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


                                   FORM 10-QSB

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


                     For the period ended March 31, 1997
                                          --------------

                         Commission file number 0-12914
                                                -------


                               WASTEMASTERS, INC.
                               ------------------
                 (Name of Small Business Issuer in Its Charter)

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

                      11940 Coman Road, Waldron, MI  49288
                    ----------------------------------------
                    (Address of Principal Executive Offices)

                                 (800)408-7274
                            -------------------------
                            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: 28,479,112 shares of Common
Stock ($.01 par value) as of April 30, 1997.


Transitional small business disclosure format:  Yes     No  x
                                                    ---    ---

<PAGE>


                               WASTEMASTERS, INC.

                     Quarterly Report on Form 10-QSB for the
                     Quarterly Period Ending March 31, 1997


                                Table of Contents

     PART I.  FINANCIAL INFORMATION

     Item 1.      Financial Statements (Unaudited).

                  Consolidated Statements of Operations:  Three months
                     ended March 31, 1997 and 1996

                  Consolidated Balance Sheets:  March 31, 1997 and
                     December 31, 1996

                  Consolidated Statements of Cash Flows:  Three months
                     ended March 31, 1997 and 1996

                  Notes to Consolidated Financial Statements:
                     March 31, 1997

     Item 2.      Management's Discussion and Analysis.


     PART II. OTHER INFORMATION

     Item 1.      Legal Proceedings.

     Item 2.      Changes in Securities

     Item 3.      Defaults Upon Senior Securities.

     Item 4.      Submission of Matters to a Vote of Security Holders.

     Item 5.      Other Information.

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



                                       ii



<PAGE>





                         PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited).

                               WASTEMASTERS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)

                                                 Three Months Ended March 31,

                                                    1997              1996
                                                -----------       -----------
REVENUES
   Sales                                        $   161,298       $ 1,851,817
   Development Income                                    -                867
                                                -----------       -----------
                                                    161,298         1,852,684
EXPENSES
  Cost of sales                                     167,818         2,016,674
  Selling, General and
    Administrative                                1,144,973         1,465,887
  Interest Expense                                  109,800             4,970
                                                -----------       -----------
                                                  1,422,591         3,487,531
                                                -----------       -----------
Loss Before Income Taxes                         (1,261,293)       (1,634,847)

Income Tax Expense                                    -                 -
                                                -----------       -----------

NET  LOSS                                       $(1,261,293)      $(1,634,847)
                                                ===========       ===========
Loss per
 Share (Primary and
 Fully Diluted):                                     $ (.05)           $ (.14)

Weighted Average
 Number of
 Shares Outstanding                              25,455,158        11,694,932

        The accompanying notes are an integral part of these statements.


                                       1

<PAGE>


                               WASTEMASTERS, INC.
                          CONSOLIDATED BALANCE SHEETS
                                  (Unaudited)



ASSETS                                               March 31,      December 31,
                                                       1997             1996
                                                   -----------      ------------
Current Assets
  Cash                                             $     2,118      $         0
  Accounts Receivable, net of
   allowance for doubtful accounts                      60,889          108,733
                                                   -----------      -----------
       Total Current Assets                             63,007          108,733

Property and Equipment, at cost,
   net of accumulated depreciation                      57,320           62,531
   Construction in Process                           1,511,865        1,511,865
   Land                                              1,029,500        1,029,500
                                                   -----------      -----------
                                                     2,598,685        2,603,896

Other Assets
   Deferred Loan Costs, net                            956,294        1,262,127
   Excess of costs over net assets
     acquired                                       12,963,860       13,047,493
   Advances and other                                    1,387            1,387
                                                   -----------      -----------
                                                    13,921,541       14,311,007
                                                   -----------      -----------

                                                   $16,583,233      $17,023,636
                                                   ===========      ===========


        The accompanying notes are an integral part of these statements.

                                       2


<PAGE>


                               WASTEMASTERS, INC.
                    CONSOLIDATED BALANCE SHEETS - CONTINUED
                                  (Unaudited)

LIABILITIES AND STOCKHOLDERS' EQUITY
                                                     March 31,     December 31,
                                                       1997            1996
                                                   -------------   ------------
Current liabilities:
  Cash drawn in excess of available
    balances                                       $        -      $     24,329
  Current maturities of long-term debt
    and convertible debentures                        8,551,349       9,190,149
  Accounts payable and accrued
      liabilities                                     3,943,861       3,604,815
  Due to officers and directors                         304,904         304,904
  Due to Atlantic Coast & Demolition                    271,090         271,090
                                                   -------------   ------------
       Total current liabilities                     13,071,204      13,395,287

Long-term debt                                              -               -

Deferred expenses:
  Accrued environmental and landfill
    costs                                               313,002         313,002
Stockholders' equity:
   Preferred stock, $.01 par value;
   5,000,000 shares authorized;
   none issued                                              -               -
   Common Stock, $.01 par value; 35,000,000 shares
   authorized; 21,437,363 shares
   issued and outstanding for the year ended
   December 31, 1996 and 35,000,000
   shares  authorized;  27,779,112 shares
   issued and outstanding for the
   period ended March 31, 1997                          277,791         213,374
   Additional capital                                28,739,196      27,658,640
   Accumulated deficit                              (25,817,960)    (24,556,667)
                                                   -------------   ------------
Total stockholders' equity                            3,199,027       3,315,347
                                                   -------------   ------------
                                                   $ 16,583,233    $ 17,023,636
                                                   ============    ============

        The accompanying notes are an integral part of these statements.


                                       3

<PAGE>


                               WASTEMASTERS, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)

                                                    Three Months Ended March 31,
                                                        1997            1996
                                                    -----------     -----------

Increase (decrease) in cash
Cash flows from operating activities
  Net loss                                          $(1,261,293)    $(1,634,847)

  Adjustments to reconcile net loss
   to net cash provided by operating
   activities:
      Depreciation and Amortization                     394,676         304,783
      Limited Partners' Interest
        in Losses                                           -        (1,693,891)
      Issuance of stock options                             -           530,000
      Stock issued in lieu of cash
        payment                                       1,144,973       3,942,752
   Changes in assets and liabilities
      Accounts receivable                                47,844        (397,591)
      Inventory and prepaid expenses                        -           (76,287)
      Accounts payable and accrued
        liabilities, net                                314,718      (2,997,536)
      Other assets                                          -          (290,189)
      Deferred income                                       -              (217)
                                                    -----------     -----------
    Net cash provided by (used in)
        operating activities                            640,918      (1,072,845)
                                                    -----------     -----------
  Cash flows from investing activities
    Construction and Development Costs                      -               -
    Purchase of land and improvements                       -        (1,540,676)
    Additions to property, plant and
        equipment                                           -            (5,205)
    Business acquisitions                                   -        (5,541,696)
                                                    -----------     -----------
    Net cash provided by (used in)
        investing activities                                -       ( 7,087,577)



        The accompanying notes are an integral part of these statements.


                                       4

<PAGE>


                               WASTEMASTERS, INC.
               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                  (Unaudited)

                                                    Three Months Ended March 31,
                                                         1997         1996
                                                       --------     ---------



  Cash flows from financing activities
    Repayment of loans                                 (638,800)     (203,817)
    Proceeds from issuance of stock                          -      7,932,696
    Proceeds from debt                                       -          -
                                                       --------     ---------
    Net cash provided by (used in)
       financing activities                            (638,800)    2,362,445
                                                       ---------    ---------
    Net Increase (Decrease) in cash                       2,118       (14,661)

  Cash and Short-Term Investments
   at beginning of period                                     -       546,391
                                                      -----------   ---------
  Cash and Short-Term Investments
   at end of period                                  $    2,118    $  531,730
                                                     ==========    ==========


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION



Cash paid during the period
    for interest                                     $      -      $  305,954

SUPPLEMENTAL DISCLOSURE OF
 NONCASH TRANSACTIONS

Common stock issued in
  exchange for services                              $1,144,973           -
Issuance of stock options                            $      -             -
Common stock issued in business
  acquisition                                               -      $6,608,696
Conversion of debentures                             $  638,800           -



        The accompanying notes are an integral part of these statements


                                       5


<PAGE>


                               WASTEMASTERS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1997
                                  (Unaudited)

NOTE A - Summary of Accounting Policies
     General

          The accompanying unaudited consolidated financial
          statements have been prepared in accordance with
          the instructions to Form 10-QSB, and therefore, do not
          include all information necessary for a fair
          presentation of financial position, results of
          operations and cash flows in conformity with generally
          accepted accounting principles.

          In the opinion of management, all adjustments
          (consisting of only normal recurring accruals)
          considered necessary for a fair presentation have been
          included. Operating results for the three month period
          ended March 31, 1997 are not necessarily indicative of
          the results that may be expected for the year ended
          December 31, 1997. The unaudited condensed consolidated
          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., Chemical Road Investments,  Inc. , WasteMasters of South
           Carolina,  Inc.,  Trantex,  Inc., and WasteMasters of Georgia,
           Inc.,   WasteMasters  of  New  York,  Inc.,   WasteMasters  of
           Pennsylvania,  Inc. as well as the accounts of Baltimore FERST
           Limited  Partnership  (the  "Partnership")  in which FERST for
           Baltimore,  Inc. is the  general  partner  (collectively  "the
           Company").  Significant  intercompany  transactions  have been
           eliminated in consolidation.


                                       6


 <PAGE>





                               WASTEMASTERS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1997
                                  (Unaudited)


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 O & M, Inc. filed a voluntary  petition under
Chapter 7 of the U. S.  Bankruptcy Code.




Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations
         Three Months Ended March 31, 1997 and 1996

         The  following  discussion  should  be read  in  conjunction  with  the
Company's  Consolidated   Financial  Statements  and  Notes  thereto,   included
elsewhere within this Report.

INTRODUCTION

         Management's  immediate  objective  is  to  secure  sufficient  working
capital in order to continue as a going concern. Once financing has been secured
and  the  Company's   operations   stabilized,   management   plans  to  develop
Company-owned  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 its existing landfills. Subject to
adequate financing,  the Company plans to embarked on expansions and Sub-title D
permitting of the landfills,  while developing processing capability upstream to
supply the facilities.


                                       7


<PAGE>


         There  can be no  assurance  that  management  will  be  successful  in
obtaining,  financing  and  implementing  its plan of operation for the Company.
Subtitle D permits are necessary to achieve full  potential of all the Company's
landfill  sites,  and it is uncertain  whether the Company will be successful in
obtaining the permits.

         On May 2, 1997, the Company was notified by its insurance  carrier that
insurance coverage for the  operation of Company's  facilities  and landfill
closure have lapsed effective April 21, 1997 due to nonpayment of the
contracted  premiums.  The ability to reinstate and maintain insurance coverage
for facility coverage and landfill closures is a material  risk for the Company.
If the Company does not  reinstate and maintain the  insurance  coverage,  the
Company  will loose its  permits to operate  its landfills which will materially
impair the value of these assets. The Company has been notified by the State of
Missouri that the State plans close the  Kirksville,  Missouri  landfill
pending the  reinstatement  of adequate  insurance  and closure bond  coverage.
The Company has not received a similar notification from the State of South
Carolina.



GENERAL

         During the first  quarter of 1997,  the Company  operated  and received
revenues  principally  from two  facilities-  Rye Creek  Landfill in Kirksville,
Missouri and the Appleton Sanitary Landfill in Allendale, South Carolina.

         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 the 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 O & 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 91.2% to $161,298 for the first
quarter of 1997, from  $1,852,684  during the same period in 1996. This 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 corresponding loss
of revenues from that facility.


                                       8


<PAGE>


                  Expenses for the period  decreased by 59.2% or $2,064,940  for
the first  quarter of 1997  compared to the same period in 1996.  The  Company's
operating loss (revenues less cost of sales)  decreased from $163,990 during the
quarter  ended March 31, 1996 to $6,520 during the quarter ended March 31, 1997.
This was a result of the effects of the disposal of the Baltimore  recycling and
compost facility and its associated  revenues and costs. Cost of sales decreased
by $1,848,856,  or 91.7%, for the first quarter of 1997 as compared to the first
quarter of 1996.  This  decrease is the result of the disposal of the  Baltimore
recycling   and  compost   facility  in  May,   1996.   Selling  ,  general  and
administrative  expenses  decreased  $320,914 or 21.9% from the first quarter of
1996. This decrease is the result of the reduction in the Company's  operations.
Interest expense increased 95.5%, or $104,830 to $ 109,800 for the first quarter
of 1997 compared to the first  quarter of 1996.  The increase is a result of the
additional debt the Company  incurred in 1997 and the Company's  decision not to
accrue  interest on the debt  associated  with the  financing  of the  Baltimore
facility during the quarter ended March 31, 1996.






LIQUIDITY AND CAPITAL RESOURCES

         The  Company's  balance  sheet at March  31,  1997  reflects  a working
capital  deficit of  $13,008,197.  As a result of the Company not complying with
certain  debt  covenants  all the  Company's  long  term debt is  classified  as
current.

         The  Company's  ratio  of  indebtedness  to  equity  of  4.18  remained
unchanged  from 4.13 at December  31, 1996.

         During the first three months of 1997,  the Company's  working  capital
deficiency  decreased  $277,357.  This was due to the  conversion of $638,800 of
convertible debt to common stock during the period.

         The Company will require financing in order to meet its working capital
needs and complete its planned improvements necessary to the Company's landfills
to make the assets 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.  There are no assurances the Company
will be successful in raising the funds required.





                                       9


<PAGE>




INFLATION

         Inflation  has been  considered  in  establishing  the revenue and cost
contracts for construction and operation of the Baltimore facility.  The Company
believes the assumed rates are reasonable.





PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings.

         On  February  29,  1996,   Baltimore  FERST  Limited  Partnership  (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.  The
Company first  reported on the proceeding in Item 3 of its Annual Report on Form
10-KSB for the fiscal 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 sale 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.

         The  Partnership  is involved in  extensive  litigation  with PWT Waste
Solutions,  Inc.("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 as specified in the  construction  contract as well as other
damages far in excess of the retainage.  Subsequently,  the contractor  expanded
the  lawsuit  to  include  Credit  Suisse,  Chrysler,  and the  parent  company.
Management does not believe the outcome of the lawsuit will adversely affect the




                                       10


<PAGE>


Company.

         On June 4, 1996,  the  Company's  former  Chief  Financial  Officer and
Director,  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.

         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
demand by  Diversified  for  issuance  of  warrants  for  500,000  shares of the
Company's  common  stock.  Diversified  claims it is entitled to the warrants by
virtue of having  obtained  certain  financing  for the Company as required by a
December 8, 1994 contract between the Diversified and the Company. The filing of
counterclaim by Diversified is anticipated.

         As of March 31,  1997 , the Company is and  continues  to be in default
under the terms of the  mortgage  loans  secured  by the  Company's  Kirksville,
Missouri and Allendale,  South Carolina landfills.  In addition,  the Company is
and continues to be in default under the terms of the convertible debentures due
in 1998.
         The  Company  is  not a  party  to  any  other  pending  litigation  or
administrative  proceedings which are expected to have a material adverse impact
on its financial position or results of operations.


Item 2.  Changes in Securities.

                  Not applicable

Item 3.  Defaults Upon Senior Securities.

                  None

Item 4.  Submission of Matters to a Vote of Security Holders.

                  None

Item 5.  Other Information.

                  None

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



                                       11

<PAGE>



         The Company filed the following  reports on Form 8-K during the quarter
for which this report is filed:

                  Form 8-K filed dated March 21, 1997,  announcing the Company's
                  entering into a Memorandum of  Understanding  with  Strategica
                  Capital  Corporation to provide a $4,000,000 line of credit to
                  the Company.


                  Form 8-K filed dated March 25, 1997,  announcing the Company's
                  new management  that will be installed  commensurate  with the
                  funding of the Strategica Capital Corporation financing.


                  Form 8-K filed dated May 14, 1997, announcing the arranging of
                  new financing and  terminating  the agreement with  Strategica
                  Capital Corporation.

                  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.


Date: May 19, 1997                  By: /s/
                                        __________________
                                        Richard D. Masters
                                    President and Chief Executive Officer
                                (Duly Authorized Officer and Principal
                                 Accounting and Financial Officer)