<PAGE>

                         SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C.  20549
                                          
                                          
                                     FORM 10-Q
                                          
                                          
Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act
                                      of 1934
                        For The Quarter Ended March 31, 1998
                           Commission File Number 0-14881
                                          
                                          
                                WASTE RECOVERY, INC.
               (Exact Name of Registrant as Specified in its Charter)




          TEXAS                                     75-1833498             
(State or Other Jurisdiction of        (I.R.S. Employer Identification No.)
Incorporation or Organization)



309 S. PEARL EXPRESSWAY, DALLAS, TX              75201
(Address of Principal Executive Offices)         (Zip Code)



                                   (214) 741-3865
                (Registrant's Telephone Number, Including Area Code)


     Indicate by check mark whether the registrant: (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months or for such shorter period that the 
registrant was required to file such reports, and (2) has been subject to 
such filing requirements for the past 90 days. Yes [X]    No [ ]


     Indicate the number of shares outstanding of each of the issuer's 
classes of common stock, at the latest practicable date.  Common stock, no 
par value 17,494,323, May 19, 1998.


                                       2

<PAGE>

PART I:  FINANCIAL INFORMATION
Item 1.  FINANCIAL STATEMENTS


                                WASTE RECOVERY, INC.
                            Consolidated Balance Sheets

<TABLE>
                                       Assets                            March 31, 1998      December 31, 1997
                                       ------                            --------------      -----------------
                                                                          (unaudited)
<S>                                                                      <C>                 <C>
Current Assets:
Cash and cash equivalents                                                $    199,699                   -
 Accounts receivable, less allowance for doubtful accounts
   of $155,574 and $128,602, respectively                                   2,560,303           3,047,265
Other receivables  (note 2)                                                 2,645,274              82,180
Inventories   (note 3)                                                        140,462             186,563
Other current assets   (note 4)                                               930,376             933,760
Restricted cash and cash equivalents   (note 5)                             1,147,566           2,145,362
                                                                         ------------        ------------
         Total current assets                                               7,623,680           6,395,130
                                                                         ------------        ------------
Property, plant and equipment                                              24,044,269          26,451,740
Less accumulated depreciation                                             (10,514,965)        (10,429,868)
                                                                         ------------        ------------
Net property, plant and equipment                                          13,529,304          16,021,872
                                                                         ------------        ------------
Restricted cash and cash equivalents  (note 5)                                172,751             171,898
Bond and debt issuance costs, less accumulated amortization of
   $201,656 and $197,580, respectively                                        126,678             130,754
Goodwill, less accumulated amortization of $269,169 and                              
   $238,025, respectively                                                   1,802,744           1,833,888
Other assets                                                                  518,866             441,866
                                                                         ------------        ------------
                                                                          $23,774,023         $24,995,408
                                                                         ------------        ------------
                                                                         ------------        ------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       3

<PAGE>
                                WASTE RECOVERY, INC.
                             Consolidated Balance Sheets
<TABLE>
                      Liabilities and Stockholders' Equity               March 31, 1998      December 31, 1997
                      ------------------------------------               --------------      -----------------
                                                                          (unaudited)
<S>                                                                      <C>                 <C>
Current Liabilities:
   Current installments of bonds payable   (note 5)                      $  6,689,982        $  7,567,795
   Notes payable   (note 6)                                                 1,374,933             713,861
   Current installments of long-term debt   (note 7)                        2,354,323           2,373,858
   Current installments of capital lease obligations                           63,887              83,328
   Accounts payable                                                         2,746,183           3,168,128
   Other accrued liabilities                                                2,749,630           1,652,425
   Deferred revenue                                                            66,524                 -  
   Deferred grant revenue                                                     386,820             386,820
                                                                         ------------        ------------
         Total current liabilities                                         16,432,282          15,946,215
                                                                         ------------        ------------
Long-term debt, excluding current installments   (note 7)                   2,397,326           2,495,195
Notes payable (note 6)                                                        171,658             170,684
Obligations under capital leases, excluding current installments               19,418              22,708
Deferred grant revenue, noncurrent                                            122,645             219,350
                                                                         ------------        ------------
      Total liabilities                                                    19,143,329          18,854,152
                                                                         ------------        ------------
Stockholders' Equity (note 9)
   Cumulative preferred stock, $1.00 par value, 250,000 shares
      authorized, 203,580 issued and outstanding in 1998 and 1997
      (liquidating preference $15.48 per share, aggregating
      $3,152,170, and $15.31 per share, aggregating $3,117,031,
      in 1998 and 1997, respectively)                                         203,580             203,580
   Preferred stock, $1.00 par value, authorized and unissued
      9,750,000 shares in 1998 and 1997                                             -                   -
   Common stock, no par value, authorized 30,000,000 shares,
      17,494,323 and 17,494,323 shares issued and outstanding
      in 1998 and 1997, respectively                                          407,800             407,800
   Additional paid-in capital                                              18,604,904          18,604,904
   Accumulated deficit                                                    (14,511,710)        (13,001,148)
                                                                         ------------        ------------
                                                                            4,704,574           6,215,136
   Treasury stock, at cost, 103,760 common shares                             (73,880)            (73,880)
                                                                         ------------        ------------
      Total stockholders' equity                                            4,630,694           6,141,256
                                                                         ------------        ------------
Commitments and contingencies
                                                                         $ 23,774,023        $ 24,995,408
                                                                         ------------        ------------
                                                                         ------------        ------------
</TABLE>

See accompanying notes to consolidated financial statements. 

                                       4

<PAGE>

                                WASTE RECOVERY, INC.
                        Consolidated Statements Of Operations

<TABLE>
                                                                            Three Months Ended March 31,
                                                                            ----------------------------
                                                                              1998                1997
                                                                              ----                ----
                                                                           (unaudited)        (unaudited)
<S>                                                                        <C>                 <C>
Revenues:
   Tire-derived fuel sales                                                $ 1,035,927          $  810,165
   Wire sales                                                                 327,762             125,621
   Disposal fees, hauling and other revenue                                 4,747,445           4,918,672
                                                                          -----------          ----------
         Total revenues                                                     6,111,134           5,854,458

Operating expenses                                                          4,893,545           4,625,077
General and administrative expenses                                         1,832,358           1,304,942
Depreciation and amortization                                                 718,666             671,583
                                                                          -----------          ----------
           Operating loss                                                  (1,333,435)           (747,144)
                                                                          -----------          ----------
Other income (expense):
   Interest income                                                             24,692              38,478
   Interest expense                                                          (214,496)           (232,678)
   Other income                                                                96,705             226,482
   Gain (loss) on involuntary conversion of assets  (note 10)                 (84,028)             60,000
                                                                          -----------          ----------
                                                                             (177,127)             92,282
                                                                          -----------          ----------

Net loss                                                                   (1,510,562)           (654,862)

Undeclared cumulative preferred stock dividends                                35,139              35,138
                                                                          -----------          ----------

Net loss available to common shareholders                                 $(1,545,701)         $ (690,000)
                                                                          -----------          ----------

Net loss per share                                                              $(.09)              $(.04)
                                                                          -----------          ----------
                                                                          -----------          ----------

Weighted average number of common shares
   outstanding                                                             17,494,323          17,270,650
                                                                          -----------          ----------
                                                                          -----------          ----------
</TABLE>

See accompanying notes to consolidated financial statements. 


                                       5

<PAGE>

                                WASTE RECOVERY, INC.
                        Consolidated Statements of Cash Flows

<TABLE>
                                                                            Three Months Ended March 31,
                                                                            ----------------------------
                                                                              1998                1997
                                                                              ----                ----
                                                                           (unaudited)        (unaudited)
<S>                                                                        <C>                 <C>
Cash flows from operating activities:
   Net loss                                                              $ (1,510,562)         $ (654,862)
   Adjustments to reconcile net loss to net cash provided by
      operating activities:
         Depreciation and amortization                                        687,622             637,650
         Provision for losses on accounts receivables                          26,972              24,000
         Loss on involuntary conversion of assets                              84,028                 -  
         Amortization of goodwill                                              31,144              33,933
         Interest imputed on discounted note payable                              974               4,503
         Amortization of bond premium                                         (17,813)            (20,038)
   Changes in assets and liabilities:
      Accounts receivable                                                     459,990             291,202
      Note and other receivables                                               34,838             288,204
      Inventories                                                              46,101             277,047
      Other current assets                                                      3,384             (98,047)
      Other assets                                                            (89,779)             92,951
      Accounts payable                                                       (421,945)            (52,196)
      Accrued liabilities                                                     454,624              69,771
      Deferred grant revenue                                                  (96,705)            (96,705)
      Deferred revenue                                                         66,524
      Other                                                                   (25,114)             (8,276)
                                                                          -----------          ----------
         Net cash provided by operating activities                           (265,717)            789,137
                                                                          -----------          ----------
Cash flows from investing activities:
   Purchases of property, plant and equipment                                (192,464)           (931,539)
   Cash placed in restricted accounts                                        (100,632)         (1,273,869)
   Cash payments out of restricted accounts                                 1,097,575           1,068,822
                                                                          -----------          ----------
         Net cash provided (used) by investing activities                     804,479          (1,136,586)
                                                                          -----------          ----------
Cash flows from financing activities:                                        (860,000)
   Payment of bonds payable                                                   817,025            (805,000)
   Proceeds from issuance of notes payable                                   (155,953)                 -  
   Payment of notes payable                                                  (347,142)
   Proceeds from issuance of long term debt                                    54,000                  -  
   Repayment of long-term debt                                               (171,404)            (93,214)
   Repayment of capital lease obligations                                     (22,731)            (20,585)
   Proceeds from issuance of common stock                                         -                62,905
                                                                          -----------          ----------
         Net cash used by financing activities                               (339,063)         (1,203,036)
                                                                          -----------          ----------
Net decrease in cash and cash equivalents                                     199,699          (1,550,485)
Cash and cash equivalents at beginning of period                                   -            1,892,427
                                                                          -----------          ----------
Cash and cash equivalents at end of period                                $   199,699          $  341,942
                                                                          -----------          ----------
                                                                          -----------          ----------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       6

<PAGE>

                                WASTE RECOVERY, INC.
                     Notes to Consolidated Financial Statements
                                   March 31, 1998


Note 1:   ADJUSTMENTS
     The financial information presented as of any date other than December 
31 has been prepared from the books and records without audit.  Financial 
information as of December 31 has been derived from the audited financial 
statements of the Company, but does not include all disclosures required by 
generally accepted accounting principles.  In the opinion of management, all 
adjustments, consisting only of normal recurring adjustments, necessary for a 
fair presentation of the financial information for the periods indicated, 
have been included.  The results of operations for the three months ended 
March 31, 1998, are not necessarily indicative of operating results for the 
entire year. For further information regarding the Company's accounting 
policies, refer to the consolidated financial statements and related notes 
included in the Company's Annual Report on Form 10-K for the year ended 
December 31, 1997.

Note 2:   OTHER RECEIVABLES
     Other receivables includes approximately $2,598,000 due from an 
insurance company for property damage insurance related to the Marseilles 
fire (see note 10).  The Company received all of this amount in May 1998.  

Note 3:   INVENTORIES

     The components of inventories are as follows: 
<TABLE>
                                             March 31, 1998   December 31, 1997
                                             --------------   -----------------
   <S>                                       <C>              <C>
   Manufactured fuel inventory                 $   132,180     $   103,245
   Manufactured wire inventory                       2,784           8,478
   Work-in-process                                   5,498          74,840
                                               -----------     -----------
                                               $   140,462     $   186,563
                                               -----------     -----------
                                               -----------     -----------
</TABLE>
Note 4:   OTHER CURRENT ASSETS

     Other current assets at March 31, 1998 and December 31, 1997 are as
follows:
<TABLE>
                                             March 31, 1998   December 31, 1997
                                             --------------   -----------------
   <S>                                       <C>              <C>
                Prepaid insurance              $   371,519     $   386,684
                Parts inventory                    369,546         473,473
                Other                              189,311          73,603
                                               -----------     -----------
                                               $   930,376     $   933,760
                                               -----------     -----------
                                               -----------     -----------
</TABLE>
Note 5:  BONDS PAYABLE
     In connection with the bonds issued to provide funding for the 
construction of the Illinois facilities, the Company was in default with 
respect to the debt service payments and sinking fund payments due February 
1, 1998.  As a result of the default, the principal and interest payments due 
February 1, 1998 on the bonds, all of which are classified in current 
liabilities, were paid out of the debt service reserve trust funds included 
in current restricted cash.  

Note 6:  NOTES PAYABLE
     On March 31, 1998, the Company was in default due to non-payment of the 
final installment of promissory notes payable in the amount of $150,000 
issued in connection with the acquisition of U.S. Tire Recycling Partners, 
L.P. (U.S. Tire).  One of the noteholders has made demand for payment.


                                       7

<PAGE>

Note 7:  LONG-TERM DEBT
     As of March 31, 1998, the Company was not in compliance with all 
required covenants as a result of non-compliance with certain financial 
covenants.  The Company received a waiver from the bondholder which expires 
November 30, 1998; however, as a result of the Company's default on the bonds 
discussed in Note 5 above, the note is in default, and, accordingly, has been 
classified as current.

Note 8:  CONVERTIBLE SUBORDINATED NOTES
     In connection with the purchase of U.S. Tire in December 1996, the 
Company issued convertible subordinated notes in the aggregate amount of 
$1,850,000 payable to the former equity holders of U.S. Tire.  The Company 
was in default on the convertible subordinated notes as a result of 
non-payment of interest due January 15, 1998 and April 15, 1998.  Upon 
occurrence of an event of default, as defined, the noteholders may convert 
the notes to common stock of the Company at a reduced price of $1.00 per 
share or foreclose on the common stock of New U.S. Tire Recycling 
Corporation, a wholly-owned subsidiary of the Company which owns 84% of U.S. 
Tire.

Note 9    PREFERRED STOCK DIVIDENDS
     Undeclared cumulative preferred stock dividends were $1,116,370 at March 
31, 1998.  Net income or loss is adjusted by the effect of undeclared 
dividends on preferred stock of $35,139 and $35,138 for the three months 
ended March 31, 1998 and 1997, respectively.  The effect was to increase net 
loss per common share by $.002 and by $.002 for the three months ended March 
31, 1998 and 1997, respectively.  Basic and diluted earnings per share are 
the same in 1998 and 1997.

Note 10:  INVOLUNTARY CONVERSION OF ASSETS
     On March 21, 1998, the Company's Marseilles, Illinois facility was 
substantially destroyed by fire.  The facility is covered by replacement and 
business interruption insurance.  This involuntary conversion of assets was 
estimated and recognized in the three months ended March 31, 1998, as follows:
<TABLE>
  <S>                                                           <C>
  Estimated  insurance  proceeds to be received on  property    $ 2,597,932   
  Net book value of property destroyed                           (2,039,379)
                                                                -----------
  Gain on involuntary converstion of property                       558,553

  Estimated clean-up costs                                         (642,581)
                                                                -----------
  Net loss on involuntary conversion                            $   (84,028)
                                                                -----------
                                                                -----------
</TABLE>
Note 11: STATEMENTS OF CASHFLOWS
     The Company paid $304,787 and $336,436 for interest for the three months 
ended March 31, 1998 and 1997, respectively.  No income taxes were paid 
during the three months ended March 31, 1998 and 1997.

Note 12    LITIGATION
     The registrant has no material pending legal proceedings.

Other notes have been omitted pursuant to Rule 10-01 (a)(5) of Regulation S-X.

                                    [End of Page] 

                                       8

<PAGE>

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Form 10-Q under "Item 2.  Management's Discussion 
and Analysis of Financial Condition and Results of Operations", constitute 
"forward-looking statements" within the meaning of the Private Securities 
Litigation Reform Act of 1995 (the "Reform Act").  Such forward-looking 
statements involve known and unknown risks, uncertainties, and other factors 
which may cause the actual results, performance or achievements of Waste 
Recovery, Inc. (the "Company" or "Registrant") to be materially different 
from any future results, performance or achievements expressed or implied by 
such forward-looking statements.  Such factors include, among others, the 
following:  general economic and business conditions; competition; success of 
operating initiatives; development and operating costs; adverse publicity; 
changes in business strategy or development plans; quality of management; 
availability, terms and deployment of capital; business abilities and 
judgment of personnel; availability of qualified personnel; labor and 
employee benefit costs; changes in, or failure to comply with, government 
regulations; and other factors referenced in this Form 10-Q.

ITEM 2:   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
          RESULTS OF OPERATIONS

The Company owns and operates plants in or geographically near Houston, 
Texas, Atlanta, Georgia, Portland, Oregon, Philadelphia, Pennsylvania, St. 
Louis, Missouri, Chicago, Illinois, and Charlotte, North Carolina. 

Regional services are coordinated from the operating bases mentioned above. 
Operations encompass full-service scrap tire disposal and the recycling of 
tires into a supplemental fuel form.  The Company generates revenues from 
scrap tire disposal fees, from the hauling of scrap tires, from the sale of 
processed rubber product for civil engineering purposes, from the sale of 
shredded tires as tire-derived fuel ("TDF"), and from the sale of bead wire 
removed from the tires.

To date, the effects of inflation on the Company's operations have been 
negligible.

                                       9


<PAGE>

                                  GENERAL COMMENTS

The Company suffered a net loss of $1,510,562 on revenues of $6,111,134 in 
the first quarter of 1998 compared to a net loss of $654,852 on revenues of 
$5,854,458 during the same period in 1997.  While revenue remained 
essentially static compared with the same period in 1997, there was a 
significant increase in the Company's net loss which is attributable to 
insufficient tire flow, the conclusion of the Texas tire subsidy program 
which had the effect of reducing tipping fees, and an extraordinary reserve 
taken to cover anticipated employee medical costs.  Additionally, the fire 
loss of the Company's Marseilles facility caused the Company to establish 
reserves for remediation in the amount of $642,581, which resulted in a net 
loss on involuntary conversion of $84,028.

Although the Portland plant continues to maintain a strong position in the 
scrap tire market in the Northwest, TDF markets in this region continue to be 
weak, thus limiting the Company's ability to sell all of the TDF produced at 
this facility.  Consequently, the Company's efforts continue to be focused on 
managing tire inflow to achieve an equilibrium between TDF demand and tire 
inflow so as to mitigate costly diversion costs associated with any excess 
inventory. 

The Houston facility showed reduced levels of tire flow and lower disposal 
fees, which resulted in decreased TDF production and sales.  While the 
Company anticipated a decrease in overall activity resulting from the 
termination of the State of Texas tire subsidy program, the decrease in 
operating levels exceeded the Company's projections and consequently 
operating expenses were not scaled down quickly enough.  Despite these 
problems, demand for TDF in the Houston facility's market area has increased, 
along with prices.  To remedy weak tire flow, the Company has diverted a 
significant portion of the tires that were formerly being delivered to a 
cement kiln in San Antonio to it's Houston facility.

Operations at the Company's Atlanta plant fell short of Management's targets 
primarily as a result of insufficient tire flow.  TDF markets in the Atlanta 
facility's market area continue to be strong.

                                          9

<PAGE>

Operations at the Company's Philadelphia facility improved beginning in March 
as a result of a new TDF customer who was brought to market.  At present this 
customer is capable of taking 100% of the facility's production.  The Company 
continues its efforts to identify and secure new TDF customers in the 
Northeast Region, and is planning to make certain capital improvements to 
this facility in order to increase it's processing capacity once additional 
TDF customers have been identified.

On March 21, 1998 the Company's Marseilles facility was destroyed by fire.  
The Company has subsequently determined that the loss is fully covered by 
insurance, both with respect to the physical loss of the improvements and the 
cost of remediating the property.  The Company has been involved in extensive 
discussions with the State of Illinois in an effort to obtain and assist in 
the form of new moral obligation guarantees for bond issues, the proceeds of 
which would be used to refund the two Illinois bond issues which are 
presently in default, including the one secured by the Marseilles facility.  
The Company has recently concluded an agreement with the State of Illinois 
which would allow for new bond issues to be funded sometime in the end of 
June, and as a consequence the Company has made the decision to rebuild the 
destroyed Marseilles facility. Both Illinois facilities enjoy strong TDF 
markets.  Prior to the fire the Marseilles facility had had significant 
success in increasing its tire flow which would have allowed for close to 
maximum capacity utilization.  The Company has decided to rebuild the 
Marseilles facility, in part because of the improved outlooks in both tire 
flow, and strong demand for TDF at that facility.  Tire flow at the Company's 
Dupo facility continues to improve but still remains below optimal levels.  
The Company is working in various states contiguous to Illinois to bring 
additional tires to this facility.  In the interim, a significant percentage 
of the tires which were formerly being processed by Marseilles are being 
brought to Dupo.  

While U.S. Tire fell marginally short of Management's projections for the 
quarter, it remains solidly profitable with volumes of tire inflow and 
product production exceeding the levels of last year's comparable period.  

                               RESULTS OF OPERATIONS
                     THREE MONTHS ENDED MARCH 31, 1998 COMPARED
                       WITH THREE MONTHS ENDED MARCH 31, 1997

Total revenues of $6,111,134 for the first quarter of 1998 were 4% higher 
than the $5,854,458 earned for the same period in 1996.  The increase is due 
primarily to the acquisitions of WR-Illinois and U.S. Tire.  TDF sales were 
up 28% for the first quarter of 1998 compared to 1997.  TDF sales were up at 
the Atlanta plant for the first quarter of 1998 compared to the same period 
in 1997 due to the fact that the facility was not producing TDF during the 
first quarter of 1997 as the plant was under construction during that period 
as a result of the November 1996 fire.  TDF sales continue to suffer in 
Portland due to a week TDF market in that region.  TDF sales were up at the 
Illinois facilities, as well as at the Houston, Philadelphia and U.S. Tire 
plants.  Wire sales were up significantly with the Atlanta facility having 
resumed full production after the rebuild in the first quarter of 1997, as 
well as strong increases at the Illinois plants.  Disposal, hauling and other 
revenue was down 3% in the first quarter of 1998 compared to the same period 
in 1997, primarily due to a decrease in tire flow at the Portland and Houston 
plants.  Tire flow in the Northwest region has suffered due to increased 
competition with landfills, as well as the result of management's efforts to 
control tire flow to better match the weak demand for TDF.  The Houston plant 
experienced a decrease in tire flow primarily as a result of the elimination 
of the state subsidy in Texas for the disposal of tires.  The elimination of 
the subsidy affected the dynamics of the scrap tire disposal market and 
resulted in a downturn in tire flow during the first quarter of 1998.  Tire 
flow for the Houston plant should rebound as the scrap tire disposal market 
adjusts to the conversion from a subsidized industry and achieves equilibrium 
in the free marketplace.  Tire flow at the Illinois plants showed improvement 
in the first quarter of 1998 compared to the same period in 1997 as the 
plants continue to further establish themselves in the scrap tire disposal 
market as well as benefit from a strong TDF market in that region.

Operating expenses for the first quarter of 1998 were $4,893,545 or 80% of 
revenues, up from $4,625,077 or 79% of revenues for the first quarter of 
1997. The increase in operating costs as a percentage of revenues is 
primarily due to the decreased tire flow and weak TDF market in the Northwest 
region.  The increase is also attributable to elimination of the state 
subsidized tire disposal program in Texas which had a negative impact on the 
Houston facility. The Atlanta plant showed improvement in operating costs as 
a percentage of revenues for the first quarter of 1998 compared to 1997 as 
the plant was in full production in 1998 whereas the plant was in 
reconstruction stages 

                                          10

<PAGE>

in 1997 as discussed above.  The Philadelphia plant showed improvement as the 
result of cleanup projects with stronger profit margins.  

General and administrative expenses of $1,832,358 for the first quarter of 
1998 were higher when compared to $1,304,942 for the same period in 1997.  As 
a percentage of revenues, general and administrative expenses were higher at 
30% for the three month periods ending March 31, 1998 compared to 22% for the 
same period in 1996.  The increase is primarily due to increases in corporate 
management, staff, personnel and worker's compensation and medical insurance 
costs, and other administrative costs resulting from higher levels of 
operating activities.  

Depreciation and amortization expense increased 7% to $718,666 from $671,583 
in the first quarter of 1998 compared to the same period in 1997.  The 
increase is primarily the result of the rebuild of the Atlanta plant which 
was completed in May 1997 after the November 1996 fire at that facility.

Other income decreased in the first quarter of 1998 compared to the same 
period in 1997 due to the sale of a metering unit to an electric power 
utility in the first quarter of 1997.  No such sales occurred in 1998, with 
other income in 1998 representing the amortization of deferred grant revenue 
only.

Interest expense decreased 8% to $232,678 in the first quarter of 1998 
compared to $232,678 in the first quarter of 1997 primarily due to debt 
service on bonds payable and other debt.

                      FINANCIAL CONDITION AS OF MARCH 31, 1998

The Company's working capital balance at March 31, 1998 was a deficit amount 
of $8,808,602.  This number reflects the reclassification of virtually all 
WRI's long term debt as current liabilities, due to cross default provisions 
which were triggered by the February 1 payment default in the Illinois bonds. 
Additionally, the Company's working capital has been adversely affected by 
the operating losses that the Company has sustained during the fourth quarter 
of 1997 and the first quarter of 1998.  While the Company anticipates that a 
substantial portion of its current liabilities will be reclassified to a long 
term debt category, when the Company cures the defaults in the Illinois 
bonds, the Company will still have a large working capital deficit, which 
needs to be eliminated in order for the Company to operate.

Management continues to remain sensitive to the risk that the Company will 
not have the financial strength to sustain itself if operating losses 
continue.  The Company is actively seeking additional sources of debt and 
equity financing, the funding of which would go primarily to resolve the 
working capital deficit.

                                          11

<PAGE>

                                      PART II
                                 OTHER INFORMATION


                                                                      Form 10-Q
                                                                        Part II


Item 6.   EXHIBITS AND REPORTS ON FORM 8-K

          (a)  EXHIBITS

               None

          (b)  REPORTS ON FORM 8-K

               None

Item 27.  FINANCIAL DATA SCHEDULE


                                       12

<PAGE>


                                     SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the 
registrant had duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized.

                                       WASTE RECOVERY, INC.



DATE:  May 20, 1998                    /s/ DAVID G. GREENSTEIN       
                                       --------------------------------------
                                       By: David G. Greenstein
                                       President and Chief Executive Officer
                                       (Principal Executive Officer)

                                       /s/ DONALD R. PHILLIPS        
                                       --------------------------------------
                                       By: Donald R. Phillips
                                       Vice President (Principal Accounting
                                       Officer)


                                       13