U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

_____________________________________________

FORM 10-QSB

(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 May 31, 2000, the Registrant had outstanding 117,815,345 shares of its Common Stock, $0.01 par value,which excludes any shares issued pursuant to the Nikko Action. See "Part I, Item 1, Notes to Financial Statements, Note 5."
**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
 
12
PART II. OTHER INFORMATION
 
15
Item 1. Legal Proceedings
 
15
Item 2. Changes in Securities
 
15
Item 3. Defaults on Senior Securities
 
15
Item 4. Submission of Matters to a Vote of Security Holders
 
16
Item 5. Other Information
 
16
Item 6. Exhibits and Reports on Form 8-K
 
16
Signatures
 
17**PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

WasteMasters, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEET

(Unaudited)**

**ASSETS****March 31, 2000
 
 
Current Assets:
 
Cash and equivalents
$ 30,733
Accounts receivable
69,356
Total current assets
100,089
 
 
Other Assets:
 
Marketable securities, long-term
1,102,080
Investments in Royalty Assets
1,529,999
Other Assets
706,000
Total other assets
3,338,079
Total assets
$ 3,438,168
 
 **LIABILITIES AND STOCKHOLDERS EQUITY
 
 
 
Current liabilities:
 
Accounts payable, and other liabilities
$ 11,021,342
Short term notes payable
490,000
Liabilities to related parties, net
386,372
Convertible debentures
3,200,000
Foreclosure deficiencies
2,196,660
Total current liabilities
117,296,374
 
 
Stockholders' Equity:
 
Convertible preferred, 5,000,000 shares authorized and outstanding
50,000
Common, $.01 par value; 495,000,000 authorized, 181,680,461 issued and outstanding
1,147,154
Additional paid-in capital
91,071,476
Unrealized loss on marketable securities
(3,137,920)
Accumulated deficit
(102,986,917)
Total stockholders' equity
(13,856,206)
Total liabilities and stockholders' equity
$ 3,438,168

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

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)**

 **Three Months Ended

March 31
 **2000**1999
 
 
 
Revenues
$ -
$ 686,878
 
 
 
 
 
 
Expenses
 
 
Cost of sales
-
591,162
Selling, general and administrative
876,639
3,281,808
Depreciation and amortization
-
144,166
 
 
 
Loss from operations
(876,639)
(3,330,258)
 
 
 
Other income (expense)
 
 
Interest expense, net
-
(279,786)
Gain on sale of subsidiaries
-
910,661
Loss on sale of assets
-
(1,169)
Loss on foreclosure
-
(546,798)
 
 
 
Total other expense
0
82,908
 
 
 
NET LOSS
$(876,639)
$(3,247,350)
 
 
 
Loss per share
$(.01)
$(.02)
 
 
 
Weighted average number of common shares outstanding
111,736,153
143,134,568

 

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

 

 
**CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31

(Unaudited)**
 **2000**1999**INCREASE (DECREASE) IN CASH FLOWS
 
 
Net loss
$(876,638)
$(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
(206,093)
(2,605,746)
Other assets
-
112,927
Inventory
-
129,257
Due to related parties
12,000
-
Net cash (used in) operating activities
(1,098,731)
(4,395,524)
 
 
 **Cash flow from investing activities:
 
 
Landfill development
-
(293,330)
Deposits on acquisitions
(406,000)
-
Assets lost in foreclosure
-
1,947,628
Sale of subsidiaries
-
4,440,000
Net cash provided by (used in) investing activities
(10,000)
6,054,298
 
 
 **Cash flows from financing activities:
 
 
Issuance of notes receivable
-
(3,490,000)
Proceeds from issuance of stock
1,044,093
2,242,561
Investment in Global
-
(996,000)
Proceeds from loans
490,000
509,560
Net cash provided by financing activities:
1,534,092
(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 $1,044,092.

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 periods ended March 31, 2000 are not indicative of the results that may be expected for the full year. (See Results of Operations on the following pages.)

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.; CandD 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-company transactionshave 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., CandD Recycling, Inc. and American Recyclingand 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. andAtlantic 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 contingent assetsand 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.

3. Disclosure Regarding Risk Factors and Forward Looking Statements
This Quarterly Report on Form 10-QSB includes forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended ("Forward Looking Statements").All statements other than statements of historical fact included in this report are Forward Looking Statements. In the normal course of its business, the Company, in an effort to help keep its shareholders and the public informed about the Company'soperations, may from time to time issue certain statements, either in writing or orally, that contain or may contain Forward Looking Statements. Although the Company believes that the expectations reflected in such Forward Looking Statements arereasonable; it can give no assurance that such expectations will prove to have been correct. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of such plans or strategies (past andpossible future), acquisitions and projected or anticipated benefits from acquisitions made by or to be made by the Company, or projections involving anticipated revenues, earnings, level of capital expenditures or other aspects of operating results.Forward-looking statements by the Company and its management are based on estimates, projections, beliefs and assumptions of management and are not guarantees of future performance. The Company disclaims any obligation to update or revise anyforward-looking statement based on the occurrence of future events, the receipt of new information, or otherwise. All phases of the Company's operations are subject to a number of uncertainties, risks and other influences, many of which are outside thecontrol of the Company and any one of which, or a combination of which, could materially affect the results of the Company's proposed operations and whether Forward Looking Statements made by the Company ultimately prove to be accurate. Such importantrisk factors ("Important Risk Factors") and other factors could cause actual results to differ materially from the Company's expectations. All prior and subsequent written and oral Forward Looking Statements attributable to the Company or persons actingon its behalf are expressly qualified in their entirety by the Important Risk Factors described below that could cause actual results to differ materially from the Company's expectations as set forth in any Forward Looking Statement made by or on behalfof the Company.

(a) Ability to Manage Growth
The Company's objective is to grow by expanding its services in markets where it can operate profitably as a solid waste services company. Consequently, the Company may experience periods of rapid growth. Such growth, if it were to occur, couldplace a significant strain on the Company's management and on its operational, financial and other resources. Any failure to expand its operational and financial systems and controls or to recruit appropriate personnel in an efficient manner at a paceconsistent with such growth would have a material adverse effect on the Company's business, financial condition and results of operations. The Company, under prior management, historically was not able to manage properly the companies it acquired,resulting in significant losses from operations.

(b) Ability to Identify, Acquire and Integrate Acquisition Targets
The Company's strategy envisions that a substantial part of the Company's future growth will come from acquiring and integrating independent solid waste collection, transfer and disposal operations. There can be no assurance that the Company willbe able to identify suitable acquisition candidates and, once identified, to negotiate successfully their acquisition at a price or on terms and conditions favorable to the Company, or to integrate the operations of such acquired businesses with theCompany. In addition, the Company competes for acquisition candidates with other entities that have greater financial resources than the Company. Failure by the Company to implement successfully its acquisition strategy would limit the Company's growthpotential.

The consolidation and integration activity in the solid waste industry in recent years, as well as the difficulties, uncertainties and expenses relating to the development and permitting of solid waste landfills and transfer stations, has increasedcompetition for the acquisition of existing solid waste collection, transfer and disposal operations. Increased competition for acquisition candidates may result in fewer acquisition opportunities being made available to the Company as well as lessadvantageous acquisition terms, including increased purchase prices. The Company also believes that a significant factor in its ability to consummate acquisitions will be the relative attractiveness of shares of the Company's Common Stock as considerationfor potential acquisition candidates. This attractiveness may, in large part, be dependent upon the relative market price and capital appreciation prospects of the Company's Common Stock compared to the equity securities of the Company's competitors. Ifthe market price of the Company's Common Stock were to decline, the Company's acquisition program could be materially adversely affected.

(c) Uncertain Ability to Finance the Company's Growth
The Company anticipates that any future business acquisitions will be financed through cash from operations, borrowings, the issuance of shares of the Company's Common Stock and/or seller financing. If acquisition candidates are unwilling toaccept, or the Company is unwilling to issue, shares of the Company's Common Stock as part of the consideration for such acquisitions, the Company would be required to utilize more of its available cash resources or potential borrowings in order to effectsuch acquisitions. To the extent that cash from operations or borrowings is insufficient to fund such requirements, the Company will require additional equity and/or debt financing in order to provide the cash to effect such acquisitions. Additionally,growth through the development or acquisition of new landfills, transfer stations or other facilities, as well as the ongoing maintenance of such landfills, transfer stations or other facilities, will require substantial capital expenditures. There can beno assurance that the Company will have sufficient existing capital resources or will be able to raise sufficient additional capital resources on terms satisfactory to the Company, if at all, in order to meet any or all of the foregoing capital requirements .

In order to satisfy the liquidity needs of the Company for the following twelve months, the Company will be primarily dependent upon proceeds from the sale of the Company's capital stock. Historically, revenues from the existing operations have notbeen adequate to fund the operations of the Company. If the Company is unable to obtain adequate funds from the sale of its stock in public offerings, private placements or alternative financing arrangements, it may be necessary to postpone any additionalacquisitions and continue to consolidate the operations of the acquisitions already completed and use cash flow for internal growth. Because of potential political, legal, bureaucratic, and other factors, there can be no assurance that the Company will beable to accomplish any of its goals within a reasonable period of time.

(d) Fluctuations in Quarterly Results; Potential Stock Price Volatility
The market price of the Company's Common Stock has been volatile and may continue to be volatile in the future. The trading price of the Company's Common Stock could be subject to wide fluctuations in response to quarter-to-quarter variations inoperating results, changes in revenue and earnings estimates by securities analysts, announcements by the Company or its competitors, developments in the Company's acquisition program, government regulatory action, challenges associated with integrationof businesses and other events or factors. Also, the market price of the Common Stock may be affected by factors affecting the waste management industry in which the Company competes. Due in part to the high level of public awareness of the business inwhich the Company is engaged, regulatory enforcement proceedings or other potentially unfavorable developments involving the Company's operations or facilities, including those in the ordinary course of business, may be expected to engender publicitywhich could, from time to time, have an adverse impact upon the market price for the Company's Common Stock. In addition, the stock market has from time to time experienced significant price and volume fluctuations.

The Company believes that period-to-period comparisons of its operating results should not be relied upon as an indication of future performance. Due to a variety of factors including general economic conditions, governmental regulatory action,acquisitions, capital expenditures and other costs related to the expansion of operations and services and pricing changes (including the market prices of commodities such as recycled materials), it is possible that in some future quarter the Company'soperating results will be below the expectations of securities analysts and investors. In such event, the Company's Common Stock price could be materially adversely affected.

(e) Highly Competitive Industry
The solid waste services industry is highly competitive and fragmented, and requires substantial labor and capital resources. Certain of the markets in which the Company competes or will likely compete are served by one or more of the largenational solid waste companies, as well as numerous regional and local solid waste companies of varying sizes and resources. The Company also competes with operators of alternative disposal facilities, including incinerators, and with counties,municipalities, and solid waste districts that maintain their own waste collection and disposal operations. These counties, municipalities, and solid waste districts may have financial advantages due to the availability to them of user fees, similarcharges or tax revenues and the greater availability to them of tax-exempt financing. Intense competition exists not only to provide services to customers but also to acquire other businesses within each market. Many of the Company's competitors havesignificantly greater financial and other resources than the Company. From time to time, these or other competitors may reduce the price of their services in an effort to expand market share or to win a competitively bid municipal contract. Thesepractices may either require the Company to reduce the pricing of its services or result in the Company's loss of business. Municipal contacts are subject to periodic competitive bidding. There can be no assurance that the Company will be the successfulbidder to obtain or retain such contracts. The Company's inability to compete with larger and better capitalized companies, or to replace municipal contracts lost through the competitive bidding process with comparable contracts or other revenue sourceswithin a reasonable time period, could have a material adverse effect on the Company's business, financial condition and results of operations.

Intense competition exists within the industry not only for collection, transportation and disposal volume, but also for acquisition candidates. The Company competes for acquisition candidates with numerous solid waste management companies, many ofwhich are significantly larger and have greater access to capital and greater financial, marketing or technical resources than the Company. 

(f) Economic Conditions
The Company's businesses may be affected by general economic conditions. There can be no assurance that an economic downturn would not result in a reduction in the volume of waste that might be disposed of at the Company's facilities and/or theprice that the Company would charge for its services.

(g) Influence of Government Regulation
The Company's existing and potential operations are and would be subject to and substantially affected by extensive federal, state and local laws, regulations, orders and permits, which govern environmental protection, health and safety, zoning andother matters. These regulations may impose restrictions on operations that could adversely affect the Company's results, such as limitations on the expansion of disposal facilities, limitations on or the banning of disposal of out-of-state waste orcertain categories of waste or mandates regarding the disposal of solid waste. Because of heightened public concern, companies in the waste management business may become subject to judicial and administrative proceedings involving federal, state or localagencies. These governmental agencies may seek to impose fines or to revoke or deny renewal of operating permits or licenses for violations of environmental laws or regulations or to require remediation of environmental problems at sites or nearbyproperties, or resulting from transportation or predecessors' transportation and collection operations, all of which could have a material adverse effect on the Company. Liability may also arise from actions brought by individuals or community groups inconnection with the permitting or licensing of operations, any alleged violations of such permits and licenses or other matters. The Forward Looking Statements assume that there will be no materially negative impact on its operations due to governmentalregulation. 

(h) Potential Environmental Liability
The Company may incur liabilities for the deterioration of the environment as a result of its previous and potential operations. Any substantial liability for environmental damage could materially adversely affect the operating results andfinancial condition of the Company. Due to the limited nature of insurance coverage of environmental liability, if the Company were to incur liability for environmental damage, its business and financial condition could be materially adversely affected.

(i) History of Losses
The Company has incurred substantial net losses in the past and may continue to lose money as a result of the adverse effects of one or more of the risk factors discussed in this Note C.

(j) Litigation Involving Company
The Company is a defendant in a considerable number of litigation matters, many of which have already resulted in judgments against the Company for material amounts. Substantially all of the judgments remain unsatisfied. The existence of thejudgments substantially impairs the Company's ability to continue as a going concern and to raise capital to resume normal operations. Unless the Company is able to raise funds to satisfy the judgments and/or negotiate settlements of the judgments foramounts substantially less than the face amount of the judgments, the Company will not be able to continue in existence. 

4. 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 3,644,215 shares under the Plan. Of the sharesissued under the Plan during the quarter ended March 31, 2000, 2,000,000 shares were issued as compensation to a consultant, which shares were valued at $0.10 per share, for a total of $200,000, and 1,000,000 shares were issued as compensation to anotherconsultant, which shares were valued at $0.29 per share, for a total of $290,000. The balance of the shares issued under the Plan during the quarter, being 644,215 shares, were issued to four employees in payment of accrued compensation due the employeesfor 1999, and were valued at $0.12 per share, for a total of $77,306.

During the quarter ended March 31, 2000, the Company issued an additional 1,351,946 shares of restricted stock in payment of accrued compensation due six employees, including an officer of the Company, for 1999, which shares were valued at $0.096 pershare, for a total of $129,787. In addition, the Company issued 1,500,000 shares of restricted stock to a third party for consulting services, which shares were valued at $0.232 per share, for a total of $348,000.

5. 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 $3.2 million 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 has recorded a liability in the amount of $3,200,000, representing the amount due under the convertible debentures which had originally been satisfied pursuant to the Consent Judgment. Inaddition, 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 Action. The cancellation of theshares resulted in the reduction of outstanding par value of $669,651, and paid in capital of $2,530,349. 

The Court's ruling leaves 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 conversionof the 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. The Company is currently reviewing its legal options to resolve these issues. 
**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 (CandD) materials. During 1999, the Company experienced significant financialdifficulties 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 chronic cash flowdifficulties, 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 to Global on March30, 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 the Companycan 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 the boardof 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 of Messrs.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 entitled theCompany 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 of sharesof Common Stock of the Company to Startec's shareholders, the Company plans to acquire Startec and focus on developing and marketing Startec's proprietary technologies relating to waste-flow reduction and synthetic fuels development. 

Startec has a significant patent portfolio containing technology that will allow the Company to combine products from its waste reduction process with coal fines and a binding agent to produce a low ash, low sulfur, high BTU coal. The Company believesthis coal is in extremely high demand from utilities and other coal users who burn low sulfur coal to reduce stack emissions. Assuming the Startec acquisition is completed, the Company intends to generate revenues from the remediation (clean-up) of coalfines, while generating synthetic fuel, utilizing both Section 29 and non-Section 29 briquetters. 

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 continuing operations during the three months ended March 31, 2000 of $876,638 as compared to a loss of$3,247,350 for the three months ended March 31, 1999. The Company reported a smaller net loss as a result of having no operational costs, lower general and administrative expenses, and fewer expenses incurred to defend and settle litigation claims.

As a result of the substantial decrease in operations, selling, general and administrative expenses ("SGandA") decreased from $3,281,808 in the three months ended March 31, 1999 to $876,638 in the three months ended March 31, 2000. Substantially all ofthe SGandA 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 ended March31, 2000 as a result of the elimination of indebtedness resulting from the sale or foreclosure of assets and subsidiaries of the Company since March 31, 1999. 

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 $17,296,374, and a working capital deficit of ($17,196,285). TheCompany's current liabilities consist primarily of judgements 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, the Companyis 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 the foreseeablefuture, 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 Nevada. Under the reorganization, the Company would mergewith and into a second tier subsidiary formed under Nevada 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. As a resultof 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 Company will be ableto 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. Thereorganization 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 Action, which prevented the Company from holding a shareholders meeting to approve the reorganization. However, with the recent decision in the Nikko Action, the Company can now have a shareholders meeting toapprove 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 herebyincorporated by reference. The following is a summary of developments in legal proceedings to which the Company is a party since the filing of the Form 10-KSB for the year ended December 31, 1999.
**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 3,644,215 shares under the Plan. Of the sharesissued under the Plan during the quarter ended March 31, 2000, 2,000,000 shares were issued as compensation to a consultant, which shares were valued at $0.10 per share, for a total of $200,000, and 1,000,000 shares were issued as compensation to anotherconsultant, which shares were valued at $0.29 per share, for a total of $290,000. The balance of the shares issued under the Plan during the quarter, being 644,215 shares, were issued to four employees in payment of accrued compensation due the employeesfor 1999, and were valued at $0.12 per share, for a total of $77,306.

During the quarter ended March 31, 2000, the Company issued an additional 1,351,946 shares of restricted stock in payment of accrued compensation due six employees, including an officer of the Company, for 1999, which shares were valued at $0.096 pershare, for a total of $129,787. In addition, the Company issued 1,500,000 shares of restricted stock to a third party for consulting services, which shares were valued at $0.232 per share, for a total of $348,000.
**Item 3. Defaults Upon Senior Securities.**
The Company is in default on $3.2 million in convertible debentures, which indebtedness had previously been settled pursuant to a Consent Judgment entered on February 5, 1998 in litigation brought by the putative holders of thedebentures. However, by a 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.

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 asubstantial foreclosure 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.
**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: June 1, 2000
/s/ Douglas Holsted
 
By: Douglas Holsted, President and Chief Financial Officer********************