary, IDM Energy Corporation,  signed a Protocol of Intention ("POI") with
the Ministry for Fuel and Energy  ("MFE") of the former Soviet state of Georgia,
replacing  a  previously  executed  POI,  under  which we will have the right to
acquire,  design,  construct,  own and operate  electric power facilities in the
region.

     Our  initial  efforts in the  Republic  of  Georgia  have  resulted  in the
acquisition,  during the first  quarter of 1999,  of a  controlling  interest in
Zages, Ltd. ("Zages"). Zages operates a 42 MW hydroelectric power plant pursuant
to a lease of that facility  from the Georgian  government  (the "Georgia  Power
Project").  Zages has entered into an  Electricity  Sale and Purchase  Agreement
with Telasi, the electricity  distribution company of Tblisi, Georgia,  pursuant
to which Zages will sell and Telasi will purchase all  electricity  generated by
the plant for a period of six years  commencing  April 1, 1999.  Pursuant to the
terms of our  acquisition  of  Zages,  we made an  investment  in Zages and have
undertaken to perform a technical  examination of the plant. Zages will, in turn
attempt to negotiate  an extended  lease on the plant in an effort to extend the
existing five year  roll-over  lease into a fixed term  twenty-five  year lease.
Depending  on the outcome of our  technical  examination  and Zages'  efforts to
extend the lease on the plant,  IDM Foreign  Power  Incorporated,  our  indirect
majority-owned  subsidiary, may invest, over the operating life of the plant, up
to $9 million of additional funds for rehabilitation and repair of the plant.

     Telasi,  which is 75%  owned by AES  Corporation,  a leading  global  power
company,  serves  approximately  370,000 industrial,  commercial and residential
customers, or roughly half of the total power needs of Georgia.

     El Salvador Energy Project.  In conjunction  with our 1996 acquisition of a
license to exploit CWC's proprietary  gasification  technology,  we acquired the
rights of CWC under a December 1995 Power  Purchase  Agreement (the "El Salvador
PPA") with  Compania  de  Alumbrado  Electrico  de San  Salvador,  S.A.  de C.V.
("CAESS") as part of a planned 30 MW  waste-to-energy  project in San  Salvador,
the capital of El  Salvador.  An amended PPA was signed by CAESS and  ourselves,
subject to ratification  by the directors of CAESS,  in 1997.  Under the amended
PPA,  the  nature of the  proposed  plant  was  changed  from a  waste-to-energy
facility to a thermal facility with a capacity of 45 MW.

     CAESS,  which was a state-owned  Salvadorean  electric  power  distribution
company, was privatized in January of 1998 and, subsequently,  a 50% interest in
CAESS was sold by the new  owners to a U.S.  power  company.  As a result of the
privatization  of CAESS and the subsequent  transfer of a substantial  ownership
interest in CAESS,  the amendment to the El Salvador PPA increasing the capacity
to 45 MW was never ratified by the board of CAESS.  CAESS has, instead,  entered
into  discussions  with us with respect to the execution of a new power purchase
agreement for 60 MW to take the place of the original 30 MW PPA.

     Simultaneous  with the  negotiations  relating to the  amendment  to the El
Salvador  PPA,  and during the delays  associated  with the change in control of
CAESS,  we revised our plans to construct  and operate an energy  facility in El
Salvador to increase the  capacity of the facility  from 30 MW to 60 MW (the "El
Salvador Power  Project").  By year-end 1998, we had acquired the plant site and
all requisite  construction  permits,  had completed all conceptual  engineering
studies and design of the plant and were involved in negotiations to sell energy
in excess of the 30 MW presently  under contract and to secure a fuel supply and
financing  for the  project.  We expect to  finalize  all  arrangements  for the
construction and operation of the expanded energy facility in El Salvador during
1999 with operating energy facilities expected to be connected to the local grid
in El Salvador by 2000.


                                       11
<PAGE>

     During  1998,  we entered  into an  initial  agreement  with a major  heavy
equipment   manufacturer,   pursuant  to  which  it  was  anticipated  that  the
manufacturer  would participate as an equity investor and lead contractor on the
El  Salvador  Power  Project.  With the  change  in  control  of  CAESS  and the
accompanying changes in the anticipated size and nature of the El Salvador Power
Project  and delays  related  thereto,  the  obligations  as between IDM and the
manufacturer lapsed. Upon finalizing arrangements for the sale of the full 60 MW
from the plant,  we will attempt to secure a new  financing  commitment  for the
project. Construction of the project is expected to commence upon finalizing the
debt  financing  arrangements.  The plant is expected to be  operational  within
twelve months after commencement of construction.

     Taiwan Waste Treatment Project. We have entered into a joint venture with a
leading Taiwanese waste management  company to jointly develop a waste treatment
facility (the "Taiwan Treatment Plant") in Taipei, Taiwan.

     The   Taiwan   Waste   Treatment   Plant  was   originally   planned  as  a
100-tons-per-day  industrial  waste processing and energy  production  facility.
Plans for the Taiwan Waste  Treatment  Plant were altered during 1998 to develop
the  facility  in multiple  phases,  to  increase  the  capacity of the plant to
200-tons-per-day  and to convert the nature of the plant from a  waste-to-energy
facility to an industrial waste treatment  facility.  The cost of developing the
Taiwan Waste Treatment Plant, estimated at $27 million, is expected to be funded
through  conventional  project  financing.  Several leading Taiwanese  financial
institutions  have  expressed a strong  interest in financing  the project.  The
venture would be among the first  privately  owned  industrial  waste  treatment
facilities in Taiwan.

     We are  working  with our  Taiwanese  joint  venture  partner  to prepare a
detailed plant design. The project is expected to utilize a unique,  proprietary
and  commercially  proven  technology for the treatment of a wide range of waste
streams.  Necessary  steps  have  been  initiated  to secure  environmental  and
regulatory  permits.  We presently  anticipate that preliminary  commitments for
project  financing  will be secured during the first half of 1999 and that phase
one of the facility,  a 10-tons-per-day  demonstration unit, will be operational
by the third quarter of 1999, with phase two, a 50-tons-per-day  unit,  expected
to be operational by the end of 1999 and completion of phase three, bringing the
capacity of the plant to 200-tons-per day, expected in mid-2000.

     Other Energy and Waste  Treatment  Projects.  During 1998,  we entered into
agreements with respect to the proposed joint  development of energy projects in
Bolivia and India. We have entered into negotiations, and preliminary agreements
in India,  to sell energy from those  projects and have begun the  licensing and
regulatory  process in both countries.  Present plans call for the  construction
and operation of three 40 MW plants in Bolivia and, initially,  a 15 MW plant in
India.  Commencement  of  operations  of each of these  proposed  facilities  is
subject to finalizing  agreements  to sell energy from the plants,  acquire fuel
for the plants and secure financing for construction of the plants. We intend to
seek  conventional  project financing for each of the plants and may seek equity
investors  to minimize  our  investment  requirements.  Each of these  plants is
expected to be operational  within 12 months after finalizing  financing for the
plant construction.

     During 1998, we also entered into a series of agreements  pursuant to which
we are acting as developer of various energy facilities in Germany and Poland in
which we  expect  to  generate  development  fees,  retained  interest  and/or a
combination  of fees  and  retained  interests.  Included  in  such  development
activities  were our  efforts  in  Germany  pursuant  to which IVO has agreed to
construct a power plant at the EWN site. See "Energy and Waste Treatment Project
Development  and  Management  Services."  We also  entered  into three  separate
agreements  pursuant to which we obtained  development  rights and,  potentially
equity  interests,  in  multiple  power  plants,  an electric  transmission  and
distribution  grid and a district heating loop in Poland.  We intend to bring in
major European utility companies as controlling equity partners in each of these
projects  while  retaining  a minority  interest in the  projects  or  receiving
development fees for our efforts.


                                       12
<PAGE>

     We are also in various stages of discussions in countries in Asia,  Eastern
Europe,  South and  Central  America  with  respect  to the  development  and/or
acquisition, and operation of additional energy and waste treatment facilities.

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

Other Specialty Project Engineering Services.

     In addition to our  principal  services,  we  routinely  evaluate  projects
requiring specialized engineering services of a multi-disciplinary nature. Where
projects  require the  extension  of  specialized  engineering  services  across
disciplines  and where we possess  the  disciplines  required  to perform  those
services,  we will  attempt to  negotiate  to  provide a package of  specialized
services.  We typically  seek  opportunities  to perform  specialty  engineering
services  on projects  where the need to deploy  expertise  in  multiple  fields
provides favorable margins.

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

Other Services, Products and Investments

     We have entered into selected  strategic  investments  and  undertakings in
conjunction with, and which supplement,  our core operations.  Those investments
and  undertakings,  as of the  first  quarter  of 1999,  include  (1) an  equity
investment in Life,  (2) our  formation of Seven Star to  distribute  Life water
products in southeast Asia and to pursue other  opportunities in southeast Asia,
(3)  acquisition  by Seven Star of a license  covering the  bottling  rights and
distribution of the Life superoxygenation process in southeast Asia, and (4) our
acquisition  of  an  interest  in  Kortmann  Polonia,   a  Polish  company  with
substantial real estate holdings.

     Life International Products, Inc. At the time of our initial acquisition of
a  license  from Life to  utilize  it's  patented  superoxygenation  process  in
bioremediation, we also acquired a ten percent (10%) equity interest in Life for
$1.3 million.  In 1997, we invested an additional $375,000 in Life and, in 1998,
we acquired  additional  shares of Life from Joel  Freedman,  our  President and
Chief Executive Officer, for $178,125.

     Seven Star  International  Holding,  Inc.  During 1997, we acquired a fifty
percent (50%) interest in Seven Star, a BVI company. We contributed  $300,000 to
the capital of Seven Star and Jin Xin (Holding),  Inc.  ("Jin Xin")  contributed
$300,000  to Seven  Star.  Seven  Star was formed to  exploit  opportunities  to
deliver western products and technologies in Asia.

     In December of 1997,  Seven Star entered into its initial venture  agreeing
to acquire the  exclusive  rights to  distribute  beverages  incorporating,  and
otherwise exploit, Life's superoxygenation  process in a territory consisting of
the People's  Republic of China  (including  Hong Kong),  Taiwan,  Indonesia and
Singapore.  Pursuant  to the  terms of the  license,  Seven  Star paid a minimum
guarantee  payment  in the  amount  of  $400,000  to Life and  will pay  ongoing
royalties based on a percentage of revenues  realized from licensing of the Life
process, subject to certain minimum royalty requirements.  Seven Star intends to
distribute Life products directly in selected  territories and to sublicense the
Life process in other  territories.  Sublicensing  arrangements  are expected to
generate initial  sublicensing fees and ongoing minimum royalties from potential
sublicensees  in amounts  sufficient  to recoup at least the  minimum  guarantee
payment paid by Seven Star as well as the minimum ongoing royalties.


                                       13
<PAGE>

     In  December  of  1997,  Seven  Star  entered  into an  initial  sublicense
agreement  with  Zheng  Zhou Wo Li  Beverage  Limited  ("Zheng  Zhou  Beverage")
covering a territory  consisting of Zheng Zhou,  Henan, in the People's Republic
of China and providing for a minimum  guarantee  payment of $600,000 and minimum
royalty  requirements  in excess of those under Seven Star's  license with Life.
Zheng Zhou Beverage has begun the  development  of a bottling plant in Henan and
expects to begin bottling and distribution  operations  during the first half of
1999.

     Seven  Star's  ability to  successfully  exploit the Life process and other
opportunities in Asia is subject to the numerous risks associated with operation
in Asia,  including  the recent  currency  crisis  which has impaired the growth
prospects in the region, as well as the risks and uncertainties  associated with
identifying,  doing  business  with,  and enforcing  contracts with Seven Star's
prospective local partners and sublicensees.

     Kortmann  Polonia.  In  conjunction  with our  ongoing  efforts  to develop
waste-to-energy  and other  energy  projects  in Poland,  during  1998,  we were
presented  with an  opportunity  to acquire a  controlling  interest in Kortmann
Polonia.  Kortmann  Polonia is a Polish  corporation  with  valuable real estate
holdings.  In November of 1998,  we entered  into an  agreement to acquire a 75%
interest in Kortmann  Polonia for $600,000.  Shares  evidencing 49% ownership of
Kortmann  Polonia were  transferred in November of 1998.  Transfer of additional
shares  bringing  our  interest  in Kortmann  Polonia to 75% is  awaiting  final
governmental approval.

     Kortmann  Polonia's real estate holdings  consist of three separate tracts,
covering an aggregate of approximately 75 hectares,  known as the "Medjew Site",
the "Koblaskowa Site" and the "Stepnjca Site".

     The Medjew Site  consists  of  approximately  30  hectares  located on Lake
Medjew,  near Szczecin,  Poland.  The Stepnjca Site consists of approximately 15
hectare located on the River Oder. Our present plans are to sell the Medjew Site
and the Stepnjca Site to developers.

     The Koblashowa Site consists of approximately 33 hectares located 5 km from
downtown  Szczecin,  Poland.  The  site  is  located  directly  on the  Autobahn
connecting  Szczecin  to  Berlin,  Germany  immediately  past the  Polish-German
border.  Kortmann  Polonia has signed an agreement with Skyline  Corporation,  a
U.S.  shopping mall  developer,  to develop an indoor shopping mall on the site.
Our present plans are to pursue  development  of a mall at the  Koblashowa  Site
with a view  to  retaining  a  minority  interest  in the  mall  and,  possibly,
generating development fees.

     We expect  that from time to time in the future we will have  opportunities
to invest or  participate  in ventures  outside of, but  connected  to, our core
businesses.  We will  evaluate  any such  opportunities  and,  where we deem the
potential of such  opportunities to merit  participation  or investment,  we may
enter into additional ventures outside of our core businesses.

Marketing

     In  marketing  our  services,  we rely  principally  on the  efforts of our
operating and executive  management  team,  particularly  our Vice  President of
Business   Development,   who  regularly  call  upon  existing  and  prospective
customers.  Through the efforts of our management,  we have established  working
relationships  with numerous  Fortune 500  industrial  concerns as well as major
national  architectural  engineering firms, the DOD and the DOE and many smaller
and medium size industrial and engineering  firms  worldwide.  We supplement the
efforts of our management by advertising in  international  trade  publications,
direct mailings to selected  industrial and engineering firms, and participation
in industry conferences and trade shows.


                                       14
<PAGE>

Regulation

     Environmental Regulations.  We and, in particular, our 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 we offer
and often subject us to stringent  regulation in the conduct of our  operations.
The principal  environmental  legislation affecting our business and our clients
is described below.

     -- Resource  Conservation  and Recovery  Act of 1976.  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  we
provide. 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 we attempt 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 we
will be  successful in so limiting such  exposure.  Under Section  101(20)(B) of
CERCLA,  when a common or contract carrier  delivers a hazardous  substance to a
site  selected by the shipper,  the carrier is not  considered to have caused or
contributed   to  any  release  at  such  disposal   facility   resulting   from
circumstances or conditions beyond its control.

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

     While there can be no assurance,  management believes that, even apart from
funding authorized by RCRA and CERCLA,  industry and governmental  entities will
continue to try to resolve  hazardous waste problems due to their need to comply
with other statutory  requirements and to avoid  liabilities to private parties.
Although  the  liabilities  imposed by CERCLA are more  directly  related to our
clients, they could under certain circumstances apply to some of our activities,
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.


                                       15
<PAGE>

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

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

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

Competition

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



                                       16
<PAGE>

     While  many  firms  are  active  in  the  environmental  services  industry
providing site assessment,  consulting and engineering services, we believe that
the  number  of  firms  having   expertise   in,  and   offering,   dismantling,
decommissioning  and deconstruction  services within the environmental  services
industry is limited.  We maintain a highly  trained and qualified  workforce and
have  extensive  experience  in planning and  implementing  decontamination  and
decommissioning  projects in a safe manner.  Such  expertise and  experience has
allowed us 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  we,  unlike  most
engineering     firms,     are    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 our 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,  we believe 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 we  specialize,
decreasing any  competitive  advantage  which we may enjoy.  We believe that our
expertise  and  ability  to  provide  full  service,   turnkey  remediation  and
decommissioning  services and our  utilization of  state-of-the-art  remediation
techniques will continue to allow us to compete effectively in the environmental
services  industry  and to  capitalize  on the  expected  growth in  demand  for
services in the nuclear facilities arena.

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

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

     Waste Treatment Services. Due to the substantial barriers to entry into the
market and the prevalence of agreements,  competition within the waste treatment
market is limited in most developing  countries,  including the markets in which
we expect to operate.  While a variety of independent  operators and private and
government  owned entities may provide waste treatment in some of the markets in
which we expect to operate,  it is anticipated  that we will have  agreements in
place in most markets which will provide contractual  commitments to utilize our
facilities.  Accordingly,  competition  for  waste  treatment  revenues  is  not
expected to be significant  for the  foreseeable  future in our target  markets.
However, should those markets grow, it can be expected that new competitors will
enter those markets increasing pricing and competitive pressures. Further, while
established waste treatment  operations in developing markets are expected to be
isolated from competition in the near term, competition for contracts to provide
waste treatment services in markets may be intense.


                                       17
<PAGE>

Employees

     At January 31, 1999, we employed approximately 128 full-time employees,  33
of whom were management and administrative  personnel,  21 of whom were clerical
personnel and 74 of whom were field personnel.  We also employ  additional field
personnel on a temporary basis when needed to adequately staff projects.  All of
our permanent field personnel 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.  We regularly  hire  temporary  employees on
location  to staff  jobs  performed  away  from the  immediate  vicinity  of our
headquarters.  We  carefully  review  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,  our supervisors and foremen will plan,
supervise and oversee all aspects of work performed by such temporary workers.

     We believe that we enjoy good relations with all of our employees.  None of
our  permanent  full-time  employees  are  unionized  or subject  to  collective
bargaining agreements and we have experienced no work stoppages or strikes. Some
of the  temporary  personnel  we hire  may be  union  members  where  the job in
question and local conditions as a practical matter require such personnel.

ITEM 2. PROPERTIES

     Our  principal  offices  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 from L&G
Associates,  an affiliate 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.

     Our various  subsidiaries also own real estate in Poland (Kortmann Polonia)
and  El  Salvador  and  maintain   offices  in  various   locations  to  support
international project activities.

     We  believe  our  properties  are  adequate  to  support  our  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 willful  citations and  notifications of
penalty in the amount of $147,000  against the  Company in  connection  with the
accidental death of a subcontractor's  employee on the United Illuminating Steel
Point  Project in  Bridgeport,  Connecticut  in February,  1996. A complaint was
filed against the Company by the Secretary of Labor, United States Department of
Labor on September 30, 1996. We denied all of the  allegations in the complaint.
A  hearing  was  conducted  in  April,  1997 and,  subsequently,  OSHA's  Review
Commission  issued  a  written  decision  vacating  the  first  alleged  willful
citation,  but affirming the second and third willful citations,  and imposing a
penalty in the amount of $70,000 for each  citation.  A timely  Notice of Appeal
was filed with the OSHA Review Commission for Discretionary  Review,  which body
has accepted  jurisdiction of the matter on administrative  appeal. We intend to
continue to vigorously  contest the alleged  violations  and will pursue any and
all remedies  available,  including  appellate  proceedings at the U.S.  Circuit
Court of Appeals, in order to overturn the decision.

     On February 11, 1997, we were 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 its subcontractor,  American Wrecking.  The suit, styled
The Estate of Percy L. Richard,  and Percy 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 it successors, all joint
and individually,  and all unknown persons, Case No. 2:97CV filed in the Federal
District  Court for the Northern  District  Court for the  Northern  District of
Indiana,  arises  out  of  the  same  facts  alleged  in  the  above  referenced
administrative  proceeding  instituted by OSHA.  Plaintiff  seeks damages of $45
million.  We believe  that the suit,  as it relates to the  Company,  is without
merit and continue to vigorously contest the cause of action. A defense is being
provided by and through our general liability insurance carrier.


                                       18
<PAGE>

     In April of 1997, we and our subsidiary,  Global Waste & Energy, Inc., were
named as co-defendants in a cause of action styled Enviropower Industries,  Inc.
v. IDM Environmental  Corp.,  Global Waste & Energy,  Inc., et al., filed in the
Court of Queen's  Bench of Alberta,  Judicial  District  of Calgary  (Action No.
9701-04774).  The plaintiff,  Enviropower  (formerly known as Continental  Waste
Conversion International, Inc.), alleged that the license granted to the Company
to utilize and market  Enviropower's  proprietary  gasification  technology  was
granted  without  proper  corporate  authority  due to the  lack of  shareholder
approval.  The plaintiff  asserted the  subsequent  employment by Global Waste &
Energy of two former  officers of  Enviropower  as a basis for its  allegations.
Enviropower  sought  to have  the  license  and  all  other  agreements  between
Enviropower  and the  Company  declared  null and void in  addition  to  seeking
damages for alleged loss of profits and other  unspecified  damages.  In June of
1997, we filed a separate cause of action against Enviropower seeking injunctive
relief to enforce the agreements between them and to collect amounts owed to the
Company by  Enviropower.  On June 20, 1997,  we were  successful in obtaining an
Interim Injunction Order, further extended by Order dated September 19, 1997. We
were  subsequently   awarded  a  preliminary   injunction  against   Enviropower
recognizing our exclusive rights to the licensed  technology.  On or about March
20,  1998,  Enviropower  Industries,  Inc.,  filed  for  bankruptcy  in  Calgary
Bankruptcy  Court.  The  matter  commenced  by the  Company  was then  stayed in
accordance with Canadian  Bankruptcy law. In December of 1998, we entered into a
comprehensive settlement of the matter with the bankruptcy trustee.  Pursuant to
the  settlement,  we paid $51,000 to the trustee in exchange  for the  exclusive
rights to the disputed  technology,  including an  assignment of all patents and
pending  patents,  and a permanent  injunction  affirming our exclusive right to
such technology.

     In July of 1998,  we, our  subsidiary,  Global  Waste & Energy and  certain
affiliates and officers, were named as co-defendants in a cause of action styled
Kasterka Vrtriebs GmbH v. IDM Environmental Corp., et al., filed in the Court of
Queen's Bench of Alberta, Judicial District of Calgary. The plaintiff, Kasterka,
has alleged that we and our affiliates  breached a marketing  agreement that had
been entered between  Kasterka and  Enviropower.  The plaintiff has alleged that
the  defendants   failed  to  supply  material   information   relating  to  the
gasification  technology  originally  developed by  Enviropower  and that,  as a
result,  Kasterka was unable to manufacture and market gasification units in the
territories  designated  in the  marketing  agreement.  Kasterka  has asserted a
variety  of claims for  damages in the  aggregate  amount of  approximately  $42
million.  We believe the suit is without merit and intend to vigorously  contest
the cause of action.

     In  September  of 1998,  we were named as a defendant  in a cause of action
styled Balerna Concrete Corporation,  et al. v. IDM Environmental Corp., et al.,
filed in United States District Court of Massachusetts  (Case No.  98CV11883ML).
The  plaintiffs  allege that we, and others,  engaged in a pattern of conduct to
divert funds from the plaintiffs  through the operation of a concrete  finishing
business.  The plaintiffs  have asserted  various claims under RICO,  common law
fraud,  conversion  and breach of contract,  and seek  unspecified  damages.  We
believe the suit is without merit and have filed a motion to dismiss the action,
currently pending before the Court. We intend to continue to vigorously  contest
the cause of action.

     In October of 1996, we commenced an action styled IDM  Environmental  Corp.
v. H.B. Zachry in the 166th Judicial District Court, Bexar County,  Texas (Cause
No.  96-CI-14834),  seeking recovery of damages including,  without  limitation,
attorneys fees and  prejudgment  interest,  for breach of contract.  H.B. Zachry
filed a General  Denial and  Counterclaim  on November 15, 1996.  The matter was
settled in favor of the  Company  for the amount of  $938,412.00  on December 4,
1998.

     In April of 1998, the  Connecticut  Surety Company  ("Connecticut  Surety")
commenced  an  action  against  us  and  a  subsidiary,   IDM  Environmental  of
Massachusetts,  Inc. ("IDM of Mass."),  styled Connecticut Surety Company v. IDM
Environmental  Corp.,  et al.,  in  Federal  District  Court  in  Massachusetts,
immediately  following our advice to Connecticut  Surety's  representatives that
IDM of Mass.  would  commence an action  against it on  unsatisfied  bond claims
relating to the default of a subcontractor,  Dockside Dismantling, on the Boston
State Hospital project.  On January 22, 1999, the matter was settled in favor of
the Company for $375,000.00 and an  acknowledgment of acceptance of liability by
Connecticut Surety for the default of its insured.

     In November of 1997, we commenced an action styled IDM Environmental  Corp.
v.  Kvaerner  Metals,  et al. in the  Superior  Court of New Jersey.  The action
against  Kvaerner Metals,  formerly known as Davy  International  ("Davy"),  and
American Home Assurance Co. concerns a completed  environmental clean-up project
at American Home  Products in Bound Brook,  New Jersey for which we and Davy had
entered into a teaming partnership  agreement providing for, among other things,
an equal sharing of all direct costs and any losses sustained on the project. We
allege that we are entitled to the sum of at least $700,000.00  representing the
share  of the  project  losses  now owed to us by  Davy,  as well as  additional
unliquidated  damages for Davy's breach of fiduciary  duties owed to the teaming
partnership,  and its failure to submit  change order  claims to recover  losses
incurred  by the  partnership  for  disruption  of work and for its  negligence.
Discovery in the matter is continuing.


                                       19
<PAGE>

     In addition to the foregoing,  we are 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  affect on our
financial condition, operations or cash flows.

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

         None

                                     PART II

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

Market Information

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

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

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

         First Quarter, ended March 1998                 7.563            3.625
         Second Quarter, ended June 1998                 4.000            2.563
         Third Quarter, ended September 1998             2.719            0.500
         Fourth Quarter, ended December 1998             0.922            0.344

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

     At March 15, 1999, the bid price of the Common Stock was $.3125.

     As of March 15, 1999,  there were  approximately  130 holders of record and
4,500 beneficial owners of the Common Stock.

     We have never declared or paid any cash dividend on our Common Stock and do
not expect to declare or pay any such dividend in the foreseeable future.

     We  declared  a  1-for-10  reverse  split of our  Common  Stock and Class A
Warrants  effective April 16, 1999. Should our Common Stock not attain a minimum
bid price of at least $1.00  following  the reverse  split,  our Common Stock is
subject to potential de-listing from Nasdaq.


                                       20
<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 our consolidated financial statements and should
be read in  conjunction  with  the  audited  consolidated  financial  statements
included in the Index to Financial  Statements  on page 37 of this  report.  See
also, Item 7, "Management's  Discussion and Analysis of Financial  Condition and
Results of Operations."

<TABLE>
                                                             Years ended December 31,
                                        --------------------------------------------------------
                                         1998       1997         1996         1995         1994  
                                        ------     ------       ------       ------       ------
<S>                                     <C>        <C>          <C>          <C>          <C>   
                                                  (in thousands, except per share data)
Income Statement Data:
Operating revenues:
  Contract revenues..................  $20,019   $ 17,826     $ 20,808     $ 33,866     $ 25,362
  Equipment and scrap revenues.......        -         96          834        5,537        3,150
  Other..............................        -          -            -            -           22
                                        ------    -------     --------     --------      -------
    Total operating revenues.........   20,019     17,922       21,642       39,403       28,534
Cost of sales:
  Direct job costs...................   20,258     17,002       21,492       30,433       20,449
  Unusual job costs..................        -          -            -        3,300            -
  Cost of equipment..................        -        647          943        2,977        1,651
                                        ------    -------     --------     --------      -------
Gross profit (loss).................      (239)       273         (793)       2,693        6,434
Operating expenses:
  General and administrative.........   12,871     10,538        9,567        7,637        5,418
  Depreciation and amortization......      627        723          668          653          344
  Equity in net loss of
    unconsolidated partnerships......      194          -            -            -            -
                                        ------    -------      -------     --------      -------
Income (loss) from operations........  (13,932)   (10,988)     (11,028)      (5,597)         672
Interest income (expense), net.......    4,322       (513)          30          200          (36)
                                        ------    -------      -------     --------      -------
Income (loss) before income taxes....  (18,253)   (11,501)     (10,998)      (5,397)         636
Provision (credit) for income taxes..    4,170     (1,561)      (1,850)      (1,530)         312
                                        ------    -------      -------     --------      -------
Net income (loss).................... $(22,423)  $ (9,940)   $  (9,148)   $  (3,867)    $    324
                                        ------    -------      -------     --------      -------
                                        ------    -------      -------     --------      -------
Net income (loss) on common stock.... $(26,442)  $(11,224)   $  (9,148)   $  (3,867)    $    324
                                        ------    -------      -------     --------      -------
                                        ------    -------      -------     --------      -------
Net income (loss) per share (1)...... $ (13.31)  $ (10.01)   $  (11.30)   $   (6.70)    $   0.60
                                        ------    -------      -------     --------      -------
                                        ------    -------      -------     --------      -------
Weighted average shares
   outstanding (1)...................1,987,264  1,121,269      808,947      581,556      557,798
                                     ---------  ---------      -------     --------      -------
                                     ---------  ---------      -------     --------      -------

Balance Sheet Data (at period end):
Working capital......................$    (487)  $ (1,149)    $  6,122     $ 10,293     $ 12,070
Total assets........................    15,151     27,151       22,203       22,028       22,257
Long-term liabilities................       65        259          164        4,004            -
Minority interest....................        -          -        1,034            -            -
Shareholders' equity.................    7,885     18,079       13,461       10,940       13,829

</TABLE>

___________________

(1)  Adjusted  to give  retroactive  effect to a 1-for-10  reverse  stock  split
     effective April 16, 1999.


                                       21
<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 31 of this Form 10-K.

All  per  share  amounts,  including  shares  issued  or  issuable  pursuant  to
convertible  securities,  are adjusted to give retroactive affect to a 1 - for -
10 reverse split effective April 16 1999.

Overview

     Our business has evolved,  and continues to evolve, to capitalize on market
opportunities.  We have added strategic  capabilities and resources  through the
years,  and  continued to do so during 1998, to move our business from its roots
as a  demolition  and  deconstruction  company to a full  service  environmental
remediation  company and plant  relocation  services company and, now, an energy
project developer and manager.  Our revenues were historically derived primarily
from (1) contract  decontamination and decommissioning services in a broad range
of industrial and environmentally sensitive settings, including, but not limited
to, plant  dismantlement and relocation  services,  asbestos abatement services,
and  remediation of  contaminated  soil and  groundwater;  and (2) equipment and
scrap sales. Our operations have been  characterized by fluctuations in revenues
and operating  profits as projects begin and end. With the  implementation  of a
strategic shift in our business in 1997, we expect to generate a growing base of
recurring  revenues  and  operating  profits  from  energy  and waste  treatment
projects  and  long-term  nuclear  facilities  decommissioning  and  remediation
projects  while  supplementing  such revenues and profits with revenues from the
Company's  traditional  environmental  services  and plant  relocation  services
projects.

     During 1998, our principal  contract services related to, and substantially
all of our  revenues  were  derived  from,  our East Dam  Project  and Oak Ridge
Project and a number of smaller projects. The Oak Ridge Project is a DOE managed
site and our most  significant  remediation  project  during 1998.  We expect to
complete our current work at the Oak Ridge Project by the second quarter of 1999
and  anticipate  that  additional  work at that site will be  awarded to us upon
completion of the current work. Traditional environmental services accounted for
approximately  78% of our  revenues  during  1998,  of which  approximately  67%
represented DOE, DOD and other government  projects and 33% represented  private
sector projects. The East Dam Project accounted for the approximately 22% of our
revenues  during 1998 which were not  attributable  to  traditional  remediation
projects. The East Dam Project was completed in November of 1998.

     Revenues  recognized and jobs costs  attributable to our contract  services
during 1998 were adversely  affected by  unforeseeable  developments at the East
Dam Project and on our project at the Boston State  Hospital  (the "Boston State
Hospital Project").  On the East Dam Project, the scope of our services, and our
bid, was based on preliminary project specifications  established by the project
owner.  The amount  payable  with  respect to our  services on that  project was
subject to adjustment,  up or down, based on the actual conditions  encountered.
As a result of the  conditions  encountered,  the  actual  drill  footage of the
project  was  substantially  less than the  footage  initially  bid based on the
specifications  provided by the  project  owner.  At the same time,  we provided
substantial  additional services,  as called for by the contract, as a result of
change orders.  Pursuant to the contract,  compensation  payable with respect to
additional services resulting from change orders is subject to documentation and
negotiation at the end of the project.  The reduction in drill footage  resulted
in a decrease in estimated  project revenues (not giving effect to amounts owing
respect to change orders). As a result, estimated revenues to be recognized from
the East Dam Project were reduced from approximately $20 million to $15 million.
While total  project  revenues and 1998  revenues from the East Dam Project were
less than  anticipated as a result of the reduction in drill footage,  job costs
attributable thereto were substantially higher than originally  anticipated as a
result of the performance of additional  services  related to change orders.  We
have   submitted  a  claim  for   approximately   $10.8  million  as  additional
compensation  and cost  reimbursement  attributable  to change  orders.  Pending
payment for services  related to change orders,  during 1998, we recognized,  as
additional  job  costs,  all  costs  attributable  to the  performance  of those
services but did not recognize  any revenues  which might be realized from those
services.  We will recognize as additional  revenues,  without any corresponding
job costs, all amounts  received,  if any, with respect to change orders at such
time as such amount is actually received.


                                       22
<PAGE>

     On the Boston State Hospital Project, we subcontracted  certain portions of
the project to Dockside Dismantling Corporation ("Dockside"). Dockside defaulted
on its  subcontract  and  abandoned  the work for which it was  responsible.  In
addition,  we were notified of certain work deficiencies for which Dockside and,
derivatively,   the  Company  were  allegedly  responsible.   We  estimated  the
additional  costs to complete  and correct the work of Dockside at $1.2  million
and reflected  additional job costs in that amount.  We made a claim against the
bond ($500,000  performance and $500,000  payment) provided by Dockside's surety
company. The surety company disclaimed coverage and litigation to collect on the
bond was initiated.  In January of 1999, we settled our claim against Dockside's
surety  company  for  $375,000  for the  performance  bond of which we  received
$300,000  after legal  fees.  The  $500,000  payment  bond was paid  directly to
Dockside's  vendors and we received no funds from the payment bond.  The results
of the settlement were reflected in fourth quarter 1998 results.

     In the recurring revenue project arena, during 1998, we continued to invest
substantial resources in our efforts to acquire and/or build,  start-up, own and
operate  energy,  waste  treatment  and  other  similar  projects.  We  incurred
approximately  $4 million in direct  costs  during 1998 in  connection  with our
efforts to enter those markets. At December 31, 1998, we were in advanced levels
of  discussions  with  respect  to more  than a dozen  potential  energy,  waste
treatment  and similar  projects  and in February of 1999 we acquired  our first
operating energy facility,  a 42 MW hydroelectric power plant in the Republic of
Georgia.  We expect to begin recognizing  revenue from the Georgia Power Project
by the second quarter of 1999.  Additionally,  we expect to complete development
of, and to begin realizing  revenues from, one or more other energy and/or waste
treatment  facilities  before the end of 1999. See "Business -- Energy and Waste
Treatment Project Development and Management Services."

     We performed no plant  relocation  projects during 1998. With the financial
crises in Asia and other lesser developed regions and a dramatic downturn in the
price of oil, the demand for plant relocation services was curtailed in 1998 and
is expected to continue to be  curtailed  until an  improvement  occurs in those
regions.

     In addition to our core operations, we have entered into selected strategic
investments and  undertakings.  Those  investments and  undertakings,  as of the
first  quarter  of 1999,  include  (1) an  equity  investment  in Life,  (2) our
formation of Seven Star to distribute  Life water products in southeast Asia and
to pursue other  opportunities  in southeast Asia, (3) acquisition by Seven Star
of a  license  covering  the  bottling  rights  and  distribution  of  the  Life
superoxygenation  process  in  southeast  Asia,  and (4) our  acquisition  of an
interest in Kortmann  Polonia.  During  1998,  we  invested  approximately  $1.1
million in these ventures. We did not recognize any revenues from those ventures
during 1998 but expect to begin realizing  revenues from the water  distribution
operations  of Seven Star and from the sale of certain  real estate  holdings of
Kortmann Polonia during 1999.

Results of Operations

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

     Revenues.  Total  revenues  increased  by  approximately  11.2%  from $17.9
million for the year ended  December  31, 1997 to $20 million for the year ended
December 31, 1998.  Contract  service  income  increased for the period by 12.3%
from $17.8  million in 1997 to $20  million in 1998.  The  increase  in contract
service income was  attributable to increased  project volume from our Oak Ridge
office (up $6.6  million)  which was  partially  offset by a decrease in project
volume  from our  Boston  office  (down  $4.7  million).  The  East Dam  Project
accounted for approximately  $4.4 million,  22%, of revenues in 1998 and the Oak
Ridge Project  accounted  for  approximately  $3.6 million,  18%, of revenues in
1998.  The  environmental  remediation  business  has been marked by  increasing
competition and pressure on job margins. In light of such operating environment,
during 1998,  as in 1997,  we opted to only pursue  specialized  niche  projects
where projects risks could be limited and higher margins attained. 1998 contract
service revenues exclude approximately $12.1 million of additional  compensation
claimed as being owing with respect to services  performed  under change orders,
including $10.8 million  attributable  to the East Dam Project.  Such additional
compensation  will be  recognized  as revenues at such time as such  amounts are
paid, if ever.

     Surplus equipment and scrap sales decreased from $96,000 for the year ended
December  31,  1997  to $0 in  1998  due  primarily  to  the  sale  in  1996  of
substantially all of our surplus equipment, other than generators.


                                       23
<PAGE>

     Cost of sales.  Cost of sales,  which  includes  direct job costs,  cost of
equipment sales, and write-down of our surplus generator inventory, increased by
approximately  15.3%  from $17.6  million  for 1997 to $20.3  million  for 1998.
Direct job costs  increased  by 19.4%  during 1998 and  increased  from 95.4% to
101.5% of contract  income.  The primary  elements of such increase in job costs
were materials and supplies, job salaries,  subcontracting and disposal expense.
The  decrease  in gross  margins  during  1998  was  attributable  primarily  to
unforeseeable  costs  incurred  on  several  contracts,  including  the East Dam
Project and Boston State Hospital,  where we, at December 31, 1998, were seeking
to recover an aggregate of $8.4 million of additional costs incurred as a result
of change  orders  from  clients.  The  change  order  related  job  costs  were
recognized  in full  during  1998 but no revenue  attributable  to those  change
orders was  recognized.  As a result,  the East Dam  Project  and  Boston  State
Hospital Project incurred negative gross margins during 1998.

     As a result of the lack of sales of surplus  equipment during 1998, cost of
equipment sales were $0 as compared to $47,000 during 1997.

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

     General and administrative  expense.  General and  administrative  expenses
increased by 22.9% from $10.5 million (58.8% of gross revenues) in 1997 to $12.9
million  (64.5%  of gross  revenues)  in  1998.  The  increase  in  general  and
administrative expenses was primarily attributable to (1) a $1.9 million expense
for options granted to consultants  to purchase  122,000 shares of  common stock
at the  market  price on the  date of  grant,  (2) a $0.3  million  increase  in
professional fees (principally attributable to professional services relating to
efforts to commence energy and waste treatment  markets in foreign countries and
increased litigation expenses) in 1998 as compared to 1997, (3) increased salary
expense,  office  expense  and  travel  and  entertainment  expenses  related to
increased  activity  in foreign  projects,  and (4) a $154,000  audit  refund of
workers compensation  insurance which reduced general and administrative expense
during  1997.  Included in general and  administrative  expense was a $1 million
write-down  during  1998  and a  $1.2  million  write-down  during  1997  of the
Company's note  receivable  from UPE.  Direct costs  associated  with efforts to
acquire and/or build,  start-up,  own and operate  energy,  waste  treatment and
other  similar  projects  totaled  approximately  $4 million  during 1998 and $2
million during 1997.

     Depreciation  and  amortization.   Depreciation  and  amortization  expense
decreased  by  approximately  14.3% from $0.7 million in 1997 to $0.6 million in
1998.  The  decrease in  depreciation  and  amortization  expense was  primarily
attributable to a decrease in amortization of deferred issuance costs.

     Loss from  operations.  Loss from  operations  increased  to $13.9  million
during 1998 from $11 million during 1997. As a percentage of revenues, loss from
operations increased from 61.3% in 1997 to 69.5% in 1998.

     Interest  income and expense.  Net  interest  expense  increased  from $0.5
million in 1997 to $4.3 million in 1998.  The  increase in interest  expense was
primarily  attributable  to  $4.2  million  of  amortization  of the  beneficial
conversion feature of the convertible notes and warrants issued during 1998.

     Income taxes.  The  provision for income taxes totaled $4.2 million  during
1998 as  compared  to a credit for  income  taxes of $1.6  million in 1997.  The
increase in the income tax expense for 1998 was attributable to the write-off of
the Company's deferred tax asset in the amount of $4.2 million during 1998.

     Miscellaneous. During fiscal years 1997 and 1998, no provision was made for
post retirement benefits subject to FAS 106.

     As a result of the  foregoing,  we  reported a loss  before  taxes of $18.3
million  and a net loss of $22.4  million  for 1998 as compared to a loss before
taxes of $11.5  million and a net loss of $9.9  million  for 1997.  The net loss
attributable  to common stock was  increased by the  preferred  stock  dividends
($189,000  in 1998 and  $174,000 in 1997) and an  accounting  "deemed  dividend"
($3.8 million in 1998 and $1.1 million in 1997) arising from the amortization of
the beneficial  conversion  feature of preferred  stock.  Earnings per share has
been  calculated to comply with the recent SEC staff  position on accounting for
securities issued with beneficial conversion features.  This accounting requires
that we reflect the difference  between the market price of the common stock and
the applicable  conversion rate on the convertible preferred stock as a dividend
at the issue date amortized over a period from that date until the date on which
the preferred stock becomes convertible.


                                       24
<PAGE>

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

     Revenues.  Total  revenues  decreased  by  approximately  17.1%  from $21.6
million for the year ended December 31, 1996 to $17.9 million for the year ended
December 31, 1997.  Contract  service  income  decreased for the period by 14.4%
from $20.8  million in 1996 to $17.8  million in 1997.  The decrease in contract
service  income  was  attributable  to a lower  volume  due to a more  selective
bidding process  wherein we only bid on projects with higher gross margins.  The
environmental remediation business has been marked by increasing competition and
pressure on job margins. In light of such operating environment,  during 1997 we
opted to only pursue  specialized  niche  projects where projects risks could be
limited and higher margins attained. Surplus equipment and scrap sales decreased
by 85.4% from $834,000 from the year ended  December 31, 1996 to $96,000 in 1997
due primarily to the sale in 1996 of $634,000 of glass lined brewery tanks.

     Cost of sales.  Cost of sales,  which  includes  direct job costs,  cost of
equipment sales, and write-down of our surplus generator inventory, decreased by
approximately  21.4%  from $22.4  million  for 1996 to $17.6  million  for 1997.
Direct job costs  decreased  by 20.9% during 1997 and  decreased  from 103.3% to
95.4% of contract  income.  The primary  elements of such  decrease in job costs
were materials and supplies, job salaries,  subcontracting and disposal expense.
The lower gross margins during 1996 was attributable  primarily to cost overruns
on several contracts, including the Los Alamos project where we, at December 31,
1997 and December 31, 1998,  were seeking to recover $2.1 million of  additional
costs incurred as a result of change orders from clients.

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

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

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

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

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

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

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

     Miscellaneous. During fiscal years 1996 and 1997, no provision was made for
post retirement benefits subject to FAS 106.

     As a  result  of  the  foregoing,  we  reported  a  loss  before  taxes  of
$11,501,000  and a net loss of $9,940,000  for 1997 as compared to a loss before
taxes  of  $10,998,000  and a net  loss of  $9,148,000  for  1996.  The net loss
attributable  to common stock was  increased by the  preferred  stock  dividends
($174,000) and an accounting  "deemed  dividend"  ($1,110,000)  arising from the
amortization  of the  beneficial  conversion  feature of the Series B  Preferred
Stock.  Earnings  per share has been  calculated  to comply  with the recent SEC
staff position on accounting for securities  issued with  beneficial  conversion
features.  This accounting  requires that we reflect the difference  between the
market price of the Company's common stock and the applicable conversion rate on
the convertible  preferred stock as a dividend at the issue date (the beneficial
conversion  feature  totaling  $1,109,589) and has amortized the dividend over a
180 day  period  from  February  12,  1997,  the issue  date of the  convertible
preferred stock.


                                       25
<PAGE>

Liquidity and Capital Resources

     At December 31, 1998,  we had a working  capital  deficit of  approximately
$0.5 million and a cash balance of $0.4  million.  This compares to a deficit in
working  capital of $1.1  million and a cash balance of $0.6 million at December
31, 1997. The changes in working capital and cash were primarily attributable to
a  combination  of the loss  incurred  during  1998 and the  affects  of (1) the
conversion  into  common  stock  of  $3,025,000  of  notes  payable  which  were
classified as a current  liability at December 31, 1997, (2) the receipt of $3.2
million of net proceeds from the sale of Series C Convertible  Preferred  Stock,
(3) the  receipt  of $1.35  million of net  proceeds  from the sale of Series RR
Convertible  Preferred  Stock,  and (4) the  receipt  of $2.1  million  from the
exercise of warrants and stock options.

     Approximately  $1.9 million of working capital  consisted of unbilled costs
and  estimated  earnings on ongoing  projects.  Such  amounts are expected to be
received during 1999 as projects progress with all such amounts being payable to
the Company by the completion of such projects.

     Also included in the working  capital balance at December 31, 1998 was $0.6
million of surplus equipment inventory (net of a $0.9 million valuation reserve)
held for sale which gross  inventory  level was  identical  to that  reported at
December 31, 1997. The inventory  reflects the sale of substantially all surplus
equipment inventory, other than generators in connection with the formation of a
marketing  alliance  during 1995. The remaining  inventory  consists of nineteen
(19) generator sets with a total  electrical  capacity of 242,500  kilowatts per
hour (KWH).  The  estimated  market price of the  generator  inventory is twelve
million  dollars.  Twelve (12) of the  generators  are steam driven and range in
size from 12,500 kilowatts to 33,000 kilowatts (KW). Seven (7) of the generators
are diesel driven and range in size from 1,000 to 9,000  kilowatts  (KW).  These
generator sets should not be considered as obsolete or outdated  inventory since
its design and  technology  has not changed  much over the years.  They are very
long lead items (15-18 months), experience and project specific and as such they
are not to be compared with  disposable  items.  It is our intent to incorporate
this inventory in future projects.

     At December 31, 1998, we had  approximately  $30 million of operating  loss
carry-forwards  that may be applied against future taxable income.  $2.3 million
of such  losses  expire in the year 2010 , $9.1  million in the year 2011,  $8.6
million  in the year  2012 and the  balance  the  following  year.  Based on our
continuing operating losses, we wrote-off our deferred tax asset during 1998 and
no such assets was reflected at December 31, 1998.

     Accounts  receivable  decreased by 37.2% from 1997 to 1998. As a percentage
of revenues,  accounts receivable decreased from 22.8% in 1997 to 12.9% in 1998.
The decrease in accounts  receivable,  in dollar  amount and as a percentage  of
revenues,  was attributable to the receipt in early 1998 of payments of past due
amounts  totaling  $1.2  million  from three  customers.  The  deferral  of such
payments  from 1997 to 1998  increased  both the amount of  receivables  and the
percentage of sales for 1997.

     Unbilled  revenue as a percentage  of quarterly  contract  income was 0% at
December 31, 1993,  31% at December 31, 1994,  56% at December 31, 1995,  26% at
December 31, 1996, 11% at December 31, 1997 and 35% at December 31, 1998.  Also,
accounts   payable  have  constantly   decreased  since  1994  whereas  accounts
receivable  and  unbilled  revenues  have  increased  substantially  during this
period.  Prior to going  public in April  1994,  most of the our  revenues  were
generated in the private sector. Many of these contracts had substantial initial
mobilization  payments and  generated  positive cash flow during the life of the
contract. Since then the company has been successful,  as a result of its growth
strategy,  in  obtaining a number of  government  contracts at major DOE and DOD
sites.  This work was obtained as a direct  result of opening three new regional
offices.  The experience with these contracts has been negative cash flows until
we near contract  completion.  This is due to the  requirement  that we submit a
schedule and a schedule of values at the beginning of the job and bill according
to the percent  complete of each item in the  schedule of values - not the costs
we have  incurred.  Our jobs of any size are at a risk of being  front  end cost
loaded when there is little  progress to report (i.e.,  we cannot bill until the
structure is demolished).  We are aware of this problem and are trying to remedy
it by  maximizing  mobilization  costs  in the  schedule  of  values,  requiring
subcontractors  to bill on the same basis and  aggressively  negotiating  better
(less front end cost loaded) schedule of values.


                                       26
<PAGE>

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

     As a result of the loss incurred  during 1998,  operating  activities  used
$7.7  million  in cash  during  1998.  We also  used  $1.1  million  in cash for
investing  activities  during 1998 for (1)  acquisition of additional  shares of
stock of Life for $0.2 million,  (2)  acquisition  of a 75% interest in Kortmann
Polonia for $600,000,  and (3) a capital contribution to Seven Star of $300,000.
See  "Business -- Other  Services,  Products and  Investments."  Cash flows from
financing activities totaled $7.1 million during 1998 and consisted  principally
of (1) $2.6 million in proceeds  received from the exercise of various  warrants
and options,  and (2) $4.6 million in net proceeds from  convertible  securities
issuances.

     In addition to the foregoing  items which  impacted cash flows during 1998,
we 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 1998 were (1) the beneficial conversion feature
on the Series C and Series RR Convertible  Preferred  Stock of $3.8 million and,
(2) the conversion of $3.025 million of  convertible  promissory  notes and $4.9
million of Series C and Series RR Convertible Preferred Stock into common stock.
Transactions   with  subsidiaries   during  1998  related   principally  to  the
capitalization of various  subsidiaries formed to deploy the Kocee Gas Generator
technology.  At December 31, 1998, loans to Global Waste and Energy, Inc., a 90%
owned  subsidiary,  for  those  purposes  totaled  $3.3  million.  Such  loan is
repayable on demand with interest at 9.25%.

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

     Operations were historically funded through a combination of operating cash
flow, term notes and bank lines of credit.  Since April of 1994, we have carried
no bank debt and have funded operations  principally  through the sale of equity
securities and securities  convertible into equity  securities.  At December 31,
1998,  we had no bank debt and no  significant  long-term  debt and were funding
operations entirely through cash on hand and operating cash flow.

     In  February  of 1997,  we sold 300 shares,  or $3.0  million,  of Series B
Convertible  Preferred Stock (the "Series B Preferred Stock") to provide funding
for the East Dam Project and other projects on which work  commenced  during the
first half of 1997.  30 shares of the Series B  Preferred  Stock were  converted
during 1997  resulting in the issuance of 19,292  shares of  common  stock.  The
remaining  270 shares of Series B  Preferred  Stock were  converted  during 1998
resulting in the issuance of an additional 135,944 shares of common stock.

     On August 13, 1997,  we completed a private  placement of  $3,025,000 of 7%
Convertible Notes (the "Convertible Notes") and 267,500 three year Warrants (the
"$30.00 Warrants").  The Convertible Notes were convertible into Common Stock at
the lesser of (i) $27.50 per share or (ii) 75% of the average  closing bid price
of the Common Stock during the five trading days prior to conversion. The $30.00
Warrants  are  exercisable  for a three year  period at the lesser of $30.00 per
share or the lowest  conversion price of the Convertible  Notes. The Convertible
Notes paid  interest at 7% payable  quarterly and on conversion or at redemption
in  cash  or  Common  Stock,  at  the  Company's  option.  In the  event  that a
registration  statement covering the shares underlying the Convertible Notes had
not been declared effective within 90 days or 180 days after the issuance of the
Convertible  Notes, the interest rate on the Convertible Notes would increase to
18% and 24%, respectively,  from those dates until such a registration statement
became effective.  The registration  statement was declared effective in January
9, 1998.  The amount of  additional  interest  expense was  $54,500.  All of the
Convertible  Notes were  converted  during  1998  resulting  in the  issuance of
115,267 shares of common stock.


                                       27
<PAGE>

     The value, totaling $4,818,750, of the discounted conversion feature on the
Convertible Notes and the value of the $30.00 Warrants has been accounted for as
additional   interest   via  a  debit  to  debt   discount   and  a  credit   to
paid-in-capital.  The debt discount has been  calculated  as the fixed  discount
from the market at the date of sale based upon the common stock's  trading price
of $40 per share on August  13th.  This  interest was being  amortized  over the
period from the date of issuance  to the date the  Convertible  Notes were first
convertible,  January 8, 1998,  and for the $30.00  Warrants  to June 30,  1998.
During 1997,  $600,000 was  amortized and recorded as interest  expense.  During
1998, $4,218,750 was charged to interest expense.

     In  February  of 1998,  we sold  3,600  shares of  Series C 7%  Convertible
Preferred  Stock (the  "Series C Preferred  Stock") and 235,000 Four Year $50.00
Warrants  (amended  on  June 2,  1998 to  $37.50)(the  "$37.50  Warrants").  The
aggregate sales price of such securities was  $3,600,000.  Commissions  totaling
10% were paid in connection with the placement. The Series C Preferred Stock was
convertible  into Common Stock at the lesser of (i) $45.00 per share (amended on
June 2, 1998 to  $32.50)  or (ii) 75% of the  average  closing  bid price of the
Common  Stock  during  the five  trading  days prior to  conversion.  The $37.50
Warrants  are  exercisable  for a four year  period at the  lesser of $37.50 per
share or the lowest conversion price of the Series C Preferred Stock. The Series
C  Preferred  Stock paid  dividends  at 7% per annum  payable  quarterly  and on
conversion or at redemption  in cash or Common Stock,  at the Company's  option.
All  3,600  shares  of Series C  Preferred  Stock  were  converted  during  1998
resulting in the issuance of 640,747 shares of Common Stock.

     In February of 1998,  we issued  127,000  Three Year $45.00  Warrants  (the
"Lock-Up  Warrants").  The Lock-Up  Warrants were issued in conjunction with the
execution of Lock-Up  Agreements by the holders of $30.00  Warrants  whereby the
holders  of such  warrants  agreed not to resell  any  shares  underlying  those
warrants  prior to July 30, 1998.  The Lock-Up  Warrants are  exercisable  for a
three year period at $45.00 per share.

     In June of 1998, we issued  26,688  $60.00 and 26,688 $67.50  Warrants (the
"Reload  Warrants").  The Reload Warrants were issued as an inducement for early
exercise by the holders of certain  $30.00  Warrants and are  exercisable to the
extent of one $60.00  Warrant and one $67.50  Warrant  for each  $30.00  Warrant
previously  exercised.  The $60.00  Warrants and $67.50 Warrants are exercisable
for a period of one year  commencing  June 8, 1998 to purchase  Common  Stock at
$60.00 and $67.50 per share,  respectively.  Exercise of the $60.00 Warrants and
$67.50 Warrants is subject to the restrictions  that the holders,  individually,
will not  beneficially  own in excess of 4.99% of the Common Stock following any
exercise.

     In  August of 1998,  we sold  1,500  shares  of  Series  RR 6%  Convertible
Preferred Stock (the "Series RR Preferred Stock").  The aggregate sales price of
such securities was $1,500,000. Commissions totaling 10% were paid in connection
with the placement.  The Series RR Preferred  Stock is  convertible  into Common
Stock at the lesser of (i) $22.50 per share or (ii) 75% of the  average  closing
bid price of the Common Stock during the five trading days prior to  conversion.
Conversion  of the Series RR  Preferred  Stock is subject to the  issuance  of a
maximum of 360,000 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 360,000 shares,  the holders
of the Series RR  Preferred  Stock  remaining  outstanding  if and when  360,000
shares have been issued will have the right to demand  redemption  of the Series
RR Preferred Stock at 120% of the principal balance  outstanding.  The Series RR
Preferred  Stock  pays an annual  dividend  of 6%  payable  semi-annually  or on
conversion or at redemption in cash or Common Stock, at the Company's option. As
of December 31, 1998,  1,285 of the shares of Series RR Preferred Stock had been
converted  resulting in the issuance of an aggregate of 359,981 shares of Common
Stock.  Subsequent to December 31, 1998,  demand for conversion or redemption of
the remaining 215 shares of Series RR Preferred Stock had been submitted.  As of
March 15,  1999,  negotiations  were  ongoing  with the  holder of the Series RR
Preferred Stock with respect to the deferral of payment of the redemption  price
or conversion of the remaining  shares of Series RR Preferred  Stock pending the
receipt  by the  Company of  funding  to pay the  redemption  price or until the
annual shareholders meeting when approval of conversions above the 360,000 share
cap would be solicited.

     During the fourth  quarter of 1998, we agreed to amend the terms of certain
warrants to reduce the  exercise  price of those  warrants  for certain  warrant
holders  who had  indicated a  willingness  to  exercise  currently  outstanding
warrants.  Pursuant to such agreement,  the exercise price of those warrants was
reduced to $3.30 per share until December 31, 1998, and $10.00  thereafter,  and
the Company  obtained the right to call the warrants for  redemption.  In total,
the exercise  prices were reduced on 117,651 of the $30.00  Warrants,  67,000 of
the Lock-Up  Warrants,  15,750 of the $60.00 Reload Warrants,  and 15,750 of the
$67.50 Reload Warrants.


                                       28
<PAGE>

     During 1998, a total of 243,731  warrants were  exercised  resulting in net
proceeds to the Company of $2,620,000.

     Also during 1998, Frank Falco, Chairman of the Board of Directors and Chief
Operating Officer of the Company,  paid the Company $490,000,  which represented
payment in full of all amounts due from officers to the Company.

     Other than funds provided by operations and the potential  receipt of funds
from the  exercise of  outstanding  warrants,  we  presently  have no sources of
financing or commitments to provide financing.  A total of approximately  34,000
Class A Warrants (after giving effect to the April 1999 reverse  split)issued in
connection with our initial public offering were  outstanding and exercisable at
December  31, 1998.  Such  warrants  are  exercisable  to purchase two shares of
common stock each for a price of $90.00,  or $45.00 per share. The warrants were
originally  exercisable until April of 1999 unless earlier called. We declared a
1-for-10 reverse split of our Common Stock and Class A Warrants  effective April
16,  1999  and  extended  the  term of the  Class A  Warrants  to April of 2000.
Exercise of the warrants  would provide  gross  proceeds of  approximately  $3.1
million and result in the issuance of  approximately  70,000 shares after giving
effect to the reverse split.  However,  given the current price of the Company's
Common Stock,  it is not expected that the Class A Warrants will be exercised in
the foreseeable future.

     In addition to funds used to support ongoing operations,  we utilized funds
to make various strategic  investments during 1998. Funds utilized for strategic
investments  during 1998 have been  principally  invested in (1) Seven Star, (2)
Kortmann Polonia,  and (3) implementation of strategic  initiatives  designed to
facilitate entry into the market for recurring revenue projects ("Vision 2000").
See  "Business  --  Business  Strategy"  and "-- Other  Services,  Products  and
Investments."

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

     In November of 1998,  we paid $600,000 to acquire a 75% interest in Kortman
Polonia,  a Polish  company  with  substantial  real estate  holdings.  Kortmann
Polonia has initiated  discussions with various real estate developers and major
U.S.  retailers  with respect to the sale of various real estate  tracts and the
development and leasing of the remaining tracts.

     In addition to funding requirements to support ongoing operations,  we have
committed  substantial  capital  resources to  implementation  of the  strategic
initiative  known as "Vision  2000." The focus of Vision 2000 is to position the
Company as a leading participant in the global energy and waste treatment market
and in the nuclear facility  decommissioning and site revitalization market. The
development and initial  implementation of Vision 2000 initiatives have required
substantial  capital  expenditures  and can be  expected  to continue to require
substantial capital expenditures in the future.  Direct investments in potential
energy and waste treatment projects undertaken under the Vision 2000 initiative,
excluding corporate overhead allocable to such initiative, totaled approximately
$9 million at December 31, 1998. Capital expenditures and other outlays to bring
proposed  projects  to an  operational  state are  expected  to far  exceed  the
investment to date. In particular,  the proposed El Salvador  Power Project,  is
expected  to  cost  approximately  $55  million  to  develop  and  will  require
substantial funding beyond that which the Company can presently provide. We have
entered into  discussions  with  several  potential  equity  investors in the El
Salvador Power Project. We are also in discussion with a major project financing
source with respect to the  provision of debt  financing  for the balance of the
cost above the  contributions of the Company and its equity partner.  Similarly,
in connection  with our  acquisition  of a  controlling  interest in the Georgia
Power Project, we agreed to perform a technical  evaluation on the facility and,
depending on the results of that evaluation, to invest up to $9 million over the
life of the facility for repairs and rehabilitation. The ability to successfully
bring the El Salvador Power Project, and other similar projects,  on line, carry
out any required  repairs and  rehabilitation  on the Georgia  Power Project and
implement  other Vision 2000  initiatives  is  substantially  dependent upon our
ability to secure project  financing and other financing.  While we believe that
we will be able to attract  adequate  financing to develop the El Salvador Power
Project and other  anticipated  projects,  we have no definitive  commitments to
provide  financing  for  those  projects  and  there is no  assurance  that such
financing  will be available.  Other than funding  Vision 2000  initiatives  and
bonding and other job costs, we do not anticipate any substantial demands on our
liquidity or capital resources during the following twelve months.


                                       29
<PAGE>

     At December 31, 1998, we had submitted  claims for additional  compensation
related to change orders on various projects totaling approximately $15 million.
The most  significant  of these  claims  relate to the East Dam  Project  ($10.8
million) and a DOE project in Los Alamos, New Mexico which was completed in 1997
($2.8  million).  We are  presently  aggressively  pursuing  collection of these
claims and  expect  that we will be able to collect  substantially  all  amounts
claimed if we continue to pursue such claims through  litigation,  if necessary.
However,  it is  possible  that  we  will  compromise  some  of our  claims  for
additional  compensation  accepting  lesser  amounts  in favor of a more  timely
resolution of such claims and the receipt of funds with respect to the same. Our
claim with  respect to the East Dam  Project  has been  approved  by our general
contractor  on the  project but has not,  as yet,  been  approved by the project
owner. Our general contractor agreed in the first quarter of 1999 to release our
retainage on the project ($750,000). There can be no certainty as to the amount,
if any,  which we will receive  with respect to our claims on change  orders and
when, if ever, we will receive such amounts.

     In March of 1999,  our  management  appeared  before a Nasdaq hearing panel
regarding the possible  de-listing of our common stock for failure to maintain a
minimum  bid price of at least  $1.00.  In order to address  the  deficiency  in
minimum bid price, we proposed and have approved a 1-for-10 reverse split of our
common stock and warrants to be effective  April 16, 1999.  We expect a decision
from Nasdaq during April. If our stock is ultimately  de-listed from Nasdaq, our
ability to raise capital through the sale of equity  securities may be adversely
impacted.  As we sold equity securities on multiple occasions in recent years to
finance  operating  losses,  de-listing of our common stock could be expected to
have a material adverse effect on our cost of capital and ability to fund future
operations.

     We believe that our working capital,  combined with the expected receipt of
funds from the resolution of certain change orders and litigation, is sufficient
to meet  our  anticipated  needs,  other  than  project  financing  requirements
discussed  above,  for at least  the  following  twelve  months,  including  the
performance of all existing  contracts of the Company.  However,  as there is no
assurance as to the timing or amount of the receipt of funds from change orders,
litigation or other sources, we may be required to seek new bank lines of credit
or other financing in order to facilitate the performance of jobs.  While we are
conducting  ongoing  discussions with various  potential  lenders with a view to
establishing available credit facilities,  we presently have no commitments from
any  bank or  other  lender  to  provide  financing  if such  financing  becomes
necessary to support operations.

Year 2000 Issue

     We recognize  the need to ensure that our  operations,  as well as those of
third parties with whom we conduct business,  will not be adversely  impacted by
Year  2000  software  failures.  Software  failures  due  to  processing  errors
potentially arising from calculations using the year 2000 date are a known risk.
We are  addressing  this risk to the  availability  and  integrity  of financial
systems and the  reliability  of  operational  systems  through a combination of
actions  including  a review of all  software  applications,  desktop  equipment
network,  and  telecommunications  products  used by the Company to determine if
they are Year 2000  compliant.  We will also  send  questionnaires  to our major
customers and suppliers to assess their Year 2000 readiness, review all contacts
for year 2000 liability and will develop remediation and contingency plans where
appropriate.  We expect to complete this work by this end of the second  quarter
1999.

     The costs of achieving Year 2000 compliance to date have been immaterial to
our  financial  position,  results  of  operations  or  cash  flows.  We do  not
anticipate  that  additional  amounts  incurred in connection with our Year 2000
compliance  program  will be material to our  financial  condition or results of
operations.

     Due to the uncertainties involved, we cannot predict the impact of the Year
2000 on our  operations.  Achieving  Year 2000  compliance  is dependent on many
factors, some of which are not within our control, including without limitation,
the continuity of service provided by the government, utilities,  transportation
industry and other  service  providers.  Should one of these  systems  fail,  or
should our internal  systems or the internal  systems of one or more significant
vendors or  suppliers  fail to achieve  Year 2000  compliance,  our business and
results of operations  could be adversely  affected.  

                                   30
<PAGE>


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.  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:  uncertainty  with respect to the  continued
listing of our Common Stock on Nasdaq;  uncertainty  with respect to our ability
to finance continued operating losses and future growth initiatives  pursuant to
"Vision  2000";  possible  fluctuations  in the growth and demand for energy and
waste  treatment  services in markets in which the Company may seek to establish
energy  production  and waste  treatment  operations;  intense  competition  for
establishment of energy  production,  waste treatment and similar  operations in
growing  economies;  currency,  economic,  financing and other risks inherent in
establishing  operations in foreign markets;  uncertainty  regarding the rate of
growth in demand for nuclear  decommissioning and site revitalization  services;
continued  delays in awarding  and  commencing  contracts;  delays in payment on
contracts occasioned by dealings with governmental and foreign entities; changes
in accepted remediation  technologies and techniques;  fluctuations in operating
costs  associated with changes in project  specifications  and general  economic
conditions;  substantial  fluctuations in revenues resulting from completion and
replacement of contracts and delays in contracts;  economic conditions affecting
the ability of  prospective  customers to finance  projects;  and other  factors
generally  affecting  the timing and  financing of projects.  In addition to the
foregoing, the following specific factors may affect future operating results.

     At  December  31,  1998,  we had a backlog of  approximately  $8 million of
signed services  contracts as compared to a backlog of approximately $31 million
at December 31, 1997.  The largest  projects in our backlog at December 31, 1998
were the Oak Ridge asset recovery  project,  with an estimated value of services
to be  performed  of $4 million,  and the North Rim  project,  with an estimated
value of services to be performed of $3 million.  The Oak Ridge project began in
March 1998 and the North Rim  project is expected to begin in May 1999 with both
projects scheduled to be completed during 1999.  However,  the elapsed time from
the  award  of a  contract  to  commencement  of  services,  and  completion  of
performance, may be two or more years. The backlog at December 31, 1998 does not
include services  expected to be rendered under the EWN project in Germany.  The
total  German  government  funding  for the EWN project is  approximately  $3.65
billion.  We anticipate that we will perform as much as $700 million of services
at the EWN site over a ten year  period.  We expect to finalize a  comprehensive
agreement for the  revitalization  of the EWN site during the first half of 1999
and to be  performing  remediation  services  during  the  second  half of 1999.
Because of the  uncertainty  as to the actual start date for services at the EWN
site,  no  estimate  can be made as to the  value  of  services  expected  to be
rendered during 1999.

     In addition to existing contracts,  we are presently bidding on, or propose
to bid on,  numerous  projects in order to replace  revenues from projects which
will be  completed  during  1999 and to  increase  the  total  dollar  volume of
projects  under  contract.  We anticipate  that efforts to bid on and secure new
contracts will focus on projects which can be readily serviced from the regional
offices as well as certain large  international  plant  relocation  projects and
nuclear  decommissioning  projects  which we  intend  to  pursue.  Our  regional
offices,  particularly  the Oak  Ridge,  Tennessee  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,  we believe  that our  existing  presence on
adjacent projects combined with our proven expertise and resources will allow us
to successfully bid on and perform substantial  additional projects based out of
our regional offices.

     In addition to remediation  and plant  relocation  projects on which we are
presently  bidding or  negotiating,  during  1997 and 1998 we entered the energy
production  and waste  treatment  services  market.  We  expect to begin  energy
production  and sales at our Georgia Power Project  during the second quarter of
1999 and expect to begin  operations at, and to receive  revenues from,  various
other energy and waste treatment projects and nuclear  decommissioning  projects
at various sites by as early as the second half of 1999. See "Business -- Energy
and Waste Treatment Project Development and Management Services."

                                   31
<PAGE>


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

     There is  uncertainty  as to our ability to continue to operate as a result
of continuing losses and a lack of currently  available resources to fund future
operations.  In an  effort  to  deal  with  these  concerns,  we  are  presently
evaluating the sale or other  liquidation of various  long-term  assets which we
believe can provide adequate funding to support future  operations.  In March of
1999, we agreed to accept  $300,000 in full  settlement  of our note  receivable
from UPE relating to the sale of our surplus equipment inventory. The settlement
is payable $150,000 at closing with the balance payable in monthly  installments
over eight months. We are presently  evaluating the sale of properties in Poland
and the potential  compromise of our claims for additional  compensation  on the
East Dam  project as sources  of  additional  funds.  We believe  that  adequate
funding will be provided  from the efforts  described to support our  operations
for the  foreseeable  future.  However,  in the  absence of receipt of  adequate
funding from those, or other, sources, our ability to continue to operate at the
current level is in doubt.

Impact of Inflation

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          Not applicable

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The  consolidated  financial  statements of the Company,  together with the
independent  auditors'  report  thereon of Samuel Klein and Company,  appears on
pages F-1 through F-37 of this report. See Index to Financial Statements on page
37 of this report.

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

         Not applicable

                                       32
<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.


                                       33
<PAGE>
                                     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 37 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 Class A Warrant Agreement (1)
      4.4*   Amendment to Class A Warrant Agreement, dated April 7, 1999
      4.5    Certificate of Designation fixing terms of Series A Junior 
             Participating Preferred Stock (2)
      4.6    Warrant Agreement dated February 12, 1997 (6)
      4.7    Certificate of Designation of Series RR Preferred Stock (9)
     10.1    Lease Agreement between International Dismantling & Machinery 
             Corporation and L&G Associates dated March 1, 1993 for site in 
             South River, New Jersey (1) 
     10.2+   1993 Incentive Stock Option Plan, as amended (3)
     10.3+   1995 Incentive Stock Option Plan (3)
     10.4+   1998 Comprehensive Stock Option and Award Plan (8)
     10.5+   Employment Agreement between the Company and Joel Freedman, as 
             amended, dated February 1, 1996 (3)
     10.6+   Employment Agreement between the Company and Frank Falco, as 
             amended, dated February 1, 1996 (3)
     10.7+   Amendment, dated September of 1997, to Employment Agreement between
             the Company and Joel Freedman (8)
     10.8+   Amendment, dated September of 1997, to Employment Agreement between
             the Company and Frank Falco (8)
     10.9+   Second Amendment, dated February 1998, to Employment Agreement 
             between the Company and Joel Freedman (8)
     10.10+  Second Amendment, dated February 1998, to Employment Agreement 
             between the Company and Frank Falco (8)
     10.11+  Nonqualified  Stock Option  Agreement  between the Company and Joel
             Freedman (8)
     10.12+  Nonqualified Stock Option  Agreement  between the Company and Frank
             Falco (8)
     10.13   Alexander Charles Lentes Stock Option (7)
     10.14   Bernd Muller Stock Option (7)
     10.15   Stock Option Agreement with M.H. Meyerson & Co., Inc. dated August,
             1997 (8) 10.16 Nonqualified Stock Option Grant, dated January 8, 
             1998, between the Company and The Boston Group (8)
     10.17   Amended and Restated Warrant Agreement with Rochon Capital Group 
             Ltd. (7)
     10.18   Consulting Agreement dated May 23, 1997 between the Company and Ron
             Logerwell (8)
     10.19   Form of Agreement regarding confidential information and 
             competition by employees (1)


                                       34
<PAGE>

     10.20   Form of Severance Agreement (3)
     10.21   Voting Agreement (1)
     10.22   Share Rights Agreement dated April 1, 1996 (2)
     10.23   License Agreement dated June 30, 1996 with Life International 
             Products (4)
     10.24*  Amendment to License Agreement with Life International Products,
             dated October 1, 1998 
     10.25   Form of Three Year $3.00 Warrant (5)
     10.26*  Protocol of Intention dated November 5, 1998 re: Georgia power 
             plant
     10.27   License Agreement dated December 15, 1997 between Life 
             International Products, Inc. and Seven Star International Holding,
             Inc. (8)
     10.28   Form of Lock-Up Agreement (8)
     10.29   Form of Lock-Up Warrant (8)
     10.30   Form of Four Year $5.00 Warrant (8)
     10.31   Consulting Agreement dated March 1997 with SAGA Promotions, Inc.(8)
     10.32   Stock Option Grant dated February 1998 to SAGA Promotions, Inc. (8)
     10.33   Stock Option Grant dated February 1998 to Aaron Lehman (8)
     10.34   Revised Memorandum of Understanding dated March 1998 re: Taiwan 
             waste-to-energy project (8)
     10.35   Modification to Power Purchase Contract dated November 1997 re: El
             Salvador power project (8)
     10.36   Registration Rights Agreement dated August 10, 1998 with The
             Isosceles Fund Limited (9)
     10.37   Form of Amended and Restated Three Year $3.00 Warrant (10)
     10.38   Form of Amended and Restated Three Year $4.50 Lock-Up Warrant (10)
     10.39   Form of Amended and Restated One Year $6.00 and $6.75 Reload
             Warrants (10)
     10.40*  Contract, dated January 31, 1999, re: acquisition of interest in
             Zages Ltd.
     21.1*   List of subsidiaries
     23.1*   Consent of Samuel Klein and Company
     27.*    Financial Data Schedule
                                
+        Compensatory plan or management agreement.
*        Filed herewith

(1)  Incorporated   by  reference  to  the   respective   exhibits   filed  with
     Registrant's  Registration  Statement  on Form  SB-2  (Commission  File No.
     33-66466) declared  effective by the Securities and Exchange  Commission on
     April 20, 1994

(2)  Incorporated   by  reference  to  the   respective   exhibits   filed  with
     Registrant's Current Report on Form 8-K dated April 1, 1996

(3)  Incorporated   by  reference  to  the   respective   exhibits   filed  with
     Registrant's  Annual Report on Form 10-KSB for the year ended  December 31,
     1995

(4)  Incorporated   by  reference  to  the   respective   exhibits   filed  with
     Registrant's  Quarterly Report on Form 10-Q for the quarter ended September
     30, 1996

(5)  Incorporated   by  reference  to  the   respective   exhibits   filed  with
     Registrant's  Quarterly  Report on Form 10-Q for the quarter ended June 30,
     1997

(6)  Incorporated   by  reference  to  the   respective   exhibits   filed  with
     Registrant's  Annual  Report on Form 10-K for the year ended  December  31,
     1996

(7)  Incorporated   by  reference  to  the   respective   exhibits   filed  with
     Registrant's  Registration  Statement  on Form  S-3  (Commission  File  No.
     333-28485)  declared effective by the Securities and Exchange Commission on
     January 9, 1998

(8)  Incorporated  by  reference  to the  respective  exhibits  filed  with  the
     Registrant's  Annual  Report on Form 10-K for the year ended  December  31,
     1997

(9)  Incorporated  by  reference  to the  respective  exhibits  filed  with  the
     Registrant's  Quarterly  Report on Form 10-Q for the quarter ended June 30,
     1998

(10) Incorporated  by  reference  to the  respective  exhibits  filed  with  the
     Registrant's  Quarterly Report on Form 10-Q for the quarter ended September
     30, 1998

(b)  Reports on Form 8-K

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


                                       35
<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, 1999

     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, 1999
----------------------    (Principal Executive Officer) and
Joel A. Freedman          Director
         

/s/ Frank A. Falco        Executive Vice President, Chief         April 15, 1999
----------------------    Operating Officer and Chairman
Frank A. Falco            of the Board of Directors     
                          

/s/ Michael B. Killeen    Treasurer (Principal Accounting         April 15, 1999
----------------------    and Financial Officer) and Director
Michael B. Killeen        

/s/ Richard Keller
----------------------    Director                                April 15, 1999
Richard Keller


----------------------    Director                                April___, 1999
Frank Patti


----------------------    Director                                April___, 1999
Robert McGuinness

/s/ Mark Franceschini     Director                                April 15, 1999
----------------------
Mark Franceschini


                                       36
<PAGE>

                 IDM ENVIRONMENTAL CORPORATION AND SUBSIDIARIES

                   Index to Consolidated Financial Statements


                                                                          Page

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

Consolidated Balance Sheets as of December 31, 1998 and 1997..............F-2

Consolidated Statements of Operations for the Years ended December 
 31, 1998, 1997 and 1996..................................................F-3

Consolidated Statements of Stockholders' Equity for the Years ended 
 December 31, 1998, 1997 and 1996.........................................F-4

Consolidated Statements of Cash Flows for the Years ended December 
 31, 1998, 1997 and 1996..................................................F-5

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



                                       37
<PAGE>

                          INDEPENDENT AUDITORS 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, 1998 and 1997 and the
related  consolidated  statements of operations,  stockholders'  equity and cash
flows for each of the three years in the period ended  December 31, 1998.  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 audits 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, 1998 and 1997,  and the results of
operations  and cash  flows  for each of the  three  years in the  period  ended
December 31, 1998, in conformity with generally accepted accounting principles.



                                             /s/ Samuel Klein and Company

                                             SAMUEL KLEIN AND COMPANY

Newark, New Jersey 
April 5, 1999


                                      F-1

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

<TABLE>
                                                                                         December 31,
                                                                                    1998              1997
                                                                                   ------            ------
<S>                                                                              <C>              <C>

ASSETS                                                                                
Current Assets:
  Cash and cash equivalents                                                      $   384,292       $   602,242
  Accounts receivable                                                              2,572,951         4,094,408
  Notes receivable - current                                                         367,198           116,457
  Inventory                                                                          582,517           582,517
  Costs and estimated earnings in excess of billings                               1,900,336           455,823
  Due from officers                                                                        -           369,541
  Prepaid expenses and other current assets                                          906,137         1,442,225
                                                                                  ----------        ----------
     Total Current Assets                                                          6,713,431         7,663,213

Investments in and Advances to Unconsolidated Affiliates                           2,454,521         3,453,309
Investment in Affiliate, at cost                                                   1,853,125         1,715,000
Notes Receivable - long term                                                               -         1,381,155
Debt Discount and Issuance Costs                                                      16,124         4,610,166
Deferred Income Taxes                                                                      -         4,170,000
Property, Plant and Equipment                                                      3,133,404         3,277,116
Other Assets                                                                         979,925           880,746
                                                                                  ----------        ----------
                                                                                 $15,150,530       $27,150,705
                                                                                  ==========        ==========
LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Current portion of long-term debt                                             $    622,794      $  3,566,393
  Accounts payable and accrued expenses                                            6,578,070         5,159,635
  Billings in excess of costs and estimated earnings                                       -            86,604
                                                                                  ----------        ----------
     Total Current Liabilities                                                     7,200,864         8,812,632

Long-Term Debt                                                                        64,544           258,686
Minority Interest                                                                          -                 -
                                                                                  ----------        ----------
     Total Liabilities                                                             7,265,408         9,071,318
                                                                                  ----------        ----------
Commitments and Contingencies

Stockholders' Equity:
  Common stock, authorized 7,500,000 shares $.01 par value, issued
   and outstanding 2,947,298 in 1998 and 1,451,307 in 1997                            29,473            14,513
  Additional paid-in capital                                                      57,215,536        38,497,705
  Convertible preferred stock, authorized 1,000,000 shares $1.00 par value
    Series B, Issued and outstanding 0 shares in 1998 and 270 shares in 1997,
      stated at a conversion value of $10,000 per share                                    -         2,700,000
    Series RR, Issued and outstanding 215 shares in 1998 and 0 shares in 1997,
      stated at a conversion value of $1,000 per share                               215,000                 -
  Retained earnings (deficit)                                                    (49,574,887)      (23,132,831)
                                                                                  ----------        ----------
                                                                                   7,885,122        18,079,387
                                                                                  ----------        ----------
                                                                                $ 15,150,530      $ 27,150,705
                                                                                  ==========        ==========
</TABLE>

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

                                      F-2

<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
                                                                     For the Years Ended December 31,
                                                                 1998              1997              1996
                                                                ------            ------            ------
<S>                                                          <C>               <C>                <C>

Revenue:
  Contract income                                            $20,018,564       $17,825,849        $20,807,491
  Sale of equipment                                                    -            96,050            834,355
                                                              ----------        ----------         ----------
                                                              20,018,564        17,921,899         21,641,846
                                                              ----------        ----------         ----------
Cost of Sales:
  Direct job costs                                            20,257,642        17,002,308         21,491,328
  Cost of equipment sales                                              -            47,057            643,242
  Write-down of inventory surplus                                      -           600,000            300,000
                                                              ----------        ----------         ----------
                                                              20,257,642        17,649,365         22,434,570

Gross Profit (Loss)                                             (239,078)          272,534           (792,724)
                                                              ----------        ----------         ----------

Operating Expenses:
  General and administrative expenses                         12,871,481        10,537,677          9,567,435
  Depreciation and amortization                                  626,766           723,415            668,227
  Equity in net loss of unconsolidated partnerships              194,243                 -                  -
                                                              ----------        ----------         ----------
                                                              13,692,490        11,261,092         10,235,662
                                                              ----------        ----------         ----------
Loss from Operations                                         (13,931,568)      (10,988,558)       (11,028,386)

Other Income (Expense):
  Interest income (expense)                                   (4,321,714)         (512,768)            30,542
                                                              ----------        ----------         ----------
Loss before Provision (Credit) for Income Taxes              (18,253,282)      (11,501,326)       (10,997,844)

Provision (Credit) for Income Taxes                            4,170,000        (1,561,000)        (1,850,000)
                                                              ----------        ----------         ----------
Net Loss                                                     (22,423,282)       (9,940,326)        (9,147,844)

Preferred Stock Dividends including amortization
  of beneficial conversion feature of $3,830,000
  and $1,109,589 in 1998 and 1997                              4,018,774         1,284,097                  -
                                                              ----------        ----------         ----------
Net Loss on Common Stock                                   $ (26,442,056)  $   (11,224,423)   $    (9,147,844)
                                                              ==========        ==========         ==========
Loss per Share:
  Basic loss per share                                         $  (13.31)       $   (10.01)      $     (11.30)
                                                              ==========        ==========         ==========
  Diluted loss per share                                       $  (13.31)       $   (10.01)      $     (11.30)
                                                              ==========        ==========         ==========
  Basic common shares outstanding                              1,987,264         1,121,269            808,947
                                                              ==========        ==========         ==========
  Diluted common shares outstanding                            1,987,264         1,121,269            808,947
                                                              ==========        ==========         ==========
</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, 1998, 1997 AND 1996

<TABLE>
                                                                      Additional    Convertible      Retained
                                                  Common Stock         Paid In       Preferred       Earnings
                                               Shares      Amount      Capital         Stock         (Deficit)
                                               ------      ------     ----------     -----------    -----------   
<S>                                            <C>        <C>        <C>             <C>            <C>    
        
Balances - January 1, 1996                    620,008     $ 6,200    $13,693,895           -    $ (2,760,564)
Surrender and Retirement of
  Common Stock by Officer                      (9,221)        (92)      (670,488)          -               -
Conversion of Convertible Notes
   to Common Stock                            114,390       1,144      3,319,108           -               -
Class A Warrants Exercised                    210,200       2,102      6,954,348           -               -
Private Placement Warrants                        750           8         33,742           -               -
Exercise of Underwriters Options               30,000         300      1,979,700           -               -
Common Stock Options Exercised                  4,146          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                     (10,000)       (100)      (216,400)          -               -
Net Loss for the Year Ended
   December 31, 1996                                -           -              -           -      (9,147,844)
                                             --------      -------   -----------   ----------     ----------
Balances - December 31, 1996                  960,273       9,603     25,359,465           -     (11,908,408)
Issuance of Convertible
   Preferred Stock February 1997                    -           -              - $ 3,000,000               -
Conversion of Preferred Stock
   to Common Stock                             19,292         193        289,237    (300,000)              -
Class A Warrants Exercised                    451,703       4,517      6,166,483           -               -
Stock Option Plan  Exercises                    4,539          45         62,996           -               -
Issuance of Non-Qualified Options,
  pursuant to consulting agreements                 -           -        456,340           -               -
Preferred Stock Beneficial Conversion feature       -           -      1,109,589           -               -
Preferred Stock Dividends                           -           -              -           -      (1,284,097)
Exercise of Non-Qualified Consulting Options   15,500         155        234,845           -               -
Discounted Conversion feature on
  Convertible Notes and Warrants                    -           -      4,818,750           -               -
Net Loss for the year ended
  December 31, 1997                                 -           -              -           -      (9,940,326)
                                             --------      -------   -----------   ----------     ----------
Balances - December 31, 1997                1,451,307      14,513     38,497,705   2,700,000     (23,132,831)
Issuance of Series C Convertible
  Preferred Stock February 1998                     -           -              -   3,600,000               -
Issuance of Series RR Convertible
  Preferred Stock August 1998                       -           -              -   1,500,000               -
Conversion of Series B Preferred
  Stock to Common Stock                       135,944       1,359      2,752,618  (2,700,000)              -
Conversion of Series C Preferred
  Stock to Common Stock                       640,747       6,407      3,508,564  (3,600,000)              -
Conversion of Series RR Preferred
  Stock to Common Stock                       359,981       3,600      1,192,693  (1,285,000)              -
Class A Warrants Exercised                    243,731       2,437      2,620,531           -               -
Stock Option Plan Exercises                       321           3          6,411           -               -
Conversion of Convertible Debt                115,267       1,153      2,908,464           -               -
Preferred Stock Dividends                           -           -              -           -      (4,018,774)
Discounted Conversion Feature
 on Preferred Stock and Warrants                    -           -      3,830,000           -               -
Issuance of Non-Qualified Options
 Pursuant to Consultants Agreements                 -           -      1,898,550           -               -
Net loss for the year ended

  December 31, 1998                                 -           -              -           -     (22,423,282)
                                             --------      -------   -----------   ----------     ----------
Balances, December 31, 1998                 2,947,298    $ 29,472    $57,215,536  $  215,000   $ (49,574,887)
                                            =========      =======   ===========   ==========    ===========

</TABLE>

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

                                      F-4

<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
                                                                       For the Years Ended December 31,
                                                                 1998              1997              1996     
                                                                ------            ------            ------
<S>                                                         <C>                 <C>                 <C>

Cash Flows from Operating Activities:
  Net loss on common stock                                 $ (26,442,056)    $ (11,224,423)     $(9,147,844)
  Adjustments to reconcile net loss to net cash used
  in operating activities:
      Deferred income taxes                                    4,170,000        (1,561,000)       (1,956,400)
      Depreciation and amortization                              661,469           713,717           668,227
      Amortization of debt discount                              169,053           118,220                 -
      Amortization of beneficial conversion
          feature on convertible notes                         4,205,886           612,864                 -
      Amortization of beneficial conversion
          feature on preferred stock                           3,830,000         1,109,589                 -
      Interest expense on convertible debt
          converted to common stock                               63,621                 -                 -
      Dividend on convertible preferred stock
          converted to common stock                              188,774             8,517                 -
      Compensation cost of consultant stock options            1,898,550           456,340                 -
      Write-down of surplus inventory                                  -           600,000           300,000
      Provision for loss on notes receivable                   1,004,815         1,300,000           630,000
      Equity in net loss of unconsolidated affiliates            194,243                 -                 -
      Decrease (Increase) In:
        Accounts receivable                                    1,521,457         1,531,800            989,922
        Notes receivable                                         125,599            49,399           (283,893)
        Costs and estimated earnings in excess of billings    (1,444,513)        1,199,931          1,978,298
        Prepaid expenses and other current assets                536,088           498,224           (291,342)
        Recoverable income taxes                                       -                 -          1,114,442
      Increase (Decrease) In:
        Accounts payable and accrued expenses                  1,660,001        (1,946,192)         1,361,671
        Billings in excess of costs and estimated earnings       (86,604)              108           (833,079)
                                                              ----------        ----------          ---------
          Net cash used in operating activities               (7,743,617)       (6,532,906)        (5,469,998)
                                                              ----------        ----------          ---------

Cash Flows from Investing Activities:
  Acquisition of property, plant and equipment                  (517,757)         (305,533)          (574,832)
  Investment in affiliate                                       (138,125)         (415,000)        (1,300,000)
  Investment in and advances to unconsolidated affiliates        804,545        (3,453,309)                 -
  Acquisition of other assets                                    (99,179)         (567,500)          (313,246)
  Loans and advances(to) from officers                           369,541          (160,865)          (330,768)
                                                              ----------        ----------          ---------
          Net cash used in investing activities                  419,025        (4,902,207)        (2,518,846)
                                                              ----------        ----------          ---------
Cash Flows from Financing Activities:
  Loan from stockholder                                          265,122                 -                  -
  Net proceeds from convertible note issuance                          -         2,780,000                  -
  Net proceeds from convertible preferred stock issuances      4,590,000         2,722,500                  -
  Proceeds from equipment financing                              156,238                 -                  -
  Principal payments on long-term debt                          (534,101)         (676,819)          (371,109)
  Purchase and retirement of common stock                              -                 -           (216,500)
  Contribution from minority interest                                  -                 -            258,621
  Repurchase of minority interest                                      -          (258,621)                 -
  Proceeds from exercise of stock options and warrants         2,629,383         6,469,041          9,235,800
                                                              ----------        ----------          ---------
          Net cash provided by financing activities            7,106,642        11,036,101          8,906,812
                                                              ----------        ----------          ---------

Increase (Decrease) in Cash and Cash Equivalents                (217,950)         (399,012)           917,968

Cash and Cash Equivalents, beginning of year                     602,242         1,001,254             83,286
                                                              ----------        ----------          ---------

Cash and Cash Equivalents, end of year                         $ 384,292         $ 602,242        $ 1,001,254
                                                              ==========        ==========          =========

</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>


                                                                   For the Years Ended December 31,
                                                                 1998          1997            1996
                                                                ------        ------          ------
<S>                                                             <C>          <C>              <C>  

Supplemental Disclosures of Cash Flow Information:

  Cash paid during the year for:
    Interest                                                $    106,259   $  184,631       $   65,694
                                                              ==========     ========         ========
    Income taxes                                            $       -      $    -           $     -
                                                              ==========     ========         ========
Supplemental Disclosure of Noncash Investing and 
Financing Activities:

  Property, plant and equipment financing                   $      -       $  961,737     $    195,821
                                                              ==========     ========         ========
  Repayment of officers loan through surrender
     of common stock                                        $      -       $    -         $    670,580
                                                              ==========     ========         ========
  Conversion of convertible promissory notes to
     common stock                                           $      -       $    -         $  3,320,252
                                                              ==========     ========         ========
  Sale to minority stockholder with stock
     subscription receivable                                $      -       $    -         $    775,862
                                                              ==========     ========         ========
  Cancellation of stock subscription receivable             $      -       $  775,862     $     -
                                                              ==========     ========         ========
  Conversion of preferred stock to common stock             $ 7,585,000    $  300,000     $     -
                                                              ==========     ========         ========
  Conversion of interest payable from convertible
      notes to common stock                                 $   144,840    $    -         $     -
                                                              ==========     ========         ========
  Conversion of dividends payable from convertible
      preferred stock to common stock                       $   349,121    $    8,517     $     -
                                                              ==========     ========         ========
  Beneficial conversion feature of debt discount
      on convertible notes                                  $      -       $4,818,750     $     -
                                                              ==========     ========         ========

</TABLE>


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

                                      F-6


<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

IDM Environmental Corp.  (collectively with its subsidiaries  referred to herein
as the  "Company")  is a global,  diversified  services and project  development
company  offering a broad range of design,  engineering,  construction,  project
development  and  management,  and  environmental  services and  technologies to
government  and  private  industry  clients.  The  Company  utilizes  those same
capabilities to build,  own or lease,  and operate energy,  waste management and
similar  facilities.   The  Company,  through  its  domestic  and  international
affiliates and subsidiaries,  offers services and technologies,  and operates in
three  principal  areas:  Energy and Waste Project  Development  and Management,
Environmental Remediation and Plant Relocation.

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

Plant relocation services encompass a broad array of non-traditional engineering
projects,  with an emphasis on plant dismantlement,  relocation and re-erection.
The  Company  employs  a  proprietary,  integrated  matchmarking,   engineering,
dismantling and documentation  program in plant relocation services that provide
clients with significant cost and schedule benefits when compared to traditional
alternatives for commencing plant operations.

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

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

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

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

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

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

                                   F-7
<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

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

Use of Estimates
----------------

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

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

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

Inventory
---------

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

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

Costs  in  connection  with the  issuance  of debt and  equity  instruments  are
amortized  and charged to  operations  using the  straight  line method over the
terms of the respective  issues.  Upon  conversion,  any  unamortized  costs are
charged to additional paid in capital net of tax effect.

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  Board 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 amounts expected to be realized.

                                      F-8

<PAGE>
                     IDM ENVIRONMENT CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

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

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

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

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

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

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

Comprehensive Income
--------------------

For the year ended December 31, 1998, the Company adopted Statement of Financial
Accounting  Standards No. 130,  "Reporting  Comprehensive  Income" ("SFAS 130").
This statement  establishes rules for the reporting of comprehensive  income and
its  components  which  require  that  certain  items such as  foreign  currency
translations adjustments,  unrealized gains and losses on certain investments in
debt and equity securities,  minimum pension liability  adjustments and unearned
compensation  expense  related to stock  issuances  to employees be presented as
separate  components of  stockholders'  equity.  The adoption of SFAS 130 had no
material impact on total stockholders'  equity for any of the years presented in
these consolidated financial statements.

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

As of  December  31,  1997  the  Financial  Accounting  Standards  Board  issued
Statement No. 128 "Earnings Per Share" ("SFAS 128") replacing the calculation of
primary and fully diluted earnings per share with Basic and Diluted earnings per
share.  Unlike primary earnings per share, basic earnings per share excludes the
dilutive  effects of  options,  warrants  and  convertible  securities.  Diluted
earnings  per share is very similar to the  previously  reported  fully  diluted
earnings per share.  Diluted earnings per share reflects the potential  dilution
that could occur if  securities  or other  agreements to issue common stock were
exercised  or  converted  into  common  stock.  Dilutive  earnings  per share is
computed  based upon the weighted  average  number of common shares and dilutive
common equivalent  shares  outstanding.  Common stock options,  which are common
stock  equivalents,  had an  anti-dilutive  effect on earnings  per share and no
effect on the weighted  average number of common shares.  All net loss per share
amounts  for all  periods  presented  have been  restated to conform to SFAS 128
requirements.

Reverse Stock Split
-------------------

On March 11,  1999,  the  Company's  Board of  Directors  authorized  a 1 for 10
reverse  stock  split  of  its  common  stock   effective  April  16,  1999  for
shareholders of record at the close of business on April 16, 1999. All share and
per-share  amounts in the accompanying  consolidated  financial  statements have
been restated to give effect to the 1 for 10 reverse stock split.

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

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

                                      F-9

<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

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

Special Charges
---------------

During the fourth  quarters of 1998 and 1997, the Company  recorded  significant
charges of approximately $5,855,000 and $3,200,000, respectively, to operations,
primarily  related  to write  downs of  inventory,  notes  receivable  and other
assets. In addition,  the Company increased the valuation allowance for deferred
tax assets based on managements assessment of future operations.

2.  MANAGEMENT'S PLANS, FINANCIAL RESULTS AND LIQUIDITY

The Company has suffered  recurring  losses from  operations and at December 31,
1998, the Company had a working  capital deficit of  approximately  $0.5 million
and a cash  balance  of  approximately  $0.4  million.  As a result  of the loss
incurred  during  1998,  operating  activities  used $7.7  million in cash.  The
Company also used $1.1 million in cash for investing  activities during 1998 for
(i) acquisition of additional shares of Life  International  Products,  Inc. for
$0.2 million,  (ii)  acquisition  of a 49% interest in Kortman  Polonia for $0.6
million,  and (iii) a capital  contribution  to Seven Star of $0.3  million (See
Note 3,  Acquisitions and Investments in Affiliates).  Cash flows from financing
activities  totaled $7.1 million  during 1998 and consisted  principally  of (i)
$2.6  million in proceeds  received  from the  exercise of various  warrants and
options,  and (ii) $4.6  million in net  proceeds  from  convertible  securities
issuances.

The  Company  requires  substantial  working  capital to support  their  ongoing
operations.  As is common in the environmental  services  industry,  payment for
services  rendered are generally  received  pursuant to specific draw  schedules
after services are rendered.  Thus, pending the receipt of payments for services
rendered,  the Company must typically fund substantial project costs,  including
significant  labor and bonding costs,  from financing sources within and outside
of the Company.  Certain contracts, in particular those within the 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.

Operations  were  historically  funded  through a combination  of operating cash
flows, term notes and bank lines of credit. Since April of 1994, the Company has
carried no bank debt and has funded operations  principally  through the sale of
equity securities and securities convertible into equity securities. At December
31, 1998, the Company had no bank debt and no significant long term debt and was
funding operations entirely through cash on hand and operating cash flow.

At  December  31,  1998,  the  Company  had  submitted   claims  for  additional
compensation related to change orders on various projects totaling approximately
$15 million.  The most  significant of these claims relate to the Company's East
Dam California  Project ($10.8 million),  where the Companys Joint Venture was a
subcontractor  on the  Reservoir  Project  for the Water  District  of  Southern
California,  and a Department of Energy project in Los Alamos,  New Mexico which
was  completed in 1997 ($2.8  million).  The Company is  presently  aggressively
pursuing  collection of these claims and expects that it will be able to collect
substantially all amounts claimed if they continue to pursue such claims through
litigation,  if  necessary.  However,  it is  possible  that  the  Company  will
compromise  some of their claims for additional  compensation  accepting  lesser
amounts in favor of a more timely  resolution  of such claims and the receipt of
funds with  respect to the same.  The claim with respect to the East Dam Project
has been approved by the general  contractor on the project but has not, as yet,
been approved by the project owner. The general  contractor  agreed in the first
quarter of 1999 to release the $750,000  retainage on the project.  There can be
no  certainty  as to the amount,  if any,  which the Company  will  receive with
respect to  the claims on change  orders and when,  if ever,  they  will receive
such amounts.

At December 31, 1998, the Company had a backlog of  approximately  $8 million of
signed services  contracts as compared to a backlog of approximately $31 million
at December 31, 1997. The largest projects in their backlog at December 31, 1998
are the BNFL,  Inc.  asset  recovery  project in Oak Ridge,  Tennessee,  with an
estimated  value of services to be performed  of $4 million,  and the North East
Rim East Side Reservoir  Project for the Water District of Southern  California,
with an estimated value of services to be performed of $3 million. The Oak Ridge
Project  began in March 1998 and the North East Rim project is expected to begin
in May 1999 with both  projects  scheduled  to be  completed  during  1999.  The
backlog at December 31, 1998 does not include  services  expected to be rendered
in connection with the Company's  involvement in the  revitalization  of the EWN
site in  Germany.  The total  German  government  funding for the EWN project is
approximately  $3.65 million.  The Company anticipates that they will perform as
much as $700  million of  services at the EWN site over a ten year  period.  The
Company expects to finalize a comprehensive

                                      F-10

<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

2.  MANAGEMENT'S PLANS, FINANCIAL RESULTS AND LIQUIDITY (continued)

agreement for the  revitalization  of the EWN site during the first half of 1999
and to be  performing  remediation  services  during  the  second  half of 1999.
Because of the  uncertainty  as to the actual start date for services at the EWN
site,  no  estimate  can be made as to the  value  of  services  expected  to be
rendered during 1999.

In addition  to existing  contracts,  the  Company is  presently  bidding on, or
proposes to bid on, numerous  projects in order to replace revenue from projects
which will be completed  during 1999 and to increase the total dollar  volume of
projects under contract.  The Company anticipates that its efforts to bid on and
secure new contracts will focus on projects  which can be readily  serviced from
the regional  offices as well as certain large  international  plant  relocation
projects and nuclear decommissioning projects which they intend to pursue. Their
regional offices, particularly the Oak Ridge Tennessee office, 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,  the Company  believes  that their  existing
presence on adjacent projects combined with their proven expertise and resources
will  allow  them to  successfully  bid on and  perform  substantial  additional
projects based out of their regional offices.

In addition to remediation  and plant  relocation  projects which the Company is
presently  bidding or negotiating,  during 1997 and 1998 the Company entered the
energy  production and waste treatment  services market.  The Company expects to
begin energy  production  during the second  quarter of 1999 and generate  sales
from a power project the Company is developing  pursuant to a signed Protocol of
Intention  with the Ministry  for Fuel and Energy of the former  Soviet State of
Georgia.  The Company also plans to begin operations at, and to receive revenues
from,   various   other  energy  and  waste   treatment   projects  and  nuclear
decommissioning  projects  at various  sites by as early as the  second  half of
1999.

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

In an effort to deal with these  concerns,  the Company is presently  evaluating
the sale or other liquidation of various long-term assets which they believe can
provide  adequate  funding to support future  operations.  In March of 1999, the
Company agreed to accept $300,000 in full  settlement of their notes  receivable
from  UPE  relating  to the  sale of  their  surplus  equipment  inventory.  The
settlement  is payable  $150,000 at closing with the balance  payable in monthly
installments over eight months. The Company is presently  evaluating the sale of
properties in Poland and the potential compromise of their claims for additional
compensation on the East Dam project as sources of additional funds. The Company
believes that their working capital, combined with the expected receipt of funds
from the resolution of these change orders and litigation, is sufficient to meet
their anticipated  needs,  other than project financing  requirements  discussed
above,  for at least the following  twelve months,  including the performance of
all existing contracts of the Company.  However,  as there is no assurance as to
the timing or amount of the receipt of funds from change  orders,  litigation or
other  sources,  the Company may be required to seek new bank lines of credit or
other  financing  in order to  facilitate  the  performance  of jobs.  While the
Company is conducting ongoing  discussions with various potential lenders with a
view to establishing  available credit facilities,  the Company presently has no
commitments from any bank or other lender to provide financing if such financing
becomes necessary to support operations. 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. However, management believes that the Company will be able to finance
its anticipated needs for 1999.

                                      F-11

<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

3.  ACQUISITIONS AND INVESTMENTS IN AFFILIATES

Life International Products
---------------------------

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  (100,000 shares) in Life for $1,300,000.  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  Lifes  patented  environmental  remediation  technology  for  long  term
bioremediation  of  contaminated  ground  water  throughout  North  America.  On
November 3, 1997, the Company invested an additional $375,000 (10,000 shares) in
Life to maintain its 10% interest.  On April 21, 1998, the Company  purchased an
additional  8,250  shares for $178,125  from its chief  executive  officer.  The
Company has recorded its  investment at cost and the  investment is presented in
the balance sheet classification "Investment in Affiliate, at cost".

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

Global Waste and Energy
-----------------------

On July 19,  1996 the  Company,  through a newly  formed  90% owned  subsidiary,
Global Waste & Energy, Inc. ("Global Delaware"), a Delaware corporation, entered
into an agreement with Enviropower  Industries Inc. (formerly  Continental Waste
Conversion, Inc. ("CWC").) Pursuant to this agreement, Global Delaware acquired,
in exchange  for a 10%  interest in Global  Delaware and a loan through a wholly
owned  subsidiary of Global  Delaware of $160,000  (Canadian)  or  approximately
$116,550  (U.S.),  the exclusive  worldwide rights  (excluding  Canada) to CWCs
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.

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, 1998 and 1997
the Company had loaned a total of $3,341,000 and  $2,491,000,  respectively,  to
Global  Delaware.  The  consolidated  financial  statements  include  results of
operations  of Global  Delaware and its  subsidiaries  from July 19,  1996,  and
therefore all intercompany  loans and transactions  have been eliminated  within
the consolidated financial statements of the Company.

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

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

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

                                      F-12

<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

3.  ACQUISITIONS  AND  INVESTMENTS  IN  AFFILIATES (continued)

Construction Joint Ventures
---------------------------

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

These joint  ventures,  in which the Company  holds equity  interests of 49% and
50%,  respectively,  are accounted for using the equity method of accounting for
balance sheet presentation and are presented in the balance sheet classification
Investments  in and  Advances  to  Unconsolidated  Affiliates.  The  Company has
included  their  proportionate  share of revenues and expenses  related to these
joint  ventures  within its statement of operations for the years ended December
31, 1998,  1997 and 1996.  Included in contract  income and direct job costs for
each of the years ended are approximately $5,118,000 and $6,433,000,  $3,304,000
and $3,040,000, $0 and $0, respectively.

Seven Star International Holdings, Inc.
---------------------------------------

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

Kortman Polonia
---------------

In November  of 1998,  the Company  paid  $600,000 to acquire a 49%  interest in
Kortman Polonia, a Polish company with substantial real estate holdings. Kortman
Polonia has initiated  discussions with various real estate developers and major
U.S.  retailers  with respect to the sale of various real estate  tracts and the
development and leasing of the remaining tracts.

The Company did not recognize  any revenues  from Seven Star or Kortman  Polonia
during 1998 but expects to begin realizing  revenues from the water distribution
operations of Seven Star during 1999.

4.  ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:
                                                       December 31,
                                                  1998               1997
                                                  ----               ----
         Trade accounts receivable            $3,072,951          $4,594,408

         Allowance for doubtful accounts        (500,000)           (500,000)
                                             ---------------    ---------------
                                              $2,572,951          $4,094,408
                                             ---------------    ---------------
                                             ---------------    ---------------


                                      F-13

<PAGE>

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 was 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 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, 1998 and 1997,  $300,000 and  $3,211,155,
respectively, was outstanding (including interest). During the fourth quarter of
1998,  1997 and 1996  management  provided  $1,004,815,  $1,200,000 and $630,000
reserves against the outstanding  balance.  In March of 1999, the Company agreed
to accept  $300,000 in full  settlement  of the note  receivable  from UPE.  The
settlement  is payable  $150,000 at closing with the balance  payable in monthly
installments over eight months.

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 Solucorps 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. During
November  1998,  the Company  liquidated the collateral and applied the proceeds
($41,607)  against  the  note.  At  December  31,  1998 and 1997,  $167,198  and
$216,457,  respectively,   remained  outstanding  (including  interest)  and  is
included  within  the  current  portion  of Note  Receivable  net of a  $100,000
allowance for uncollectablility at December 31, 1998.

Because of the unsatisfactory performance of these notes, the Company recognized
no interest income on them during 1998.  Total interest income earned from these
notes for the years ended December 31, 1998, 1997 and 1996 was $0,  $107,879,and
$184,394, respectively.

6.  COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

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

                                                         December 31,
                                                    1998               1997
                                                    ----               ----
  Costs incurred on uncompleted contracts      $ 14,617,961        $ 10,108,306

  Estimated earnings (loss)                        (389,867)          2,331,313
                                               --------------    ---------------
                                                 14,228,094         12,439,619
  Less:  Billings to date                        12,327,758         12,070,400
                                               --------------    ---------------
                                               $  1,900,336            369,219
                                               --------------    ---------------
                                               --------------    ---------------


                                      F-14

<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,
                                                     1998               1997
                                                     ----               ----
Costs and estimated earnings in excess of billings $1,900,336       $ 455,823

Billings in excess of costs and estimated earnings     -              (86,604)
                                                  -----------       ------------
                                                   $1,900,336         369,219
                                                  -----------       ------------
                                                  -----------       ------------


7.  INVENTORY

Inventory consists of the following:
                                                          December 31,
                                                    1998               1997
                                                    ----               ----

  Purchased equipment ready for sale            $ 582,517           $ 582,517
                                                ---------           ----------
                                                ---------           ----------

The  profitability  of the  Company's  surplus  equipment and scrap sales may be
impacted in the future by potential  inventory related  uncertainties.  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.

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


                                     F-15

<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,
                                                            1998         1997
                                                           ------       ------
  Land                                                $   475,023   $         -
  Office equipment                                        418,784       403,846
  Furniture and fixtures                                  437,803       494,117
  Leasehold improvements                                1,018,885     1,018,885
  Transportation equipment                                823,866       778,011
  Job equipment                                         4,898,064     4,872,313
  Land Improvements                                       131,968       131,968
                                                      ------------ -------------
                                                        8,204,393     7,699,140
  Less:  Accumulated depreciation and amortization      5,070,989     4,422,024
                                                      ------------ -------------
                                                       $3,133,404  $
                                                                      3,277,116
                                                      ============ =============

During the year ended  December  31,  1998 and 1997,  $156,608  and  $148,526 in
depreciation expense was charged to job costs.

9. LONG-TERM DEBT

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

During the quarter ended September 30, 1995, the Company  completed a $5,000,000
private  placement  offering of 7%  convertible  notes  pursuant to Regulation S
under the Securities  Act of 1933, as amended.  The notes were due September 15,
1997. The holders of the notes were entitled,  at their option, to convert on or
after November 15, 1995 one third of the original  principal amount of the notes
into the shares of common  stock of the Company at a  conversion  price for each
share  equal to the  lessor  of the  closing  bid price of the  common  stock on
September  15, 1995  ($50.00) or 82% of the market  price of the common stock at
the date of  conversion.  The remaining  two thirds of the  principal  amount of
notes could be  converted on the same terms,  one third after  December 15, 1995
and one third after January 15, 1996,  respectively.  In the event the notes are
converted within one year of their issuance, no interest shall be payable on the
converted  portion of such shares.  As of December  31, 1997,  all the notes had
been converted into 159,727 shares of the Companys 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.

In connection with the issuance of the convertible notes, the Company paid total
offering costs of approximately $815,000. 

                                      F-16

<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

9. LONG-TERM DEBT (continued)

7% Convertible Notes, Due September 1997 (continued)
----------------------------------------------------

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

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

On August 13, 1997, the Company  completed a private  placement of $3,025,000 of
7% Convertible Notes (the  "Convertible  Notes") and 267,500 three year Warrants
(the "Three Year Warrants").

The  Convertible  Notes are  convertible  into common stock at the lesser of (i)
$27.50  per share or (ii) 75% of the  average  closing  bid price of the  common
stock during the five trading days prior to conversion.  The Three Year Warrants
are exercisable for a three year period at the lesser of $30.00 per share or the
lowest conversion price of the Convertible Notes.  Conversion of the Convertible
Notes and  exercise of the Three Year  Warrants was subject to the issuance of a
maximum of 199,713 shares of common stock on conversion  unless the shareholders
of the Company approved issuance beyond that level upon conversion.  Shareholder
approval of issuance  beyond  199,713  shares was  received on November 4, 1997.
Further,  the Company had the right,  upon notice to the holders,  to redeem any
Convertible  Notes submitted for conversion at a price of $27.50 or less at 125%
of the principal  amount of such Convertible  Notes.  The Convertible  Notes pay
interest at 7% payable  quarterly  and on conversion or at redemption in cash or
common  stock,  at the  Companys  option.  In  the  event  that a  registration
statement  covering the shares  underlying  the  Convertible  Notes has not been
declared  effective  within  90 days  or 180  days  after  the  issuance  of the
Convertible  Notes,  the  interest  rate  on  the  Convertible  Notes  was to be
increased  to  18%  and  24%,  respectively,  from  those  dates  until  such  a
registration  statement  became  effective.  As a registration  was not declared
effective  within the 90 days  required  under the terms of the  agreement,  the
company  incurred  $46,215  in  additional  interest.  On  January  8,  1998 the
registration  was declared  effective  and during the first  quarter of 1998 all
outstanding notes were converted.

The  difference  between the market  price of the  Companys  common  stock,  the
discounted  beneficial  conversion  feature  and the  fair  market  value of the
granted  warrants  totaled  $4,818,750 and is being  accounted for as additional
interest reflected in debt discount and  paid-in-capital.  The debt discount has
been  calculated as the fixed discount from the market at the date of sale based
upon the common  stocks  trading  price of $40.00 per share on August 13,  1997.
This interest is being  amortized  over the three year life of the debt.  During
1998 and 1997,  $4,205,886  and  $612,864  has been  amortized  and  recorded as
interest expense.

                                      F-17

<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

9.  LONG-TERM DEBT (continued)

<TABLE>

   Long-term debt consists of the following:
                                                                                                         December 31,
                                                                                                     1998           1997
                                                                                                    ------         ------
<S>                                                                                            <C>                    <C>
Debentures:
  7% convertible notes, due January 1999                                                        $          -      3,025,000
Stockholder Loan:
  Demand note payable in connection with locking in an amended warrant exercise price,
     convertible into common stock                                                                   265,122              -
Notes Payable:
  Note, payable in monthly installments of $1,207 including
    interest at approximately 8.25% per annum through September 2000, secured by equipment            28,971         42,249
  Note, payable in monthly installments of $547 including interest
    at approximately 11.9% per annum through February 1998, secured by equipment                           -            912
  Note, payable in monthly installments of $1,082 including interest at approximately
    24% per annum through April, 2001, secured by equipment                                           22,673         28,730
  Note, payable in monthly installments of $793 including interest at approximately 10.2%
     per annum through February 2000, secured by equipment                                             9,409         16,803
Capital Lease Obligations:
  Capital lease, payable in monthly installments of $3,569 including interest approximately
    11.15% per annum through May 2000, secured by equipment                                           76,350        109,070
  Capital lease, payable in monthly installments of $1,508 including interest approximately
    11.4% per annum through September 1998, secured by equipment                                           -         12,080
  Capital lease, payable in monthly installments of $35,513 including interest at approximately
     10.7% per annum through March 1999, secured by equipment                                        127,285        471,631
  Capital lease, payable in monthly installments of $6,614 including interest at approximately
     10.7% per annum through October 1999, secured by equipment                                       53,369        118,604
  Capital lease, payable in monthly installments of $7,398 including interest at approximately
     10.7% per annum through October 1999, secured by equipment                                      104,159              -
                                                                                                -------------  -------------
                                                                                                     687,338      3,825,079
Less:  Current portion                                                                               622,794      3,566,393
                                                                                                -------------  -------------
                                                                                                $     64,544   $    258,686
                                                                                                =============  =============
</TABLE>

At December 31, 1998,  maturities  of long-term  debt  (including  capital lease
obligations) are as follows:              
                                          1999      $ 622,794

                                          2000         59,520

                                          2001          5,024

                                          2002            -
                                                  ---------------
                                                   $  687,338
                                                  ===============

                                      F-18

<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

10.  PROVISION (CREDIT) FOR INCOME TAXES

Provision (Credit) for income taxes is as follows:

                                               December 31,
                                 1998              1997               1996
                                 ----              ----               ----
       Current:
         Federal           $     -            $     -             $     -
         State                   -                  -                   -
         Foreign                 -                  -                   -
                           ---------------   ---------------    ---------------
                                 -                  -                   -
                           ---------------   ---------------    ---------------
       Deferred:
         Federal                3,870,000       (1,906,000)        (1,530,000)
         State                    300,000           230,000          (205,000)
         Foreign                        -           115,000          (115,000)
                           ---------------   ---------------    ---------------
                                4,170,000       (1,561,000)        (1,850,000)
                           ---------------   ---------------    ---------------
                           $    4,170,000     $ (1,561,000)       $ 1,850,000)
                           ---------------   ---------------    ---------------
                           ---------------   ---------------    ---------------

A reconciliation  between income tax expense (benefit) shown in the statement of
operations and expected income tax expense  (benefit)  using  statutory  federal
income tax rates applicable to the Company is as follows:

                                               Years Ended December 31,
                                        1998            1997             1996
                                        ----            ----             ----
                                       Amount          Amount           Amount
                                       ------          ------           ------
Taxes at Statutory rate            $(6,206,000)    $(3,910,000)      (3,739,000)

State taxes net of federal tax effect (607,000)       (480,500)        (551,000)

Foreign tax loss carryforward          415,000         390,500          291,000

Non-deductible items                 1,430,000         (40,300)         (26,100)

Increase in valuation allowance      9,138,000       2,479,300        2,175,100
                                --------------- ---------------  ---------------
                                   $ 4,170,000      (1,561,000)      (1,850,000)
                                --------------- ---------------  ---------------
                                --------------- ---------------  ---------------


                                      F-19

<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

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

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:  

                                                        December  31,  
                                               1998         1997         1996
                                               ----         ----         ----  
Deferred  Tax Assets:  
Current:  
Accounts and notes receivable allowances  $ 1,369,000    1,028,800      351,000 
Inventory allowance                           378,000      401,000      146,700 
Consultant expense                            860,000      110,100       44,500 
Net operating loss carryforward            12,987,000    9,135,400    5,143,900
Less: Valuation allowance                 (15,334,000)  (6,357,000)  (2,945,800)
                                           ----------    ----------   ----------
                                              260,000    4,318,300    2,740,300
Non-current:   
Fixed assets                                 (260,000)    (148,300)    (131,300)
                                           -----------  -----------   ----------
Total deferred tax assets                  $        0   $4,170,000    2,609,000
                                           -----------  -----------   ----------
                                           -----------  -----------   ----------


At  December  31,  1998 the Company had net  operating  loss  carryforwards  for
federal income tax purposes of approximately $30,000,000, of which approximately
$2,300,000 expires in the year 2010,  $9,100,000 in the year 2011, $8,600,000 in
the year  2012,  and the  balance  of  $10,000,000  in the  following  year.  In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some  portion or all of the  deferred tax assets
will be realized.  The ultimate  realization of deferred tax assets is dependent
upon the  generation  of future  taxable  income  during  the  periods  in which
temporary  differences  become  deductible  and the net operating  losses can be
carried forward. In determining such projected future taxable income, management
has  considered  the Companys  historical  results of  operations,  the current
economic  environment  within the Companys core  industries and future business
activities  which the company has  positioned  itself.  At December 31, 1998, in
view of the  Companys  substantial  losses  over the  past  several  years  and
uncertainties regarding future operations,  the Companys valuation allowance is
equal to their  deferred  tax  assets,  net of  deferred  tax  liabilities.  The
increase in the valuation allowance resulted in a tax provision of $4,170,000.

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 agreements,  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
Companys  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.

                                      F-20

<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

11. COMMITMENTS AND CONTINGENCIES (continued)

Employment Contracts and Agreements (continued)
-----------------------------------

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.

Effective September 1, 1997 and February 18, 1998, the employment  agreements of
Messrs. Freedman and Falco were amended. Pursuant to such agreements,  effective
September 1, 1997, Mr.  Freedman and Mr. Falco each receive (i) a base salary of
$480,000 per year plus 2% of net operating  profits;  (ii) bonuses as determined
by the Board of Directors; (iii) participation in any employee benefit plans and
fringe benefit arrangements generally available to the Companys employees;  and
(iv) an  entertainment  expense  allowance of $45,000 per year.  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.  Pursuant  to the  February  18,  1998  amendment  to  their  employment
agreements,  Messrs.  Freedman and Falco were each granted 225,000 stock options
exercisable at $6.75 per share, as amended, and expiring February 17, 2003.  The
Company  obtained a fairness  opinion  and  valuation  report  from  independent
sources that  estimated  the fair market  value for each of these  options to be
$7,017,750  at the date of grant using the  Black-Scholes  value option  pricing
model.  Exercise of the options is not permitted  until the closing bid price of
the Companys common stock equals or exceeds 120% of the applicable option price
in existence prior to December 11, 1998.

Pursuant to the September  1997 and February 1998  amendments to the  employment
agreements of Messrs.  Freedman and Falco, the previously existing draw schedule
and stock bonus  provisions were  eliminated  from the employment  agreements. 

For the years ended December 31, 1998,  1997 and 1996 the  compensation  expense
for the two officers,  including board approved bonuses, was $480,000,  $480,000
and $507,750 each, respectively. For 1996, the board approved bonuses to be paid
to Mr.  Freedman  and Mr.  Falco  to  increase  their  minimum  guaranteed  cash
compensation to $480,000 each.

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

                                      F-21

<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

11. COMMITMENTS AND CONTINGENCIES (continued)

Employment Contracts and Agreements (continued)
-----------------------------------

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

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

On February 11, 1996,  the Company  entered into  agreements  with its executive
employees  pursuant  to  which  such  employees  have  agreed  to  maintain  the
confidentiality  of certain  information and have agreed to not compete with the
Company  within 250 miles of the  Companys  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
Companys 1993 and 1995 Stock Option Plans provide that all outstanding  options
shall become fully vested and exercisable in the event of a change in control.

Litigation
----------

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

On August 15, 1996, the U.S. Department of Labor, Occupational Safety and Health
Administration  ("OSHA") issued wilful  citations 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,

                                      F-22

<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

11. COMMITMENTS AND CONTINGENCIES (continued)

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

Connecticut.  A complaint  was filed  against the  Company by the  Secretary  of
Labor,  United  States  Department of Labor on September 30, 1996. A hearing was
conducted in the matter in April 1997. In June 1998, the Company received a copy
of the  written  decision  filed by OSHAs  Review  Commission.  The  Commission
vacated the first alleged wilful  citation,  but affirmed each of the second and
third  wilful  citations,  imposing a penalty in the amount of $70,000  for each
citation.  The Company strongly objects to the Commissions finding on the basis
that it cannot be  sustained  as  matters  of fact or law and has filed a timely
Notice of Appeal with the OSHA Review Commission for Discretionary Review, which
body has  accepted  jurisdiction  of the matter on  administrative  appeal.  The
Company is contesting the Citations and Notification of Penalty.

Also in connection with this  accidental  death,  the employee's  estate filed a
complaint  for  wrongful  death  against  the  subcontractor  and the Company on
February 11, 1997.  The estate seeks  damages in the amount of $45 million.  The
Company is being defended by the  subcontractors  insurance  carrier pursuant to
the  subcontractors  obligation to defend and indemnify the Company with respect
to the actions of its (subcontractors) employees and agents. The Company will be
fully  indemnified  for any  liability,  if any, for any potential  judgement or
settlement in this matter by the subcontractor's  carrier and, if necessary,  by
its own general liability  insurance carrier and,  therefore,  the action is not
expected to have any material  effect on the  Company's  consolidated  financial
statements.

In November of 1996,  a  shareholder  filed a class action  lawsuit  against the
Company and certain  directors and officers of the Company.  The suit,  filed in
the Superior Court of New Jersey,  Middlesex County, as subsequently  amended in
June 1997, alleged that the Company  disseminated false and misleading financial
information to the investing  public between March 8, 1996 and November 18, 1996
and  sought  damages  in an  unspecified  amount  to  compensate  investors  who
purchased the Companys  securities  between the indicated  dates, as well as the
disgorgement of profits allegedly received by some of the individual  defendants
from sales of common stock during that period.  A written  settlement  agreement
was  executed by  plaintiffs  counsel on behalf of the class and was approved by
the Court.  The matter was  settled  and  finally  resolved  with the payment of
$1,125,000  to the class.  The entire  settlement  sum was paid by the  Companys
directors  and  officers  (D&O)  insurance   policy  carrier   pursuant  to  the
obligations  owed by the carrier  under the Companys  existing  D&O policy.  The
settlement  covered  the  class  period  March  8,  1996 to June  5,  1997.  The
settlement, as expressly reflected in the settlement documents, has been made as
a business  accommodation  only,  and neither  the  Company,  nor any  director,
officer or employee of the Company has admitted or will admit any wrong doing of
any kind.  With the closing of the  settlement,  the action was  dismissed  with
prejudice  and the  Company and each of the  individuals  who have been named as
defendants were released from any and all claims for the entire class period.

On April 1,  1997,  Enviropower  Industries  Inc.,  formerly  Continental  Waste
Conversion Inc. (Enviropower),  commenced an action in court in Calgary, Alberta
against IDM  Environmental  Corp.  and its  subsidiaries,  Global Waste & Energy
Inc.,  formerly  Continental  Waste Conversion  International,  Inc., a Delaware
Corporation  (Global  Delaware),   Global  Waste  and  Energy,   Inc.,  formerly
Continental Waste Conversion  International Inc., an Alberta Corporation (Global
Alberta) together with two former officers and directors of Enviropower who were
then  subsequently  employed  by  Global  Alberta.  The  action  arose  from the
agreements  entered into between  Enviropower  and IDM on or about July 19, 1996
(the Agreements),  which provided,  among other things,  for the grant to Global
Alberta of Enviropowers right, title and interest in certain worldwide marketing
and sales agreements and to an exclusive,  irrevocable license granted to Global
Delaware to market and use certain  technology outside Canada in connection with
the   environmentally   safe  conversion  of  certain  domestic  industrial  and
agricultural solid waste into energy (the Technology). Enviropower sought to set
aside the Agreements on the alleged basis that its  shareholders did not approve
the transaction. In addition,  Enviropower claimed damages for loss of its right
to market  and use the  Technology  outside  of Canada  resulting  in an alleged
estimated  loss of $30  million.  Enviropower  also sought  indemnification  for
liabilities  allegedly  incurred by Global Alberta in the name of Enviropower in
the amount of $363,000,  a declaration  that all profits,  interest and benefits
arising  from the  Agreements  be paid to  Enviropower,  punitive  damages of $1
million,  costs and  interest  plus  such  further  and other  relief as is more
particularly  set out in the  Statement of Claim.  In June of 1997,  the Company
filed a separate cause of action against  Enviropower  seeking injunctive relief
against  Enviropower,  seeking to enforce the agreements with Enviropower and to
collect amounts owed to the Company by  Enviropower.  On September 19, 1997, the
Company was awarded an interim  injunction against  Enviropower  recognizing its
exclusive  rights to the  licensed  technology  throughout  the  pendency of the
action and until  further  order of the court.  Enviropower  has since filed for
protection under Canadian  bankruptcy laws, staying all proceedings  between the
Company and Enviropower.  On or about January 13, 1999, the Company entered into
a  comprehensive  settlement of the matter with the  bankruptcy  Trustee.  Among
other things, the settlement provided for the entry of a permanent injunction in
favor of the Company  which,  in essence,  recognizes  the  Company's  exclusive
rights to the Technology  and the validity of the Agreements  that were at issue
in the litigation.

                                      F-23

<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

11. COMMITMENTS AND CONTINGENCIES (continued)

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

In July of 1998,  Kasterka  Vrtriebs GmbH  (Kasterka)  filed a cause of action
suit against the  Company,  its  subsidiary,  Global Waste & Energy and certain
affiliates  and  officers  in the Court of Queens  Bench of  Alberta,  Judicial
District of Calgary.  The plaintiff  alleges that the Company and its affiliates
breached a  marketing  agreement  that had been  entered  between  Kasterka  and
Enviropower.  Kasterka  also  alleges that the  defendants  failed to supply the
required  plans  and  specifications  relating  to the  gasification  technology
originally  developed by Enviropower and that, as a result,  Kasterka was unable
to manufacture and market  gasification  units in the territories  designated in
the marketing agreement. Kasterka asserts a variety of claims for damages in the
aggregate amount of approximately $42 million.  The Company believes the suit is
without merit and intends to vigorously contest the cause of action.

In September of 1998,  Balerna Concrete  Corporation  (Balerna) filed a cause of
action against the Company in the United States District Court of Massachusetts.
The  plaintiff  alleges  that the  Company, and others,  engaged in a pattern of
illegal conduct to divert funds from Balerna through the operation of a concrete
finishing  business.  Balerna has asserted various claims under RICO, common law
fraud,  conversion,  breach of contract  and other basis  seeking  damages in an
amount  expected to exceed  $450,000.  The Company  believes the suit is without
merit and intends to vigorously contest the cause of action.

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
               -----------------------           --------         ----------   
                         1999                     295,032          183,986
                         2000                     295,032          177,018
                         2001                     295,032          123,237
                         2002                     295,032                -
                         2003                     295,032                -
                      Thereafter                2,360,256                -
                                             -------------    -------------
                                              $ 3,835,416      $   484,241
                                             -------------    -------------
                                             -------------    ------------- 

As  further   discussed  in  Note  13,  the  Company  incurred   renovation  and
construction costs 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.

                                      F-24

<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

11. COMMITMENTS AND CONTINGENCIES (continued)

Year 2000 Compliance
--------------------

As has been widely  reported,  many computer  systems process dates based on two
digits for the year of a transaction and are unable to process dates in the year
2000 and beyond.  The Company  primarily uses licensed  software products in its
operations with a significant portion of processes and transactions  centralized
in one particular software package.  During 1999, management plans to upgrade to
the most current version of this software package which,  among other things, is
Year 2000 compliant. In addition the Company has previously replaced or modified
other  systems  that  were not Year  2000  compliant.  These  systems  have been
assessed,  and detailed plans have been  developed and are being  implemented to
make the necessary  modifications to insure year 2000 compliance.  The financial
impact of making the required  system  changes for year 2000  compliance are not
expected to have a material effect on the Companys financial statements.

The Company is continuing  its process of formal  communication  with all of its
significant suppliers and customers to determine the extent to which the Company
is vulnerable to potential  third  parties  failure to remediate  their own year
2000  issued.  The  Company  can give no  guarantee  that the  systems  of other
companies on which the Companys systems rely will be remedied for the year 2000
issues on time or that a failure to remedy the problem by another  company would
not have a material adverse effect on the Company.

Other
-----

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


12.  RETIREMENT SAVINGS PLAN

In July of 1992, the Company  amended an existing profit sharing plan to convert
such plan to a retirement  savings plan (the 401(k) Plan) under section 401(k)
of the Internal  Revenue Code. The 401(k) Plan generally covers all employees of
the Company who have completed two years of service with the Company.  Employees
may elect to defer, in the form of  contributions  to the 401(k) Plan, up to 15%
of their annual compensation,  subject to the federal maximum limit. The Company
may,  at its  own  discretion,  contribute  to the  plan.  The  Company  did not
contribute to the 401(k) Plan during the years ended December 31, 1998, 1997 and
1996.


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 3,662 shares of his common stock of
the  Company at $52.50 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  9,221  shares of his common stock of the Company at
$72.72 per share,  the average  closing market price for the previous  month, as
payment in full of loans from the  Company in the amount of  $670,580,  the then
current balance. Such shares have been canceled.

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

                                      F-25

<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

13.  RELATED PARTIES (continued)

Officer Loans and Advances (continued)
--------------------------

During 1998, Frank Falco, Chairman of the Board of Directors and Chief Operating
Officer of the Company, paid the Company $490,000,  which represented payment in
full of all amounts due from officers to the Company.

During  1998,  the  Company  purchased  8,250  shares  of  common  stock of Life
International  Products,  Inc. from Joel Freedman for $178,125,  Mr.  Freedman's
cost basis in those shares.

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 shall
also 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  constitutes
payment  in full of rent for the  initial  term of the  lease of such  warehouse
space. The Company shall also 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, 1998, 1997 and 1996 was $93,320,  $93,320
and $42,014,  respectively. For the years ended December 31, 1998, 1997 and 1996
the rent paid was $308,948, $302,412 and $292,884, 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 one  customer in 1996.  In
1998and  1997 the Company  earned more than 10% of its revenue from each of four
and two  different  customers,  respectively.  For the years ended  December 31,
1998, 1997 and 1996 the revenues were $13,560,000,  $8,443,000,  and $2,745,000,
respectively.

Financial  instruments which potentially subject the Company to concentration of
credit risk consist  principally  of trade  receivables,  notes  receivable  and
investments in affiliates.  Management  believes that the risk  associated  with
trade receivables has been adequately provided for in the allowance for doubtful
accounts.

                                      F-26

<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

15.  STOCKHOLDERS' EQUITY

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

In July of 1993, the Company offered and sold ten units at $50,000 per unit, for
an  aggregate  of  $500,000.  Each  unit  consisted  of 500  shares  of Series A
Preferred  Stock,  600 shares of common stock and 500 warrants,  exercisable  to
purchase  one share of common  stock at $50 per share until July 31,  1996.  The
preferred stock had a 9% per annum cumulative dividend,  payable quarterly.  The
holders of the Series A  Preferred  Stock had the right to "put" such  shares to
the Company at a price of $100 per share after the Company  attained a net worth
of $3,000,000 or more or at any time after January 15, 1994. The Company had the
right to  redeem  the  Series A  Preferred  Stock at $100 per  share on or after
August 1, 1995. The Company had also agreed to include the shares underlying the
warrants  included  in such  units in any  registration  statement  filed by the
Company  following the Company's initial public offering at no cost to such unit
holders.  On  April  29,  1994,  the  Company  redeemed  all of the  outstanding
Preferred Stock at the request of the preferred shareholders.

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

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

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

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

The  conversion  date  average was 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 was  convertible  into the Companys common stock
(the  conversion  shares)  determined  by  dividing  $10,000  by the  applicable
conversion  price. The preferred shares were due to mature on February 12, 2000,
and on that date each  preferred  share  then  outstanding  would  automatically
convert  into  conversion  shares  at the then  current  conversion  price.  The
preferred shares pay an annual 7% dividend. The dividends were payable only upon
conversion  or redemption  of the  preferred  shares and were 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 difference  between the market price of
the Companys  common stock and the  applicable  conversion  rate, the beneficial
conversion feature, totaled $1,109,589, and was recorded as additional dividends
amortizable  over a 180 day period from February 12, 1997, the issue date of the
convertible preferred stock. The Company agreed to register the dividend shares,
the conversion  shares and penalty shares in a registration  statement  filed by
the Company at no cost to the holders of such shares. The registration statement
was declared effective on January 9, 1998.

                                      F-27

<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

15. STOCKHOLDERS EQUITY (Continued)

Convertible Preferred Stock (continued)
---------------------------

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
10,000 warrants to the placement agent.  Each warrant is exercisable to purchase
one share of common  stock at $24.00 per share,  as amended by  agreement  dated
November 21, 1997,  commencing on February 12, 1998 and expiring on February 12,
2002. The Company has granted demand and piggy-back  registration  rights to the
holders of these warrants.

During  the year ended  December  31,  1997,  30 shares  with a stated  value of
$300,000 were converted into 19,292 shares of the Companys common stock. During
the first  quarter  of 1998 the  remaining  270  shares  with a stated  value of
$2,700,000 were converted into 135,944 shares of the Companys common stock.

On February  13, 1998 (the  closing  date) the Company  entered into a private
placement  wherein it offered and sold 3,600  shares of Series C 7%  Convertible
Preferred Stock and 235,000 Four Year $50.00  Warrants  (amended on June 2, 1998
to  $37.50).  The  securities  were  issued to five  accredited  investors.  The
aggregate sales price of such securities was  $3,600,000.  Commissions  totaling
10% were paid in connection  with the  placement.  The  securities  were offered
pursuant to Regulation D. The offer was directed exclusively to a limited number
of accredited 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.  The
Series C Preferred Stock was convertible  into Common Stock at the lesser of (i)
$45.00  (amended on June 2, 1998 to $32.50) per share or (ii) 75% of the average
closing  bid price of the Common  Stock  during the five  trading  days prior to
conversion.  The Four Year  $50.00  Warrants  were  exercisable  for a four year
period at the lesser of $37.50 per share or the lowest  conversion  price of the
Series C  Preferred  Stock.  Conversion  of the  Series C  Preferred  Stock  and
exercise  of the Four Year  $50.00  Warrants  was  subject to the  issuance of a
maximum of 328,544 shares of Common Stock on conversion  unless the shareholders
of the Company have approved  issuance beyond that level upon  conversion.  Such
approval was granted at the Companys  annual meeting of shareholders on June 2,
1998. Further,  the Company had the right, upon notice to the holders, to redeem
any Series C Preferred  Stock  submitted for  conversion at a price or $27.50 or
less at 125% of the  principal  amount of such  Series C  Preferred  Stock  plus
accrued and unpaid dividends.  The Series C Preferred Stock paid dividends at 7%
per annum payable quarterly and on conversion or at redemption in cash or Common
Stock,  at the  Company's  option.  During the year ended  December 31, 1998 all
Series C Preferred  stock was  converted  into 640,747  shares of the  Companys
common stock.

On August 11,  1998 (the  closing  date) the  Company  entered  into a private
placement  wherein it offered and sold 1,500 shares of Series RR 6%  Convertible
Preferred  Stock.  The  securities  were issued to on accredited  investor.  The
aggregate sales price of such securities was  $1,500,000.  Commissions  totaling
10% were paid in connection  with the  placement.  The  securities  were offered
pursuant  to  Regulation  D. The  offer  was  directed  exclusively  to a single
accredited  investor  without  general  solicitation or advertising and based on
representation   from  the  investor   that  such  investor  was  acquiring  for
investment.  The Series RR Preferred Shares are convertible into Common Stock at
the lessor of (i) $22.50 per share or (ii) 75% of the average  closing bid price
of the common  stock  during the five  trading  days  prior to  conversion.  The
Preferred  Shares  pay an annual  dividend  of 6%  payable  semi-annually  or on
conversion or at redemption  in cash or Common Stock,  at the Companys  option.
During the year ended  December  31,  1998,  1,285 shares of Series RR Preferred
Stock  were  converted  into  359,981  shares  of the  Companys  common  stock.
Subsequent  to December 31, 1998,  demand for  conversion  or  redemption of the
remaining  215 shares of Series RR  Preferred  Stock had been  submitted.  As of
March 15,  1999,  negogiations  were  ongoing  with the  holder of the Series RR
Preferred Stock with respect to the deferral of payment of the redemption  price
or conversion of the remaining  shares of Series RR Preferred  Stock pending the
receipt  by the  Company of  funding  to pay the  redemption  price or until the
annual shareholders meeting when approval of conversions above the 360,000 share
cap would be solicited.

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

On June 2, 1998,  the  Company  filed an amended  and  restated  Certificate  of
Incorporation  increasing the  authorized  shares of common stock the Company is
authorized to issue from  30,000,000  to  75,000,000  shares with a par value of
$0.001. On March 11, 1999, the Companys Board of Directors authorized a 1 for 10
reverse  stock split of its common stock and amended the par value of the common
stock to $0.01 and reduced the authorized  shares to 7,500,000  effective  April
16, 1999 for  shareholders of record at the close of business on April 16, 1999.
All share and  per-share  amounts  in the  accompanying  consolidated  financial
statements  have been  restated  to give  effect to the 1 for 10  reverse  stock
split.

                                      F-28
<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

15. STOCKHOLDERS EQUITY (Continued)

Common Stock (continued)
------------

In January of 1994, the principal  shareholders  of the Company  surrendered for
cancellation  an aggregate of 66,667 shares of common stock.  All  references to
number of shares, except shares authorized,  and to per share information in the
financial   statements,   have  been  adjusted  to  reflect  the  surrender  and
cancellation of such shares on a retroactive basis.

The Company  completed an initial  public  offering of 345,000 units  (including
units sold pursuant to the  underwriters  over  allotment  options) in April of
1994.  Each Unit  consisted of one share of the  Companys  common stock and one
Class A Warrant.  The  Company  received  $11,792,588  from the  proceeds of the
offering, net of the payment of all offering costs.

On September 1, 1995, Joel Freedman, a principal shareholder, director and Chief
Executive Officer of the Company surrendered 3,662 shares of his common stock in
repayment of his officers loan.

From November 1995 through  December 31, 1996, the Company issued 159,727 shares
of common stock in exchange for the  cancellation of $5,000,000 of the Companys
7% convertible notes.

On April 1, 1996,  Frank  Falco,  a principal  shareholder,  director  and Chief
Operating  Officer of the Company,  surrendered 9,221 shares of his common stock
in repayment of his officers 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  10,000
shares at a price of $216,500.

During the year ended  December 31, 1997 $300,000 of the  Companys  Convertible
Preferred Stock were converted into 19,292 shares of the Companys common stock.

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

The Company has  authorized  and in July of 1993,  issued  5,000  warrants  (the
Private  Placement  Warrants) to purchase common stock. The Private  Placement
Warrants were exercisable to purchase one share of common stock per warrant at a
price of $50.00  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, 750 Private
Placement Warrants were exercised, 750 shares were issued in connection with the
exercises and resulted in net proceeds to the Company of $33,750.  The remaining
4,250 Private Placement Warrants expired and were canceled.

The  Companys  Class A Warrants are  separately  transferrable  and entitle the
holder to purchase  two shares of common  stock at $45.00 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 $.50 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  $90.00 per share.
During the year ended  December 31, 1996,  1997 and 1998,  105,100,  225,851 and
9,790 Class A Warrants were exercised,  210,200,  451,703 and 19,580 shares were
issued in  connection  with these  exercises and resulted in net proceeds to the
Company of $6,956,450, $6,171,000 and $184,500.

A  total  of  approximately   34,000  Class  A  Warrants  were  outstanding  and
exercisable at December 31, 1998. As part of the 1 for 10 reverse stock split of
the  Companys  Common  Stock  and  Class A  Warrants,  the term of the  Class A
Warrants was extended to April of 2000.

                                      F-29

<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

15.  STOCKHOLDERS EQUITY (continued)

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

In connection with the Offering, the Company sold to the Underwriter for nominal
consideration,  an option for the  purchase of up to 30,000  units (the  "option
units").  Each option unit consisted of one share of the Companys  common stock
and one Class A Warrant.  Each option unit was  exercisable at a price of $66.00
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 30,000 shares of the Companys  common stock. As of December 31, 1998 all
30,000  Class A  Warrants  issued  in  connection  with the  underwriter  option
remained outstanding.

In February of 1998, the Company issued 270,000 Three Year $45.00  Warrants (the
Lock-Up  Warrants).  The Lock-Up  Warrants were issued in conjunction with the
execution of Lock-Up  Agreements by the holders of $30.00  Warrants  whereby the
holders  of such  warrants  agreed not to resell  any  shares  underlying  those
warrants  prior to July 30, 1998.  The Lock-Up  Warrants are  exercisable  for a
three  year  period at $45.00  (amended  on  November  10,  1998 to $3.30  until
December 31, 1998 and $10.00 thereafter) per share.

In June of 1998,  the Company  issued 26,688  $60.00  Warrants and 26,688 $67.50
Warrants  (collectively the Reload Warrants).  The Reload Warrants were issued
as an inducement for early  exercise by the holders of certain  $30.00  Warrants
and are  exercisable  to the extent of one $60.00 Warrant and one $67.50 Warrant
for each $30.00 Warrant  previously  exercised.  The $60.00  Warrants and $67.50
Warrants are  exercisable  for a period of one year  commencing  June 8, 1998 to
purchase  common  stock at $60.00 and $67.50  (amended on  November  10, 1998 to
$3.30 until December 31, 1998 and $10.00  thereafter)  per share,  respectively.
Exercise  of  the  $60.00  Warrants  and  $67.50  Warrants  is  subject  to  the
restrictions that the holders, individually, will not beneficially own in excess
of 4.99% of the Common Stock following any exercise.

During the  fourth  quarter of 1998,  the  Company  agreed to amend the terms of
certain  warrants to reduce the  exercise  price of those  warrants  for certain
warrant   holders  who  had  indicated  a  willingness  to  exercise   currently
outstanding  warrants.  Pursuant to such agreement,  the exercise price of those
warrants was reduced to $3.30 per share until  December 31, 1998, and $10.00 per
share  thereafter,  and the Company  obtained the right to call the warrants for
redemption.  In total, the exercise prices were reduced on 117,651 of the $30.00
Warrants,  67,000 of the Lock-Up Warrants, 15,750 of the $60.00 Reload Warrants,
and 15,750 of the $67.50 Reload Warrants.

On December 11, 1998 the  Companys  common stock option  holders were offered a
repricing  of their  options  to $6.75  per  share.  With the  exception  of one
consultant the repricing excluded all Directors and consultants. Exercise of the
repriced  options is not permitted  until the closing bid price of the Companys
common stock equals or exceeds 120% of the applicable  option price in existence
prior to December 11, 1998.

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 47,500 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  44,540
and 500 shares, respectively, of the Company's common stock at $40.00 per share,
the market price of the Companys common stock at the date of grant. The options
are incentive stock options,  except for the Director's  stock option which is a
nonqualified  stock option. The options are exercisable until April 2004. Twenty
percent of the options vest three months from the date of grant.  The balance of
the  options  vest at a rate of  twenty  percent  per  year on each of the  four
anniversary  dates  subsequent to the grant of the options.  The option exercise
price  was  reduced  to  $20.00  per share on May 22,  1997.  Holders  of 20,808
outstanding options at the date of the aforementioned repricing under this grant
accepted  the  repricing.  The balance of the  outstanding  options  remained at
$20.00.

                                      F-30

<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 2, 1994, the Company  granted a total of 500 non qualified stock options
to two of the directors to purchase common stock at $62.50 per share, the market
price of the Companys  common stock at the date of the grant.  The options vest
at the same rate as the initial grant.  The option exercise price was reduced to
$20.00 per share on May 22, 1997.  Holders of 1,485  outstanding  options at the
date of the  aforementioned  repricing  under this grant accepted the repricing.
The balance of the outstanding options remained at $20.00.

On December  28,  1994,  the Company  granted  options to certain  employees  to
purchase  2,970 shares of the  Company's  common stock at $43.80 per share,  the
market price of the Companys  common stock at the date of the grant.  On August
9, 1995, the Company  granted an option to a new employee to purchase 500 shares
of the  Companys  common  stock at $52.50  per share,  the market  price of the
Companys  common stock at the date of grant.  The options vest at the same rate
as the first grant. The option exercise price was reduced to $20.00 per share on
May 22, 1997.

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 the Company  withhold  the number of shares of common  stock at the
then market price of the Companys  common stock,  less the exercise  price,  of
which is equal to the  aggregate  exercise  price of the shares of common  stock
issuable upon exercise of the option.  Under such  provision of the  accelerated
vesting, notwithstanding any vesting schedule set forth in any individual option
agreement,  all options granted under the 1993 Plan will become fully vested and
exercisable  in the event a person or group,  other than Joel  Freedman or Frank
Falco,  acquire  in excess of 15% of common  stock of the  Company  unless  such
acquisition is approved by the Board.

On January 8, 1996, the Companys  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 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  50,000  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 6,900 shares of the Companys common stock at $29.40
per share,  the market  price of the  Companys  common stock at the date of the
grant  (4,150  have  vested).  In  addition,  on January 8,  1996,  the  Company
approved, effective November 20, 1995, the granting of 4,000 options to purchase
common stock at $37.20 per share, the market price of the Companys common stock
at the date of the grant, to certain consultants (all options were vested).  The
balance of the 6,900  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 7,500 options each to Messrs.,  Falco and
Freedman at $32.30 per share,  110% of the market price of the Companys  common
stock at the date of grant.  The option exercise price was reduced to $20.00 per
share on May 22, 1997.  Holders of 6,900 outstanding  options at the date of the
aforementioned repricing under this grant accepted the repricing. The balance of
the outstanding options remained at $20.00.

On May 23, 1996, the Company granted vested options to the outside directors,  a
consultant  and an employee to purchase  5,000  shares at $82.50 per share,  the
market  price of the  Companys  common  stock at the date of grant.  The option
exercise price was reduced to $20.00 per share on May 22, 1997.

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  5,000  shares of its common
stock at $32.30 per share.  The options,  which are fully vested and exercisable
through June 28, 2006, were granted pursuant to a consultant agreement. The fair
market  value of these  shares at the date of grant was $74.40.  The  difference
between the exercise price and the market price of the Companys common stock at
date  of  grant  (the  intrinsic  value)  reflects  the  compensation  for the
consulting  services.  The option exercise price was reduced to $20.00 per share
on May 22, 1997.

                                      F-31

<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

15.  STOCKHOLDERS EQUITY (continued)

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

On May 22, 1997, the Company  granted vested options to certain of its employees
to purchase  5,295 shares at $20.00 a share,  the market price of the  Companys
common stock at the date of grant.  In addition,  the Company  agreed to reprice
all  options  granted  on or before May 22,  1997 to the same  $20.00 per share.
Holders of 3,420 outstanding options at the date of the aforementioned repricing
under this grant accepted the repricing.  The balance of the outstanding options
remained at $20.00.

On June 10, 1997,  the Company  granted  vested  options to three of its outside
directors  for each to purchase  500 shares at $25.312,  the market price of the
Companys common stock at date of grant.

On July 23, 1997, the Company granted vested options in the amount of 500 shares
for a  consultant,  and 500 shares for each of three  officers at  $25.625,  the
market price of the Companys  common stock at date of grant.  In addition,  the
Company granted a vested option to purchase 10,000 shares each to Messrs.  Falco
and  Freedman at $28.1875 per share,  110% of the market price of the  Companys
common stock at the date of grant.  Holders of 1,500 outstanding  options at the
date of the  aforementioned  repricing  under this grant accepted the repricing.
The balance of the outstanding options remained at $25.625 and $28.1875.

On August 26, 1997, the Company granted a vested option to its proposed  nominee
for director for 500 shares at $46.875, the market price of the Companys common
stock at the date of grant.

During 1997,  4,539 options  issued under the stock option plans were  exercised
resulting in net proceeds of $63,041.

During 1997 the Company  issued to six  consultants  options to purchase  39,500
shares of the Companys  common stock at exercise  prices ranging from $12.50 to
$45.00.  In  accordance  with FAS 123 the  fair  value  of  these  options  were
estimated at the grant date using the  Black-Scholes  value option pricing model
resulting in the  recording  of $456,340 as  compensation  costs of  consultants
options.  During 1997 15,500 of these  options were  exercised  resulting in net
proceeds to the Company of $235,000.

On January 8, 1998,  the Company  adopted and  approved  the 1998  Comprehensive
Stock Option and Award Plan (the 1998 Plan),  and reserved  100,000  shares of
its common stock for issuance under the 1998 Plan.

Under the 1998 Plan, stock options,  shares of restricted stock, stock awards or
performance  shares,  or  a  combination  of  any  such  awards   (collectively,
Awards),  may be granted  from time to time to Eligible  Persons  (hereinafter
defined),  all  generally in the  discretion of the  Committee  responsible  for
administering the 1998 Plan (hereinafter  described).  Each Award under the 1998
Plan will be  evidenced  by a separate  written  agreement  which sets forth the
terms and  conditions of the Award.  Eligible  Persons  generally  include any
employee of the Company or its  subsidiaries,  members of the Board of Directors
of the  Company and any  consultant  or other  person  whose  participation  the
Committee  determines is in the best  interest of the Company.  Grants under the
1998  Plan  to  non-employee  directors  are  limited  to an  initial  grant  of
non-qualified  stock options in an amount equal to 500 shares  multiplied by the
number of years remaining in the term of each non-employee  director  commencing
with the first annual  shareholders  meeting  following the adoption of the 1998
Plan and  additional  grants on like terms on each  subsequent  reelection  of a
non-employee director. There is no maximum number of persons eligible to receive
Awards under the 1998 Plan,  nor is there any limit on the amount of Awards that
may be granted to any such  person,  except as  described  below with respect to
incentive stock options.  The Company intends that stock options or other grants
of Awards  under the 1998 Plan to persons  subject to Section 16 of the Exchange
Act will  satisfy the  requirements  of Rule 16b-3 under the Exchange Act (Rule
16b-3")

On January 8, 1998 the Company  granted vested  options to certain  employees to
purchase  7,380 shares of the  Companys  common stock at $37.19 per share,  the
market price of the Companys  common stock at the date of grant.  These options
are exercisable until January 2008. Holders of 6,520 outstanding options, at the
date of the aforementioned  repricing,  under this grant accepted the repricing.
The balance of the outstanding options remained at $37.19.

                                      F-32

<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 2, 1998 the Company granted  options to certain  officers of the Company
and one  consultant to purchase  11,000 shares of the Companys  common stock at
$35.00 per share,  the market price of the Companys common stock at the date of
grant.  The options have vesting  periods as follows:  (i) 1,500 of the officers
options  are  fully  vested  at the date of grant;  (ii)  3,500 of the  officers
options  vest 50% at the date of grant  with the  balance  vesting  on the first
anniversary  of the date of grant;  (iii) the  remaining  4,500 of the  officers
options and the 1,500  consultants  options  vest one third at the date of grant
and one third per year on each of the two  anniversary  dates  subsequent to the
date of grant.  These options are exercisable until June 2008.  Holders of 4,500
outstanding  options,  at the date of the aforementioned  repricing,  under this
grant accepted the repricing. The balance of the outstanding options remained at
$35.00.

During  the  year  ended  December  31,1998,  the  Company  granted  immediately
exercisable options to consultants to purchase 126,500 shares of common stock at
the market price of the Companys common stock at the date of the grants.  During
the years ended December 31, 1998, 1997 and 1996, the Company recorded  non-cash
compensation  expense of  $1,898,55,  $456,340  and  $63,094,  respectively,  in
connection with the grants of these options.

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 Companys  employee  stock  options  equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.

The Companys  1993,  1995 and 1998 Stock Option and Award Plans have authorized
the  granting  of  options  to  key  employees,  management  personnel,  Company
Directors  and  consultants  for up to 197,500  shares of the  Companys  common
stock.  Options granted pursuant to the 1993 and 1995 plans have terms between 5
and 10 years and become fully exercisable ranging from 0 to 4 years of continued
employment.  The 1998 Plan grants have terms of 5 and 10 years and become  fully
exercisable  ranging  from 0 to 2 years and are granted at no less than the fair
market value of the Companys common stock at the grant date.

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
for  options  granted  in 1995 and 1996  and on the  date of grant  for  options
granted during 1998 and 1997 using the  Black-Scholes  option pricing model with
the  following   weighted   average   assumptions   for  1998,  1997  and  1996,
respectively, with ranges as follows:


                                     1998              1997             1996
                                     ----              ----             ----
 Risk-Free interest              4.15 - 5.55%        5.65%          4.39 - 6.40%
 Dividend yields                      0%               0%                0%
 Volatility factors of the 
 expected market price of the 
 Company's Common Stock           .92 - 1.05%         .92%            .72 - .87%
    Expected life of options      3 - 10 years    1 - 5 years        2 - 5 years

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


                                      F-33

<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

15.  STOCKHOLDERS' EQUITY (continued)

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

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the Companys 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 managements opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its stock options.  In  managements  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.

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, 1998,
1997 and 1996 have been  included for the  Companys  pro forma  information  as
follows:

                                         1998              1997         1996
                                         ----              ----         ----
 Pro forma net loss on common stock  $(40,901,556)   $(11,885,575)  $(9,700,064)
 Pro forma loss per share:
    Basic                            $     (20.58)   $     (10.60)  $    (12.00)
    Diluted                          $     (20.58)   $     (10.60)  $    (12.00)

An additional  $14,459,500,  $661,152, and $552,220 of compensation expense (net
of tax effect) would be recognized under implementation of FASB 123.

                                      F-34

<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

15.  STOCKHOLDERS EQUITY (continued)

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

A summary of changes in common  stock  options  under the 1993 plan during 1998,
1997 and 1996, is as follows:

<TABLE>
                                                                                                          Weighted
                                                                       Number          Price per           Average
                                                                     of Shares           Share          Exercise Price
                                                                    -----------        ---------       ---------------
                                                                    
<S>                                                                 <C>                 <C>               <C>                  
           January 1, 1996                                               45,553                             20.00

           Canceled during 1996                                          (6,397)              40.00         40.00
           Exercised during 1996                                         (2,091)              40.00         40.00
                                                                    ------------
         Outstanding at December 31, 1996                                37,065
           Granted during 1997                                            9,295     $20.00 - $46.90        $20.80
                                                                                             
           Canceled during 1997                                          (2,017)              20.00         20.00
           Exercised during 1997                                         (3,876)              20.00         20.00
                                                                    ------------
         Outstanding at December 31, 1997                                40,467
           Granted during 1998                                                -                   -
           Canceled during 1998                                             (37)              20.00         20.00
           Exercised during 1998                                           (321)              20.00         20.00
                                                                    ------------
         Outstanding at December 31, 1998                                40,109      $6.75 - $46.90         $9.30
                                                                    ============
         Options exercisable at December 31,  1998                       39,610      $6.75 - $46.90         $9.30
                                                                    ============
         Available for Future Grant                                       1,103
                                                                    ============
</TABLE>

At  December  31,  1998  the  remaining   outstanding  shares  weighted  average
contractual life was 6.81.

                                      F-35

<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

15.  STOCKHOLDERS EQUITY (continued)

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

A summary of the 1995 plan activity which occurred during 1998, 1997 and 1996 is
as follows:

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

         Outstanding, January 1, 1996                               -                 -              -
           Granted during 1996                                 30,900            $20.00         $20.00
           Exercised during 1996                               (2,055)            37.20          37.20
           Canceled during 1996                                  (945)            37.20          37.20
                                                             ----------
         Outstanding at December 31, 1996                      27,900                            20.00
           Granted during 1997                                 20,000            $28.20         $28.20
           Exercised during 1997                                 (663)            20.00          20.00
           Canceled during 1997                                  (337)            20.00          20.00
                                                             ----------
         Outstanding at December 31, 1997                      46,900                            20.00
           Granted during 1998                                      -                 -
           Exercised during 1998                                    -                 -
           Canceled during 1998                                     -                 -
                                                             ----------
         Outstanding at December 31, 1998                      46,900    $6.75 - $28.20          $9.50
                                                             ==========
         Options Exercisable at December 31, 1998              46,350                            $9.50
                                                             ==========
         Available for future grants                              382
                                                             ==========
</TABLE>

At  December  31, 1998  the  remaining   outstanding   shares  weighted  average
contractual life was 4.3.

A summary of the 1998 plan activity which occurred during 1998 is as follows:
<TABLE>
                                                                                                 Weighted
                                                   Number of Shares     Price Per Share    Average Exercise Price
                                                  ------------------   -----------------  ------------------------
<S>                                                 <C>                <C>                <C>

         Outstanding, January 1, 1998                      -                 -                        -
           Granted during 1998                        18,380           $6.75 - $37.20            $18.20
           Exercised during 1998                           -                 -
           Canceled during 1998                         (40)                   $37.20             37.20
                                                   ----------
         Outstanding at December 31, 1998             18,340            6.75 - 37.20              18.10
                                                   ==========
         Options Exercisable at December 31, 1997     12,570           $6.75 - $37.20            $14.30
                                                   ==========
         Available for future grants                  81,660
                                                   ==========


</TABLE>


                                      F-36

<PAGE>
                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Continued)

15. STOCKHOLDERS EQUITY (continued)

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

At  December  31, 1998  the  remaining   outstanding   shares  weighted  average
contractual life was 9.25.

In addition,  as of December 31, 1998,  253,000  options  granted to consultants
remain  outstanding  at exercise  prices ranging from $3.75 to $45.00 and have a
weighted  average exercise  price of $31.60.  At December 31, 1998 the remaining
outstanding shares weighted average contractual life was 1.54.

The  weighted  average  fair value of  options  granted  during the years  ended
December  31,  1998  and  1997  for the 1993  plan,  1995  plan and the  various
consulting options were as follows:

                                             1998           1998           1997
                                             ----           ----           ----
Stock Prices Equal to Exercise Price        29.30         25.60           12.90
Stock Prices in Excess of Exercise Price       -             -            25.30
Stock Prices Less than Exercise Price        5.70          7.90            7.80

Shareholders 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
Companys  common stock until the tenth day after such time as a person or group
acquires  beneficial  ownership of 15% or more of the Companys  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 Companys 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 Companys  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 Companys  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 Companys  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. EARNINGS PER SHARE

For the  years  reported  in  within  these  consolidated  financial  statements
weighted average shares for basic and dilutive  computations are the same due to
losses reported for each of the years.

Options  to  purchase  804,350,  661,367  and 41,250  shares of common  stock at
exercise prices ranging from $6.75 to $82.50 per share were  outstanding  during
the years ended  December 31, 1998,  1997 and 1996,  respectively,  and were not
included in the computation of diluted earnings per share in accordance with FAS
128, as the potential shares are considered  anti-dilutive  due to the Companys
losses from continuing operations.


                                      F-37