U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

_____________________________________________

FORM 10-QSB/A

Amendment No. 1

(Mark One)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2000

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ________ to ________

Commission File Number 0-12914

_________________________________________________

WASTEMASTERS, INC.

(Exact name of small business issuer as specified in its charter)

Maryland

(State or other jurisdiction of incorporation or organization)
52-1507818

(IRS Employer Identification No.)

205 S. Bickford Avenue, Oklahoma City, OK 73036

(Address of Principal Executive Offices)

(405) 262-0800

(Issuer's telephone number)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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) hasbeen subject to such filing requirements for the past 90 days. Yes X No 

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: as of January 15, 2001, the Registrant had outstanding 137,051,136 shares of its Common Stock, $0.01 par value,which excludes any shares issued pursuant to the Nikko Litigation. See "Part I, Item 1, Notes to Financial Statements, Note 10."
**WasteMasters, Inc. and Subsidiaries

FORM 10-QSB REPORT INDEX**
 
 
Page No.
PART I. FINANCIAL INFORMATION
 
Item 1. Financial Statements (Unaudited)
 
 
Consolidated Balance Sheet as of March 31, 2000
3
 
Consolidated Statements of Operations for the Three Months Ended March 31, 2000 and 1999
4
 
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999
5
 
Notes to Unaudited Consolidated Financial Statements for the Three Months Ended March 31, 2000
6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation
11
PART II. OTHER INFORMATION
13
Item 1. Legal Proceedings
13
Item 2. Changes in Securities
13
Item 3. Defaults on Senior Securities
14
Item 4. Submission of Matters to a Vote of Security Holders
14
Item 5. Other Information
14
Item 6. Exhibits and Reports on Form 8-K
14
Signatures
15**PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

WasteMasters, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEET

As of March 31, 2000 (Unaudited)**

**ASSETS****March 31, 2000
 
 
Current Assets:
 
Cash and equivalents
$ 30,733
Due from Startec
69,356
Total current assets
100,089
 
 
Other Assets:
 
Marketable securities, long-term
1,290,000
Investments in Royalty Assets
1,529,999
Other Assets
185,000
Total other assets
3,004,999
Total assets
$ 3,105,088
 
 **LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
Accounts payable, and other liabilities
$ 11,904,466
Short term notes payable
324,000
Foreclosure deficiencies
2,196,660
Debentures
3,149,300
Liabilities to related parties, net
386,372
Total current liabilities
17,960,798
 
 
Stockholders' Equity:
 
Convertible preferred, 5,000,000 shares authorized and outstanding
50,000
Common, $.01 par value; 495,000,000 authorized 117,815,345 issued and outstanding
1,178,153
Additional paid-in capital

Shares pending cancellation
80,796,492
Accumulated deficit
(96,880,355)
Total stockholders' equity
(14,800,710)
Total liabilities and stockholders' equity
$ 3,105,088

 

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

WasteMasters, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended March 31, 2000 and 1999

(Unaudited)**

 **2000**1999
 
 
 
Revenues
$ -
$ 686,878
 
 
 
 
 
 
Expenses
 
 
Cost of sales
-
591,162
Selling, general and administrative
1,563,732
3,281,808
Depreciation and amortization
-
144,166
 
 
 
Loss from operations
(1,563,732)
(3,330,258)
 
 
 
Other income (expense)
 
 
Interest expense, net
-
(279,786)
Settlement - Nikko
10,043,655
 
Gain on sale of subsidiaries
-
910,661
Loss on sale of assets
-
(1,169)
Loss on foreclosure
-
(546,798)
 
 
 
Total other income (expense)
10,043,655
82,908
 
 
 
NET INCOME (LOSS)
$8,479,923
$(3,247,350)
 
 
 
Unrealized Gain(Loss)
($112,080)
0
 
 
 
COMPREHENSIVE INCOME (LOSS)
$8,367,843
($3,247,350)
 
 
 
Income (Loss) per share
$.07
$(.02)
 
 
 
Weighted average number of common shares outstanding
119,815,345
143,134,568

 

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

WasteMasters, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2000 and 1999

(Unaudited)**
 **2000**1999**INCREASE (DECREASE) IN CASH FLOWS
 
 
Net Income (Loss)
$8,479,923
$(3,247,350)
Adjustments to reconcile net earnings (loss) to net cash
 
 
Provided by (used in) operating activities:
 
 
Depreciation and amortization
-
144,166
Changes in assets and liabilities:
 
 
Accounts receivable and prepaid expenses
(28,000)
1,071,222
Accounts payable, and other liabilities
626,329
(2,605,746)
Other assets
-
112,927
Inventory
-
129,257
Due to related parties
12,000
-
Net cash provided by (used in) operating activities
9,090,252
(4,395,524)
 
 
 **Cash flow from investing activities:
 
 
Landfill development
-
(293,330)
Deposits on acquisitions
(185,000)
-
Assets lost in foreclosure
-
1,947,628
Sale of subsidiaries
-
4,440,000
Net cash provided by (used in) investing activities
(185,000)
6,054,298
 
 
 **Cash flows from financing activities:
 
 
Issuance of notes receivable
-
(3,490,000)
Nikko Settlement
(10,669,984)
 
Proceeds from issuance of stock
1,470,093
2,242,561
Investment in Global
-
(996,000)
Proceeds from loans
324,000
509,560
Net cash provided by (used in) financing activities:
(8,875,891)
(1,733,878)
 
 
 
Net increase (decrease) in cash
29,361
(75,103)
Cash and cash equivalents at beginning of period
1,372
175,793
 
 
 
Cash and cash equivalents at end of period
$30,733
$100,690
Supplemental disclosure of investing activities:
- Issuance of common stock to pay consulting fees and compensation $1,470,093.

The accompanying notes are an integral part of these statements
**WasteMasters, Inc. and Subsidiaries

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2000 (Unaudited)**
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared by WasteMasters, Inc. (the "Company" or "WasteMasters") pursuant to the rules and regulations of the U. S. Securities and Exchange Commission. Certain information and disclosuresnormally 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 and disclosuresnecessary for a fair presentation of these financial statements have been included. Such adjustments consist of normal recurring adjustments. This Form 10-QSB Report should be read in conjunction with the Form 10-KSB Report of WasteMasters, Inc. for thefiscal year ended December 31, 1999, as filed with the U. S. Securities and Exchange Commission.

The results of operations for the period ended March 31, 2000 are not indicative of the results that may be expected for the full year. 

2. Consolidated Statements
The consolidated financial statements include the accounts of WasteMasters, Inc. and its wholly owned subsidiaries: Sales Equipment Company, Inc., C.A.T. Recycling, Inc., Wood Management, Inc.; Mini-Max Enterprises, Inc.; Southeastern Research andRecovery, Inc.; C and D Recycling Corporation; American Recycling and Management Corporation; Tri-State Waste Disposal Company, Inc.; Atlantic Coast Demolition and Recycling, Inc.; and WasteMasters of Palm Beach, Inc. Significant inter-companytransactions have been eliminated in consolidation. 

The Company's interest in Atlas and its subsidiaries are accounted for under the equity method rather than as consolidated subsidiaries. The accounts of Sales Equipment Company, Inc., C.A.T. Recycling, Inc., C and D Recycling, Inc. and AmericanRecycling and Management, Inc. are only included through September 30, 1999, the date of their disposition. The accounts of Wood Management, Inc.; Mini-Max Enterprises, Inc.; Southeastern Research and Recovery, Inc.; Tri-State Waste Disposal Company, Inc.and Atlantic Coast Demolition and Recycling, Inc. are only included through March 30, 1999, the date of their disposition. The accounts to two subsidiaries formed after March 31, 2000 are not included.

3. 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 contingentassets 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.

4.	Summary of Significant Accounting Policies
(a) Long-Lived Assets. During 1996, the Company adopted Statement of Financial Accounting Standards SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. SFAS No. 121 requires that long-livedassets and certain identifiable intangibles to be held and used or disposed of by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may be not recoverable.

(b) Concentration of Credit Risk. The most significant remaining assets of the Company are an illiquid investment of 1,200,000 shares of common stock in Global Eco-Logical Services, Inc. ("Global") and a royalty interest in certain royalties dueStartec, Inc. The Global common stock held by the Company has a very thin volume and various trading restrictions until March, 2003. There is no market for the Company's royalty interest.

(c) Marketable Securities. The Company accounts for marketable securities in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This statement recognizes securitiesthat are available for sale to be carried at fair value, with changes in fair value recognized as a separate component of stockholders' equity. Due to certain trading restrictions and the thin trading activity, the Company has classified the securities along-term assets. Marketable securities consist of the following investments:

Global Eco-Logical Services, Inc.
$ 990,000
Hudson Transfer, LLC
300,000
Continental Investment Corporation
0
Total
$ 1,290,000

5.	Royalty Agreement
On December 21, 1999, the Company acquired by assignment a royalty interest in exchange for 9,000,000 shares of common stock valued at $1,530,000. The royalty agreement provides that the Company will receive from 22% to 53% of all royalty paymentsdue to Startec, Inc. from licensing certain proprietary technology to Alabama Fuel Products, LLC. The royalty agreement expires on December 31, 2007 with certain provision for earlier termination. The Company believes that the net present value of theanticipated royalty payments exceeds the purchase price of the royalty interest. The cost of the royalty interest is being amortized on a straight-line basis over the life of the royalty agreement. 

6.	Commitments and Contingencies
In connection with the acquisition of various companies in 1998, the parent company, Wastemasters, Inc., indemnified certain former owners from any liability relating to the acquired companies, including personal guaranties by the former owners ofleases and loans for equipment used in the businesses. In almost all cases, the acquired companies are in bankruptcy or have terminated operations, and are in default on obligations guaranteed by the former owners for which the Company is an indemnitor.Some former owners have made demand on the Company for payment of these claims on their behalf. Accrued Liabilities include certain amounts claimed by indemnities under such agreements. The extent of any additional claims cannot be reasonably estimated asof the date of these financial statements.

7. 	Other Assets
At March 31, 2000, Other Assets include $175,000 paid to Continental Investment Corporation ("CICG") pursuant to an agreement to settle certain issues between the Company and CICG, which involves, in part, the rescission of certain transactionsbetween the parties. In addition, as of March 31, 2000, the Company had paid $55,000 pursuant to the agreement to satisfy a judgment against CICG involving its guarantee of an obligation of a former subsidiary of the Company. As of March 31, 2000, theCompany was in default on its obligations to CICG under the settlement agreement, and in particular owed an additional $325,000 under the agreement. The Company is attempting to renegotiate certain portions of the settlement agreement. No amount has beenreserved against this asset in the event the Company is unable to fulfill its obligations under the settlement agreement or reach an agreement to modify its terms.

8. 	Notes and Loans Payable - Current Liabilities
As of March 31, 2000, current liabilities include the Company's indebtedness under convertible debentures in the principle amount of $3,149,300, plus accrued interest of $677,029 (included in accrued liabilities), which are convertible into sharesof common stock of the Company at the rate of $0.255 per share. The Company is in default under the debentures as a result of the failure to make payments of interest thereunder and the failure to issue shares of common stock upon receipt of one or moreconversion notices. The Company does not plan to accrue interest on the debentures after March 31, 2000 because the Company considers the penalties to be legally unenforceable and the payment of the interest to not be probable. The Company believes thatit has valid offsets to any liability under the convertible debentures due to, among other things, its potential obligation to recognize shares originally issued in settlement of the debentures which are now held by holders in due course as well asmisconduct by certain persons who served as officers of both CICG and the Company at the time of the events in question. CICG and the Company are in active negotiations to settle and compromise the Company's liability on the debentures, but there is noassurance that an agreement will be reached. See Note 10, Nikko Litigation. 

As of March 31, 2000, the Company was indebted under short-term notes payable in the amount of $269,000. The notes bear no interest and are payable upon demand.

As of March 31, 2000, current liabilities include the Company's indebtedness to related parties of $386,372. The indebtedness bears no interest and is payable upon demand.

9.	Issuance of Common Stock for Services
On February 23, 1999, the Company filed a registration statement on Form S-8 to register up to 5,000,000 shares of common stock for issuance for services rendered or to be rendered the Company under the Company's 1999 Employees, Consultants andAdvisors Stock Compensation Plan (the "Plan"). On March 26, 1999, the Company amended the registration statement to increase the number of shares authorized for issuance under the Plan from 5,000,000 to 15,000,000. On December 13, 1999, the Companyfurther amended the registration statement to increase the number of shares authorized for issuance under the Plan from 15,000,000 to 35,000,000. During the quarter ended March 31, 2000, the Company issued 8,244,215 shares under the Plan. Of the sharesissued under the Plan during the quarter ended March 31, 2000, 5,000,000 shares were issued as compensation to two consultants, and 2,000,000 shares were issued as compensation to an officer. In addition, the Company issued shares under the Plan in thefollowing transactions: 644,215 shares were issued to four employees as compensation. 200,000 shares were issued for brokerage services rendered; 200,000 shares were issued in settlement of a litigation claim for services rendered; and 200,000 shares wereissued for engineering services rendered in connection with the Company's WasteMasters of Palm Beach, Inc. subsidiary. Subsequently, the Company determined that certain shares putatively issued under the Plan were not covered by the Plan, and requestedthat the recipients agree to rescind the issuance of the shares, which rescission will be reported in the period in which the rescission occurred. 

During the quarter ended March 31, 2000, the Company issued 1,351,946 shares of restricted stock to six employees, including an officer of the Company, as compensation for services rendered. The stock was issued in reliance on the exemption fromregistration provided by Section 4(2) of the Securities Act of 1933, as amended.

10. 	Nikko Litigation
On December 16, 1998, Stewart Rahr, a shareholder of the Company, filed a motion to intervene in an action styled Nikko Trading of America Corporation, et al. v. Wastemasters, Inc., pending in the United States District Court for the NorthernDistrict of Texas, Dallas Division, Civil Action No. 3-98CV0048-D. Mr. Rahr requested that a Consent Judgment entered in that action on February 5, 1998 be vacated, and that Mr. Rahr be granted leave to defend the action derivatively on behalf of theCompany. Under the Consent Judgment, 63,165,066 million shares of common stock were issued to the plaintiffs to fully settle and compromise the Company's liability under approximately $3,149,300 of debentures held by the plaintiffs therein. Mr. Rahralleged that the Consent Judgment was obtained as a result of collusion between the plaintiffs in the action and the Company, and that the Chairman of the Company at the time, R. Dale Sterritt, Jr., failed to disclose to the Company's board that hebeneficially owned an interest in the plaintiffs and/or controlled the plaintiffs through nominees. Mr. Rahr further contended that, because of that collusion, the Company ignored certain legal defenses in the action and agreed to a judgment that was notin the best interests of the Company. Mr. Rahr also contended that Sterritt breached his fiduciary duty and usurped a corporate opportunity of Continental by causing Continental to transfer the debentures to the plaintiffs in this action. The Courtgranted Mr. Rahr's request for a preliminary injunction preventing any transfer of the shares until the Court could enter a final ruling on Mr. Rahr's motion to set aside the Consent Judgment.

On March 14, 2000, the Court entered its Memorandum Opinion and Judgment, in which the Court vacated the Consent Judgment on the grounds that "the evidence demonstrates that [the] suit was, from its very inception, a collusive effort to obtain theimprimatur of [the] Court." The Court also dismissed the case, finding that, because of the collusive nature of the suit, the Court lacked subject matter jurisdiction since there was no real case or controversy to decide. The Court further held that "allproceedings in the case leading to the purported consent judgment of February 5, 1998 are a nullity."

Because of the Court's March 14, 2000 ruling, the Company does not consider any shares issued pursuant to the Consent Judgment as validly issued, and has notified its transfer agent that it should not effectuate the transfer of any of the shares. Theruling effects 63,165,066 shares of the Company's outstanding common stock purportedly issued upon conversion of the debentures and 3,800,000 shares of common stock issued purportedly upon the exercise of warrants issued pursuant to the Consent Judgment.

As a result of the Consent Judgment being vacated, the Company recorded a liability in the amount of $3,826,329, representing $3,149,300 in principal owing under the convertible debentures and accrued interest of $677,029 owing under the debentures.In addition, the Company has cancelled 66,965,066 shares, consisting of 63,165,066 shares issued under the Consent Judgment and an additional 3,800,000 shares issued pursuant to warrants issued to the plaintiffs in the Nikko Litigation. The cancellationof the shares resulted in a gain of $10,043,655 (net of accrued interest), the reduction of outstanding par value of $669,651 and paid in capital of $13,200,334. The difference between the amount of the convertible debenture and the adjustments to parvalue and paid in capital represents penalties on the convertible debentures that had been expensed and then capitalized when the convertible debentures were originally settled pursuant to the Consent Judgment. 

The Court's ruling left open a number of issues which could have a material effect on the number of outstanding shares of the Company's common stock, including whether the Company is still obligated to issue shares of its common stock on conversion ofthe debentures, whether the debentures are lawfully owned by the plaintiffs, Continental or third parties, and whether third party transferees of shares originally issued pursuant to the Consent Judgment should be entitled to retain their shares asholders in due course. In July 2000, the Company mailed a notice to all persons who are holders of shares originally issued in the Nikko Litigation requesting information about the circumstances under which they acquired their shares. The Company plans toresolve disputes about the validity of the shares by entering into settlement agreements that recognize part or all of the shares held by a holder to the extent the holder can establish to the Company's satisfaction that the holder is a bona fidepurchaser for value of the shares. Based upon results received from the request for information, the Company believes that it may recognize the validity of from 10 to 14 million shares of common stock as a result of such settlements.

On August 8, 2000, CICG filed an adversary proceeding in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division, against the original plaintiffs in the Nikko Litigation. In the adversary proceeding, CICG sought either adeclaratory judgment that it is the owner of the debentures at issue in the Nikko Litigation or a judgment avoiding the transfer of the debentures from CICG to the plaintiffs on the grounds that the transfer was a fraudulent transfer. CICG has obtained ajudgment by default that it is the owner of the debentures and any shares of common stock of the Company issued in conversion or settlement of the debentures.

The Company does not plan to accrue any penalties or additional interest on the convertible debentures after March 31, 2000, because the Company considers the penalties to be legally unenforceable and the payment of the interest to not be probable.The Company believes that it has valid offsets to any liability under the convertible debentures due to, among other things, its potential obligation to recognize shares originally issued in settlement of the debentures which are now held by holders indue course as well as misconduct by certain persons who served as officers of both CICG and the Company at the time of the events in question. CICG and the Company are in active negotiations to settle and compromise the Company's liability on thedebentures, but there is no assurance that an agreement will be reached. 

11. 	Subsequent Events
The Company hereby incorporates by reference the Form 10-QSB filed by the Company for the periods ending June 30, 2000 and September 30, 2000, as amended.
**Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.**
Overview

In the past several years, the Company has owned over 21 subsidiaries in the business of disposal of traditional municipal solid waste (MSW) and construction and demolition (C and D) materials. During 1999, the Company experienced significantfinancial difficulties resulting from mismanagement of the Company under R. Dale Sterritt, Jr., the Company's former Chairman and CEO (who resigned December 11, 1998). In January 1999, the Company voluntarily ceased its Florida operations due to chroniccash flow difficulties, repossessions and regulatory violations. In January 1999, the Company also agreed to sell its Northeast waste operations to Global in order to concentrate on salvaging the Florida operations. The Company completed the sale toGlobal on March 30, 1999. 

The principal activities of the Company during the first quarter of 2000 consisted of (a) negotiating settlements of various litigation claims against the Company, and (b) evaluating potential acquisitions in the waste industry in the event theCompany can resolve its litigation problems.

During 1999, the Company entered into a Management Agreement with Startec, Inc., as well as a letter of intent to acquire Startec, Inc. for shares of Common Stock of the Company. Under the Management Agreement, A. Leon Blaser was appointed to theboard of directors of Startec, and Douglas C. Holsted was appointed Chief Executive Officer of Startec. Messrs. Blaser and Holsted are both officers and directors of the Company. Under the Management Agreement, the Company contributed the services ofMessrs. Blaser and Holsted, and in consideration was entitled to receive a percentage of revenues generated from sale or licensing of certain technology of Startec. The Management Agreement expired by its terms without any event happening which entitledthe Company to compensation. However, Mr. Blaser remains on the board of directors of Startec. In addition, in the event the Company can resolve its litigation problems and obtain approval of an SEC registration statement to authorize the issuance ofshares of Common Stock of the Company to Startec's shareholders, the Company plans to acquire Startec and focus on developing and marketing Startec's technologies relating to waste-flow reduction and synthetic fuels development. 

Results of Operations

Revenues for the three months ended March 31, 2000 were $0 as compared to $686,878 for the three months ended March 31, 1999. The significant decrease in revenue is the result of the sale of five subsidiaries and a landfill to Global Eco-LogicalServices, Inc. on March 30, 1999, and the loss by foreclosure of the Company's remaining operating assets in 1999. The Company reported a net loss from operations during the three months ended March 31, 2000 of ($1,563,732) as compared to an operatingloss of ($3,330,258) for the three months ended March 31, 1999. The Company reported a smaller net operating loss as a result of having no operational costs, lower general and administrative expenses, and fewer expenses incurred to defend and settlelitigation claims.

As a result of the substantial decrease in operations, selling, general and administrative expenses ("SG and A") decreased from $3,281,808 in the three months ended March 31, 1999 to $1,563,732 in the three months ended March 31, 2000. Substantiallyall of the SG and A expense incurred during the period ended March 31, 2000 was satisfied by the issuance of shares of common stock by the Company. Net interest expense decreased from $279,786 in the quarter ended March 31, 1999 to $0 in the quarter endedMarch 31, 2000 as a result of the loss of reduction of secured indebtedness resulting from the sale or foreclosure of all of the Company's operating assets. Interest expense accrued on the debentures during the period ended March 31, 2000 was appliedagainst gain realized as a result of the Court's decision to vacate the original settlement of the debentures. See Note 10, Nikko Litigation. 

During the three months ended March 31, 2000, the Company had net income of $8,479,923, as compared to a net loss of ($3,247,350) in the three months ended March 31, 1999. The net income was principally the result of a gain of $10,043,655 recorded asa result of the vacation of the Consent Judgment in the Nikko Litigation. See Note 10, Nikko Litigation. During the quarter ended March 31, 2000, the Company also recorded an unrealized loss from the decline in market value of its investment in Globalcommon stock, which resulted in comprehensive income of $8,367,843 for the period.

Liquidity and Sources of Capital

The Company's consolidated balance sheet as of March 31, 2000 reflects cash and equivalents of $30,733, total current assets of $100,089 at historical cost, total current liabilities of $17,960,798, and a working capital deficit of ($17,860,709).The Company's current liabilities consist primarily of the convertible debentures, accrued expenses which are seriously delinquent, judgments issued against the Company and advances made by related parties or consultants to the Company.

At this time, the Company has no active operations and no ability to satisfy the claims against it. Because the Company lacks active operations, the Company does not have any cash to satisfy routine administrative obligations. Consequently, theCompany is currently dependent on the issuance of its common stock for managerial and legal services, and depends on short-term loans from third parties, including its officers and directors, for the funds to satisfy miscellaneous expenses. For theforeseeable future, the Company expects that it will be required to acquire necessary administrative services and satisfy its indebtedness by issuing shares of its common stock.

The Company's efforts in the first quarter of 2000 were devoted to attempting to settle the numerous judgments and litigation claims against it, negotiating with potential investors in the Company, and investigating potential acquisitions, includingStartec. The settlement of the judgments and litigation claims against the Company has proven to be more difficult than expected due to the unreasonable demands of certain claimants, who want more on a combined basis in settlement than the Company canpossibly satisfy. The Company does not believe that it will be able to raise any funds from investors or complete any acquisitions identified by the Company until all material litigation claims are settled on terms acceptable to the Company.

In the event the Company is unsuccessful in settling its liabilities, the Company has approved the reorganization of the Company as a holding company incorporated under the laws of the State of Delaware. Under the reorganization, the Company wouldmerge with and into a second tier subsidiary formed under Delaware law, and all shareholders of the Company would receive an equal number of shares of common stock in a first tier subsidiary in exchange for their shares of common stock in the Company. Asa result of the transaction, the Company would become a wholly-owned subsidiary of the first tier subsidiary, and all shareholders of the Company would become shareholders of the first tier subsidiary. By reorganizing as a holding company, the Companywill be able to raise new equity funds and complete acquisitions without subjecting the new equity funds or the acquired entities to the claims of existing claimants, thus making it possible to close some the transactions the Company has been negotiating.The reorganization will only protect future investors in the Company, but will not protect existing assets from the claims of creditors. The major impediment to completing the reorganization earlier was the uncertainty about the number and identity of theCompany's shareholders created by the Nikko Litigation, which prevented the Company from holding a shareholders meeting to approve the reorganization. However, with the recent decision in the Nikko Litigation, the Company can now have a shareholdersmeeting to approve the reorganization. The Company anticipates completing the reorganization promptly upon obtaining approval by the Securities and Exchange Commission of the proxy materials. 
**PART II. OTHER INFORMATION.

Item 1. Legal Proceedings.**
The Company is a party to a considerable number of legal proceedings. The Company's disclosure of pending legal proceedings contained in Item 3 of its Annual Report on Form 10-KSB for the year ended December 31, 1999 is hereby incorporated byreference. 
**Item 2. Changes in Securities and Use of Proceeds.**
On February 23, 1999, the Company filed a registration statement on Form S-8 to register up to 5,000,000 shares of common stock for issuance for services rendered or to be rendered the Company under the Company's 1999 Employees, Consultants andAdvisors Stock Compensation Plan (the "Plan"). On March 26, 1999, the Company amended the registration statement to increase the number of shares authorized for issuance under the Plan from 5,000,000 to 15,000,000. On December 13, 1999, the Companyfurther amended the registration statement to increase the number of shares authorized for issuance under the Plan from 15,000,000 to 35,000,000. During the quarter ended March 31, 2000, the Company issued 8,244,215 shares under the Plan. Of the sharesissued under the Plan during the quarter ended March 31, 2000, 5,000,000 shares were issued as compensation to two consultants, and 2,000,000 shares were issued as compensation to an officer. In addition, the Company issued shares under the Plan in thefollowing transactions: 644,215 shares were issued to four employees as compensation. 200,000 shares were issued for brokerage services rendered; 200,000 shares were issued in settlement of a litigation claim for services rendered; and 200,000 shares wereissued for engineering services rendered in connection with the Company's WasteMasters of Palm Beach, Inc. subsidiary. Subsequently, the Company determined that certain shares putatively issued under the Plan were not covered by the Plan, and requestedthat the recipients agree to rescind the issuance of the shares, which rescission will be reported in the period in which the rescission occurred.

During the quarter ended March 31, 2000, the Company issued 1,351,946 shares of restricted stock to six employees, including an officer of the Company, as compensation for services rendered. The stock was issued in reliance on the exemption fromregistration provided by Section 4(2) of the Securities Act of 1933, as amended.
**Item 3. Defaults Upon Senior Securities.**
The Company is in default on convertible debentures with a principal amount of $3,149,300, which indebtedness had previously been settled pursuant to a Consent Judgment entered on February 5, 1998 in litigation brought by the putative holders ofthe debentures. However, by an order dated March 14, 2000, the court declared the Consent Judgment a nullity, thus setting aside the settlement. See Part I, Item 1, Notes to Financial Statements, Note 5. The Company remains in default under the debentures.

A subsidiary of the Company, WasteMasters of Palm Beach, Inc., is in default on a mortgage held by two individuals. The mortgage holders obtained a judgment for their indebtedness and foreclosed on said mortgage in 1999, leaving a substantialforeclosure deficiency. The subsidiary has no other assets to satisfy the deficiency and the Company is not liable on the indebtedness. Therefore, the Company does not plan to take any steps to pay the indebtedness or cure the default. After March 31,2000, the Company settled and compromised this obligation in full.
**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.**
(a) Furnish the exhibits required by Item 601 of Regulation S-B.

None.

(b) Reports on Form 8-K.

None.
**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: January 23, 2001
/s/ Greg Holsted
 
By: Greg Holsted, Chief Financial Officer******************