SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q

(Mark one)

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

                  For the quarterly period ended June 30, 1998

                                       OR

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


               For the transition period from ________to________.


                           Commission File No. 0-23900


                             IDM ENVIRONMENTAL CORP.
               ---------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)


        New Jersey                                         22-2194790
------------------------------                  --------------------------------
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization) 
                                                


               396 Whitehead Avenue, South River, New Jersey 08882
               ---------------------------------------------------
                    (Address of principal executive offices)


                                 (908) 390-9550
               --------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)


               --------------------------------------------------
              (Former name, former address and formal 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)
has been  subject to such  filing  requirements  for the past 90 days.  
Yes  X   No
   -----   ------

     As of August 17, 1998, 19,158,644 shares of Common Stock of the issuer were
outstanding.

<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                    ----------------------------------------
                                      INDEX

                                                                         Page
                                                                         Number
                                                                        -------
PART I - FINANCIAL INFORMATION

 Item 1.  Financial Statements

          Consolidated Balance Sheets -June 30, 1998 
          and December 31, 1997........................................     1

          Consolidated Statements of Operations - For the six  
          months ended June 30, 1998 and June 30, 1997.................     2

          Consolidated Statement of Operations - For the three 
          months ended June 30, 1998 and June 30, 1997.................     3

          Consolidated Statements of Cash Flows - For the six 
          months ended June 30, 1998 and June 30, 1997.................     4

          Notes to Consolidated Financial Statements...................     7

 Item 2.  Management's Discussion and Analysis of Financial Condition 
          and Results of Operations....................................    11

 Item 3.  Quantitative and Qualitative Disclosures about Market Risk...    16

PART II - OTHER INFORMATION


 Item 2.  Changes in Securities........................................    16

 Item 4.  Submission of Matters to a Vote of Security Holders..........    17

 Item 6.  Exhibits and Reports on Form 8-K.............................    17


 SIGNATURES.............................................. ..............   18



<PAGE>
 

                         PART I - FINANCIAL INFORMATION

ITEM I - FINANCIAL STATEMENTS

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
                                                                                    Unaudited
                                                                                     June 30,       December 31,
ASSETS                                                                                1998             1997
                                                                                 ---------------   --------------
<S>                                                                              <C>                <C>

Current Assets:
  Cash and cash equivalents                                                      $      119,900      $    602,242
  Accounts receivable                                                                 5,301,164         4,094,408
  Notes receivable - current                                                            108,805           116,457
  Inventory                                                                             582,517           582,517
  Costs and estimated earnings in excess of billings                                    154,471           455,823
  Bonding deposits                                                                            -             9,157
  Due from officers                                                                     444,499           369,541
  Prepaid expenses and other current assets                                           1,414,000         1,433,068
                                                                                 ---------------  ----------------
     Total Current Assets                                                             8,125,356         7,663,213

Investments in and Advances to Unconsolidated Affiliates                              2,462,496         3,453,309
Investment in Affiliate, at cost                                                      1,893,125         1,715,000
Notes Receivable - long term                                                          1,381,155         1,381,155
Debt Discount and Issuance Costs                                                        270,000         4,610,166
Deferred Income Taxes                                                                 4,570,000         4,170,000
Property, Plant and Equipment                                                         3,423,795         3,277,116
Other Assets                                                                            880,746           880,746
                                                                                 ---------------  ----------------
                                                                                 $   23,006,673     $  27,150,705
                                                                                 ===============  ================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Current portion of long-term debt                                              $      455,340     $   3,566,393
  Accounts payable and accrued expenses                                               5,153,632         5,159,635
  Billings in excess of costs and estimated earnings                                    867,568            86,604
                                                                                 ---------------  ----------------
     Total Current Liabilities                                                        6,476,540         8,812,632

Long-Term Debt                                                                          160,834           258,686
                                                                                 ---------------  ----------------

     Total Liabilities                                                                6,637,374         9,071,318
                                                                                 ---------------  ----------------

Commitments and Contingencies

Stockholders' Equity:
  Common stock, authorized 75,000,000 shares $.001 par value, issued
  and outstanding 17,864,302 in 1998 and 14,513,073 in 1997                              17,863            14,513
  Additional paid-in capital                                                         51,431,761        38,497,705
  Convertible preferred stock, authorized 1,000,000 shares $1.00 par value
  Series B, Issued and outstanding 0 in 1998 and 270 shares in 1997, 
  stated at conversion value of $10,000 per share                                             -         2,700,000
  Series C, Issued and outstanding 3,600 shares, stated at conversion value 
  of $10,000 per share                                                                3,600,000                 -
 

  Retained earnings (deficit)                                                       (38,680,325)      (23,132,831)
                                                                                 ---------------  ----------------
                                                                                     16,369,299        18,079,387
                                                                                 ---------------  ----------------

                                                                                 $   23,006,673     $  27,150,705
                                                                                 ===============  ================

  ----------------------------------------------------------------------------------------------------------------
</TABLE>

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



                                       1
<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>

                                                                    For the Six Months Ended June 30,
                                                                        1998                 1997
                                                                   ---------------      -------------
<S>                                                                <C>                    <C>

Revenue:
  Contract income                                                   $10,015,549          $7,794,201
  Sale of equipment                                                           -              28,550
                                                                   --------------       -------------
                                                                     10,015,549           7,822,751
                                                                   --------------       -------------
Cost of Sales:
  Direct job costs                                                   11,494,348           7,380,087
  Cost of equipment sales                                                     -              22,413
                                                                   --------------       -------------
                                                                     11,494,348           7,402,500
                                                                   --------------       -------------

Gross Profit (loss)                                                  (1,478,799)            420,251
                                                                   --------------       -------------

Operating Expenses:
  General and administrative expenses                                 6,380,722           4,030,728
  Depreciation and amortization                                         318,246             375,841
                                                                   --------------       -------------
                                                                      6,698,968           4,406,569
                                                                   --------------       -------------

Loss from Operations                                                 (8,177,767)         (3,986,318)

Other Income (Expense)
  Interest income(Expense)                                           (4,322,684)             37,534
                                                                   --------------       -------------

Loss before Credit for Income Taxes                                 (12,500,451)         (3,948,784)

Credit for Income Taxes                                                (400,000)           (680,000)
                                                                   --------------       -------------

Net Loss                                                            (12,100,451)         (3,268,784)

Preferred Stock Dividends including $3,330,000 and 
   $844,521 amortization of  beneficial conversion feature 
   in 1998 and 1997.  Total amounts of $3,330,000 and $1,109,589 
   for 1998 and 1997                                                  3,447,043             924,062
                                                                   --------------       -------------

Net Loss on Common Stock                                           ($15,547,494)        ($4,192,846)
                                                                   ==============       =============

Loss per Share:
  Basic Loss per share                                                   ($0.91)             ($0.45)
                                                                   ==============       =============

  Diluted Loss per share                                                 ($0.91)             ($0.45)
                                                                   ==============       =============

  Basic common shares outstanding                                    17,126,231           9,602,730
                                                                   ==============       =============

  Diluted common shares outstanding                                  17,126,231           9,602,730
                                                                   ==============       =============

----------------------------------------------------------------------------------------------------
</TABLE>

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


                                       2
<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>

                                                                            For the Three Months Ended June 30,
                                                                                1998                 1997
                                                                             ------------        -----------
<S>                                                                          <C>                  <C>

Revenue:
  Contract income                                                             $4,846,791          $4,129,787
  Sale of equipment                                                                    -                   -
                                                                            ------------         -----------
                                                                               4,846,791           4,129,787
                                                                            ------------         -----------
Cost of Sales:
  Direct job costs                                                             6,742,025           3,391,708
  Cost of equipment sales                                                              -                   -
                                                                            ------------         -----------
                                                                               6,742,025           3,391,708
                                                                            ------------         -----------

Gross Profit (Loss)                                                          (1,895,234)             738,079
                                                                            ------------         -----------

Operating Expenses:
  General and administrative expenses                                          2,533,107           1,863,074
  Depreciation and amortization                                                  184,466             219,782
                                                                            ------------         -----------
                                                                               2,717,573           2,082,856
                                                                            ------------         -----------

Loss from Operations                                                         (4,612,807)         (1,344,777)

Other Income (Expense):
  Interest income (expense)                                                  (1,145,998)            (19,710)
                                                                            ------------         -----------

Loss before Credit  for Income Taxes                                         (5,758,805)         (1,364,487)

Credit for Income Taxes                                                                -           (230,000)
                                                                            ------------         -----------

Net Loss                                                                     (5,758,805)         (1,134,487)

Preferred Stock Dividends including $3,226,000 and $554,795 
   amortization of beneficial conversion feature in 1998 and 1997.  
   Total amount of $3,330,000 and $1,109,589 for 1998 and 1997                3,289,000             607,295
                                                                            ------------         -----------

Net Loss on Common Stock                                                    ($9,047,805)        ($1,741,782)
                                                                            ============         ===========

Loss per Share:
  Basic Loss per share                                                           ($0.51)             ($0.18)
                                                                            ============         ===========

  Diluted Loss per share                                                         ($0.51)             ($0.18)
                                                                            ============         ===========

  Basic common shares outstanding                                             17,747,491           9,602,370
                                                                            ============         ===========

  Diluted common shares outstanding                                           17,747,491           9,602,370
                                                                            ============         ===========

 -----------------------------------------------------------------------------------------------------------
</TABLE>

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



                                       3
<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>

                                                                                      For the Six Months Ended June 30,
                                                                                          1998                1997
                                                                                      ------------        ------------
<S>                                                                                  <C>                  <C>    

Cash Flows from Operating Activities:
  Net loss                                                                         $ (12,100,451)         ($3,268,784) 
  Adjustments to reconcile net loss to net cash used in operating activities:
      Deferred income taxes                                                             (400,000)            (680,000)
      Depreciation and amortization                                                      325,649              306,475
      Amortization of debt discount and issuance costs                                 4,306,786                    -
      Compensation cost of consultant stock options                                    1,871,400                    -
      Decrease (Increase) In:
        Accounts receivable                                                           (1,206,756)           2,131,672
        Notes receivable                                                                   7,652              (39,014)
        Costs and estimated earnings in excess of billings                               301,352            1,304,565
        Prepaid expenses and other current assets                                         19,068               95,624
        Bonding deposits                                                                   9,157               46,474

      Increase (Decrease) In:
        Accounts payable and accrued expenses                                            325,971           (2,649,014)
        Billings in excess of costs and estimated earnings                               780,964               82,787
                                                                                   --------------         --------------
          Net cash used in operating activities                                       (5,759,208)          (2,669,215)
                                                                                   --------------         --------------

Cash Flows from Investing Activities:
  Acquisition of property, plant and equipment                                          (472,328)             (36,552)
  Proceeds from disposal of property, plant and equipment                                      -               17,707
  Investment in and advances to unconsolidated affiliates                                990,813                    -
  Acquisition of other assets                                                           (178,125)            (267,179)
  Loans and advances to officers                                                         (74,958)             (93,573)
                                                                                   --------------         --------------
          Net cash provided by (used in)  in investing activities                        265,402             (379,597)
                                                                                   --------------         --------------

Cash Flows from Financing Activities:
  Net proceeds from convertible preferred stock issuance                               3,240,000            2,780,000
  Principal payments on long-term debt                                                  (340,146)            (224,396)
  Long term debt borrowing                                                               156,238              763,710
  Preferred stock dividends                                                             (117,043)             (79,541)
  Proceeds from exercise of stock options and warrants                                 2,072,415                    -
                                                                                   --------------        --------------
          Net cash provided by financing activities                                    5,011,464            3,239,773
                                                                                   --------------        --------------

Increase (Decrease) in Cash and Cash Equivalents                                        (482,342)             190,961

Cash and Cash Equivalents, beginning of period                                           602,242            1,001,254
                                                                                   --------------        --------------

Cash and Cash Equivalents, end of period                                           $     119,900         $  1,192,215
                                                                                   ==============        ==============

-----------------------------------------------------------------------------------------------------------------------
</TABLE>

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



                                       4
<PAGE>


                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                                   (Continued)
<TABLE>

                                                                      For the Six Months Ended June 30,
                                                                          1998               1997
                                                                      ------------       ------------
<S>                                                                   <C>                 <C>    

Supplemental Disclosures of Cash Flow Information:

  Cash paid during the year for:

    Interest                                                            $    231,205      $   122,994
                                                                        =============     ============
    Income taxes                                                        
                                                                                   -
                                                                        =============     ============
Supplemental Disclosure of Noncash Investing and Financing Activities:
  Conversion of convertible promissory notes to common stock            $  3,025,000
                                                                        =============     ============
  Conversion of preferred stock to common stock                         $  2,700,000
                                                                        =============     ============
  Beneficial conversion feature of convertible preferred stock          $  3,330,000
                                                                        =============     ============

------------------------------------------------------------------------------------------------------
</TABLE>

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



                                       5
<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   INTERIM PRESENTATION

     The interim consolidated  financial statements are prepared pursuant to the
     requirements  for  reporting  on Form 10-Q.  These  statements  include the
     accounts  of IDM  Environmental  Corp.  and  all of its  wholly  owned  and
     majority owned  subsidiary  companies.  The December 31, 1997 balance sheet
     data was derived from audited financial statements but does not include all
     disclosures  required by  generally  accepted  accounting  principles.  The
     interim   financial   statements  and  notes  thereto  should  be  read  in
     conjunction  with  the  financial  statements  and  notes  included  in the
     Company's Form 10-K for the year ended December 31, 1997. In the opinion of
     management,  the interim financial  statements reflect all adjustments of a
     normal  recurring  nature necessary for a fair statement of the results for
     the interim periods presented. The current period results of operations are
     not necessarily indicative of results which ultimately will be reported for
     the full year ending December 31, 1998.

2.   CONTINGENCIES

     On August 15, 1996, the U.S.  Department of Labor,  Occupational Safety and
     Health  Administration  ("OSHA") issued three citations and notification of
     penalty in the  aggregate  amount of $147,000 on the Company in  connection
     with  the  accidental  death  of  an  employee  of  one  of  the  Company's
     subcontractors on the United  Illuminating  Steel Point Project job site in
     Bridgeport,  Connecticut.  A complaint was filed against the Company by the
     Secretary of Labor,  United  States  Department  of Labor on September  30,
     1996. A hearing was  conducted in the matter in April,  1997. In June 1998,
     the Company  received a copy of the written decision filed by OSHA's Review
     Commission.  The Commission vacated the first alleged wilful citation,  but
     affirmed each of the second and third wilful citations,  imposing a penalty
     in the amount of $70,000 for each citation. The Company strongly objects to
     the  Commission's  finding  on the basis  that it cannot  be  sustained  as
     matters  of fact or law and has filed a timely  Notice  of Appeal  with the
     OSHA Review  Commission for Discretionary  Review,  which body has accepted
     jurisdiction  of the  matter  on  administrative  appeal.  The  Company  is
     contesting the Citations and Notification of Penalty.

     Also in connection with this accidental  death, the employee's estate filed
     a complaint for wrongful death against the subcontractor and the Company on
     February 11, 1997.  The estate seeks  damages in the amount of $45 million.
     The Company is being  defended  by the  subcontractor's  insurance  carrier
     pursuant to the  subcontractor's  obligation  to defend and  indemnify  the
     Company with respect to the actions of its (subcontractor's)  employees and
     agents.  The Company will be fully  indemnified for any liability,  if any,
     for any potential  judgement or  settlement in this matter and,  therefore,
     the action is not expected to have any material effect.

     In November of 1996, a shareholder filed a class action lawsuit against the
     Company and certain directors and officers of the Company.  The suit, filed
     in the Superior  Court of New Jersey,  Middlesex  County,  as  subsequently
     amended in June  1997,  alleges  that the  Company  disseminated  false and
     misleading  financial  information to the investing public between March 8,
     1996 and November 18, 1996 and seeks  damages in an  unspecified  amount to
     compensate  investors who purchased  the Company's  securities  between the
     indicated dates, as well as the disgorgement of profits allegedly  received
     by some of the individual defendants from sales of common stock during that
     period.  A written  settlement  agreement has been executed by  plaintiff's
     counsel on behalf of the class. Subject to final court approval, the matter
     will be settled and finally  resolved with the payment of $1,125,000 to the
     class. The entire  settlement sum will be paid by the Company's  director's
     and officer's  ("D&O") insurance policy carrier pursuant to the obligations
     owed by the carrier under the Company's existing D&O policy. The settlement
     will cover the class period March 8, 1996 to June 5, 1997. The  settlement,
     as expressly  reflected  in the  settlement  documents,  has been made as a
     business  accommodation  only,  and neither the Company,  nor any director,
     officer or employee  of the  Company  has  admitted or will admit any wrong
     doing of any kind. With the closing of the settlement, which is expected by
     October,  1998, the action will be dismissed with prejudice and the Company
     and each of the  individuals  who have  been  named as  defendants  will be
     released from any and all claims for the entire class period.



                                       6
<PAGE>


     On April 1, 1997,  Enviropower  Industries Inc., formerly Continental Waste
     Conversion Inc.  ("Enviropower"),  commenced an action in court in Calgary,
     Alberta (Action No.  9701-04774)  against IDM Environmental  Corp.,  Global
     Waste & Energy Inc., formerly  Continental Waste Conversion  International,
     Inc., a Delaware Corporation ("Global Delaware"),  Global Waste and Energy,
     Inc., formerly Continental Waste Conversion  International Inc., an Alberta
     Corporation  ("Global  Alberta")  together  with two  former  officers  and
     directors of Enviropower who are now employed by Global  Alberta.  IDM owns
     90% of the issued and outstanding shares of Global Delaware. Global Alberta
     is a wholly owned subsidiary of Global Delaware.  The action arose from the
     agreements  entered into between  Enviropower  and IDM on or about July 19,
     1996 (the "Agreements"),  which provided, among other things, for the grant
     to Global  Alberta of  Enviropower's  right,  title and interest in certain
     worldwide  marketing and sales agreements and to an exclusive,  irrevocable
     license  granted to Global  Delaware to market and use  certain  technology
     outside Canada in connection  with the  environmentally  safe conversion of
     certain domestic  industrial and agricultural  solid waste into energy (the
     "Technology").  Enviropower  is seeking to set aside the  Agreements on the
     alleged basis that its shareholders did not approve the transaction.


2.   CONTINGENCIES (Continued)

     In  addition,  Enviropower  is  claiming  damages  for loss of its right to
     market and use the  Technology  outside of Canada  resulting  in an alleged
     estimated loss of $30 million.  Enviropower also seeks  indemnification for
     liabilities allegedly incurred by Global Alberta in the name of Enviropower
     in the amount of $363,000,  a  declaration  that all profits,  interest and
     benefits  arising  from the  Agreements  be paid to  Enviropower,  punitive
     damages of $1  million,  costs and  interest  plus such  further  and other
     relief  as is more  particularly  set out in the  Statement  of  Claim.  At
     present,  while  Enviropower  has filed a Notice to Produce  documents  and
     Notice to Select an Officer on May 30, 1997,  it has not advanced the claim
     in any respect  subsequent  to that time, in large part due to its apparent
     insolvency.  On June 17,  1997,  IDM,  Global  Alberta and Global  Delaware
     commenced an action in Court in Calgary,  Alberta  (Action No.  9701-08705)
     against   Envirpower   seeking  to  enforce  the   Agreements   and,   more
     specifically,  an  injunction  to restrain  Enviropower  from,  among other
     things, selling, marketing,  exporting,  licensing,  exploiting or using in
     any manner the Technology  outside of Canada,  together with damages in the
     amount of  $160,000  owing  pursuant  to a  Promissory  Note owed to Global
     Alberta.  IDM has also  alleged  its  entitlement  to special  and  general
     damages on  account  of  Enviropower's  intentional  interference  with its
     contractual  relations in the estimated  amount of $50 million,  aggravated
     and punitive  damages in the amount of $1 million,  respectively,  together
     with interest and costs.

     On June 20, 1997,  IDM,  Global Alberta and Global Delaware were successful
     in  obtaining an Interim  Injunction  Order  protecting  it's rights to the
     Technology from  interference  by Enviropower.  On September 19, 1997, IDM,
     Global  Alberta  and Global  Delaware  were  successful  in  extending  the
     operation  of the initial  Injunction  Order to trial.  On March 20,  1998,
     Enviropower  Industries,  Inc.  (Formerly,   Continental  Waste  Conversion
     International,  Inc. ("CWC") ), filed for bankruptcy  protection in Calgary
     Bankruptcy  Court.  At present,  pursuant to Canadian  Bankruptcy  law, the
     matter commenced by IDM, et al., has been stayed, and the Trustee appointed
     by the  Court has  indicated  that he has no  intention  of  continuing  to
     prosecute the matter.  The  preliminary  injunction  previously  granted in
     favor of IDM and Global remains in full force and effect  protecting  IDM's
     license rights to the Technology  against  infringement  by Enviropower (or
     the Trustee on its behalf) and/or any other party. The Company is presently
     awaiting  further  word from the Trustee  concerning  his  intentions  with
     respect to liquidation of the Bankrupt estate.

3.   CONVERTIBLE  PREFERRED  STOCK  SERIES C,  "LOCK-UP  WARRANTS"  AND  "RELOAD
     WARRANTS"

     On  February  13,  1998,  the  Company  sold  3,600  shares  of Series C 7%
     Convertible Preferred Stock and 2,350,000 Four Year $5.00 Warrants (amended
     on June 2, 1998 to $3.75).  The securities  were issued to five  accredited
     investors.  The aggregate  sales price of such  securities was  $3,600,000.
     Commissions  totaling 10% were paid in connection  with the placement.  The
     securities  were offered  pursuant to  Regulation D. The offer was directed
     exclusively  to a limited  number of accredited  investor  without  general
     solicitation or advertising and based on representations from the investors
     that such investors  were  acquiring for  investment  The  securities  bear
     legends  restricting  the resale  thereof.  The Series C Preferred Stock is
     convertible into Common Stock at the lesser of (i) $4.50 per share (amended
     on June 2, 1998 to $3.25) or (ii) 75% of the  average  closing bid price of
     the Common Stock during the five trading days prior to conversion. The Four
     Year $3.75 Warrants are exercisable for a four year period at the lesser of
     $3.75 per share or the lowest  conversion  price of the Series C  Preferred
     Stock.  Conversion of the Series C Preferred Stock and exercise of the Four
     Year $3.75  Warrants  was subject to the issuance of a maximum of 3,285,438
     shares of Common Stock on conversion unless the shareholders of the Company
     have approved issuance beyond that level upon conversion. In the absence of
     shareholder  approval of issuances above 3,285,438  shares,  the holders of
     Series C Preferred Stock and Four Year $3.75 Warrants remaining outstanding
     if and when 3,285,438 shares have been issued will have the right to demand
     redemption of the Series C Preferred Stock at $1,250 per share plus accrued
     dividends and to demand  redemption of the Four Year $3.75  Warrants at the
     pre-tax  profit such  holders  would have  realized had the Four Year $3.75
     Warrants been exercised at the time  redemption is demanded.  Further,  the
     Company has the right,  upon notice to the holders,  to redeem any Series C
     Preferred  Stock  submitted  for  conversion at a price or $2.75 of less at
     125% of the principal  amount of such Series C Preferred Stock plus accrued
     and unpaid dividends. The Series C Preferred Stock pays dividends at 7% per
     annum  payable  quarterly  and on  conversion  or at  redemption in cash or
     Common  Stock,  at the  Company's  option.  On June 2, 1998,  at the Annual
     Stockholders Meeting, the shareholders approved a proposal for the issuance
     of shares in excess of 3,285,438.

                                       7
<PAGE>

                    IDM ENVIRONMENTAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Continued)

3.   CONVERTIBLE  PREFERRED  STOCK  SERIES C,  "LOCK-UP  WARRANTS"  AND  "RELOAD
     WARRANTS" (Continued)

     On  February  11,  1998,  the  Company  issued  1,270,000  Three Year $4.50
     Warrants  (the  "Lock-Up  Warrants").  The Lock-Up  Warrants were issued to
     three accredited investors. The Lock-Up Warrants were issued in conjunction
     with the execution of Lock-Up  Agreements by the holders of $3.00  Warrants
     of the Company  whereby the holders of such  warrants  agreed not to resell
     any shares  underlying  those  warrants prior to July 30, 1998. The Lock-Up
     Warrants were offered  pursuant to Section 4(2) of the Securities  Exchange
     Act of 1933, as amended.  The offer was directed  exclusively  to a limited
     number of accredited  investors without general solicitation or advertising
     and based on  representations  from the investors  that such investors were
     acquiring for  investment.  The  securities  bear legends  restricting  the
     resale  thereof.  The Lock-Up  Warrants  are  exercisable  for a three year
     period at $4.50 per  share.  

     On June 2,  1998,  the  Company  issued  266,875  $6.00 and  266,875  $6.75
     Warrants (the "Reload  Warrants").  The $6.00  Warrants and $6.75  Warrants
     were issued as an inducement  for early  exercise by the holders of certain
     $3.00  Warrants and are  exercisable to the extent of one $6.00 Warrant and
     one $6.75 Warrant for each $3.00 Warrant  previously  exercised.  The $6.00
     Warrants  and  $6.75  Warrants  are  exercisable  for a period  of one year
     commencing  June 8, 1998 to  purchase  Common  Stock at $6.00 and $6.75 per
     share,  respectively.  Exercise of the $6.00 Warrants and $6.75 Warrants is
     subject  to the  restrictions  that  the  holders,  individually,  will not
     beneficially own in excess of 4.99% of the Company's Common Stock following
     any  exercise.  Exercise of the $6.00  Warrants and $6.75  Warrants is also
     subject to amendment  of the  Company's  Certificate  of  Incorporation  to
     increase the  authorized  shares of Common Stock to provide for an adequate
     number of  authorized  and  unissued  shares of Common  Stock to permit the
     exercise or conversion of all outstanding convertible securities.

4.   EARNINGS PER SHARE

     The Company is calculating earnings per share to comply with the recent SEC
     staff  position  on  accounting  for  securities   issued  with  beneficial
     conversion features.  This accounting requires that the Company reflect the
     difference  between the market price of the Company's  common stock and the
     applicable  conversion  rate  on  the  convertible  preferred  stock  (note
     payable) as a dividend  (interest  expense) at the issue date and  amortize
     from the issue date of the convertible security.  The beneficial conversion
     feature of the Series B preferred stock was $1,109,589 and was amortized as
     a dividend over a 180 day period from February 12, 1997,  the issue date of
     the convertible  preferred stock. The beneficial  conversion feature of the
     Company's  convertible  notes and related  warrants was  $4,818,750 and was
     recorded as  additional  interest  expense from August 13, 1997,  the issue
     date of the  convertible  notes,  to  March  4,  1998,  the  date  the last
     convertible note was converted into common stock. The beneficial conversion
     feature of the Series C preferred stock and related warrants was $3,330,000
     and was amortized as a dividend from the issue date,  February 13, 1998, to
     June 22, 1998, the date the Registration  Statement of the underlying stock
     was declared effective.

5.   STOCKHOLDERS' EQUITY

     During the six months  ended June 30,  1998,  the  remaining  270 shares of
     Series B  Convertible  Preferred  Stock were  converted,  resulting  in the
     issuance of an aggregate of 1,359,441 shares of common stock.

     Additionally, during the period, the remaining $3,025,000 of 7% Convertible
     Notes  were  converted,  resulting  in  the  issuance  of an  aggregate  of
     1,152,669 shares of common stock. Debt discount of $4,205,886 was amortized
     as  additional  interest  expense on the  convertible  notes during the six
     months ended June 30, 1998. The  unamortized  balance of deferred  issuance
     costs of $260,223  were charged to paid in capital upon  conversion  of the
     convertible notes to common stock.

     During the six months ended June 30, 1998,  658,462  Class A Warrants  were
     exercised  resulting in net proceeds to the Company of $1,439,297;  288,750
     Three Year Warrants were exercised resulting in net proceeds to the Company
     of $629,063;  and, 2,027 stock options were exercised resulting in proceeds
     to the Company of $4,054.

6.   CONSULTANT STOCK OPTIONS

     During the six months ended June 30, 1998, the Company granted  immediately
     exercisable  options to consultants to purchase  1,220,000 shares of common
     stock at the  market  price of the  Company's  common  stock at the date of
     grant. The Company recorded a non-cash  compensation  expense of $1,871,400
     during the first quarter in connection with the grant of those options.

7.   SUBSEQUENT EVENTS

     On  August  11,  1998,  the  Company  sold  1,500  shares  of  Series RR 6%
     Convertible  Preferred  Stock. The securities were issued to one accredited
     investor.  The aggregate  sales price of such  securities  was  $1,500,000.
     Commissions  totaling 10% were paid in connection  with the placement.  The
     securities  were offered  pursuant to  Regulation D. The offer was directed
     exclusively to a single accredited investor without general solicitation or
     advertising  and  based on  representations  from the  investor  that  such
     investor  was  acquiring  for  investment.   The  securities  bear  legends
     restricting the resale thereof.

     The Series RR  Preferred  Shares are  convertible  into Common Stock at the
     lesser of (i) $2.25 per share or (ii) 75% of the average  closing bid price
     of the Common  Stock  during  the five  trading  days prior to  conversion.
     Conversion of the Preferred  Shares is subject to the issuance of a maximum
     of 3,600,000  shares of Common Stock on conversion  unless the shareholders
     of the Company have approved issuance beyond that level upon conversion. In
     the absence of shareholder  approval of issuances above  3,600,000  shares,
     the holders of Preferred Shares remaining outstanding if and when 3,600,000
     shares  have been issued  will have the right to demand  redemption  of the
     Preferred Shares at 120% of the principal balance outstanding. Further, the
     holder of the  Preferred  Shares has the right to demand  redemption of any
     Preferred  Shares  remaining  outstanding in the event that (1) the Company
     carries out a placement  of common  stock or  securities  convertible  into
     common stock on or before the effective date of a registration statement to
     be filed covering the shares  underlying  the Preferred  Shares and (2) the
     holder  elects not to exercise  its right of first  refusal with respect to
     such securities.  In the event the holder exercises its redemption right in
     connection with a subsequent  offering,  the Company is obligated to redeem
     the remaining  Preferred  Shares for (1) cash in an amount equal to 125% of
     the principal  balance  outstanding  plus accrued  dividends and (2) in the
     event the  Company's  common  stock is trading  above  $3.25 at the time of
     redemption,  the issuance of up to 461,539 two year warrants exercisable at
     $3.25 per share.  The Preferred Shares pay an annual dividend of 6% payable
     semi-annually or on conversion or at redemption in cash or Common Stock, at
     the Company's option.



                                       8
<PAGE>


Item 2. Management's  Discussion and Analysis Of Financial Condition And Results
        Of Operations.

This report contains  forward-looking  statements  within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of Securities  Exchange Act of
1934.  Actual  results  could  differ  materially  from those  projected  in the
forward-looking  statements  as a result of the risk  factors  set forth in this
report.

Three Months Ended June 30, 1998 Compared with June 30, 1997

The Company's total revenues  increased by approximately 17% from $4,130,000 for
the quarter  ended June 30, 1997 to  $4,847,000  for the quarter  ended June 30,
1998.  The  increase  in  contract   service  revenues  in  1998  over  1997  is
attributable to an increase of approximately one million dollars in our projects
in our Oak Ridge office.

Direct job costs increased by approximately  99% from $3,392,000 for the quarter
ended June 30,  1997 to  $6,742,000  for the same  period in 1998.  The  primary
elements  of such  increase  in job costs were job  salaries  and  material  and
supplies.   The  increase  in  job  costs  was   attributable  to  unforeseeable
developments on the Company's  Boston State Hospital and East Dam projects which
resulted in negative gross margin from these projects of $1.9 million dollars on
total contract revenues of $4.8 million dollars in the quarter.

IDM is a  subcontractor  to the prime  contractor  on the Boston State  Hospital
project.  IDM, in turn,  subcontracted  with  Dockside  Dismantling  Corporation
("Dockside").  Dockside defaulted on it's subcontract with IDM and abandoned the
work for which it was, and remains,  responsible.  In addition,  on or about May
27, 1998, the project owner's  consulting  engineer notified IDM of the claim of
certain  work  deficiencies  for  which  Dockside  and,  derivatively,  IDM  are
allegedly responsible. IDM has estimated the additional costs to complete and to
correct Dockside's work to be in excess of $1.2 million dollars and has recorded
this amount in it's financial  statements for the quarter. IDM made an immediate
claim against the bond ($500,000  performance and $500,000  payment) provided by
Dockside's  surety company.  The surety company has disclaimed  coverage and the
issue of the enforceability of the Bond is now the subject of litigation pending
in Federal Court in the Commonwealth of Massachusetts. Trial is now scheduled in
the matter for February 1999.  IDM expects to receive  payment for and recognize
revenues for the work performed in subsequent  periods.  These revenues have not
been recognized in the financial statements.

With respect to the East Dam project,  upon transition from the north end of the
dam to the south end of the dam, the estimated  drill footage of the project was
substantially  reduced compared to the bid package for the project. As a result,
the total estimated revenues from the project was reduced from approximately $20
million to approximately $15 million. The impact on the financial statements for
the quarter is  approximately  a negative  $700,000 in gross  margin.  While the
project is still expected to show a profit,  increased  costs during the quarter
for  unapproved  change  orders and a revised  estimate  of lower  revenues  has
decreased  the  expected  gross  margin   significantly.   In  accordance   with
conservative  accounting  principles,  all  costs  have been  recognized,  while
expected revenues from unapproved change orders and claims will be recognized in
subsequent periods when they are received.  The Company expects to submit claims
on this project in excess of eight million dollars.  

While  total   revenues   increased  by  17%  for  the   quarter,   general  and
administrative  expenses increased 36 % from $1,863,000 during the quarter ended
June 30,  1997 to  $2,533,000  during the same period in 1998.  The  increase in
general and  administrative  expense  was  attributable  to (1) a $92,000  audit
refund of workers compensation insurance recorded in 1997, (2) $230,000 increase
in  professional  fees over the same period in 1997, (3) and other  increases in
salaries, office expenses and travel and entertainment expenses due to increased
activity for foreign projects.

In addition to its  operating  income and  expenses,  the Company  reported  net
interest  expense of $1,146,000  for the quarter ended June 30, 1998 as compared
to net interest  expense of $20,000 for the same period in 1997. The decrease in
net interest  income/expense  was attributable to $1,163,000 in interest expense
recorded  on the  convertible  notes and related  warrants in 1998.  This amount
represented  the  amortization  of  the  beneficial  conversion  feature  of the
convertible notes and warrants.


                                       9
<PAGE>
 
As a result of the  foregoing,  the  Company  reported  a loss  before  taxes of
$5,759,000  and a net loss of $5,759,000  for the quarter ended June 30, 1998 as
compared to a loss before taxes of $1,364,000  and a net loss of $1,134,000  for
the same quarter in 1997.

The net loss  attributable  to common stock was increased by the preferred stock
dividends  $63,000  in 1998 and  $53,000  in  1997,  and an  accounting  "deemed
dividend"  of  $3,226,000  and  $555,000  in 1998  and  1997  arising  from  the
amortization  of the beneficial  conversion  feature of the Company's  Preferred
Stock.  The Company is  calculating  earning per share to comply with the recent
SEC  staff  position  on  accounting  for  securities   issued  with  beneficial
conversion  features.  This  accounting  requires  that the Company  reflect the
difference  between  the  market  price of the  Company's  common  stock and the
applicable  conversion rate on the convertible  preferred stock as a dividend at
the  issue  date (the  beneficial  conversion  feature  totaled  $3,330,000  and
$1,109,589 in 1998 and 1997,  respectively) and amortize the dividend over a 180
day period from the issue date for the Series B Preferred  Stock and to the date
the registration statement became effective for the Series C Preferred Stock.

Six Months ended June 30, 1998 Compared with Six Months Ended June 30, 1997.

Total  revenues  increased by  approximately  28.0% from  $7,823,000 for the six
months ended June 30, 1997 to $10,016,000 for the same period in 1998.  Contract
service income  increased  during the period by 28.5% from $7,794,000 in 1997 to
$10,016,000 in 1998. See the quarterly  comparison for discussion of the factors
contributing to the increase.

Surplus equipment  revenues  decreased 100% from $29,000 in 1997 to none in 1998
due to no volume in 1998.

Direct job costs  increased by  approximately  55.7% from $7,380,000 for the six
months ended June 30, 1997 to  $11,494,000  for the same period in 1998. See the
quarterly  comparison  for a  discussion  of  the  factors  contributing  to the
increase in direct job costs.

Cost of equipment  sales decreased from $22,000 in 1997 to none due to no volume
in 1998.

General and  administrative  expenses increased 58.3% from $4,031,000 during the
six months ended June 30, 1997 to $6,381,000 during the same period in 1998. The
increase in general and administrative  expense was attributable to $1.9 million
expense  recorded  in  February,  1998 for  options  granted to  consultants  to
purchase  1,220,000 shares of common stock of the Company at the market price of
the Company's common stock at the date of the grant and the factors discussed in
the quarterly comparison.

The Company reported an increase in net interest  income/(expense)  from $38,000
income for the six months ended June 30, 1997 to $4,323,000 expense for the same
period in 1998.  See the  quarterly  comparison  for  discussion  of the factors
contributing to the increased expense.

As a result of the  foregoing,  the  Company  reported  a loss  before  taxes of
$12,500,000  and a net loss after tax of  $12,100,000  for the six months  ended
June 30, 1998 as compared to a loss before  taxes of  $2,584,000  and a net loss
after taxes of $2,134,000 for the same period in 1997.

The net loss  attributable to common stock was increased by $117,000 and $80,000
in preferred  stock  dividends and $3,330,000 and $845,000  amortization  of the
beneficial conversion feature in 1998 and 1997 respectively.


Material Changes in Financial Condition, Liquidity and Capital Resources.

At June 30, 1998, the Company had working capital of approximately $1.6 million,
including a cash  balance of $.1  million.  This  compares to a working  capital
deficit of $1.1 million and a cash balance of $0.6 million at December 31, 1997.
The  increase in working  capital and  decrease in cash is  attributable  to the
conversion  to common  stock of  $3,025,000  in notes  payable  classified  as a
current  liability  at  December  31,  1997 and the  receipt of net  proceeds of
$3,240,000  from the Series C Preferred  Stock which was more than offset by the
loss for the period.

Approximately  $0.2 million of working  capital  consisted of unbilled costs and
estimated earnings on ongoing projects. Such amounts are expected to be received
during 1998 as projects  progress  with all such  amounts  being  payable to the
Company by the completion of such projects.


                                       10
<PAGE>


Also included in the Company's working capital balance at June 30, 1998 was $0.6
million of surplus equipment inventory (net of a $0.9 million valuation reserve)
held for sale which gross  inventory  level was  identical  to that  reported at
December 31, 1997. The inventory  reflects the Company's  sale of  substantially
all of  its  surplus  equipment  inventory,  other  than  generators,  to UPE in
connection with the formation of a marketing  alliance with UPE during 1995. The
Company's  remaining  inventory  consists of nineteen (19) generator sets with a
total  electrical  capacity of 242,500  kilowatts per hour (KWH).  The estimated
market price of the Company's  generator  inventory is twelve  million  dollars.
Twelve  (12) of the  generators  are steam  driven and range in size from 12,500
kilowatts  to 33,000  kilowatts  (KW).  Seven (7) of the  generators  are diesel
driven and range in size from 1,000 to 9,000  kilowatts  (KW).  These  generator
sets should not be considered as obsolete or outdated inventory since its design
and  technology  has not  changed  much over the years.  They are very long lead
items (15-18 months),  experience and project  specific and as such they are not
to be compared with disposable  items. It is the Company's intent to incorporate
this inventory in future projects.

The Company had  available at December 31, 1997,  approximately  $19,775,000  of
operating loss carry-forwards that may be applied against future taxable income.
$2,350,000 of such losses expire in the year 2010 , $9,225,000 in the year 2011,
and the balance the following  year.  Based on the reported loss to date it will
take approximately $13.4 million dollars in future taxable income to recover the
reported  deferred tax asset of  $4,570,000  at June 30, 1998.  In assessing the
realizability of deferred tax assets,  management  considers  whether it is more
likely  than not that some  portion or all of the  deferred  tax assets  will be
realized.  The ultimate realization of deferred tax assets is dependent upon the
generation  of future  taxable  income  during the  periods  in which  temporary
differences  become  deductible  and the net  operating  losses  can be  carried
forward.  In determining  such projected  future taxable income,  management has
considered the Company's  historical results of operation,  the current economic
environment  with the Company's core industries and future  business  activities
which the company has positioned  itself.  Management  believes the company will
realize  taxable  income  in  future  years.  However,  based  on the  company's
substantial  losses over the past three years, the current contract  commitments
in the backlog,  and carry forward  limitations  governed by state,  federal and
foreign tax  agencies,  management  believes it is more likely than not that the
Company  will not  realize  its  entire net  deferred  tax  asset.  A  valuation
allowance of $6,757,000 has been established by management as a reduction of the
Company's deferred tax assets of $11,327,000.  Management  believes that the net
deferred tax asset will be realized  through  future taxable  income,  primarily
from the substantial revenue to be derived from projects such as the El Salvador
Power  Project   and/or  the  Greifswald   Nuclear  Plant   Decommissioning/Site
Revitalization Project. Management believes that the income generated from these
projects will be more than  sufficient to realize the deferred tax asset at June
30, 1998.

The Company's  accounts  receivable  increased by 29.5% from 1997 to 1998.  Such
increase in accounts  receivable  was  attributable  to the increase in revenues
during the period. Accounts receivable as a percentage of quarterly revenues was
109.4%  and  99.1% in 1998 and 1997,  respectively.  Year-end  receivables  as a
percentage of fourth quarter revenue increased  substantially from 53.0% in 1994
to 103.5% in 1995 and 88% in 1996. The ratio dropped to 53% at December 31, 1994
because  the  Company  received  a  $4,184,000  payment on a major  contract  on
December 23, 1994. If this payment had been  received  after year end, the ratio
would have been a more comparable 98.4%.

Unbilled revenue as a percentage of quarterly contract income was 0% at December
31, 1993, 31% at December 31, 1994, 56% at December 31, 1995 and 26% at December
31, 1996, 11% at December 30, 1997, and (15%) at June 30, 1998.  Also,  accounts
payable have  constantly  decreased since 1994 whereas  accounts  receivable and
unbilled  revenues have  increased  substantially  during this period.  Prior to
going public in April 1994, most of the Company's revenues were generated in the
private sector.  Many of these contracts had  substantial  initial  mobilization
payments and generated positive cash flow during the life of the contract. Since
then the Company has been  successful,  as a result of its growth  strategy,  in
obtaining a number of  government  contracts at major  Department  of Energy and
Department  of  Defense  sites.  This work was  obtained  as a direct  result of
opening three new regional offices. The experience with these contracts has been
negative  cash  flows  until  we near  contract  completion.  This is due to the
requirement  that we submit a schedule and a schedule of values at the beginning
of the job and  bill  according  to the  percent  complete  of each  item in the
schedule of values - not the costs we have incurred. Our jobs of any size are at
a risk of being front end cost  loaded  when there is little  progress to report
(i.e., we cannot bill until the structure is  demolished).  The Company is aware
of this problem and is trying to remedy it by maximizing  mobilization  costs in
the schedule of values,  requiring  subcontractors to bill on the same basis and
aggressively  negotiating  better  (less  front end cost  loaded)  schedules  of
values.


                                       11
<PAGE>


Initially the Company tried to increase  payment terms to vendors by paying them
after the Company  received  our  payment.  This method was  unsuccessful.  Many
vendors put the Company on a COD basis and its D&B rating weakened because D&B's
file showed  "increased  slowness in the company's  payment  record." This lower
rating  hurt the  Company in attempts  to  establish  credit  with new  vendors.
Because IDM is trying to establish  good  relationships  with its  vendors,  the
company  is now  paying  its  vendors  within  terms to  fifteen  days  late and
attempting  to improve its D&B "paydex  rating." The paydex rating of 60 is much
worse than the average of the lower  quartile for the industry of 68 (median for
the industry is 75).

Other items impacted the Company's  cash flows during 1998. The Company  carried
out  several  non-cash  transactions  and  transactions  with  subsidiaries  not
reflected in the Company's cash flow statements. Among the non-cash transactions
entered into during 1998 were (1) the  conversion of $2.7 million of convertible
preferred  stock into common stock and (2) the  conversion of $3.025  million of
convertible notes payable to common stock. Transactions with subsidiaries during
1998 related principally to the capitalization of various subsidiaries formed to
deploy the  Company's  Kocee Gas  Generator  technology.  At June 30, 1998,  the
Company had loaned $3.1  million to its 90% owned  subsidiary,  Global Waste and
Energy, Inc. Such loan is repayable on demand with interest at 9.25%.

The  Company  requires  substantial  working  capital  to  support  its  ongoing
operations.  As is common in the environmental  services  industry,  payment for
services  rendered by the Company are  generally  received  pursuant to specific
draw  schedules  after  services  are  rendered.  Thus,  pending  the receipt of
payments for services  rendered,  the Company must  typically  fund  substantial
project costs,  including  significant  labor and bonding costs,  from financing
sources  within and outside of the Company.  Certain  contracts,  in  particular
those with United States governmental agencies, may provide for payment terms of
up to 90 days or more and may  require the  posting of  substantial  performance
bonds which are generally not released until completion of a project.

Prior to the  completion  of the  Company's  public  offering,  operations  were
historically funded through a combination of operating cash flow, term notes and
bank lines of credit. Following the public offering, the Company paid off all of
its then existing bank debt. At June 30, 1998,  the Company had no bank debt and
no significant  long-term debt and was funding its operations  entirely  through
cash on hand and operating cash flow.

In February of 1997, the Company sold 300 shares,  or $3.0 million,  of Series B
Convertible  Preferred  Stock to  provide  funding  for the  Company's  East Dam
project and other projects on which the Company  commenced work during the first
half of 1997. The Series B Preferred  Shares were  convertible into Common Stock
commencing  91 days  after  issuance  at the  lesser of (i) 120% of the  average
closing  price of the Common Stock over the five  trading-day  period  preceding
closing ($2.67) or 82% of the average closing price of the Common Stock over the
five trading-day  period preceding  conversion for conversion  occurring between
the 91st and 120th day following closing, (ii) 110% of the average closing price
of the Common Stock over the five trading-day  period preceding closing ($2.475)
or  79% of  the  average  closing  price  of the  Common  Stock  over  the  five
trading-day  period preceding  conversion for conversion  occurring  between the
121st and 150th day following  closing,  (iii) 100% of the average closing price
of the Common Stock over the five trading-day  period preceding closing ($2.225)
or  76% of  the  average  closing  price  of the  Common  Stock  over  the  five
trading-day  period preceding  conversion for conversion  occurring  between the
151st and 180th day  following  closing,  and (iv) 100% of the  average  closing
price of the Common Stock over the five  trading-day  period  preceding  closing
($2.225) or 73% of the average  closing  price of the Common Stock over the five
trading-day period preceding conversion for conversion occurring on or after the
181st day following  closing.  The Series B Preferred  Shares paid a 7% dividend
payable on conversion or at redemption in cash or Common Stock, at the Company's
option.  As of March 31, 1998, all of the  Convertible  Preferred Stock had been
converted resulting in the issuance of 1,552,366 shares of common stock.

On August 13, 1997, the Company  completed a private  placement of $3,025,000 of
7% Convertible Notes (the "Convertible Notes") and 2,675,000 three year Warrants
(the "Three Year Warrants").

                                       12
<PAGE>

The Convertible  Notes were  convertible  into Common Stock at the lesser of (i)
$2.75 per share or (ii) 75% of the average closing bid price of the Common Stock
during the five trading days prior to  conversion.  The Three Year  Warrants are
exercisable  for a three  year  period  at the  lesser of $3.00 per share or the
lowest conversion price of the Convertible Notes.  Conversion of the Convertible
Notes and  exercise of the Three Year  Warrants was subject to the issuance of a
maximum  of  1,997,130   shares  of  Common  Stock  on  conversion   unless  the
shareholders  of  the  Company   approved   issuances  beyond  that  level  upon
conversion.  Shareholder  approval  of  issuances  beyond  1,997,130  shares was
received on November 4, 1997. Further, the Company had the right, upon notice to
the holders, to redeem any Convertible Notes submitted for conversion at a price
of $2.75 or less at 125% of the principal amount of such Convertible  Notes. The
Convertible  Notes paid interest at 7% payable quarterly and on conversion or at
redemption in cash or Common Stock, at the Company's option. In the event that a
registration  statement covering the shares underlying the Convertible Notes had
not been declared effective within 90 days or 180 days after the issuance of the
Convertible  Notes, the interest rate on the Convertible Notes would increase to
18% and 24%, respectively,  from those dates until such a registration statement
became effective.  The registration  statement was declared effective in January
9, 1998. The amount of additional  interest expense was $54,500.  As of June 30,
1998, all of the Convertible Notes had been converted  resulting in the issuance
of 1,152,669 shares of common stock.


                                       12
<PAGE>

The value,  totaling  $4,718,750,  of the discounted  conversion  feature on the
notes  and the  value of the  warrants  has  been  accounted  for as  additional
interest via a debit to debt discount and a credit to paid-in-capital.  The debt
discount has been  calculated as the fixed  discount from the market at the date
of sale based upon the common  stock's  trading  price of $4 per share on August
13th. This interest is being amortized over the period from the date of issuance
to the date the  notes  were  first  convertible,  January  8,  1998 and for the
warrants to June 30, 1998.  During 1997,  $600,000 was amortized and recorded as
interest expense. During 1998, $4,118,750 was charged to interest expense.

On February 13, 1998,  the Company sold 3,600 shares of Series C 7%  Convertible
Preferred Stock and 2,350,000 Four Year $5.00 Warrants  (amended on June 2, 1998
to  $3.75).  The  aggregate  sales  price  of such  securities  was  $3,600,000.
Commissions totaling 10% were paid in connection with the placement.  The Series
C Preferred  Stock is  convertible  into Common Stock at the lesser of (i) $4.50
per share (amended on June 2, 1998 to $3.25) or (ii) 75% of the average  closing
bid price of the Common Stock during the five trading days prior to  conversion.
The Four Year  $3.75  Warrants  are  exercisable  for a four year  period at the
lesser  of  $3.75  per  share or the  lowest  conversion  price of the  Series C
Preferred Stock.  Conversion of the Series C Preferred Stock and exercise of the
Four Year $3.75  Warrants is subject to the  issuance of a maximum of  3,285,438
shares of Common Stock on conversion unless the shareholders of the Company have
approved  issuance  beyond  that  level  upon  conversion.  In  the  absence  of
shareholder  approval of issuances above 3,285,438 shares, the holders of Series
C Preferred Stock and Four Year $3.75 Warrants remaining outstanding if and when
3,285,438  shares have been issued will have the right to demand  redemption  of
the Series C Preferred  Stock at $1,250 per share plus accrued  dividends and to
demand  redemption  of the Four Year $3.75  Warrants at the pre-tax  profit such
holders would have realized had the Four Year $3.75  Warrants been  exercised at
the time redemption is demanded. Further, the Company has the right, upon notice
to the holders,  to redeem any Series C Preferred Stock submitted for conversion
at a price or $2.75 of less at 125% of the  principal  amount  of such  Series C
Preferred Stock plus accrued and unpaid dividends.  The Series C Preferred Stock
pays  dividends  at 7% per  annum  payable  quarterly  and on  conversion  or at
redemption in cash or Common Stock, at the Company's option. On June 2, 1998, at
the Annual Stockholders  Meeting,  the shareholders  approved a proposal for the
issuance of shares in excess of 3,285,438.

On February 11, 1998,  the Company  issued  1,270,000  Three Year $4.50 Warrants
(the "Lock-Up  Warrants").  The Lock-Up Warrants were issued in conjunction with
the  execution  of Lock-Up  Agreements  by the holders of $3.00  Warrants of the
Company  whereby  the holders of such  warrants  agreed not to resell any shares
underlying  those  warrants  prior to July 30,  1998.  The Lock-Up  Warrants are
exercisable for a three year period at $4.50 per share.

On June 2, 1998, the Company  approved the issuance of 266,875 $6.00 and 266,875
$6.75  Warrants.  The  $6.00  Warrants  and  $6.75  Warrants  were  issued as an
inducement  for early  exercise by the holders of certain $3.00 Warrants and are
exercisable  to the extent of one $6.00  Warrant and one $6.75  Warrant for each
$3.00 Warrant  previously  exercised.  The $6.00 Warrants and $6.75 Warrants are
exercisable  for a period of one year commencing June 8, 1998 to purchase Common
Stock at $6.00 and $6.75 per share, respectively. Exercise of the $6.00 Warrants
and  $6.75   Warrants  is  subject  to  the   restrictions   that  the  holders,
individually,  will not  beneficially  own in excess  of 4.99% of the  Company's
Common Stock  following any exercise.  Exercise of the $6.00  Warrants and $6.75
Warrants  is  also  subject  to  amendment  of  the  Company's   Certificate  of
Incorporation  to increase the authorized  shares of Common Stock to provide for
an adequate  number of authorized and unissued  shares of Common Stock to permit
the exercise or conversion of all outstanding convertible securities.

On January 8, 1998,  the Company made a $300,000  payment  representing  its one
half share of the capital of Seven Star International  Holding, Inc. ("7 Star").
7 Star is a joint  venture  between IDM and Jin Xin and is  incorporated  in The
British Virgin  Islands.  7 Star has entered into a license  agreement with Life
International Products, Inc. ("Life") for the right to process, produce, promote
and sell Life products in the Peoples  Republic of China  (including Hong Kong),
Taiwan,  Indonesia  and  Singapore.  The  license  agreement  requires a minimum
royalty of  $400,000  for the first year  which was paid upon  execution  of the
license agreement.

Other than funds provided by operations and the potential  receipt of funds from
the exercise of outstanding  warrants,  the Company  presently has no sources of
financing  or  commitments  to provide  financing.  A total of  370,000  Class A
Warrants  issued in connection  with the Company's  initial public offering were
outstanding  and  exercisable at June 30, 1998. Such warrants are exercisable to
purchase  two  shares of common  stock  each for a price of $9.00,  or $4.50 per
share.  The warrants are exercisable  until April of 1999 unless earlier called.
The Company may call the  warrants if the closing bid price of the common  stock
equals  or  exceeds  $9.00  for a period of  twenty  consecutive  trading  days.
Exercise  of the  warrants  would  provide  gross  proceeds  to the  Company  of
approximately  $3.3  million and result in the  issuance of 0.7 million  shares.
There can be no assurance,  however,  when, if ever,  any or all of the warrants
will be exercised.

                                       13
<PAGE>

In addition to its  funding  requirements  to support  ongoing  operations,  the
Company has committed  substantial  capital  resources to  implementation of the
Company's strategic  initiative known as "Vision 2000." The focus of Vision 2000
is to position the Company as a leading  participant in the global energy market
and in the nuclear facility  decommissioning and site revitalization market. The
development and initial  implementation of Vision 2000 initiatives have required
substantial  capital  expenditures  on the Company's part and can be expected to
continue  to  require  substantial  capital   expenditures  in  the  future.  In
particular,  the Company's first energy project,  the Miravalle Power Project in
El Salvador,  is expected to cost  approximately $55 million to develop and will
require substantial funding beyond that which the Company can presently provide.
The Company has entered into discussions with several potential equity investors
in the Miravalle  Power Project.  The Company is also in discussion with a major
project financing source with respect to the provision of debt financing for the
balance  of the cost  above the  contributions  of the  Company  and its  equity
partner. The Company's ability to successfully bring the Miravalle Power Project
on line and  implement  its  other  Vision  2000  initiatives  is  substantially
dependent  upon its ability to secure  project  financing  and other  financing.
While the Company believes that it will be able to attract adequate financing to
develop the Miravalle  Power  Project and its other  anticipated  projects,  the
Company has no definitive  commitments  to provide  financing for those projects
and there is no assurance  that such  financing  will be  available.  Other than
funding Vision 2000  initiatives and the Company's  bonding and other job costs,
the Company does not  anticipate  any  substantial  demands on the  liquidity or
capital resources of the Company during the following twelve months.

Subsequent to June 30, 1998,  on August 11, 1998,  the Company sold 1,500 shares
of Series RR 6% Convertible  Preferred  Stock. The securities were issued to one
accredited   investor.   The  aggregate  sales  price  of  such  securities  was
$1,500,000. Commissions totaling 10% were paid in connection with the placement.
The Series RR Preferred  Shares are convertible  into Common Stock at the lesser
of (i)  $2.25  per  share or (ii) 75% of the  average  closing  bid price of the
Common Stock during the five trading days prior to conversion. Conversion of the
Preferred  Shares is subject to the issuance of a maximum of 3,600,000 shares of
Common Stock on conversion  unless the shareholders of the Company have approved
issuance  beyond  that  level upon  conversion.  In the  absence of  shareholder
approval of issuances above 3,600,000  shares,  the holders of Preferred  Shares
remaining  outstanding if and when  3,600,000  shares have been issued will have
the right to demand  redemption of the Preferred Shares at 120% of the principal
balance  outstanding.  Further, the holder of the Preferred Shares has the right
to demand redemption of any Preferred Shares remaining  outstanding in the event
that (1) the  Company  carries  out a placement  of common  stock or  securities
convertible  into common stock on or before the effective date of a registration
statement to be filed covering the shares  underlying  the Preferred  Shares and
(2) the holder elects not to exercise its right of first refusal with respect to
such  securities.  In the event the holder  exercises  its  redemption  right in
connection  with a subsequent  offering,  the Company is obligated to redeem the
remaining  Preferred  Shares  for (1)  cash in an  amount  equal  to 125% of the
principal  balance  outstanding plus accrued  dividends and (2) in the event the
Company's  common stock is trading  above $3.25 at the time of  redemption,  the
issuance of up to 461,539 two year warrants  exercisable at $3.25 per share. The
Preferred  Shares  pay an annual  dividend  of 6%  payable  semi-annually  or on
conversion or at redemption in cash or Common Stock, at the Company's option.

Management  believes  that the  Company's  working  capital,  combined  with the
expected  receipt of funds from the  resolution  of  certain  change  orders and
litigation,  is sufficient to meet the Company's  anticipated  needs, other than
project  financing  requirements  discussed  above,  for at least the  following
twelve  months,  including  the  performance  of all  existing  contracts of the
Company.  However,  as the Company is presently  pursuing bids on multiple large
projects  and there is no assurance as to the timing or amount of the receipt of
funds from  change  orders,  litigation  or other  sources,  the  Company may be
required  to seek  new bank  lines of  credit  or  other  financing  in order to
facilitate  the  performance  of jobs.  While the Company is conducting  ongoing
discussions with various potential lenders with a view to establishing available
bank lines of credit if and when needed to support  future  growth,  the Company
presently has no commitments from any bank or other lender to provide  financing
if such financing becomes necessary to support growth.

Certain Factors Affecting Future Operating Results

This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934.  The Company's  actual results could differ  materially  from those set
forth in the forward-looking statements. Certain factors that might cause such a
difference include the following: possible fluctuations in the growth and demand
for  energy  in  markets  in which  the  Company  may seek to  establish  energy
production   operations;   intense   competition  for  establishment  of  energy
production operations in growing economies;  currency,  economic,  financing and
other risks  inherent in  establishing  energy  operations  in foreign  markets;
uncertainty  regarding the rate of growth in demand for nuclear  decommissioning
and site  revitalization  services;  continued delays in awarding and commencing
contracts;   delays  in  payment  on  contracts   occasioned  by  dealings  with
governmental and foreign entities;  changes in accepted remediation technologies
and  techniques;  fluctuations  in operating  costs  associated  with changes in
project specifications and general economic conditions; substantial fluctuations
in revenues resulting from completion and replacement of contracts and delays in
contracts; economic conditions affecting the ability of prospective customers to
finance projects; and other factors generally affecting the timing and financing
of projects.  In addition to the foregoing,  the following  specific factors may
affect the Company's future operating results.

At June 30, 1998, the Company was on-site on projects with a total left in value
of services yet to be performed of $21 million. The largest project on which the
Company  was on-site at June 30, 1998 was the  Bechtel  Jacobs  project  with an
approximate  value of services to be  performed  of $6 million.  The contract is
expected to be fully completed by the end of 1998.

In addition to its existing  contracts,  the Company is presently bidding on, or
proposes to bid on, numerous projects in order to replace revenues from projects
which will be completed  during 1998 and to increase the total dollar  volume of
projects under contract.  Management  anticipates that the Company's  efforts to
bid on and secure new  contracts  will  focus on  projects  which can be readily
serviced from the regional offices opened by the Company during 1994 and 1995 as
well as certain  large  international  plant  relocation  projects  and  nuclear
decommissioning  projects  which the Company  intends to pursue.  The  Company's
regional  offices,  particularly  the Oak Ridge,  Tennessee and Los Alamos,  New
Mexico offices are strategically located in areas having a high concentration of
prospective governmental and private remediation sites. While bidding to perform
services at such sites is expected to be highly competitive, management believes
that the  Company's  existing  presence on adjacent  projects  combined with its
proven expertise and resources will allow the Company to successfully bid on and
perform substantial additional projects based out of its regional offices.


                                       14
<PAGE>

In addition to remediation and plant relocation projects on which the Company is
presently  bidding or  negotiating,  the Company  during 1997 entered the energy
production and services market. The Company expects to begin energy projects and
nuclear decommissioning  projects at various prospects by as early as the second
half of 1998.  In addition  to the El Salvador  Power  Project,  the  Greifswald
Nuclear Plant  Decommissioning and Site  Revitalization  Project and the Georgia
Power Project  described in the Company's  Form 10-K for the year ended December
31, 1997, the Company,  through  August 15, 1998,  had entered into  preliminary
agreements  with respect to the  development  and operation of (i) a 200-ton per
day  industrial  waste  processing  and energy  production  facility  in Taipei,
Taiwan;  and (ii) a 1,750 ton per day municipal and  industrial  waste-to-energy
power plant in Szczecin, Poland.

While the Company  anticipates that entry into the energy production and nuclear
facilities   decommissioning  and  site   revitalization   market  will  provide
significant  opportunities for sustainable growth in both revenues and operating
profits,  entry into those markets requires  substantial capital commitments and
involves   certain   risks.    Undertaking   energy   production   and   nuclear
decommissioning  projects can be expected to require capital  expenditures of as
little as several  million  dollars  to  hundreds  of  millions  of dollars  per
project.  The Company does not currently have the necessary capital resources to
undertake such ventures without third party financing.  The Company  anticipates
that it will take on equity  partners  and seek third  party debt  financing  to
finance  substantial  portions of the  projects  which it expects to  undertake.
While the Company has been successful in attracting substantial partners in both
its El  Salvador  energy  project  and its German  nuclear  decommissioning/site
revitalization  project,  the Company has no commitments from potential partners
and  financing  sources to provide  funding for future  projects and there is no
assurance  that such partners and financing  sources will be available,  or will
provide  financing on acceptable terms, if and when the Company commences future
projects.


Impact of Inflation

Inflation has not been a major factor in the Company's business since inception.
There can be no assurances that this will continue.  However,  it is anticipated
that any  increases in costs to the Company can be passed on to its customers in
the form of higher prices.


Item 3. Quantitative and Qualitative Disclosures about Market Risk

          Not Applicable.

                           PART II - OTHER INFORMATION


Item 2. Changes in Securities

     (a)  On August 11,  1998,  the  Company  sold 1,500  shares of Series RR 6%
          Convertible Preferred Stock.

     (b)  The securities were issued to one accredited investor.

     (c)  The  aggregate   sales  price  of  such   securities  was  $1,500,000.
          Commissions totaling 10% were paid in connection with the placement.

     (d)  The  securities  were offered  pursuant to Regulation D. The offer was
          directed  exclusively to a single accredited  investor without general
          solicitation  or  advertising  and based on  representations  from the
          investor  that  such  investor  was  acquiring  for  investment.   The
          securities bear legends restricting the resale thereof.

     (e)  The Series RR Preferred  Shares are  convertible  into Common Stock at
          the lesser of (i) $2.25 per share or (ii) 75% of the  average  closing
          bid price of the Common  Stock  during the five  trading days prior to
          conversion.  Conversion  of the  Preferred  Shares is  subject  to the
          issuance  of  a  maximum  of  3,600,000  shares  of  Common  Stock  on
          conversion  unless  the  shareholders  of the  Company  have  approved
          issuance  beyond  that  level  upon  conversion.  In  the  absence  of
          shareholder  approval of issuances above 3,600,000 shares, the holders
          of Preferred Shares remaining outstanding if and when 3,600,000 shares
          have been  issued  will have the  right to  demand  redemption  of the
          Preferred  Shares  at  120%  of  the  principal  balance  outstanding.
          Further,  the holder of the  Preferred  Shares has the right to demand
          redemption of any Preferred Shares remaining  outstanding in the event
          that (1) the  Company  carries  out a  placement  of  common  stock or
          securities  convertible  into common stock on or before the  effective
          date of a  registration  statement  to be filed  covering  the  shares
          underlying  the  Preferred  Shares  and (2) the  holder  elects not to
          exercise its right of first  refusal with respect to such  securities.
          In the event the holder  exercises its redemption  right in connection
          with a  subsequent  offering,  the Company is  obligated to redeem the
          remaining  Preferred Shares for (1) cash in an amount equal to 125% of
          the principal  balance  outstanding plus accrued  dividends and (2) in
          the event the  Company's  common  stock is trading  above $3.25 at the
          time of  redemption,  the issuance of up to 461,539 two year  warrants
          exercisable  at $3.25 per share.  The  Preferred  Shares pay an annual
          dividend of 6% payable semi-annually or on conversion or at redemption
          in cash or Common Stock, at the Company's option.


                                       15
<PAGE>

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

     (a)  On  June  2,  1998,  an  annual   meeting  of   shareholders   of  IDM
          Environmental Corp. was held.

     (b)  The following  directors were elected (by the vote  indicated) at such
          meeting:

               Michael Killeen         13,161,337  For   887,379  Withheld
               Mark Franceschini       13,096,937  For   951,779  Withheld
               Richard Keller          13,188,287  For   860,429  Withheld
               Robert McGuinness       13,172,537  For   876,179  Withheld

     In addition to the  foregoing  directors,  Joel  Freedman,  Frank Falco and
Frank Patti continued to serve as directors following the meeting.

     (c)  In addition to the election of directors as noted above, the following
          matters were voted upon at such meeting:

          (i)  Approval of amendment to Certificate of Incorporation to increase
               the number of authorized  shares of common stock from  30,000,000
               shares to 75,000,000 shares  (12,315,926 For,  1,573,675 Against,
               159,115 Abstain)

          (ii) Approval  of  adoption  of  the  IDM  Environmental   Corp.  1998
               Comprehensive   Stock  Option  and  Award  Plan  (3,551,223  For,
               1,654,610 Against, 156,770 Abstain)

          (iii)Approval  of  issuances  of  shares in  excess  of  3,285,438  on
               conversion of outstanding  Series C Preferred  Stock and Warrants
               (3,749,593  For,  1,491,895  Against,  121,115  Abstain)  Item 6.
               Exhibits and Reports on Form 8-K

     (a)  Exhibits

          Exhibit No. Description

          4.1  Certificate of  Designation  of Series RR  Convertible  Preferred
               Stock

          10.1 Registration  Rights  Agreement  dated  August 10,  1998 with The
               Isosceles Fund Limited

          27.1 Financial Data Schedule

     (b)  Reports on Form 8-K

          None


                                       16
<PAGE>

                                   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.

                                            IDM ENVIRONMENTAL CORP.


Dated:  August 19, 1998                     By: /s/ Joe Freedman
                                               ------------------------------
                                               Joel Freedman, President


Dated:  August 19, 1998                     By: /s/ Michael B. Killeen
                                               ------------------------------
                                               Michael B. Killeen, Principal
                                               Financial and Accounting Officer