U.S. SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549

                              FORM 10-QSB

(Mark One)
[X]   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997

[ ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____to____.


Commission file number 0-21998


                       K.L.S. ENVIRO RESOURCES, INC.
    (Exact name of small business issuer as specified in its charter)



              Nevada                                75-2460365
(State or other jurisdiction of        (I.R.S. Employer Identification No.)
 incorporation or organization)


               3220 North Freeway, Fort Worth, Texas  76111
           (Address of principal executive offices and zip code)

                               (817) 624-4844
             (Issuer's telephone number, including area code)


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 11, 1997, the  Registrant had outstanding 17,160,997 shares of
its common stock, par value $.0001.


Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]

<PAGE>
                        PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements.

                        K.L.S. ENVIRO RESOURCES, INC.
                       INDEX TO FINANCIAL INFORMATION
                               June 30, 1997


                                                                  Page No.
                                                                  --------

Condensed Consolidated Balance Sheets as of June 30, 1997
(unaudited) and September 30, 1996 (audited)............................3

Condensed Consolidated Statements of Operations (unaudited)
for the Three and Nine Months Ended June 30, 1997 and 1996..............4

Condensed Consolidated Statements of Cash Flows (unaudited) for
the Nine Months Ended June 30, 1997 and 1996............................5

Notes To Consolidated Financial Statements..............................6

Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................................9










                                    2
<PAGE>
              K.L.S. Enviro Resources, Inc. and Subsidiaries
                Condensed Consolidated Balance Sheets
       June 30, 1997 (unaudited) and September 30, 1996 (audited)
<TABLE>
<CAPTION>
                                                   
                                                                             June, 30        September 30,  
                                                                               1997              1996
                                                                          --------------    --------------
<S>                                                                       <C>               <C>
                                     ASSETS
Current Assets
     Cash and cash equivalents                                            $     250,568     $     300,767  
     Accounts receivable-trade, net of allowance for                                                
       doubtful accounts of $123,402                                          1,327,920         1,050,371  
     Other receivables                                                              755            13,274  
     Inventory                                                                  608,316           483,938  
     Prepaid expenses                                                            85,872             5,975  
                                                                          --------------    --------------
        Total current assets                                                  2,273,431         1,854,325  
								
Property, plant and equipment, net                                            6,402,968         2,604,510  
								
Other assets								
     Intangible assets, net of accumulated amortization                                             
       $78,095 and $70,014, respectively                                        289,894            49,065  
     Deposits and other                                                          20,678            20,777  
                                                                          --------------    --------------
        Total other assets                                                      310,572            69,842  
                                                                          --------------    --------------
Total assets                                                              $   8,986,971     $   4,528,677  
                                                                          ==============    ==============
                      LIABILITIES AND SHAREHOLDERS' EQUITY                                                     
								
Current liabilities								
     Notes payable                                                        $   1,008,387     $        -   
     Notes payable-related parties                                            1,167,424         1,988,622 
     Current maturities of long-term debt                                        47,887           114,219 
     Accounts payable                                                           459,463           412,487 
     Accounts payable-related parties                                           731,923              -   
     Accrued expenses and other current liabilities                             170,633           188,628 
     Deferred revenues                                                            9,943              -   
                                                                          --------------    --------------
        Total current liabilities                                             3,595,660         2,703,956 
							
Long-term Debt                                                                  251,955           270,995 
                                                                          --------------    --------------
        Total liabilities                                                     3,847,615         2,974,951 
                                                                          --------------    --------------
Shareholders' equity							
     Preferred stock                                                                 10                10 
     Common stock                                                                 1,716             1,093 
     Additional paid-in capital                                               9,916,399         6,101,057 
     Accumulated deficit                                                     (4,736,056)       (4,505,721)
     Foreign currency translation adjustments                                    (4,213)           (4,213)
                                                                          --------------    --------------
                                                                              5,177,856         1,592,226 
							
     Treasury stock-common shares held in the treasury, at cost                 (38,500)          (38,500)
                                                                          --------------    --------------
        Total shareholders' equity                                            5,139,356         1,553,726
                                                                          --------------    --------------
Total liabilities and shareholders' equity                                $   8,986,971     $   4,528,677 
                                                                          ==============    ==============
</TABLE>
                                    3
  The notes to Consolidated Financial Statements are an integral part of
                            these statements
<PAGE>
                K.L.S. Enviro Resources, Inc. and Subsidiaries
              Condensed Consolidated Statements of Operations
        For the Three and Nine Months ended June 30, 1997 and 1996
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                    Three months ended                Nine months ended       
                                                                          June 30,                         June 30,
                                                                -----------------------------   -----------------------------
                                                                     1997           1996            1997            1996
                                                                -------------   -------------   -------------   -------------
<S>                                                             <C>             <C>             <C>             <C>
Net sales and revenues										
    Drilling and repair service revenues                        $  2,095,290    $  1,313,034    $  4,844,101    $  3,018,511 
    Cost of drilling and repair services                           1,122,211         682,381       2,415,191       1,687,808 
                                                                -------------   -------------   -------------   -------------
        Gross profit                                                 973,079         630,653       2,428,910       1,330,703 
                                                                -------------   -------------   -------------   -------------
Operating expenses										
    Salaries, wages and related costs                                186,112         208,265         479,824         459,991 
    Legal and professional fees                                      177,642          63,240         452,054         186,484 
    Rents                                                             16,504          11,522          50,356          46,665 
    Repairs and maintenance                                           20,016           3,507          45,743          20,848 
    Taxes, licenses and permits                                       14,777          20,258          38,397          46,275 
    Advertising                                                        2,223           1,444           6,473           7,635 
    Travel and lodging                                                23,806           8,489         108,434          70,229 
    Consulting                                                        40,275          44,412         115,053          69,912 
    Development costs                                                 45,693           4,733         206,233         (10,715)
    Other operating expenses                                          83,598          52,595         555,913         192,248 
    Depreciation and amortization                                    182,325          98,009         394,442         237,552 
                                                                -------------   -------------   -------------   -------------
        Total operating expenses                                     792,971         516,474       2,452,922       1,327,124 
                                                                -------------   -------------   -------------   -------------
        Income (loss) from operations                                180,108         114,179         (24,012)          3,579 
										
Other income (expenses)										
    Interest expense                                                 (68,693)        (44,643)       (165,911)       (112,933)
    Interest and other income, net                                     1,935           3,747          40,839           9,056 
    Gain on sale of investment securities                               -               -               -             99,289 
    Gain on sale of assets                                             4,500           3,792           4,500          25,158 
    Gain (loss) from foreign currency translation                     (1,018)         (3,530)        (13,557)          9,603 
                                                                -------------   -------------   -------------   -------------
        Net other income or (expense)                                (63,276)        (40,634)       (134,129)         30,173 
                                                                -------------   -------------   -------------   -------------
        Income (loss) before income taxes                            116,832          73,545        (158,141)         33,752 
										
Income taxes                                                          49,693            -             49,693            -   
                                                                -------------   -------------   -------------   -------------
        Income (loss) from continuing operations                      67,139          73,545        (207,834)         33,752 
										
Discontinued operations:										
    Loss from discontinued operations                                   -               -                            (34,511)
    Gain on sale of subsidiary                                          -               -                            379,935 
                                                                -------------   -------------   -------------   -------------
        Net income (loss)                                       $     67,139    $     73,545    $   (207,834)   $    379,176 
                                                                =============   =============   =============   =============
Income (loss) per weighted-average common share outstanding:										
    Income (loss) from continuing operations                    $       0.00    $       0.01    $      (0.01)   $       0.00 
    Income  from discontinued operations                        $       -       $       -       $       -       $       0.04 
                                                                -------------   -------------   -------------   -------------
        Net income (loss)                                       $       0.00    $       0.01    $      (0.01)   $       0.04 
                                                                =============   =============   =============   =============
Weighted-average number of common shares outstanding              17,007,288       9,188,795      14,809,735       9,058,188
                                                                =============   =============   =============   =============
</TABLE>
                                      4
    The Notes to Consolidated Financial Statements are an integral part
                              of these statements
<PAGE>
               K.L.S. Enviro Resources, Inc. and Subsidiaries
              Condensed Consolidated Statements of Cash Flows
              for the Nine Months ended June 30, 1997 and 1996
                                 (Unaudited)
<TABLE>
<CAPTION>
                                                                                Nine months ended               
                                                                                      June 30,
                                                                          -------------------------------
                                                                               1997             1996
                                                                          --------------   --------------
<S>                                                                       <C>              <C>
Cash flows from operating activities								
    Net income (loss)                                                     $    (207,836)   $     379,176  
    Adjustments to reconcile net income (loss) to cash                                               
      used in operating activities:                                                 
        Common stock for services                                                80,487           84,466  
        Depreciation and amortization                                           394,442          237,552  
        Gain on sale of investment securities                                      -             (99,289) 
        Gain on disposal of equipment                                            (4,500)         (25,158) 
        Gain on sale of subsidiary                                                              (379,935)
        Translation loss (gain)                                                   1,616           (9,603)
        Changes in                                       
            Accounts and other receivables                                     (264,635)        (204,507) 
            Inventory                                                          (124,379)         (13,955) 
            Prepaid expenses                                                    (79,897)         (89,363)                     
            Other assets                                                       (248,808)          (2,448)
            Accounts payable                                                     47,072          (41,105) 
            Accounts payable-related parties                                    731,923             -    
            Accrued expenses                                                    (42,936)          56,099  
            Deferred revenue                                                     10,274          (29,616) 
                                                                          --------------   --------------
                Net cash provided by (used in) operating activities             292,823         (137,686)
                                                                          --------------   --------------
Cash flows from investing activities:								
    Proceeds from sales of investment securities                                   -             328,861  
    Proceeds from sale of subsidiary, net of selling costs                         -             184,042  
    Proceeds from sale of equipment                                                -              20,250  
    Purchases of equipment                                                   (4,180,319)        (236,484) 
                                                                          --------------   --------------
                Net cash (used in) provided by investing activities          (4,180,319)         296,669  
                                                                          --------------   --------------
Cash flows from financing activities:								
    Net change in notes payable                                               1,008,387           52,559  
    Net change in long-term debt                                                (85,373)         (99,161) 
    Net change in loans from related parties                                   (551,199)          (3,495) 
    Cash received from stock subscriptions and sales of common stock          3,465,478             -    
                                                                          --------------   --------------
                Net cash provided by (used in) financing activities           3,837,293          (50,097) 
                                                                          --------------   --------------
Effect of  exchange rate changes on cash                                              4               33  
                                                                          --------------   --------------
Increase (decrease) in cash                                                     (50,199)         108,919  
								
Cash at beginning of period                                                     300,767          174,479  
                                                                          --------------   --------------
Cash at end of period                                                     $     250,568    $     283,398  
                                                                          ==============   ==============
</TABLE>
                                      5
   The Notes to Consolidated Financial Statements are an integral part
                            of these statements.
<PAGE>
              K.L.S. ENVIRO RESOURCES, INC. AND SUBSIDIARIES
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General - The accompanying unaudited consolidated financial statements of
K.L.S. Enviro Resources, Inc. and Subsidiaries (collectively the "Company")
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-QSB and in accordance with Item 310 of Regulation S-B. 
Accordingly, such unaudited financial statements do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.  The Company  suggests that
these financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-KSB for the
year ended September 30, 1996.

In the opinion of management, all adjustments, consisting of normal
recurring adjustments and eliminations of material intercompany sales and
purchases necessary to present fairly the financial condition, results of
operations  and cash flows for the Company for the interim periods
presented, have been included. Operating results for the three and nine
months ended June 30, 1997, are not necessarily indicative of the results
that may be expected for the year ending September 30, 1997.

Principles of Consolidation - The accompanying unaudited consolidated
financial statements include all the accounts of K.L.S. Enviro Resources,
Inc. and its six wholly-owned subsidiaries, Dateline Drilling, Inc., K.L.S.
Co., Inc., Kel-Lite Industries, Inc., Dateline Internacional, S.A. de C.
V., K.L.S. International, Inc., and Beloro, S.A. de C.V. The operations of
Kel-Lite Industries, Inc. were discontinued during fiscal 1996.

Income (Loss) Per Common Share - Income (loss) per share of common stock is
based on the weighted average number of shares outstanding during the three
and nine months ended June 30, 1997 and 1996. 

NOTE 2.   INVENTORY
<TABLE>
<CAPTION>
                                                             June 30,        September 30,
         Major classes  of inventories are as follows:         1997              1996
                                                         ---------------   ----------------
               <S>                                       <C>               <C>
               Consumable supplies                         $   608,316        $  483,938
               Raw materials                                      -                 -
               Finished goods                                     -                 -
                                                         ---------------   ---------------- 
                                                           $   608,316        $  483,938
                                                         ===============   ================
</TABLE>

NOTE 3.   PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
                                                              June 30,       September 30,
         Property, plant and equipment are as follows:          1997             1996
                                                         ---------------   ----------------
               <S>                                       <C>               <C>
               Machinery and equipment                     $ 6,656,529        $2,763,188
               Transportation equipment                        584,522           433,514
               Building and improvements                       493,066           493,066
               Furniture and fixtures                          272,523           140,422
                                                         ---------------   ---------------- 
               Accumulated depreciation                    ( 1,753,672)     (  1,375,680)
                                                         ---------------   ---------------- 
                                                             6,252,968         2,454,510
               Land                                            150,000           150,000
                                                         ---------------   ---------------- 
                 Property, plant and equipment, net        $ 6,402,968        $2,604,510
                                                          ==============     ==============
</TABLE>

                                      6
<PAGE>
NOTE 4.  NOTES PAYABLE

Note Payable - At June 30, 1997, the Company had a note payable to an
unrelated party in the amount of $508,387 which bears interest at the rate
of 12%.  This note payable is due and payable on demand and is secured by
the assets of the Company.

At June 30, 1997, the Company had a note payable to an unrelated party in
the amount of $500,000 which bears interest at the rate of 18%.  This note
payable is due and payable on demand and is secured by the assets of the
Company.

Note Payable - Related Party - As of the fiscal year ended September 30,
1996, the Company had a note payable to a shareholder, bearing interest at
12 percent, due on demand, collateralized by all assets, except real
estate, in the amount of $1,673,730.  On October 16, 1996, the shareholder
loaned an additional $100,000 to the Company under similar terms.  Payments
were made by the Company to the shareholder from the proceeds of the sale
of stock (see Stockholders' Equity  below) on December 31, 1996, reducing
the balance to $1,727,591 and on January 2, 1997, reducing the balance to
$186,343.  During the six months ended June 30, 1997, the shareholder
loaned the Company an additional $942,140 in various transactions.  At June
30, 1997, this note had a balance of $1,128,483.

As of June 30, 1997, the Company had a note payable to a shareholder in the
amount of $15,000, bearing interest at prime plus 1%, due on demand,
collateralized by Dateline's accounts receivable.

As of June 30, 1997, the Company had a note payable to a shareholder in the
amount of $23,941, bearing interest at prime plus 1%, due on demand,
collateralized by KLS Co.'s  accounts receivable.

NOTE 5.  STOCKHOLDERS' EQUITY

Issuance of Stock - In December 1996, the Company sold 4,990,500 shares of
restricted common stock for consideration of $0.80 per share pursuant to
Regulation D of the Securities Act of 1933.  In connection with this
offering, in January 1997, the Company issued 100,000 shares of common
stock for finder's fees.

On December 31, 1996, a shareholder purchased $270,000 of a demand note of
the Company then held by an unrelated entity.  Also on December 31, 1996,
the shareholder exercised the conversion rights associated with such note,
at an exchange rate of $0.30 per share, to acquire 900,000 shares of the
Company's restricted common stock. 

Stock Options and Warrants - On December 31, 1996, the Company's board of
directors approved a stock option plan for directors, employees and other
persons acting on behalf of the Company, under which the aggregate number
of shares available for issuance is 2,230,000.  The exercise price of any
options granted under the plan is the closing market price of the stock on
the date the options are granted.  Options granted under the plan have a
maximum term of ten years after the grant date.

A summary of the status of the Company's stock option plan for the nine
months ended June 30, 1997 is presented below:

                                             Stock              Wt. Ave.
                                            Options         Exercise Price
                                        -------------     -----------------
  Outstanding at beginning of period        560,000            $ 0.46
       Granted                            1,050,000              3.00
       Exercised                           (125,403)              .40
       Forfeited                               -                  -
       Canceled                                -                  -
                                        -------------     -----------------
         Outstanding at end of period     1,484,597            $ 2.25
                                        =============     =================
         Exercisable at end of period     1,284,597            $ 2.14
                                        =============     =================

                                    7
<PAGE>
A summary of the status of the Company's warrants for the nine months ended
June 30, 1997 is presented below:

                                                               Wt. Ave.
                                           Warrants         Exercise Price
                                        -------------     -----------------
  Outstanding at beginning of period      6,725,000            $  .40
       Granted                                 -                  -
       Exercised                            125,000               .40
       Forfeited                               -                  -
       Canceled                                -                  -
                                        -------------     -----------------
         Outstanding at end of period     6,600,000            $  .40
                                        =============     =================

NOTE 6.  INCOME TAXES

At June 30, 1997, deferred tax assets were approximately $2,130,000 and
deferred tax liabilities were approximately $65,000.  The amount of and
ultimate realization of the benefits from the deferred tax assets for
income tax purposes is dependent, in part, upon the tax laws in effect, the
Company's future earnings, and other future events, the effects of which
cannot be determined. Because of the uncertainty surrounding the
realization of the loss carryforwards the Company has established a
valuation allowance for all net deferred tax assets of approximately
$2,065,000.  The net change in the valuation allowance was approximately
$616,000 for the nine months ended June 30, 1997.

The Company has available at June 31, 1997, net operating tax loss
carryforwards of approximately $4,300,000, some of which has been used to
reduce the Company's deferred income taxes payable.  These carryforwards
expire beginning in 2008 except for $427,209 of the loss which expires
beginning in 2004.

NOTE 7.  RELATED PARTY

Fees totaling approximately $33,990 for the nine months ended June 30, 1997
were paid to a shareholder for advisory and accounting services performed
and lease of office space.

The Company has a consulting agreement with a shareholder of the Company to
provide management advice.  The agreement has a three year term and
requires monthly payments of approximately $2,000.  Total payments for the
nine months ended June 30, 1997 approximated $18,000.

The Company has a $50,000 per month consulting agreement with an entity
affiliated with certain shareholders, directors and officers of the Company
to provide the Company with management and advisory services over a 5 year
period beginning October 1, 1996.  No payments have been made under this
agreement during the nine months ended June 30, 1997.   

NOTE 8.  COMMITMENTS AND CONTINGENCIES

KLS Enviro Resources, Inc., Dateline Drilling, Inc. ("Dateline") and
Dateline Internacional S.A. De C.V. engaged in a dispute with a former
customer over a contract entered into between Dateline and the former
customer.  An arbitration in Wyoming and a lawsuit in Texas have been
filed.  The arbitration is inactive and the Company is vigorously
contesting the claims of the former customer asserted in the lawsuit.  The
ultimate outcome of this dispute cannot be predicted and no provision for
liability has been made in the accompanying consolidated financial
statements.  A receivable from the former customer in the amount of
$123,000 has not been paid pending resolution of the dispute and an
allowance of $123,000 has been provided in the accompanying financial
statements.  The legal costs of this litigation have been expensed as
incurred.

                                     8
<PAGE>
Item 2.   Management's Discussion and Analysis of Financial Condition and
          Results Of Operations.

Results Of Operations

Three Months Ended June 30, 1997 Compared With Three Months Ended June 30,
1996

     The Company's net income for the three months ended June 30, 1997 was 
$67,139 compared to  net income of  $73,545 for the three months ended June
30, 1996.   Although revenues increased significantly during the period
ending June 30, 1997, so did total expenses, resulting in a slight decrease
in net income of  $6,406, as compared to the period ending June 30, 1996.

     Total revenues from continuing operations for the three months ended
June 30, 1997 were $2,095,290, an increase of $782,256 or approximately 60
percent, over the three months ended June 30, 1996.  The increase in
revenues is primarily attributable to an increase in drilling and hydraulic
services in the United States of $776,901 and $61,304, respectively. 
Drilling services revenues in Mexico increased $33,832, from $887,744 to
$921,576.  The Company has increased its drilling fleet from nine rigs to
fourteen rigs during fiscal 1997.  This expansion contributed to the
increase in  revenues for the three months ended June 30, 1997 over the
three months ended June 30, 1996.

      During the period ending June 30, 1997, direct costs of drilling and
repair services were $1,122,211, an increase of $439,830 over the
comparable period of the prior year.  This is an increase of approximately
1.5 percent when compared as a percentage of revenue over the comparable
period of fiscal 1996.  Total operating expenses were $792,971, an increase
of $276,497 over the comparable period of the prior year.  The increase in
operating expenses was due primarily to increased development costs, legal
fees and other operating expenses.   Total operating expenses were
approximately 38 and 39 percent, respectively, for the three months ended
June 30, 1997 and 1996. 

     Development expenditures are expensed as incurred and are comprised
of costs associated with the Company's efforts to develop new international
markets and other revenue sources for its drilling operations.  
Development expenses were $45,693 and $4,733 for the three months ending
June 30, 1997 and 1996, respectively. 

          Net other expense increased $22,642 for the three months ended
June 30, 1997 over the comparable period of the prior year.  Of this
amount, interest expense increased $24,050 and  interest and other income
decreased $1,812.  Gains from the sale of assets decreased  $708 and the
Company recorded a loss from foreign currency translation of $1,018 and
$3,530 for the three months ended June 30, 1997 and 1996, respectively. 

Financial Condition

     At June 30, 1997, the Company's current liabilities exceeded its
current assets by $1,322,229 as compared with current liabilities exceeding
current assets by $849,631 at September 30, 1996.  The current ratio of
assets to liabilities was .63 at June 30, 1997 as compared with .69 at
September 30, 1996.  Current assets increased by $419,106 to $2,273,431
from September 30, 1996 to June 30, 1997.  Current liabilities increased by
$891,704 during the same period.  The decrease in working capital over this
period is primarily attributable to increases in notes payable for the
purchase of new equipment.  The Company is pursuing plans to replace short-
term notes with long-term financing. 

     Total assets were $8,986,971 at June 30, 1997 as compared to
$4,528,677 at September 30, 1996.  The increase of $4,458,294 is due to an
increase in net fixed assets of approximately $3,800,000, consisting
primarily of additions to the drill rig fleet and supporting equipment. 

     For the three months ended June 30, 1997, the Company had a positive
cash flow  from operations.  The Company anticipates increases in revenues
and cash flow from operations due to its recently expanded fleet of drill
rigs.  Two drill rigs with support equipment were purchased and placed into
service in March, 1997.  Two rigs were constructed in-house and another 
rig was purchased and placed into service during the three months ended
June 30,

                                      9
<PAGE>
1997.  This expansion increases the Company's fleet of drill rigs to
fourteen.  As the Company continues to expand, it endeavors to maintain a
positive cash flow from operations, although there can be no assurance that
the Company will achieve a positive cash flow from operations.  The Company
also is increasing its efforts to acquire mining properties, and it will
continue to require additional sources of funds in order to pursue precious
metals exploration and development and expand its drilling and repair
services.  Such funding may come from debt or the sale of the Company's
equity securities, but there can be no assurance that the Company will
obtain the funds needed to supplement any shortfall in its cash flow as and
when needed or on terms that will be satisfactory to the Company.

     In January 1997, and April 1997,  the Company granted options to
acquire an aggregate of 1,000,000 and 50,000 shares of the Company's common
stock to certain officers and directors of the Company.  These options are
exercisable for a period of ten years at prices ranging from $2.88 to $3.06
per share, which represented the fair value of the underlying common stock
on the date of grant.  None of these options have been exercised and there
were no other sales of unregistered securities by the Company during the
quarter.  The grant of these options was made without registration under
the Securities Act of 1933, as amended, in reliance upon exemptions under
Section 4(2) and other provisions of such Act, including rules and
regulations promulgated thereunder relative to sales of securities not
involving a public offering. 

Forward-looking Statements and Certain Risk Factors

     Statements which are not historical facts contained in this report
are forward-looking statements.  Section 27A of the Securities  Act of
1933, as amended, provides a safe harbor for forward-looking statements. 
In order to comply with the terms of the safe harbor, the Company cautions
that a variety of factors could cause the Company's actual results to
differ materially from anticipated results or other expectations expressed
in this report.  The  forward-looking statements contained in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations involve a number of risks and uncertainties that could cause
actual results to differ from projected or anticipated results.  Some of
the risks and uncertainties are set forth below.  In addition, the risk
factors discussed in Part I, Item 1 ("Business") and in the "Management's
Discussion and Analysis of Operations" (Item 6) of the Company's annual
report on Form 10-KSB for the fiscal year ending September 30, 1996 may
also affect actual operating results, as could the following: 

General Operations Risks

     The Company has experienced and expects to continue to experience
significant fluctuations in its results of operations.  Factors that affect
the Company's results of operations or that could cause actual results to
differ materially include, among others, the Company's ability to
successfully bid on new contracts, its ability to perform under the terms
of drilling contracts on a timely basis, its access to suitable used or new
equipment to fulfill contract obligations, the ability to hire and retain
skilled and properly trained employees, industry conditions and world
demand for precious metals, as well as prices for such metals, the results
of financing efforts and financial market conditions and other factors
discussed in the Form 10-KSB mentioned above and the additional factors
discussed below.  Such factors are beyond the control of the Company and
there can be no assurance that the Company's results and financial
condition will not be adversely affected by such factors. 

Foreign Operations Risks

     The Company  recently has expanded much of its operations to meet
increased demand for its services both in the United States and abroad. 
There are numerous risks associated with conducting business in foreign
countries.  The distance from corporate headquarters and the often remote
locations of drilling and mining sites in these foreign countries
exacerbates the difficulties referred to above.  In addition, problems
associated with possible political risks, instability of local governments,
safety of personnel and equipment, the lack of spare parts or adequate
service assistance, the need for skilled labor and supervision, lack of
infrastructure and accessability to sources of power and other supplies
necessary for operations, high inflation and currency fluctuations which
may erode profitability levels,

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<PAGE>
and the difficulty of obtaining and enforcing judgments in foreign courts
and under foreign legal systems that differ substantially from the U.S.,
all add to the risk of foreign operations. 

Dependence on Precious Metals Mining Industry

     The Company's operations are largely dependent upon the levels of
activity in precious metals exploration and development drilling. Such
activity levels are affected by trends in the precious metals industry and
precious metals prices.  Historically, prices for precious metals have been
volatile and are subject to wide fluctuations in response to changes in the
supply of and demand for precious metals, market uncertainty, the
performance of certain major mining companies and a variety of political,
economic and other factors beyond the control of the Company.  The Company
cannot predict future price movements with any certainty.  Any prolonged
reduction in precious metals prices, however, will depress the level of
exploration, development and production activity and result in a
corresponding decline in the demand for the Company's services and,
therefore, have a material adverse effect on the Company's revenues and
profitability. 

Competition

     The contract drilling industry is a highly competitive and cyclical
business characterized by high capital and maintenance costs.  Although
conditions in recent years in the precious metals mining industry have
precipitated consolidation of drilling industry participants, the Company
believes the competition for drilling contracts will continue to be intense
for the foreseeable future because of contractors' ability to move rigs
from areas of low activity and day rates to areas of greater activity and
relatively higher rates.  In addition, there are a number of inactive rigs
that are being reactivated and upgraded, and additional rigs that could be
reactivated and upgraded, and new rigs that could be constructed, to meet
an increase in demand for drilling rigs in any given market.  Such
movement, reactivation, new construction or a decrease in drilling activity
in any major market could depress rates and could adversely affect
utilization of the Company's rigs even in an environment of stronger
precious metals prices.   Many of the Company's principal competitors are
substantially larger, have substantially greater resources and have spent
considerably larger sums of capital than the Company for equipment,
including drill rigs, development and operations.  These factors may enable
those competitors to better withstand industry downturns, compete on the
basis of price, build new rigs or acquire existing rigs that become
available for purchase.

Risk of Potential Conflicts of Interest

     Three of the nine members of the Company's board of directors are
also indirect owners of and control a significant shareholder of the
Company and a corporation providing management and strategic planning
services to the Company.  In addition, these three persons and two other
members of the board of directors sit together on the board of directors of
another public company in an unrelated industry.  The CFO of the Company is
also the CFO of the other public company.  Such associations and
relationships may give rise to conflicts of interest from time to time.  If
any such conflict does arise, the policy of the Company, consistent with
Section 78.140 of the Nevada Revised Statutes, requires that the director
who has a conflict will disclose the same to a meeting of the directors of
the Company and will abstain from voting for or against approval of any
matter in which such director may have a conflict.   Notwithstanding the
adoption of such a policy, there can be no assurance that all possible
conflicts of interest will be identified and appropriately resolved.

     As a result of the foregoing and other factors, there can be no
assurance that the Company will not experience material fluctuations in
future operating results on a quarterly or annual basis which would
materially and adversely affect the Company's business, financial condition
and results of operation.

                                    11
<PAGE>
                        PART II - OTHER INFORMATION

Item 2.  Changes in Securities

     c.   Unregistered sales of equity securities during quarter (other
          than in reliance on Regulation S).

     Recent Sales of Unregistered Securities.  During the quarterly period
ended June 30, 1997, the Company issued equity securities that were not
registered under the Securities Act of 1933, as amended (the "Act"), other
than unregistered sales in reliance on Regulation S under the Act, as
follows:

     On April 11, 1997, the Company issued 12,500 shares of common stock
to a director upon the exercise of previously granted options.  The
consideration received by the Company upon the exercise of such warrants
was $5,000.  The Company issued such shares without registration under the
Act in reliance on Section 3(b) and 4(2) of the Act.  Such shares of common
stock were issued as restricted securities and the certificates
representing such shares were stamped with a restrictive legend to prevent
any resale without registration under the Act or compliance with an
exemption.
   
     On May 12, 1997, the Company issued 85,000 shares of common stock to
an individual upon the exercise of a previously granted warrant.  The
consideration received by the Company upon the exercise of such options was
$44,000.   The Company issued such shares without registration under the
Act in reliance on Section 3(b) and 4(2) of the Act.  Such shares of common
stock were issued as restricted securities and the certificates
representing such shares were stamped with a restrictive legend to prevent
any resale without registration under the Act or compliance with an
exemption.
   
     On May 27, 1997, the Company issued 40,000 shares of common stock to
an individual upon the exercise of a previously granted warrant.  The
consideration received by the Company upon the exercise of such options was
$6,000.  The Company issued such shares without registration under the Act
in reliance on Section 3(b) and 4(2) of the Act.  Such shares of common
stock were issued as restricted securities and the certificates
representing such shares were stamped with a restrictive legend to prevent
any resale without registration under the Act or compliance with an
exemption.  

     On June 19, 1997, the Company issued 100,000 shares of common stock
to a director upon the exercise of previously granted options.  The 
Company retired an additional 12,903 of this individual's previously
granted options as consideration for the exercise of the 100,000 shares of
common stock.  The Company issued such shares without registration under
the Act in reliance on Section 4(2) of the Act.  Such shares of common
stock were issued as restricted securities and the certificates
representing such shares were stamped with a restrictive legend to prevent
any resale without registration under the Act or compliance with an
exemption.  

     On April 29,  1997 the Company granted options to purchase 50,000
shares of common stock to an employee.   All of such options were issued
under the Company's 1997 Stock Incentive Plan without registration under
the Act in reliance on Sections 3(b) and 4(2) of the Act and the rules and
regulations promulgated thereunder.  The exercise price of such options is
$3.06, which was the closing market price on the date of grant.

     On July 7,  1997 the Company granted options to purchase 50,000
shares of common stock to an employee.   All of such options were issued
under the Company's 1997 Stock Incentive Plan without registration under
the Act in reliance on Sections 3(b) and 4(2) of the Act and the rules and
regulations promulgated thereunder.  The exercise price of such options is
$2.81, which was the closing market price on the date of grant.

                                   12
<PAGE>
Item 6.  Exhibits Required by Item 601 of Regulation S-B

     (a)  Exhibits Required by Item 601 of Regulation S-B

      Exhibit No.      Description
      ----------       --------------
          27           Financial Data Schedule






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<PAGE>
                           SIGNATURES

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

                                    K.L.S. ENVIRO RESOURCES, INC.



Date:   August 14, 1997             By: /s/ Raymond H. Kurzon
                                    ----------------------------------  
                                    Raymond H. Kurzon, President/CEO



Date:   August 14, 1997             By: /s/ Douglas L. Rex
                                    ----------------------------------
                                    Douglas L. Rex, Chief Financial Officer











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