U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

_____________________________________________

FORM 10-QSB/A

Amendment No. 2

(Mark One)

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

For the quarterly period ended September 30, 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 29, 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 September 30, 2000
3
 
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2000 and 1999
4
 
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999
5
 
Notes to Unaudited Consolidated Financial Statements for the Nine Months Ended September 30, 2000
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation
13
PART II. OTHER INFORMATION
15
Item 1. Legal Proceedings
15
Item 2. Changes in Securities
16
Item 3. Defaults on Senior Securities
16
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

As of September 30, 2000 (Unaudited)**

ASSETS
September 30, 2000
Current Assets:
 
Cash
$ 247
Accounts receivable, net of allowance for doubtful accounts
159,643
Total current assets
159,890
 
 
Other Assets:
 
Marketable securities, long-term
741,025
Investments in Royalty Assets-net of amortization
1,366,070
Other assets-net of amortization
255,000
Total other assets
2,362,095
Total assets
$ 2,521,985
 
 
LIABILITIES AND STOCKHOLDERS EQUITY
 
 
 
Current liabilities:
 
Accounts payable, accrued interest, and other liabilities
$ 6,645,115
Liabilities to related parties, net
279,045
Convertible debentures
3,149,300
Short-term notes payable
299,990
Total current liabilities
10,373,450
Long-term debt, less current maturities
200,000
 
 
Stockholders' Equity:
 
Conv. preferred stock, 5,000,000 shares authorized and outstanding
50,000
Common stock, $.01 par value; 495,000,000 shares authorized; 124,511,136 shares issued and outstanding
1,245,111
Additional paid-in capital
80,498,612
Accumulated deficit
(89,845,188)
Total stockholders' equity
(8,051,465) 
Total liabilities and stockholders' equity
$ 2,521,985

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

WasteMasters, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Nine Months Ended September 30, 2000 and 1999

(Unaudited)**

 **Three Months ended September 30**Nine Months ended September 30
 **2000**1999**2000**1999
 
 
 
 
 
Revenues
$ 0
$ 0
$ 116,640
$ 746,193
 
 
 
 
 
Expenses
 
 
 
 
Cost of sales
0
0
0
592,012
Selling, general and administrative 
278,466
264,039
1,939,839
4,660,705
Depreciation and amortization
54,643
0
163,929
173,529
 
 
 
 
 
Loss from operations
(333,109)
(264,039)
(1,987,128)
(4,680,053)
 
 
 
 
 
Other income (expense)
 
 
 
 
Interest expense, net
0
133
(6)
(283,973)
Gain on sale of subsidiaries
0
1,739,240
0
2,649,901
Settlement - Nikko
0
0
10,043,655
0
Loss on sale of assets
0
0
0
(1,169)
Gain (loss) on foreclosure
0
0
2,196,660
(546,798)
Settlements
0
0
5,939,909
0
Other income (expense), net
0
0
_ 0
(15,824)
 
 
 
 
 
Total other income (expense)
0
1,739,373
18,180,218
1,802,137
 
 
 
 
 
Net Income (Loss)
($333,109)
$ 1,475,334
$16,193,090
($2,877,916)
 
 
 
 
 
Unrealized Gain (Loss)
(152,000)
0
(770,080)
0
 
 
 
 
 
COMPREHENSIVE INCOME (LOSS)
($485,109)
$ 1,475,334
$15,423,010
($2,877,916)
 
 
 
 
 
Earnings per share:
 
 
 
 
Basic
($0.00)
$0.01
$0.12
($0.02)
Diluted
($0.00)
$0.00
$0.06
($0.01)
 
 
 
 
 
Weighted average number of common shares outstanding
 
 
 
 
Basic
124,510,886
153,329,250
124,510,886
153,329,250
Diluted
245,356,347
256,529,250
245,356,347
256,529,250

 

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

WasteMasters, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2000 and 1999

(Unaudited)**
**INCREASE (DECREASE) IN CASH****2000**1999
 
 
 **Cash flow from operating activities:
 
 
Net income (loss)
$16,193,090
$(2,588,385)
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
 
 
Depreciation and amortization
163,929
173,529
Stock issued in lieu of cash payment
0
49,530
Changes in assets and liabilities:
 
 
Accounts receivable and prepaid expenses
(118,287)
349,687
Accts payable, accrued interest and other liabilities
(6,829,683)
(4,606,866)
Due to related parties
(95,326)
(472,366)
 
 
 
Net cash provided by (used in) operating activities
9,313,723
(7,094,871)
 
 
 
Cash flow from investing activities:
 
 
Landfill development
0
(293,330)
Deposits on acquisitions
(255,000)
0
Asset acquisitions
(129,025)
0
Assets lost in foreclosure
0
1,947,628
Sale of subsidiaries
0
6,139,240
 
 
 
Net cash provided by (used in) investing activities
_(384,025)
7,793,538
 
 
 
Cash flows from financing activities:
 
 
Repayment of loans
(86,010)
(77,287)
Nikko Settlement
(10,669,984)
0
Proceeds from issuance of stock
1,239,172
3,179,294
Investment in Global
0
(4,486,000)
Proceeds from loans
586,000
509,560
 
 
 
Net cash provided by (used in) financing activities:
(8,830,822)
(874,433)
 
 
 
Net increase (decrease) in cash
(1,124)
(175,766)
 
 
 
Cash and cash equivalents at beginning of period
1,371
175,793
 
 
 
Cash and cash equivalents at end of period
$ 247
$ 27
 

SUPPLEMENTARY DISCLOSURE OF NONCASH TRANSACTIONS

 **2000**1999
Common stock issued for services and settlements
$ 1,239,172
$ 3,228,824
Assets lost in foreclosure less depreciation
$ 0
$ 1,947,629
Common stock issued to acquire assets
$ 229,979
$ 0** 

 

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

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 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 September 30, 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 inactive subsidiaries 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.
$ 312,000
Hudson Transfer, LLC
300,000
Continental Investment Corporation
0
Startec, Inc.
129,025
Total
$ 741,025

 

(d) Comprehensive Income. The Company has adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 establishes standards for reporting and display of comprehensive income and itscomponents in a full set of general purpose financial statements. The effect of SFAS 130 is reflected in these financial statements.

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 $1,529,999. 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 provisions 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, which resulted in amortization of $163,929 for the sixmonths ended September 30, 2000. During the period ending September 30, 2000, the Company received net proceeds of $116,640 under 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 September 30, 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 certaintransactions between the parties. In addition, as of September 30, 2000, the Company had paid $107,342 pursuant to the agreement to satisfy a judgment against CICG involving its guarantee of an obligation of a former subsidiary of the Company. As ofSeptember 30, 2000, the Company 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 settlementagreement. No amount has been reserved 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 September 30, 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 intoshares of 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 ormore conversion notices. The Company has not accrued interest or penalties 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 Companybelieves 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 in due course aswell 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 the debentures, but thereis no assurance that an agreement will be reached. See Note 12, Nikko Litigation. 

As of September 30, 2000, the Company was indebted under a note in the amount of $50,000 to an unaffiliated party. The note bears interest at 12% per annum, and is payable within ninety days. In connection with the issuance of the note, the Companyalso issued the noteholder warrants to purchase 100,000 shares of common stock at $0.18 per share. The note is reported as a long-term liability because the noteholder and the company expect to extend the maturity of the note when it matures. 

As of September 30, 2000, the Company was indebted under other short-term notes payable in the amount of $299,990. The notes bear no interest and are payable upon demand.

As of September 30, 2000, the Company was indebted to related parties in the amount of $279,045. The indebtedness bears no interest and is payable upon demand.

9. 	Notes and Loans Payable - Long-Term Liabilities
As of September 30, 2000, the Company was indebted under a note payable to an affiliate of an officer and director in the amount of $200,000. The indebtedness does not bear interest and is payable upon demand. The note is reported as a long-termliability because the noteholder has indicated that it does not expect payment of the note within the next year. 

10.	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 September 30, 2000, the Company issued 1,300,000 shares under the Plan to threeconsultants to the Company. Subsequently, the Company determined that the shares putatively issued under the Plan were not covered by the Plan, and requested that the recipients agree to rescind the issuance of the shares, which rescission will bereported in the period in which the rescission occurred. 

11. 	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. 

12.	Reduction of Current Liabilities
During the quarter ended June 30, 2000, the Company conducted a comprehensive review of its current liabilities. As of March 31, 2000, the Company reported $11,904,466 of accounts payable and other liabilities and foreclosure deficiencies of$2,196,660. The liabilities result from the failure of a number of operating subsidiaries formerly owned by the Company. As a result of that review, the Company decided to eliminate $5,939,909 in liabilities for which the Company believes it is not liabledue to the disposition of the subsidiary to which the liability related or due to other factors which indicated that the assertion of the possible claim is not probable. In addition, current liabilities were reduced by an additional $2,196,660 during theperiod as a result of the settlement of a foreclosure deficiency. 

15. 	Subsequent Events
Subsequent to September 30, 2000, the Company the following material events occurred:

Acquisition of Corporations from Global Eco-Logical Services, Inc. On September 15, 2000, the Company entered into a Lease/Purchase and Management Agreement (the "Agreement") with Global Eco-Logical Services, Inc. ("Global"). Under theAgreement, the Company leased from Global three corporations of which Global was sole shareholder: Tri-State Waste Disposal, Inc.; Lisbon Landfill, Inc.; and All Waste Disposal Service, Inc. (collectively, the "Corporations"). The Company and Global lateramended the Agreement to make it effective as of October 1, 2000, due to difficulties experienced in transferring operations under the Agreement in the middle of an accounting period.

The Agreement provided for a monthly rental of $10 per month or a term equal to the lesser of one year or the date of closing on the Company's purchase of the Corporations pursuant to an option to purchase contained in the Agreement. The Agreementalso provided that the Company would assume the obligation of Global under an issue of convertible notes. The notes bear interest at the rate of 6% per annum, and have a principal amount outstanding of $1,590,000. In conjunction with the Company'sassumption of the notes, the Company and the noteholders modified the terms of the notes to provide that the notes are convertible into shares of common stock of the Company at the current bid price of the Company's common stock, subject to a minimumconversion price of $0.10 per share. In addition, the holders of the notes still have the right to convert the notes into shares of common stock of Global, but in that event the Company is obligated to issue Global that number of shares which the Companywould have issued had the holder chosen to convert its note into shares of the Company's common stock. Furthermore, the Company agreed to register the shares of the Company's common stock into which the notes are convertible within 120 days of theirassumption by the Company. The notes were in default at the time of their assumption by the Company as a result of Global's failure to make scheduled payments of interest thereon, and such defaults have not been cured by the Company. 

Tri-State Waste Disposal, Inc. owns an interstate trucking license, but is not otherwise engaged in active operations. Lisbon Landfill, Inc. owns and operates a 141.154 acre construction and demolition landfill in Lisbon, Ohio. The landfill has apotential remaining capacity of 10,300,000 cubic yards. The landfill has approximately 20 years of useful disposal life remaining before any additional expansion or development. All Waste Disposal Service, Inc. operates a waste collection and haulingcompany in the Philadelphia metropolitan area. The Company had previously sold Lisbon Landfill, Inc. and Tri-State Waste Disposal, Inc. to Global on March 30, 1999.

The Agreement also contained an option to purchase the Corporations for 15,000,000 shares of common stock of the Company. The Company exercised the option and closed on the acquisition on October 1, 2000. The total purchase price for the Corporationswas $3,840,000, consisting of the assumption of $1,590,000 in convertible notes, and the issuance of 15,000,000 shares of common stock valued at $0.15 per share.

Issuance of Common Stock. In October 2000, the Company issued 6,140,000 shares of common stock for services rendered, which included 1,000,000 shares issued to the Company's chairman and chief executive officer, and 1,000,000 shares issued tothe Company's corporate secretary.

In November 2000, the Company issued 4,000,000 shares of restricted stock upon exercise of a warrant held by a consultant to the Company to purchase 4,000,000 shares at $.10 per share. The exercise price was paid by the cancellation of $400,000 ofloans made by the consultant to the Company.

In November 2000, the Company issued a total of 2,400,000 shares to three persons for brokerage services rendered in connection with the Company's purchase of a landfill in Lisbon, Ohio in 1998. The recipients of the stock were originally parties toan agreement under which they were entitled to receive shares of common stock of Continental Investment Corporation with a value equal to $200,000 for brokerage and advisory services in connection with the acquisition. However, the agreement to acquirethe landfill was subsequently assigned to the Company, which actually purchased the landfill. In November 1999, the Company settled a claim by the recipients for compensation due them as a result of the acquisition by entering into an agreement to issueshares of the Company's common stock with a value equal to the Continental common stock they were supposed to receive, based on the value of the company's common stock at the time of the agreement, which settlement was embodied in a settlement agreementdated January 24, 2000. 

Formation of Appalachian Environmental Recovery, Inc. The Company has formed a subsidiary named Appalachian Environmental Recovery, Inc. ("AERI") to develop and operate an alternative fuel manufacturing plant near New Lexington, Ohio. The plantwill process small coal particles, or "coal fines," left behind by previous mining operations into low-sulfur briquettes that will ultimately be sold as an alternative fuel to utility companies. The Company believes the briquettes will have the same BTUas bituminous coal but with much less sulfur content. The plant is the first of five plants that the Company plans to have operational by the end of fiscal 2002. The Company has held a ceremonial groundbreaking for the first plant. However, the actualdevelopment of the plants is contingent upon the Company lining up financing. The Company currently plans to finance the construction of the plants through a combination of debt financing and proceeds of the Equity Line (see below), and may sell minorityinterests in AERI as well. There is no assurance that any such financing will be obtained, and if obtained that it will be on terms favorable to shareholders. 

Offer to Acquire Startec Stock. In November 2000, the Company has made an offer to purchase shares of common stock of Startec, Inc. ("Startec") to certain shareholders of Startec, Inc. Specifically, the Company has offered to exchange twoshares of its common stock for each share of common stock of Startec. In addition, the Company has offered to exchange a warrant to purchase shares of common stock of the Company for each option or warrant held by the Startec shareholder to purchaseshares of common stock of Startec. The completion of the offering is conditioned upon, among other things, the Company's receipt of sufficient shares to give the Company 50.1% ownership of Startec after taking into account 645,125 shares of Startec commonstock currently owned by the Company, and the Company's determination that the offering complies with exemptions from registration under federal securities laws and the laws of the state of residence of any person tendering shares in the offering. In theevent the conditions to the offering are not satisfied, the Company will not purchase any Startec shares in the offering. The conditions to the offering were not satisfied. At this time, the Company is considering whether the abandon the offer, or make amodified offering for the shares. 

Equity Line of Credit and Convertible Debenture Issuance. In November 2000, the Company entered into a $20 million Equity Line of Credit Agreement with a private investor. Under the Equity Line, the investor is obligated to purchase up to $20million in shares of the Company's common stock. Each purchase will be made at between 82% and 90% of the bid price for the Company's common stock at the time of the request, with the exact percentage depending on the use of the proceeds and the bid priceof the Company's common stock at the time of the draw request. The amount the Company can draw at any given time will be the lesser of $2,500,000 or ten percent of the weighted average price of the Company's common stock for the thirty trading days priorto the request multiplied by the total trading volume for the same thirty trading days. The Company may draw on the Equity Line no more often than every fifteen days, except it may draw on the Equity Line within eight days of a prior draw if the draw isrelated to a special activity, such as an acquisition. Funding under the Equity Line is subject to a number of conditions, including but not limited to the registration of any common stock issuable under the Equity Line under the Securities Act of 1933,and that all representations and warranties of the Company under the Equity Line are true and correct at the time of any draw. As consideration for entering into the Equity Line, the Company issued the investor a warrant to purchase 3,000,000 shares ofthe Company's common stock at 110% of the closing price for the common stock on the date of closing. 

Also in November 2000, the Company entered into an agreement to issue $500,000 of its 10% Senior Secured Convertible Debentures to certain investors. The Debentures bear interest at 10% per annum, provide for quarterly payments of interest only untilmaturity, mature two years after issuance, and are secured by 800,000 shares of common stock of Global Eco-Logical Services, Inc. At the option of the investors, the Debentures are convertible into shares of the Company's common stock at the lesser of 70%of the average of the closing bid prices for the Company's common stock for five trading days prior to the closing date or 75% of the average of the five lowest closing bid prices for the twenty-two trading days prior to the date of any conversion. Asconsideration for loaning the Company funds pursuant to the Debenture, the Company agreed to issue the investors warrants entitling them to purchase, in the aggregate, 3,000,000 shares of the Company's common stock at 105% of the closing price for thecommon stock on the date of closing. The Company received funding of $250,000 under the agreement. 

Under both the Equity Line and the Debentures, the Company is obligated to file within thirty days a registration statement with the Securities and Exchange Commission to register the shares issuable under the Equity Line, upon exercise of thewarrants and upon conversion of the Debentures. The Company was further obligated to obtain approval of the registration within 120 days, and to maintain the effectiveness of the registration statement until the investors have disposed of their securitiesin the Company. The Company did not file the registration statement within such 30 day period due to its independent auditor's request that certain financial statements be amended.

Settlement of Solomon Judgment. In November 2000, the Company agreed to settle a judgment against the Company in the amount of approximately $2,940,000. Under the settlement, the Company paid $25,000 cash and agreed to issue 1,050,000 shares ofrestricted common stock to reduce the judgment to $1,500,000, and agreed to pay $132,500 in thirteen weekly installments to satisfy the balance of the judgment. (See Part II, Item 1, Legal Proceedings).

Issuance of Notes. On November 10, 2000, the Company borrowed $100,000 from a private investor pursuant to a demand promissory note which bears interest at 12% per annum. The loan is collaterialized by 500,000 shares of the Company's commonstock. In connection with the loan, the Company issued the investor a warrant to purchase 500,000 shares of common at $0.18 per share.

On December 7, 2000, the Company borrowed $250,000 from a private investor pursuant to a demand promissory note which bears interest at 12% per annum. The loan is collaterialized by 1,500,000 shares of the Company's common stock. In connection withthe loan, the Company issued the investor a warrant to purchase 1,500,000 shares of common at $0.18 per share. In addition, the Company agreed to lower the exercise price to $0.18 per share extend the maturity date for two years from the date of the notewith respect to a warrant to purchase 1,000,000 shares held by the investor and another warrant to purchase 1,200,000 shares held by an affiliate of the investor.

Legal Procedings. During the period ended September 30, 2000, and subsequent thereto, certain material developments occurred in legal proceedings involving the Company. (See Part II, Item 1, Legal Proceedings).
**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

The Company had no revenues in the three months ended September 30, 2000 and 1999. In the nine months ended September 30, 2000 and 1999, the Company's revenues were $116,640 and $746,193, respectively. The Company's revenues in fiscal 2000 weresolely the result of royalties received under a royalty agreement with Startec, Inc. The Company's revenues in fiscal 1999 were derived from waste operations disposed of by foreclosure and sale in 1999. 

The Company reported a net loss from operations during the three months ended September 30, 2000 of ($333,109) as compared to a net loss from operations of ($264,039) for the three months ended September 30, 1999. The Company reported a larger netoperating loss as compared to the prior period as a result of higher general and administrative expenses and increased amortization expense resulting from the acquisition of the Startec, Inc. royalty interest.

The Company reported a net loss from operations during the nine months ended September 30, 2000 of ($1,987,128) as compared to a net loss from operations of ($4,680,053) for the nine months ended September 30, 1999. The Company reported a smaller netoperating loss as compared to the prior period as a result of lower general and administrative expenses and depreciation resulting from the cessation of operations in 1999 at the Company's waste operations, offset by increased amortization expenseresulting from the acquisition of the Startec, Inc. royalty interest.

Selling, general and administrative expenses increased from $264,039 in the three months ended September 30, 1999 to $278,466 in the three months ended September 30, 2000. Selling, general and administrative expenses decreased from $4,660,705 in thenine months ended September 30, 1999 to $1,939,839 in the nine months ended September 30, 2000. The decrease in selling, general and administrative expenses in the nine month period was the result of a lower level of operations resulting from thecessation of operations at the Company's waste operations, as well as lower expenses to defend and settle litigation claims.

During the three months ended September 30, 2000, the Company had a net loss of ($333,109), as compared to net income of $1,475,334 in the three months ended September 30, 1999. The net income in 1999 was principally the result of a gain of $1,739,240recorded as a result of the disposition on September 30, 1999 of a number of inactive subsidiaries. During the nine months ended September 30, 2000, the Company had net income of $15,423,010, as compared to a net loss of ($2,877,916) in the nine monthsended September 30, 1999. The net income in 1999 was principally the result of unusual gains of $18,180,224 recorded as a result of settlements, the reversal of a prior settlement of the Company's liability under certain convertible debentures and thedecision to eliminate a number of accrued liabilities as a result of a comprehensive review of such liabilities. See Notes 11 and 12. During the three and nine months ended September 30, 2000, the Company also recorded an unrealized loss of $152,000 and$770,080, respectively, from the decline in market value of its investment in Global common stock, which resulted in comprehensive income (loss) of ($485,109) and $15,423,010, respectively.

Liquidity and Sources of Capital

The Company's consolidated balance sheet as of September 30, 2000 reflects cash and equivalents of $247, total current assets of $159,890 at historical cost, total current liabilities of $10,373,450, and a working capital deficit of ($10,213,560).The Company's working capital deficit improved considerably from the year ended December 31, 1999 as the result of legal settlements which eliminated certain liabilities and the Company's decision to eliminate certain liabilities as a result of acomprehensive review made of the those liabilities in the period. See Note 13, Reduction of Current Liabilities. Despite the Company's improved working capital position, the Company still has substantial current liabilities which consist primarily of theconvertible debentures, accrued expenses which are seriously delinquent, judgments issued against the Company and advances made by related parties or consultants to the Company. 

As of September 30, 2000, the Company had 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 Company 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 miscellaneousexpenses. For the foreseeable 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. Material developments in litigation involving the Company during the quarter ended September 30, 2000 were:

W.T. "Skip" Leake v. Edward W. Roush, Jr.: This action was filed in the District Court of Tarrant County, Texas, to enforce a judgment which the plaintiff holds against the defendant in the approximate amount of $300,000. In the action, the plaintiffsought and obtained the appointment of a receiver to take possession of and sell approximately 7,000,000 shares of the Company's common stock that Mr. Roush alleges he owns. The plaintiff also sought a ruling from the court that he should be allowed tosell the shares as a holder in due course, notwithstanding the fact that the shares were cancelled pursuant to subsequent rulings in the Nikko Litigation. The Company considers the shares cancelled since they were originally issued pursuant to the NikkoLitigation. In addition, the Company considers the plaintiffs argument that he is a holder in due course of the shares meritless. The court ruled that the plaintiff could not proceed in this action until the plaintiff obtained leave to continue thisaction from the court in the Nikko Litigation, and gave the plaintiff thirty days to obtain that relief. The plaintiff was not successful obtaining that leave within the period allotted by the court.

W.T. "Skip" Leake and Kathy Leake v. WasteMasters, Inc. and Securities Transfer Corporation: On or about September 20, 2000, W.T. "Skip" Leake and Kathy Leake filed a declaratory judgment suit against the Company and, Securities Transfer Corp., theCompany's transfer agent, in the District Court of Tarrant County, Texas. The suit alleges that the Leakes are the rightful owners of 4,000 shares of Company common stock, which the Leakes allege they obtained in payment of legal services. However, theCompany considers the shares cancelled since they were originally issued pursuant to the Nikko Litigation. The Company has a filed a petition to remove the litigation to the United States District Court for the Northern District of Texas. 

Continental Investment Corporation v. Nikko Trading Corporation of America, et al.: On August 8, 2000, Continental Investment Corporation filed an adversary proceeding in the United States Bankruptcy Court for the Northern District of Texas, DallasDivision, against the original plaintiffs in the Nikko Litigation. In the adversary proceeding, Continental sought either a declaratory judgment that it is the owner of the debentures at issue in the Nikko Litigation or a judgment avoiding the transfer ofthe debentures from Continental to the plaintiffs on the grounds that the transfer was a fraudulent transfer. Continental has obtained a judgment by default that it is the owner of the debentures and any shares of common stock of the Company issued inconversion or settlement of the debentures.

Armando Arango, et al. v. WasteMasters, Inc.: On March 31, 2000, the Company was served with a lawsuit by C and D Recycling, Inc., Armando Arango, and entities affiliated with Mr. Arango. In the lawsuit, Mr. Arango claims damages of $3,500,000 basedon the Company's alleged failure to purchase C and D Recycling, Inc. for that amount, another $28,000 which the Company allegedly owes under a consulting agreement, and $560,000 which the Company allegedly owes under an indemnity agreement based on twojudgments which have been entered against the plaintiff. The court recently denied the plaintiffs motion for entry of a default judgment, allowing the Company to answer and defend the action. The Company believes that substantial portions of the actionare without merit and is vigorously defending the action. 

Kapila v. Kelley, Drye and Warren, WasteMasters, Inc., et al.: The bankruptcy trustee for Atlas Environmental, Inc. filed an action in bankruptcy court claiming ownership of $400,000 deposited by the Company in Atlas' case. In addition, the bankruptcytrustee claimed ownership of $100,000 deposited by an entity controlled by A. Leon Blaser, the company's chairman and chief executive officer. The funds had been deposited in October 1998 as a preconfirmation deposit under a plan of reorganization filedby Atlas in its Chapter 11 proceedings, which plan was not confirmed by the court. Alternatively, the trustee alleged that the deposits should be applied against amounts claimed by the trustee from breach of fiduciary duty to Atlas, although the trusteedid not actually assert any claims for breach of fiduciary duty in the lawsuit. The Company filed an answer and counterclaim claiming ownership of $400,000 plus any interest earned thereon. Kelley, Drye and Warren filed a crossclaim against the Companyclaiming $75,000 of any funds owned by the Company as payment for legal services allegedly rendered the Company. In October 2000, the bankruptcy court approved a settlement of this action, in which the funds held by the trustee were distributed asfollows: $147,500 was paid to the Company, $100,000 was paid to the entity controlled by Mr. Blaser, $27,500 was paid to Kelley, Drye and Warren, and the balance of the funds were paid to the trustee. In addition, the trustee executed a general release ofany other claims that Atlas or its subsidiaries had against the Company; however, the release specifically reserved the trustee's right to pursue claims against R. Dale Sterrritt, Jr., the Company's former chairman and chief executive officer, and EdwardRoush, Jr., a former attorney for the Company, who the trustee believed were principally responsible for the trustee's breach of fiduciary duty claims. 

Harold and Mary Ann Solomon v. WasteMasters, Inc.: On November 16, 2000, the Company entered into a settlement agreement with the plaintiffs, who hold a judgment against the Company in the amount of $2,500,000. With interest and attorney's fees, theamount owed under the judgment was approximately $2,940,000. Under the settlement, the Company paid the Solomons $25,000 and agreed to issue the Solomons 1,050,000 shares of common stock in consideration for the Solomons' agreement to reduce the amountowed under the judgment to $1,500,000. In addition, the Solomons and the Company agreed that the balance of the judgment would be satisfied by the payment of $132,500, which is payable in twelve weekly installments of $10,000 each and thirteenthinstallment of $12,500. Each installment payment results in the satisfaction of $75,000 of the amount of the judgment, except that the final installment will result in the satisfaction of the full balance of the judgment regardless of what is owed at thetime.

Michael Reis and Lawrence Katz v. WasteMasters, Inc.: The plaintiffs filed this action in the United States District Court for the District of New Jersey. The plaintiffs sought damages based on a purported contract between the Plaintiffs and theCompany for a financing placement and corporate development fee. In 1998, the case was settled pursuant to agreement which required the Company to pay $30,000 cash at $5,000 per month and 375,000 shares of stock, subject to the requirement that theCompany issue additional shares of common stock six months and twelve months following the settlement date to insure that the plaintiffs receive stock with a value equal to $375,000. The Company defaulted on its cash obligations under the settlement, andthe settlement was subsequently amended to provide for the issuance to the plaintiffs of an additional 1,875,000 shares of restricted stock in lieu of the requirement that additional shares of common stock be issued six and twelve months after thesettlement date, and the issuance of 200,000 shares of unrestricted stock in lieu of the requirement that the Company pay $30,000 cash. The company issued the stock, but did so substantially late and after the Company's stock price had droppedconsiderably. As a result, on August 26, 1999, the plaintiffs sent the Company a letter stating that the Company was in default under the second settlement agreement, and demanded substantial additional shares to settle the action. The Company and theplaintiffs have recently entered into an agreement under which the plaintiffs have retracted their demand for additional shares, and the Company has agreed to cooperate in enabling the plaintiffs to sell their shares in accordance with SEC Rule 144.

In August 2000, the Company was notified that a default judgment had been entered against it by a State Court in Georgia in the amount of approximately $50,000 as a result of the Company's failure to answer a garnishment action filed against it tocollect a judgment against Douglas Holsted, a former officer and director of the Company. The Company has filed a motion to set aside the judgment on the grounds that service was legally insufficient and that the Company is not subject to personaljurisdiction in the State of Georgia. 

On October 31, 2000, two former employees of the Company were sued for approximately $61,000 based upon their personal guaranty of certain leases of equipment to a waste hauling acquired by the Company in 1998. The amount claimed is allegedly theamount owing after the repossession and sale of the equipment. In connection with the Company's purchase of their company, the Company agreed to indemnify the former employees against any liability arising out of the business. The former employees havemade demand on the Company to defend the action and satisfy any judgment that may be rendered against them. At this time, the Company has not determined how it will respond to the claim.

Hudson Transfer Group, Inc. has filed for Chapter 7 bankruptcy protection in the United States Bankruptcy Court for the Southern District of New York, Case No. 99 B 46309. The Company owns an equity interest in the debtor.

The Company has been named in an action styled General Electic Capital Corporation v. Wood Management, Inc. and WasteMasters, Inc., pending in the Superior Court of New Jersey, Bergen County. The action seeks to recover $45,800.30 as a result of theCompany's guarantee dated September 15, 1998 of an equipment loan made to the other defendant in the action. The lawsuit was allegedly served by mail on November 27, 2000. 

The Company has been named in an action styled Center Capital Corporation v. WasteMasters, Inc., et al., pending in the Superior Court of New Jersey, Middlesex County. The lawsuit seeks to recover approximately $250,000 based on equipment loans madeto Wood Management, Inc., MiniMax Enterprises, Inc., and CAT Recycling, Inc., all former subsidiaries, which loans were allegedly guaranteed by the Company. The amount owing is allegedly the deficiency remaining as a result of the repossession and sale ofthe collateral for the loans. 

By a letter dated December 20, 2000, CICG notified the Company that it was in default under a Rescission Agreement entered into by the parties dated January 6, 2000, and threatened to seek conversion of the debentures held by it. Subsequent thereto,CICG filed a Motion to Enforce the Rescission Agreement with the bankruptcy court.
**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 September 30, 2000, the Company issued 1,300,000 shares under the Plan to threeconsultants to the Company. Subsequently, the Company determined that the shares putatively issued under the Plan were not covered by the Plan, and requested that the recipients agree to rescind the issuance of the shares, which rescission will bereported in the period in which the rescission occurred. 
**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 12. The Company remains in default under the debentures.

Effective on October 1, 2000, the Company assumed liability under four convertible debentures in the original principle amount of $1,590,000 in connection with the Company's entry into a Lease/Management Agreement with Global Eco-Logical Services,Inc. At the time of the assumption, the convertible notes were in default by virtue of the failure of Global Eco-Logical Services, Inc. to make payments of interest due thereon. Pursuant to the Lease/Management Agreement, the Company entered intomodification agreements with the noteholders under which the notes were modified, in part, to provide for their conversion into common stock of the Company at the bid price of the common stock immediately prior to the sending of a notice of conversion,subject to a minimum conversion price of $0.10 per share. However, the modification did not waive or cure existing defaults in the notes, and the notes remain in 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: February 2, 2001
/s/ Greg Holsted
 
By: Greg Holsted, Chief Financial Officer************************