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

                                FORM 10-QSB/A

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

              For the quarterly period ended September 30, 1997

                       Commission File Number 0-12914
                       _______________________________   

                               WASTEMASTERS, INC.
      (Exact name of small business issuer as specified in its charter)

        Maryland                                       52-1507818
(State of Incorporation)                    (IRS Employer Identification No.)


         1230 Peachtree Street, Suite 2545, Atlanta, Georgia 30309
                  (Address of Principal Executive Offices)

                               (404) 888-0158
                          Issuer's Telephone Number


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

     State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 34,967,126 shares of Common
Stock ($.01 par value) as of November 19, 1997. 

     Transitional small business disclosure format:  Yes    No x

<PAGE>
                              WASTEMASTERS, INC.

                  Quarterly Report on Form 10-QSB for the
                  Quarterly Period Ending September 30, 1997


                             TABLE OF CONTENTS

                                                                       Page
                                                                       ----

PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements (Unaudited).

          Consolidated Balance Sheets:
            September 30, 1997 and December 31, 1996 ................   1

          Consolidated Statements of Operations:
            Three Months Ended September 30, 1997
            and 1996; Nine Months Ended September 30,
            1997 and 1996 ...........................................   3

          Consolidated Statements of Cash Flows:
            Nine months ended September 30, 1997
            and 1996 ................................................   4

          Notes to Consolidated Financial Statements: 
            September 30, 1997 ......................................   6


Item 2.   Management's Discussion and Analysis of
            Financial Condition and Results of
            Operations ..............................................  10

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings..........................................  12

Item 2.   Changes in Securities......................................  15

Item 3.   Defaults Upon Senior Securities............................  15

Item 5.   Other Information..........................................  16

Item 6.   Exhibits and Reports on Form 8-K...........................  16

Signatures...........................................................  16


                                     ii

<PAGE>

PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)

                              WASTEMASTERS, INC.
                         CONSOLIDATED BALANCE SHEETS
                                 (Unaudited)

                                   ASSETS

                                               September 30,     December 31,
                                                   1997             1996  
                                               -------------    -------------
Current assets:
  Cash                                          $         0      $         0
  Accounts receivable, net of
    allowance for doubtful accounts                  49,949          108,733
                                                -----------      -----------
          Total current assets                       49,949          108,733
                                                -----------      ----------- 
Property, machinery and equipment,
  at cost, net of accumulated
  depreciation                                       14,032           62,531
                                                -----------      -----------

          Total property and equipment               14,032           62,531
                                                -----------      -----------
Other assets:
  Investment in Continental
    Investment Corp.                              7,840,000                0
  Landfill, net                                   1,582,180        2,541,365
  Deferred loan costs, net                          440,203        1,262,127
  Excess of costs over net
    assets acquired                               9,385,645       13,047,493
  Deposits and other assets                           1,327            1,387
                                                -----------      -----------
          Total other assets                     19,249,355       16,852,372
                                                -----------      -----------
          Total assets                          $19,313,336      $17,023,636
                                                ===========      ===========
     
     The accompanying notes are an integral part of these statements.

                                      -1-

<PAGE>
                               WASTEMASTERS, INC.
                          CONSOLIDATED BALANCE SHEETS
                                  (Unaudited)

                     LIABILITIES AND STOCKHOLDERS' EQUITY

                                               September 30,     December 31,
                                                    1997            1996
                                               -------------   --------------
Current liabilities:
  Current maturities of
    long-term debt                              $ 8,049,300      $ 9,190,149
  Accounts payable and accrued liabilities        4,126,501        3,629,144
  Liabilities due to related parties                695,044          575,994
                                                -----------      -----------
          Total current liabilities              12,870,845       13,395,287
                                                -----------      -----------
Long-term debt                                            0                0

Deferred expenses:
  Accrued environmental and landfill costs          300,751          313,002
                                                -----------      -----------
          Total liabilities                      13,171,596       13,708,289
                                                -----------      -----------
Stockholders' equity:
  Preferred stock, $0.01 par value;
    5,000,000 shares authorized; and 0
    shares issued and outstanding at
    December 31, 1996 and 5,000,000
    shares issued and outstanding at
    September 30, 1997                            2,500,000                0

  Common stock, $0.01 par value;
    35,000,000 shares authorized;
    21,437,363 shares issued and out-
    standing at December 31, 1996 and
    34,794,712 shares issued and
    outstanding at September 30, 1997               347,947          213,174

  Additional paid-in capital                     32,800,367       27,658,640
  Accumulated deficit                           (29,506,574)     (24,556,667)
                                                -----------      -----------
          Total stockholders' equity              6,141,740        3,315,347
                                                -----------      -----------
          Total liabilities and
            stockholders' equity                $19,313,336      $17,023,636
                                                ===========      ===========

     The accompanying notes are an integral part of these statements.

                                      -2-

<PAGE>
                               WASTEMASTERS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)

                           Three Months Ended         Nine Months Ended
                              September 30,              September 30,
                       ------------------------   ------------------------
                            1997        1996          1997         1996
                       ----------   -----------    ----------   -----------
REVENUES:
  Sales                $  183,208   $ 1,228,961    $  407,064   $ 4,029,564
  Fees and other                0             0             0         7,587
  Interest income               0         1,660             0         4,048
                       ----------   -----------   -----------   -----------
                          183,208     1,230,621       407,064     4,041,199
EXPENSES:              ----------   -----------    ----------   -----------
  Cost of sales           270,799     1,810,842       471,196     4,567,628
  Selling, general
    and administra-
    tive                  272,604     1,954,502     1,879,426     5,077,069
  Interest expense         84,827       302,086       234,375       728,452
  Depreciation and
    amortization          397,993             0     1,187,345             0
                      -----------   -----------   -----------   ----------- 
                        1,026,223     4,067,430     3,772,342    10,373,149
Loss before income
  taxes, and extra-
  ordinary item          (843,015)   (2,836,809    (3,365,278)   (6,331,950)
Income tax expense              0             0             0             0
                      -----------   -----------   -----------   ----------- 
Net loss before
  extraordinary item     (843,015)   (2,836,809)   (3,365,278)   (6,331,950)
Extraordinary item:
  Gain(loss) from
    disposal of
    assets, net
    of income tax      (1,209,379)   (1,602,503)   (1,209,379)     (387,921)
                      -----------   -----------   -----------   -----------  
Net loss              $(2,052,394)  $(4,439,312)  $(4,574,657)  $(6,719,871)
                      ===========   ===========   ===========   ===========
Loss per share:
  Primary: Loss
    before extra-
    ordinary item     $     (0.03)  $     (0.19)  $     (0.12)  $    (0.46)
  Extraordinary item        (0.04)        (0.10)        (0.04)       (0.03)
                      -----------   -----------   -----------   ----------
Net loss              $     (0.07)  $     (0.29)  $     (0.16)  $    (0.49)
                      ===========   ===========   ===========   ==========
Weighted
  Average Number
  of Common Shares
  Outstanding          30,660,419    15,347,056    28,107,417   13,869,003

     The accompanying notes are an integral part of these statements.

                                      -3-

<PAGE>
                               WASTEMASTERS, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (Unaudited)

                                             NINE MONTHS ENDED SEPTEMBER 30,
                                             -------------------------------
                                                  1997             1996
                                             -------------    --------------
Increase (decrease) in cash
Cash flows from operating
  activities net loss                         $(4,574,657)     $(6,719,871)

Adjustments to reconcile net loss to
  net cash provided by operating
  activities:
    Depreciation and amortization               1,187,345          835,318
    Stock issued in lieu of
      cash payment for expenses                 1,543,524                0

Changes in assets and liabilities:
    Accounts receivable                            58,783         (457,409)
    Inventory and prepaid expenses                      0          (30,982)
    Bond issuance costs, net                      821,924        3,959,775
    Other assets                                        0         (322,614)
  Accounts payable and accrued liabilities        516,757       (3,560,775)
  Deferred income                                       0          (46,540)
  Due to Related Parties                          236,136                0
                                              -----------      -----------
Net cash provided by (used in)
  operating activities                           (210,188)      (6,343,098)
                                              -----------      -----------
Cash flows from investing activities
  Purchase of property, plant
    and equipment                                       0       (3,548,172)
  Disposal of Subsidiaries                        750,188                0
  Disposal of property, plant and
    equipment, net                                      0       34,040,515
  Business acquisitions                                 0       (7,432,611)
  Investment in Continental                    (7,840,000)               0    
                                              -----------      -----------
Net cash provided by (used in)
  investing activities                         (7,089,812)      23,059,732
                                              -----------      -----------

Cash flows from financing activities
  Repayment of loans                                    0      (34,531,774)
  Proceeds from issuance of stock               7,776,300       14,367,899
  Proceeds from loans                                   0          364,654
  Proceeds from convertible
               debentures, net                   (476,300)       3,165,000
                                              -----------      -----------

     The accompanying notes are an integral part of these statements.

                                      -4-

<PAGE>
                               WASTEMASTERS, INC.
                CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
                                  (Unaudited)


                                             NINE MONTHS ENDED SEPTEMBER 30,
                                             -------------------------------
                                                  1997             1996 
                                             -------------    --------------

Net cash provided by (used in)
  financing activities                          7,300,000      (16,634,221)
                                              -----------      -----------
Net increase (decrease) in cash
  and short term investments                            0           82,433
Cash and short term investments
  at beginning of period                                0           47,327
                                              -----------      -----------
Cash and short term investments
  at end of period                            $         0      $   129,760
                                              ===========      ===========
                                   

Supplemental disclosure of cash
  flow information
-------------------------------
Cash paid during the period
  for interest                                $    40,000      $   278,830

Supplemental disclosure of noncash
  transactions                   
----------------------------------
Common stock issued in exchange
  for services                                $ 1,543,524      $ 5,277,172

Conversion of debentures to
  common stock                                $   476,300      $         0

Preferred Stock issued in exchange
  for Investment                              $ 4,710,000      $         0

Common Stock issued in exchange for
  Investment                                  $ 1,170,000      $         0

     The accompanying notes are an integral part of these statements.

                                      -5-

<PAGE>
                               WASTEMASTERS, INC.
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              SEPTEMBER 30, 1997
                                   (Unaudited)


NOTE A - SUMMARY OF ACCOUNTING POLICIES
---------------------------------------

     General
     -------
     The accompanying financial statements have been prepared by the Company
pursuant to the rules and regulations of the U.S. Securities and Exchange
Commission("SEC"). Certain information and disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations.

     In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of these
financial statements have been included. Operating results for the nine month
period ended September 30, 1997 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1997. These financial
statements should be read in conjunction with the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1996.

     Consolidated Statements
     -----------------------
     The consolidated financial statements include the accounts of
WasteMasters, Inc. and its wholly owned subsidiaries, F&E Resource Systems
Technology for Baltimore, Inc. (FERST for Baltimore, Inc.), FERST for St.
Mary's, Inc., FERST O&M, Inc., and Chemical Road Investments, Inc.,
WasteMasters of South Carolina, Inc., Trantex, Inc., WasteMasters of Georgia,
Inc. WasteMasters of New York, Inc. and WasteMasters of Pennsylvania, Inc. as
well as the accounts of Baltimore FERST Limited Partnership (the
"Partnership") in which FERST's subsidiary, FERST for Baltimore, Inc., is a
general partner (collectively "the Company"). Significant intercompany
transactions have been eliminated in consolidation.

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

                                      -6-

<PAGE>
                               WASTEMASTERS, INC.
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997
                                  (Unaudited)


NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)
---------------------------------------------------

     Concentration of Risk
     ---------------------
     The Company owns 400,000 shares of the common stock of Continental
Investment Corporation. The stock, which is subject to trading restrictions
under SEC Rule 144, valued at $7,840,000. The investment represents 44.4% of
the total assets of the Company. The value of the investment is subject to
future changes in market prices for the common stock.

NOTE B - DISPOSITIONS
---------------------

     On May 17, 1996, the Partnership's Baltimore recycling and compost
facility was sold at foreclosure. Assets disposed of include the facility,
improvements, bond issuance costs and land. The net book value of the assets
sold was approximately $40,780,800. The Partnership filed a voluntary petition
under Chapter 11 of the U.S. Bankruptcy Code to retire any remaining non-
recourse secured and unsecured liabilities related to the facility in the
approximate amount of $42,000,000.

     On April 12, 1996, FERST 0 & M, Inc. (a wholly-owned subsidiary of the
Company) filed a voluntary petition under Chapter 7 of the U.S. Bankruptcy
Code.

     In November, 1996, the Company sold all of the outstanding common stock
of FERST for St. Mary's, Inc. to a former Company President. 

     Continental Investment Corporation ("Continental"), a publicly-traded
corporation engaged in the waste disposal business, purchased 4,500,00 shares
of newly-issued Common Stock and 5,000,000 shares of newly-issued Series A
Preferred Stock, par value $.01 per share, of WasteMasters, Inc. ("Preferred
Stock") directly from WasteMasters, Inc. Such shares comprise 12.9% of the
total number of shares of WasteMasters Common Stock that are currently
outstanding and 100% of the total number of shares of WasteMasters Preferred
Stock that are currently outstanding. Each share of Preferred Stock has a
preference over holders of Common Stock upon any liquidation or dissolution of
the Company equal to $1.25 per share, is entitled to one vote on any matter on
which shareholders will vote, and is convertible into 5.1 shares of
WasteMasters Common Stock. If Continental were to fully convert the Preferred
Stock into Common Stock, Continental would then own approximately forty nine
percent (49%) of the total number of shares of WasteMasters Common Stock that
would then be outstanding.

                                      -7-

<PAGE>
                               WASTEMASTERS, INC.
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997
                                  (Unaudited)


NOTE B - DISPOSITIONS (continued)
---------------------------------

     The consideration paid to WasteMasters, Inc. for the WasteMasters Common
Stock and Preferred Stock was the issuance by Continental to WasteMasters of
300,000 shares of Continental Investment Corporation Common Stock, par value
$0.50 per share ("Continental Common"), valued for the purposes of this
transaction at $19.60 per share. 

     Continental also purchased from WasteMasters, Inc. 100% of the issued
and outstanding shares of two corporations which had been wholly-owned
subsidiaries of WasteMasters, Inc. These corporations, Trantex, Inc. (which
owns a landfill site in Kirksville, Missouri) and WasteMasters of Georgia,
Inc. (which owns an undeveloped landfill site in Walker County, Georgia) are
now wholly-owned subsidiaries of Continental Technologies Corporation of
Georgia, which is itself a wholly-owned subsidiary of Continental. The
consideration paid to WasteMasters, Inc. for the Trantex, Inc. stock and the
WasteMasters of Georgia, Inc. stock was the issuance by Continental to
WasteMasters of 100,000 shares of Continental Common and an option to
purchase up to 100,000 additional shares of Continental Common Stock for a
period of five (5) years at an exercise price of $23.00 per share (the
"Continental Option").

     In addition, a warrant for the purchase of shares of WasteMasters Common
Stock was issued by WasteMasters, Inc. to Continental giving Continental the
option, exercisable until August 29, 1999, to acquire up to 100 million shares
of WasteMasters Common Stock in exchange for up to 1 million shares of
Continental Common Stock.

     The 400,000 shares of the Continental Common that are currently owned by
WasteMasters, Inc. comprise approximately 3.3% of the total number of shares
of Continental that are currently outstanding.

     In the event that Continental exercises in full its Warrant and fully
converts its WasteMasters Preferred Stock into WasteMasters Common Stock,
Continental would own approximately 81% of the then issued and outstanding
shares of Common Stock of WasteMasters on a fully diluted basis. If
WasteMasters Inc. exercises the Continental Option and upon the exercise of
the Warrant by Continental, receives 1,000,000 shares of Continental in
exchange, WasteMasters would own approximately 3.3% of the then issued and
outstanding shares of Continental on a fully diluted basis. 

                                      -8-

<PAGE>
                               WASTEMASTERS, INC.
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997
                                  (Unaudited)


NOTE C - FINANCIAL INSTRUMENTS
------------------------------

     The Company's long term investments consist of Common Stock of
Continental Investment Corporation. Although the stock is regularly traded
and has a readily determinable market value, the investment has been recorded
at a discount of 20% from the closing price on the date of the transaction in
which the stock was acquired, due to the trading restrictions placed on the
stock.

NOTE D - LONG-TERM DEBT AND CONVERTIBLE DEBENTURES
--------------------------------------------------

     Long-term debt at September 30, 1997 consists of the following:

Mortgage loan payment in monthly
installments of $10,000, including
interest installments at 2.4% per annum;
loan secured by a first deed of trust on
Allendale, South Carolina real property.               4,900,000

Convertible debentures payable in
quarterly interest installments at 8%
per annum on the unpaid balance; loan
is convertible into the Company's common
stock at any time beginning forty (40)
days and ending two (2) years from
April 12, 1996 at a conversion price,
as amended, of $0.255 per share                       $1,149,300

Convertible debentures payable in
quarterly interest installments at 8%
per annum on the unpaid balance due April
1998; loan is convertible into the company's
common stock at any time beginning forty (40)
days and ending two (2) years from June 27,
1996 at conversion price, as amended, of
$0.255 per share.                                      2,000,000
                                                      ----------

Less: Current maturities                               8,049,300
                                                      ----------
Net long-term debt                                    $        0
                                                      ==========

     Refer to Part II, Item 3 - "Defaults on Senior Securities" for
discussion on the current status of the debt.

                                      -9-

<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS
                                                                    
     The following discussion should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto, included
elsewhere within this Report.

GENERAL
-------
     Management plans to develop Company-owned waste processing facilities
and to arrange alliances or management contracts with independent waste
processors, waste transporters, and waste generators to produce waste
revenues for the Company's landfills.

     The core Company focus is developing it's existing landfill. Subject to
adequate financing, the Company plans to embark on expansions and Sub-title D
permitting of the landfill, while developing processing capability upstream
to supply the facility.

     During the nine months of 1997, the Company operated and received
revenues principally from two facilities, the Rye Creek Landfill in
Kirksville, Missouri and the Appleton Sanitary Landfill in Allendale, South
Carolina. On September 6, 1997, the Rye Creek Landfill and the undeveloped
site in Walker Co., Georgia were sold.

     On May 17, 1996, the Company's Baltimore FERST Limited Partnership, a
recycling and composting facility, was sold at foreclosure. Assets sold
include the facility, improvements, bond issuance costs and the land of
Baltimore FERST limited Partnership. The net book value of the assets sold
was approximately $40,780,000. The Company retired non-recourse secured and
unsecured liabilities related to the facility in the amount of $42,000,000.

     On April 12, 1996, FERST 0 & M, Inc.(a wholly-owned subsidiary of the
Company) and the entity responsible for managing the Baltimore recycling and
compost facility, filed a voluntary petition under Chapter 7 of the U.S.
Bankruptcy Code.

RESULTS OF OPERATIONS
---------------------
     The Company's revenues decreased by $1,045,753 to $183,208 for the third
quarter of 1997, from $1,228,961 during the same period in 1996. The decrease
is primarily the result of discontinuing the operation of the New York City
C&D transfer station.

     The Company's revenues decreased by 89.90% to $407,064 for the first
nine months of 1997, from $4,041,199 during the same period in 1996. The
decrease in revenues is a result of the effects of the disposal of the
Company's Baltimore Recycling and Compost facility in May, 1996 and the
discontinuance of operations of the New York City C & D transfer station in
February, 1997 and the corresponding loss of revenues from those facilities.

                                     -10-

<PAGE>
     Expenses decreased by 66.52% or $1,501,164 for the third quarter of 1997
compared to the same period in 1996. Expenses as a percentage of revenues
were 412.33% in the current third quarter compared to 280.4% for the prior
year third quarter. Cost of sales decreased by $1,540,043 for the third
quarter of 1997. Selling, general and administrative expenses decreased by
$1,501,164 for the third quarter of 1997. The decrease is due to reduced
management and staff compensation and professional fees. Interest expense
decreased 71.92%, or $217,259 to $84,827 for the third quarter of 1997
compared to the third quarter of 1996. The decrease reflects the
extinguishment of the debt related to the Company's Baltimore facility.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
     The Company's balance sheet at September 30, 1997 reflects a working
capital deficit of $12,820,896 as compared to a deficit of $9,971,207 at
December 31, 1996.

     During the first nine months of 1997, the Company's working capital
deficiency increased $2,849,689. Accounts receivable decreased $58,784 as a
result of the contraction of the Company's business operations.

     The Company's ratio of indebtedness to equity of 2.14 at September 30,
1997 changed substantially from 4.13 at December 31, 1996.

     The Company is in default under the terms of the Land Purchase Contract
for the purchase of the Company's Allendale, South Carolina landfill for
failing to make the required principal payment of $100,000 due on or before
May 26, 1997. Due to the failure to make all quarterly accrued interest
payments, the Company is in default under the terms of the convertible
debentures due in 1998.

     The Company will require financing in order to meet its working capital
needs and complete its planned improvements necessary to the Company's
landfill to make it fully operational. The Company has sought and continues
to seek financing in the form of equity and debt in order to make the
necessary improvements and provide working capital. The Company also
anticipates that the holder of the convertible debentures in the principal
amount of $3,161,800 will convert the entire principal and the accrued but
unpaid interest of $350,343 to Common Stock of the Company upon future
stockholder approval to increase authorized capital stock of the Company.
The Company maintains an investment in the common stock of Continental
Investment Corporation, which was valued as $7,840,000 at September 30, 1997.
However, the shares are subject to various trading restrictions pursuant to
the rule of the SEC which limits the ability of the Company to convert the
shares to cash for twelve months from the date of issuance. Also, there is no
assurance that the present value can be maintained until the shares may be
sold for cash. However, there are no assurances the Company will be
successful in raising the funds required.

                                     -11-

<PAGE>
PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

Baltimore FERST Limited Partnership (the "Partnership")
-------------------------------------------------------
     On February 29, 1996, "the Partnership", which owned the Company's
Baltimore composting and recycling facility, filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court
in Baltimore, Maryland. On April 25, 1996, the Bankruptcy Court granted the
motion of the holder of the senior lien on the facility to modify the
bankruptcy stay to allow it to proceed with a foreclosure sale of the
facility. The Company first reported on the proceeding in Item 3 Of its
Annual Report on Form 10-KSB for the year ended December 31, 1995. After the
company exhausted all of its legal remedies to stay the foreclosure sale, the
Baltimore facility was sold at foreclosure on May 17, 1996 to Browning-Ferris
Industries, Inc. The foreclosure sale was ratified by the circuit court for
Baltimore City, Maryland on June 27, 1996.


PWT Waste Solutions, Inc.v. Baltimore FERST LP (the "Partnership")
------------------------------------------------------------------
     The "Partnership" is involved in litigation with PWT, the facility's
construction contractor. The contractor claims to be due approximately $1.5
million from retainage claimed by the Partnership when the contractor failed
to comply with various performance tests, timely completion, and numerous
warranty claims. The Partnership is claiming liquidated damages far in excess
of the retainage. Subsequently, the contractor expanded the lawsuit to include
F&E, O&M and F&E Resource Systems Technology for Baltimore, Inc. ("FERST for
Baltimore"), the general partner of the Partnership. The Partnership's
affirmative claims against PWT are subject to the bank's security interest.
A settlement has been reached for this litigation under which all claims have
been dismissed.


Reis v. WasteMasters, Inc.
--------------------------
     On June 4, 1996, Michael Reis and Lawrence Katz filed a complaint in the
United States District Court for the District of New Jersey. The Complaint seeks
unspecified damages based on a purported contract between the Plaintiffs and
the Company for a financing placement and corporate development fee. The
Company believes the complaint is completely without merit and intends to
vigorously defend its position.


WasteMasters, Inc. v. Diversified Investor Services of North America, Inc.
--------------------------------------------------------------------------
     On June 28, 1996, the Company instituted a Complaint for Declaratory
Relief in the United States District Court for the Southern District of New
York against Diversified Investors Services of North America, Inc. in
response to a demand by Diversified for issuance of warrants for 500,000
shares of the Company's stock. Diversified claims it is entitled to the
warrants by virtue of having obtaining certain financing for the Company as
required by a December 8, 1994 contract between Diversified and the Company.
The filing of a counterclaim by Diversified for the warrants is anticipated.

                                     -12-

<PAGE>
On September 24, 1997, a Civil Judgment was entered in the Company's favor
dismissing with Prejudice the Defendant's counterclaims and declaring that
the Defendant is not entitled to the issuance of any additional warrants for
the Plaintiff's stock.


Peerless Group, Inc. In RE: George Cadle v. WasteMasters, Inc. et al
--------------------------------------------------------------------
     On May 8, 1997, the Company was advised by the seller of the land
contract purchase agreement for the landfill in Allendale County, South
Carolina that the Company was in default under the terms of the contract.
In July, 1997, the seller sued in the Court of Common Pleas Allendale County,
South Carolina to terminate the land contract. The Company has filed an answer
and is vigorously defending it position.


Continental Technologies Corporation of Georgia v. WasteMasters, Inc.
and WasteMasters of Georgia, Inc.
----------------------------------------------------------------------
     Superior Court of Fulton County, Georgia. This matter, involving a
lawsuit filed on July 18, 1997 against the Company in the State of Georgia,
attempting to enforce a Sales Agreement with the Company was dismissed
without prejudice on September 12, 1997.


Harold Solomon and Mary Ann Solomon v. WasteMasters, Inc.
---------------------------------------------------------
     In July, 1997, Harold Solomon, former employee and consultant to the
Company and Mary Solomon, filed a complaint in the Circuit Court for Broward
County Florida. The Complaint seeks damages based on a breach of contract
between the Plaintiff and the Company for services rendered. The Company
believes the complaint is completely without merit and intends to vigorously
defend its position.


Waste Management of Cambridge, Inc. d/b/a Hunting Ridge Landfill v.
WasteMasters, Inc.
--------------------------------------------------------------------
     On July 14, 1997, Waste Management of Cambridge, Inc. filed a complaint
in the United States District Court for the Eastern District of Pennsylvania.
The complaint seeks payment for access to its landfill for disposal of various
products. The amount of the unpaid invoices for services total $69,800.


WasteMasters, Inc. v. Old Solomons Isl. Road
--------------------------------------------
     On July 30, 1997, 157 Old Solomon's Isl. Road  Corp. filed a complaint
in the District Court of Maryland for Anne Arundel County of $20,000 plus
costs. The complaint seeks damages resulting from a breach of contract.

                                     -13-

<PAGE>
Herzog v. WasteMasters, Inc.
----------------------------
     In June, 1997, Herzog Contracting Corp. filed a complaint in Buchannon
County, Missouri. The complaint seeks payment for car-topper services in the
amount of $31,000.


CSX Transportation, Inc. v. WasteMasters, Inc.
----------------------------------------------
     Suit was filed September 25, 1997. Plaintiff's claim is based on a
contract for the transportation of non-hazardous construction debris.
Plaintiff demands a judgment for $258,215.60.


Raritan Properties, Inc. v. WasteMasters, Inc.
----------------------------------------------
     Superior Court of New Jersey Law division, Middlesex County. Complaint
filed May 23, 1997. The Plaintiff's claim is based upon a lease agreement for
the Abarry Complex in Perth Amboy, New Jersey in which the Defendant allegedly
agreed to pay all real estate taxes for the subject property quarterly for the
first 6 months of the lease. Defendant has allegedly not made such payments
and the Plaintiff claims damages for taxes and for lease defaults. 


Steffen Robertson and Kirsten (U.S., Inc. ("SRK")
-------------------------------------------------
     Court of Common Pleas for the 14th Judicial Circuit, South Carolina.
Notice and Certificate of Mechanics lien in the amount of $88,933.36 was
filed against WasteMasters of South Carolina, Inc. by SRK.


Steffen Robertson and Kirsten, Inc. ("SRK") v. WasteMasters of
South Carolina, Inc., George Cadle, E&J Landscaping, Inc.
---------------------------------------------------------------
     Court of Common Pleas, Allendale County, South Carolina. This is an
action to foreclose a mechanic's lien on property in Allendale County due to
lack of payment for engineering services. Damages sought are $135,822.07 plus
interest. Also as part of this litigation, E&J landscaping also holds an
Order of Judgment by Default against WasteMasters of South Carolina for
$458,206.80 plus post-judgment interest. 


E&J Landscaping, Inc. v. WasteMasters, Inc., Rye Creek Corporation, Olive A.
Tharp, Bank Midwest, Red Earth Environmental, Inc., SRK, Inc. and Continental
Technologies Corp.
-----------------------------------------------------------------------------
     Circuit Court of Adair County, Kirksville, Missouri. The Plaintiff's
claim is a petition to enforce and foreclose upon a mechanic's lien and for
damages. Plaintiff claims damages of $157,379.38 for landscaping services
provided. The petition was filed on September 19, 1997.

                                     -14-

<PAGE>
Mudge Rose Guthrie Alexander & Ferdon v. Ronald W. Pickett, F&E Resource
Systems Technology, Inc. and WasteMasters, Inc.
------------------------------------------------------------------------
     United States District Court for the District of New York. The
Plaintiff's claim is based upon legal services rendered to F&E Resource
Systems Technology and other subsidiaries. The Plaintiff has demanded the
outstanding amount of $885,466.80 plus interest at the maximum rate provided,
plus the cost of the lawsuit and other and further relief. The complaint was
filed on September 24, 1997. The Company claims this is without merit and
vigorously defends its position.


Michael Paul Bahor and Engineering Contract Personnel, Inc. v. Renee Colbert,
Richard Masters, Burce Blazer, Leon Blazer, George Cadle, Red Earth
Environmental, Inc., Appleton Landfill, WasteMasters and WasteMasters/FERST
----------------------------------------------------------------------------
     Court of Common Pleas of Allegheny County, Pennsylvania. Plaintiff's
claim is based on a settlement agreement whereby the Defendants were to
convey stock in WasteMasters to Bahor in October and/or November 1995. Also,
Defendants allegedly entered into a settlement agreement with Renee Colbert
and Red Earth Environmental and failed to comply with that as well. Plaintiff
demands judgment against Defendants for $100,000.


     There are numerous other claims and pending legal proceedings involving
creditors claims. Although the ultimate disposition of legal proceedings
cannot be predicted with certainty, it is the present opinion of the Company's
management that the outcome of any of these claims which is pending or
threatened, either individually or on a combined basis, will not have a
material adverse effect on the consolidated financial condition of the
Company, but could materially effect consolidated results of operations in a
given period.

ITEM 2. CHANGES IN SECURITIES.

     On September 6, 1997, the Company issued 5,000,000 shares of Series A
Preferred Stock, par value $0.01 per share. Each share of Preferred Stock has
a preference over holders of Common Stock upon any liquidation or dissolution
of this company equal to $1.25 per share, is entitled to one vote on any
matter on which shareholders will vote, and is convertible into 5.1 shares of
WasteMasters Common Stock. If Continental were to fully convert the Preferred
Stock into Common Stock, Continental would then own approximately forty nine
percent (49%) of the total number of shares of WasteMasters Common Stock that
would then be outstanding on September 6, 1997, the Company issued 5,000,000
shares of Series A Preferred Stock, par value $0.01 per share.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

     The Company is in default under the terms of the Land Purchase Contract
for the purchase of the Company's Allendale, South Carolina landfill for
failing to make the required principal payment of $100,000 due on or before
May 26, 1997. Due to the failure to make all quarterly accrued interest
payments, the Company is in default under the terms of the convertible
debentures due in 1998.

                                     -15-

<PAGE>
ITEM 5. OTHER INFORMATION.

     On July 14, 1997, the Company removed Richard Masters as the Company's
President, Chief Executive officer, and Member of the Executive Committee.
The Company's acting Chief Financial Officer, Peter Stefanou was named
interim President and Chief Executive Officer. Mr. Stefanou resigned as
interim President and Chief Executive Officer in September, 1997.  Mr. J.B.
Morris, a Director of the Company, was named Interim President.

     On August 4, 1997, the Company was advised that Continental Investment
Corporation acquired from Infinity Investors, Ltd. and is the holder of all
of the Company's convertible debt, totally approximately $3,161,800. On
September 29, 1997, the Company was informed that Continental no longer holds
an interest in the Debentures.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

     (a)  The following exhibit is attached, as required by Item 601 of
Regulations SB. Exhibit No. 10(10) Stock Issuance and Stock Purchase Agreement
dated September 6, 1997, by and between Continental Investment Corporation
and WasteMasters, Inc.

     (b)  Reports on Form 8-K during the quarter: A Current Report on
Form 8-K, dated September 9, 1997, was filed by the Company. To report a
transaction under Item 2, Acquisitions or Disposition of Assets.


                                   SIGNATURES

     In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

                                     WASTEMASTERS, INC.

July 8, 1998                         /S/ Douglas C. Holsted
--------------                       ----------------------
    Date                             Douglas C. Holsted
                                     Duly Authorized
                                     Principal Accounting
                                     and Financial Officer



                                     -16-