UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
         OF 1934
For the fiscal year 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 number:                                                  0-16749
                                  CERBCO, Inc.
             (Exact name of registrant as specified in its charter)

         Delaware                                                 54-1448835
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

 3421 Pennsy Drive, Landover, Maryland                               20785
(Address of principal executive offices)                          (Zip Code)
          Registrant's telephone and fax numbers, including area code:
            301-773-1784 (tel)
            301-322-3041 (fax)
            301-773-4560 (24-hour public information FaxVault System)

Securities  registered  pursuant to Section  12(b) of the Act:  None
Securities registered pursuant to Section 12(g) of the Act:
                     Common Stock, par value $.10 per share
                 Class B Common Stock, par value $.10 per share
                                (Title of Class)

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
                                    Yes          X            No

The  aggregate   market  value  of  the   registrant's   voting  stock  held  by
non-affiliates  of the  registrant  computed by  reference  to the last price at
which such stock was sold, as of September 15, 1998, was $8,824,720.

As of September 15, 1998, the following number of shares of each of the issuer's
classes of common stock were outstanding:
                                    Common Stock              1,186,976
                                    Class B Common Stock        295,980
                                      Total                   1,482,956

Documents Incorporated by Reference:  None

Total number of pages of this report:     49
Index to Exhibits located at page:  45

<PAGE>


                                TABLE OF CONTENTS

PART I                                                                      Page

Item 1. Business...............................................................3

Item 2. Properties.............................................................8

Item 3. Legal Proceedings......................................................8

Item 4. Submission of Matters to a Vote of Security Holders....................8

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder
          Matters..............................................................9

Item 6. Selected Financial Data...............................................10

Item 7. Management's Discussion and Analysis of Financial Condition 
          and Results of Operations...........................................11

Item 7a.Quantitative and Qualitative Disclosures About Market Risk ...........15

Item 8. Financial Statements and Supplementary Data...........................15

Item 9. Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure............................................15

PART III

Item 10.Directors and Executive Officers of the Registrant....................32

Item 11.Executive Compensation................................................33

Item 12.Security Ownership of Certain Beneficial Owners and Management........40

Item 13.Certain Relationships and Related Transactions........................42

PART IV

Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K.......43




                                  CONSOLIDATED
                             STATEMENTS OF EARNINGS
                               AND BALANCE SHEETS
                               Pages 17 through 19



<PAGE>


                                     PART I

Item 1.  Business

(a)      General Development of Business

         As  of  June  30,  1997,  CERBCO,  Inc.  ("CERBCO",  the  "Company"  or
"Registrant")  [NASDAQ:CERB]  is a parent  holding  company  with a  controlling
interest in Insituform East,  Incorporated  [NASDAQ:INEI]  (excavationless sewer
and  pipeline  rehabilitation).  Prior to June 30,  1997,  CERBCO  also  owned a
controlling  interest in Capitol Office Solutions,  Inc.  (formerly Capitol Copy
Products,  Inc.)  [copier and facsimile  ("fax")  equipment  sales,  service and
supplies].

         CERBCO was  incorporated on December 23, 1987 in the State of Delaware.
CERBCO was formed for the purpose of implementing a Plan of  Reorganization  and
Merger (the "Plan"), whereby its then publicly-traded predecessor,  CERBERONICS,
Inc.  ("CERBERONICS"),  became a  wholly-owned  subsidiary of CERBCO.  Under the
Plan,  owners of  shares  of stock  previously  held in  CERBERONICS,  by class,
received  ownership of an  equivalent  number of shares of stock,  by class,  in
CERBCO.  The Company thus  consisted of CERBCO,  a parent holding  company,  and
three principal  subsidiaries,  CERBERONICS,  Insituform East,  Incorporated and
Capitol  Office   Solutions,   Inc.   CERBERONICS,   which  had  been  providing
engineering,  analytical  and  technical  support  services to the United States
Government, discontinued operations in 1991, but continues as a Delaware holding
company subsidiary.

         On June 30, 1997,  the  Company's  two-thirds  stake in Capitol  Office
Solutions,  Inc.  ("Capitol")  was  redeemed  by Capitol for  approximately  $19
million in cash plus  two-thirds  of an  approximate  $5 million  pre-redemption
dividend,  leaving Insituform East, Incorporated as the Company's sole remaining
operating subsidiary.

         The  principal  office and  corporate  headquarters  of the Company are
located in suburban Washington,  D.C., collocated with the offices of Insituform
East,  Incorporated,  at  3421  Pennsy  Drive,  Landover,  Maryland  20785.  The
Company's telephone number is (301) 773-1784,  its fax number is (301) 322-3041,
and its twenty-four hour public information FaxVault number is (301) 773-4560.

(b)      Financial Information About Industry Segments

         Substantially  all of the Company's  revenues and operating results are
attributable to Insituform East,  Incorporated.  Insituform  East,  Incorporated
primarily  rehabilitates  and repairs  underground  sewers and other  pipelines,
which business  constitutes  the Company's only industry  segment.  See Part IV,
Item 14,  Exhibit  99,  "CERBCO,  Inc.  Consolidating  Schedules:  Statement  of
Earnings Information for the Year Ended June 30, 1998; Balance Sheet Information
and  Consolidating  Elimination  Entries  as of June 30,  1998"  for  additional
information pertaining to Insituform East, Inc.

(c)      Narrative Description of Business

                                  CERBCO, Inc.

GENERAL

         CERBCO is a parent holding  company with a controlling  interest in one
operating subsidiary, Insituform East, Incorporated, and a wholly-owned interest
in CERBERONICS,  Inc., a Delaware holding company.  CERBCO officers  participate
directly on the management  team of these  subsidiary  corporations,  in varying
capacities  and  officerships,  with  a  view  to  overseeing,   protecting  and
developing   the  long-term   value  of  the  Company's   investments   in  such
subsidiaries.   A  business  description  of  CERBCO  is  primarily  a  business
description of its one operating subsidiary,  Insituform East, Incorporated,  as
given below.



<PAGE>


                          Insituform East, Incorporated

GENERAL

         Insituform East, Incorporated  ("Insituform East" or the "Company") was
organized under the laws of the State of Delaware on February 26, 1970 under the
name Universal  Construction and Supply Company. Its present name was adopted on
August 24, 1978. The Company was engaged in the business of underground  conduit
construction  from inception until 1974 and  construction  equipment rental from
1974 to 1978.  The Company  then phased out these lines of business  and entered
into  sublicensing  agreements  for the  Insituform(R)  process,  a  patented
technology for reconstructing pipelines with little or no excavation. Since July
1978, the Company has been primarily  engaged in the business of  rehabilitating
underground sewers and other pipelines, using the Insituform process.

         Between 1982 and 1986,  the Company added western  Pennsylvania,  Ohio,
three  Kentucky  counties and West Virginia to its original  Insituform  process
licensed territory of Maryland, Virginia, the District of Columbia, Delaware and
eastern Pennsylvania.

         In  December  1985,  Midsouth  Partners  was  organized  as a Tennessee
General Partnership and became the exclusive licensee for the Insituform process
in  Tennessee,  the rest of Kentucky and northern  Mississippi.  The Company was
assigned  three   representatives   to  a  seven-member   Management   Committee
established to manage the business activities of the Partnership and allocated a
42.5% interest in Partnership profits and losses.

         In  September  1987,  the  Company  established  a branch  facility  in
Cincinnati,  Ohio, to support operating  activities in the western region of its
licensed territory. In March 1998, the Company closed its Ohio branch office and
completed an orderly plan to transfer the functions,  personnel and equipment to
the Company's Landover, Maryland headquarters facility.

         In May 1989,  the Company  acquired an 80%  interest in Try Tek Machine
Works, Inc. ("Try Tek"). Try Tek, located in Hanover,  Pennsylvania, was founded
in  September  1985 to custom  design  and build  special  machinery,  including
machinery used in the Insituform process. The Company acquired an additional 10%
interest in Try Tek in February  1993 and the  remaining  10%  interest in March
1995.

         In December  1990,  the Company  acquired an exclusive  license for the
sale and  installation of preformed PVC  thermoplastic  pipe under the NuPipe(R)
process and trademark for a sales region  identical to the territories  licensed
to the Company for the Insituform process.

         In September  1991,  the Company  added cement mortar lining of potable
water lines to its service  capability.  A formal plan to discontinue  providing
cement mortar lining services, adopted in June 1993, was substantially completed
in June 1994.

         On June 12,  1996,  as the result of a default  by a partner  under the
Partnership  Agreement,  the Company was issued an arbitration award granting it
the  unilateral  right to  appoint  a  Midsouth  Partners  Management  Committee
representative in place of the defaulted partner's representative.  Accordingly,
the  Company  obtained  majority  representation  on  the  Management  Committee
effective June 12, 1996.

         For  financial  reporting  purposes for the fiscal years ended June 30,
1998,  1997 and 1996,  the  Company has  included  its  wholly-owned  subsidiary
corporations  (collectively,  "East")  and  its  majority-controlled  subsidiary
partnership,  Midsouth Partners, in its consolidated financial statements. Prior
to the fiscal year ended June 30, 1996,  the Company  accounted for its minority
investment in Midsouth Partners using the equity method.

         The Company primarily  rehabilitates and repairs underground sewers and
other  pipelines -- including  waste water,  storm water and industrial  process
pipelines -- using the Insituform  process.  The Insituform  process  utilizes a
polyester  fiber-felt  material,   the  Insitutube(R)   material,   coated  with
polyethylene and impregnated with a liquid,  thermosetting resin. The Insitutube
material  is inserted in the pipe  through an existing  manhole or other  access
point.  By use of an  inversion  tube and cold water  pressure,  the  Insitutube
material is forced  through the pipeline,  turned inside out, and pressed firmly
against the inner wall of the damaged pipeline.  When the Insitutube material is
fully extended,  the cold water within the tube is recirculated through a boiler
in a truck.  The  heated  water  cures the  thermosetting  resin to form a hard,
jointless, impact and corrosion resistant Insitupipe product within the original
pipe.   Lateral  or  side   connections   are  then   reopened  by  use  of  the
Insitucutter(R) device, a remote-controlled cutting machine.

         The  principal  office and  corporate  headquarters  of the Company are
located at 3421 Pennsy Drive, Landover,  Maryland 20785. The Company's telephone
number is (301) 386-4100, and its fax number is (301) 386-2444.

RELATIONSHIP WITH INSITUFORM TECHNOLOGIES, INC.

         On December 9, 1992, Insituform Technologies, Inc. (formerly Insituform
of North America,  Inc., or "INA") through its acquisition of Insituform  Group,
Ltd., N.V., acquired the worldwide patent rights for the Insituform process. The
Company is a sublicensee of Insituform  Technologies,  Inc. ("ITI"). The Company
has entered into seven  sublicense  agreements  with ITI which grant the Company
rights to perform the Insituform process in Virginia,  Maryland, Delaware, Ohio,
the District of Columbia,  Pennsylvania,  West Virginia, Tennessee, Kentucky and
northern  Mississippi.  The Company can perform the Insituform  process in other
locations subject to payment of additional royalties.

         The sublicense  agreements  require the Company to pay ITI a royalty of
8% of the revenue,  excluding certain  deductions,  from all contracts using the
Insituform process,  with a minimum annual royalty requirement for each licensed
territory.  In the event the Company performs the Insituform process outside its
territory,  the sublicense  agreements require it to pay a royalty of from 8% to
12% of the gross  contract  price to the  independent  sublicensee of such other
territory, if any, in addition to all royalties due ITI.

         The sublicense agreements extend for the life of the underlying patents
or patent rights,  including any  improvements or  modifications  extending such
life. The agreements may be terminated by the Company upon two calendar quarters
written  notice to ITI.  The  agreements  may only be canceled by ITI in certain
events. In addition, ITI has the right to approve the quality and specifications
of equipment and materials not purchased directly from ITI.

         In 1981,  the Company was assigned the rights to an agreement (the "SAW
Agreement")   regarding  the  introduction  of  potential   Insituform   process
sublicensees to ITI. In connection with the  introduction of current  Insituform
process  sublicensees to ITI, the Company receives  quarterly  payments from ITI
equal to 0.5% of contract  revenue  from  Insituform  process  installations  in
East's  licensed  territory  and the  states  of New  York,  New  Jersey,  North
Carolina, South Carolina, Georgia and Alabama.

         On May 1, 1987,  Midsouth  Partners entered into supply agreements with
ITI  whereby  Midsouth  Partners  committed  to purchase  90% of its  Insitutube
material  requirements  from ITI. The  agreements  automatically  renew annually
unless notice of termination is provided by either party six months prior to the
end of a renewal period.  The Midsouth  Partners  continuing  Insitutube  supply
agreement presently extends through April 30, 1999.

         On  December  29,  1997,  the  Company  entered  into a revised  supply
agreement  with  ITI  whereby  the  Company  committed  to  purchase  90% of its
Insitutube requirements from ITI for an initial five year period from January 1,
1998 to December 31, 2002. The agreement will automatically  extend for one year
periods  unless  notice of  termination  is provided by either  party six months
prior to the end of any such annual period.

         The Company has also entered into license agreements with NuPipe, Inc.,
a wholly-owned subsidiary of ITI, for the sale and installation of preformed PVC
thermoplastic  pipe under the NuPipe  process  and  trademark.  The  Company has
committed to pay a royalty equal to 6.75% of gross  contract  revenue  utilizing
the process and to purchase  certain  installation  equipment  and  installation
materials from ITI.

PATENTS

         The Insituform process was developed in the United Kingdom in 1971. The
Company's rights to utilize the patents,  trademarks and know-how related to the
Insituform  process are derived from its licensor,  ITI.  There are presently 61
United States patents which cover various aspects of the Insituform  process and
related installation techniques. The last patent to expire will remain in effect
until 2016. Two initial method patents  relating to the Insituform  process (one
of which covers material  aspects of the inversion  process)  expired in 1994. A
primary method patent  relating to the Insitutube  material  saturation  process
expires in February 2001 and a patent  relating to the Insitutube  material will
expire in May 2001.

         Although management of the Company believes these patents are important
to the business of the Company,  there can be no assurance  that the validity of
the patents will not be  successfully  challenged or that they are sufficient to
afford  protection  against another  company  utilizing a process similar to the
Insituform  process.  It is  possible  that  the  Company's  business  could  be
adversely affected upon expiration of the patents,  or by increased  competition
in the event that one or more of the patents were  adjudicated  to be invalid or
inadequate  in scope to protect  the  Company's  operations.  Management  of the
Company believes, however, that while the Company has relied on the strength and
validity of these patents,  the Company's  significant  installation  experience
with the Insituform process and its degree of market penetration in its licensed
territory  should enable the Company to continue to compete  effectively  in the
pipeline  rehabilitation  market in the future as older patents expire or become
obsolete.

CUSTOMERS

         The  Company  performs   services  under  contracts  with  governmental
authorities,  private  industries and commercial  entities.  In each of the last
three fiscal years, more than 58% of the Company's revenues have come from state
and local government entities -- cities,  counties,  state agencies and regional
authorities.  During the year ended June 30, 1998, the Perry Nuclear Power Plant
project, a combined city and county  metropolitan  government in Tennessee and a
county government in the Washington,  D.C.  metropolitan area accounted for 19%,
12% and 12%,  respectively,  of the Company's sales.  During the year ended June
30, 1997, federal government contracts (collectively), a municipal government in
central Ohio, the same county  government in the Washington,  D.C.  metropolitan
area,  and the same combined city and county  government in Tennessee  accounted
for 17%, 15%, 13% and 12%, respectively, of the Company's sales. During the year
ended June 30,  1996,  federal  government  contracts  (collectively),  the same
county  government  in the  Washington,  D.C.  metropolitan  area and a regional
sanitary   authority  in  southwest   Ohio  accounted  for  23%,  20%  and  10%,
respectively, of the Company's sales.

SUPPLIERS

         The Company's  materials and  equipment  are generally  available  from
several suppliers.  However, the Company believes that ITI is presently the sole
source of  proprietary  Insitutube  material  and,  therefore,  the  Company  is
presently dependent upon ITI for its supply of Insitutube  material.  During the
last three years the Company has not  experienced  any  difficulty  in obtaining
adequate supplies of Insitutube material from ITI and, subject to ITI's right to
approve the quality and  specifications  of material not purchased from ITI, the
Company has the right to substitute an alternate  polyester  fiber-felt or other
tube material available in the marketplace.

REVENUE RECOGNITION AND BACKLOG

         The Company  recognizes revenue using the units of completion method as
pipeline sections are rehabilitated  using the Insituform process. An Insituform
process  installation is generally  performed between manholes or similar access
points within a twenty-four  hour period.  A rehabilitated  pipeline  section is
considered  completed  work and is generally  billable to the customer.  In most
cases,  contracts consisting of individual line sections have a duration of less
than one year.

         The Company's  total backlog value of all  uncompleted  and  multi-year
contract awards from customers was approximately $24.9 million at June 30, 1998,
as compared to $24.4 million at June 30, 1997. The twelve-month  backlog at June
30, 1998 was  approximately  $10.7  million as compared to $16.1 million at June
30, 1997. The total value of all  uncompleted  and multi-year  contracts at June
30, 1998 and 1997  includes  work not  estimated  to be released  and  installed
within twelve months as well as potential work included in term contract  awards
which may or may not be fully ordered by contract expiration.  While potentially
helpful as a possible trend indicator, backlog figures at specific dates are not
necessarily  indicative  of sales and  earnings  for future  periods  due to the
irregular  timing and receipt of major project awards including large multi-year
menu-priced  contracts with  estimated but uncertain  order  quantities  subject
additionally to the specifics of individual work releases.

COMPETITION

         The general pipeline replacement, rehabilitation and repair business is
highly competitive.  The Company faces conceptual and practical competition both
from  a  number  of  contractors   employing  traditional  methods  of  pipeline
replacement  and repair and from  contractors  offering  alternative  trenchless
products and technologies.

         Traditional Methods. The Insituform process conceptually  competes with
traditional  methods of pipe  rehabilitation  including full replacement,  point
repair and  sliplining.  The Company  believes the  Insituform  process  usually
offers a cost advantage over full replacement as well as the practical advantage
of  avoiding  excavation.  In  addition,  the  Insituform  process  also  offers
qualitatively  better  rehabilitation  than sliplining  which may  significantly
reduce the  diameter  of the pipe.  Grouting  is also  undertaken  in the United
States.  The Company considers  grouting a short-term repair technique and not a
long-term  pipeline  rehabilitation  solution  competitive  with the  Insituform
process. As a practical matter,  competition for the Company typically begins at
the  point  an  end  user  has  conceptually  determined  to  employ  trenchless
technology  over  traditional   rehabilitation   methods  involving  substantial
excavation.

         Trenchless Cured-in-Place Technologies. Over the years, the Company has
witnessed a continuing introduction of alternative cured-in-place  technologies,
none of which  the  Company  believes  has been  able to offer  the  quality  or
technical  and other  merits  inherent in the  Insituform  process.  The Company
believes it remains the dominant provider of trenchless  cured-in-place pipeline
rehabilitation in its licensed territory.

         Modified Sliplining Techniques.  Several modified sliplining techniques
have been  introduced in the trenchless  marketplace to include the use of "fold
and formed"  thermoplastic  pipe. The NuPipe product offered by the Company is a
folded thermoplastic product installed using modified sliplining techniques. The
Company  believes that the majority of customers will select the  cured-in-place
Insituform  process over modified  sliplining  techniques due to the quality and
longevity  of the  Insitupipe  product,  the  proven  performance  record of the
Company's  Insituform process  installations over the past twenty years, and the
broader range of design alternatives  available with the Insituform process. The
Company  does offer its NuPipe  product to customers in  situations  where,  for
budget  restraints  or other  reasons,  customers or consulting  engineers  will
accept   a   technologically   inferior   modified   sliplining   technique   to
cured-in-place technology.

         Other  Trenchless  Technologies.  The  Company  is aware of a number of
other  trenchless  technologies  both  under  development  and from time to time
introduced into the marketplace  with mixed results.  The Company  believes that
the  successful,  in the ground,  over twenty  year  proven  performance  of the
Insituform process presents a significant advantage over alternative  trenchless
products.

         The principal  areas of  competition in general  pipeline  replacement,
rehabilitation and repair include the quality of the work performed, the ability
to  provide  a  long-term  solution  to  the  pipeline  problems  rather  than a
short-term repair, the amount of disruption to traffic and commercial  activity,
and the  price.  The  Company  believes  that the  Insituform  process  competes
favorably in each of these areas with traditional replacement or repair methods.
In  particular,  the ability to install  Insitupipe  products  with little or no
excavation at prices typically at or below  traditional open trench  replacement
methods is of substantial  competitive  advantage.  Further, and despite a small
reduction in pipe diameter  resulting  from the  installation  of the Insitupipe
product  against the walls of the original  pipe, the smooth  finished  interior
reduces friction and generally increases flow capacity.

         The Company believes the trenchless pipeline reconstruction marketplace
is  continuing  to expand,  thereby  enticing,  however,  the entry of ever more
imitations and substitute products hoping that cheap price alone may permit them
to succeed in a market  otherwise  dominated  by  Insituform.  In those  limited
markets where the lowest priced product may be deemed technically "good enough,"
Insituform  is at a  disadvantage.  Market share  participation  in this segment
strategically   undertaken  by  the  Company  from  time  to  time  to  preserve
competitive  presence,  typically at levels  materially  below  normal  margins,
necessarily  dilutes the overall margin performance of the Company.  Conversely,
in "best  value" and  quality-based  markets,  Insituform  remains at a distinct
advantage.  While both the Federal  Government  and industry  routinely use best
value  and  quality-weighted  contract  award  criteria  in  more  sophisticated
procurements,   municipalities  and  local  governments  are  often  politically
reluctant to modernize from simply  "low-bid" buying to "best value" buying when
evaluating  sophisticated  processes and  technologies.  In the face of mounting
technical failures from awards based upon lowest price,  municipalities are also
expected  over time to  reevaluate  simple low bid award  criteria - in favor of
"best  value" award  criteria  -when  procuring  trenchless  technology  for the
rehabilitation of older pipelines.

SALES AND MARKETING

         The  Company's  sales  and  marketing  effort is  directed  by its Vice
President  of Sales and  Marketing.  The  Company's  sales and  marketing  group
includes six sales  representatives,  assigned to serve the Company's municipal,
federal  government  and  industrial  market  customers.   Sales  and  marketing
personnel are full-time  employees  compensated  through a combination of salary
and bonus.  The Company  also  participates  in seminars  and trade  shows,  and
produces  and   distributes   technical  video   presentations,   brochures  and
newsletters for current and prospective users of the Insituform process.

RESEARCH AND DEVELOPMENT

         The Company is confident of its present  capability to provide pipeline
rehabilitation  services to its customers primarily using the Insituform process
and relies on its licensor, ITI, for major research and development projects. On
a continuing basis,  however, the Company expends engineering efforts to improve
installation methods and design techniques for specific customer applications.

GOVERNMENTAL REGULATIONS

         The Company does not anticipate any material  impediments to the use of
the  Insituform   process  arising  from  existing  or  future   regulations  or
requirements,  including  those  regulating  the discharge of materials into the
environment.

EMPLOYEES

         At June 30, 1998, the Company employed 169 full-time persons.

Item 2.  Properties

         Insituform  East  owns  four  buildings  totaling  76,700  square  feet
situated on a 15.45 acre site in the Ardwick  Industrial  Park,  Prince George's
County, Maryland. This facility houses the maintenance,  operations,  marketing,
administration and executive offices of the Company.

         Try Tek owns 13,885 square feet of land in Hanover, Pennsylvania,  with
6,139 square feet of manufacturing, administration and storage facilities housed
in three buildings.

         Midsouth  Partners  leases a 15,000  square foot facility in Knoxville,
Tennessee to serve customers in Tennessee, Kentucky and northern Mississippi.

Item 3.  Legal Proceedings

         See Part II, Item 8, "Notes to Consolidated Financial Statements - Note
10:  Contingencies"  for details  concerning (a) a previously  disclosed lawsuit
pending in the Superior Court of the District of Columbia,  and (b) a previously
disclosed  lawsuit filed in the U.S. District Court for the Southern District of
Texas, Houston Division.

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

         Not applicable.

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

(a)      Market Information

         (i)      Common Stock

         CERBCO's Common Stock is traded in the  over-the-counter  market and is
included in the National  Association of Securities  Dealers  ("NASD")  National
Market System  ("NMS").  Quotations for such shares are reported in the National
Association of Securities Dealers Automated  Quotations  ("NASDAQ") System under
the trading symbol CERB.  Holders of Common Stock have one vote per share on all
matters on which stockholders are entitled to vote together.

         The following  table shows the range of bid  quotations  for the period
indicated as reported by NASDAQ:

<TABLE>
<CAPTION>
                                                               Common Stock
     Fiscal Year Ended June 30, 1998                      High             Low
     -------------------------------                      ----             ---
<S>        <C>                                            <C>              <C>
           1st Quarter                                    13 1/4           8 7/8
           2nd Quarter                                    14               8 3/4
           3rd Quarter                                    12 3/4           9 1/4
           4th Quarter                                    10               7 3/4

     Fiscal Year Ended June 30, 1997                      High             Low
     -------------------------------                      ----             ---
           1st Quarter                                    7 3/8            5 3/8
           2nd Quarter                                    7 1/4            5 1/4
           3rd Quarter                                    9 3/4            6 1/8
           4th Quarter                                    12               7 1/4

         The quotations in the above table  represent  prices  between  dealers,
without  retail  mark-ups,  markdowns or  commissions,  and may not  necessarily
represent actual transactions.
</TABLE>

         (ii)     Class B Common Stock

         There is no public trading market for shares of CERBCO's Class B Common
Stock. Holders of shares of Class B Common Stock have ten votes per share on all
matters with the  exception  of the  election of directors  and any other matter
requiring the vote of  stockholders  separately  as a class.  Holders of Class B
Common Stock are entitled to elect the remaining directors after election of not
less than 25% of the directors by the holders of Common Stock, voting separately
as a class. Shares of Class B Common Stock are convertible at any time to shares
of Common Stock on a share-for-share basis.

(b)      Holders

         As of September 15, 1998, the  approximate  number of  shareholders  of
record of each class of common equity of CERBCO was as follows:

         Common Stock                       300
         Class B Common Stock               125

 (c)     Dividends

         On June 16, 1998,  the Company  declared a regular cash dividend of ten
cents per share,  both on its  shares of Common  Stock and its shares of Class B
Common  Stock,  payable  July 15, 1998 to its  shareholders  of record as of the
close of business on June 30,  1998.  On June 17, 1997,  the Company  declared a
regular  cash  dividend  of five cents per  share,  both on its shares of Common
Stock  and its  shares of Class B Common  Stock,  payable  July 15,  1997 to its
shareholders of record as of the close of business on June 30, 1997. On June 27,
1997, the Company  declared a special dividend of one-dollar and fifty cents per
share,  both on its Common Stock and its Class B Common Stock,  payable July 30,
1997 to  shareholders of record as of the close of business on July 15, 1997. On
June 18, 1996,  the Company  declared a regular cash  dividend of five cents per
share,  both on its  shares  of Common  Stock  and its  shares of Class B Common
Stock,  payable July 15, 1996 to its  shareholders  of record as of the close of
business on June 30, 1996.

         The declaration of any future dividends will be determined by the Board
of Directors  based upon  conditions  then  existing,  including  the  Company's
operating results, financial condition,  capital requirements and other factors.
While there can be no assurances as to the declaration of any future  dividends,
it is presently  contemplated  that dividends  will be declared  annually with a
record date of June 30th and a payment date of July 15th.

Item 6.  Selected Financial Data

         The  selected  financial  data  set  forth  below  should  be  read  in
conjunction  with the Company's  consolidated  financial  statements and related
notes included elsewhere in this report.

(in thousands, except per share information and return on equity amounts)

<TABLE>
STATEMENT OF EARNINGS INFORMATION
<CAPTION>
                                                                    Years ended June 30
                                                 1998         1997          1996         1995         1994
                                                 ----         ----          ----         ----         ----

<S>                                         <C>           <C>          <C>          <C>          <C>      
Sales                                       $  23,891     $ 26,542     $  30,471    $  21,594    $  14,804
Operating profit (loss)                     $  (2,607)    $ (1,633)    $   2,551    $   1,529    $    (771)
Earnings (loss) before non-owned interests
  and income taxes                          $    (899)    $ (1,243)    $   3,121    $   2,615    $    (180)
Earnings (loss) before non-owned interests
  in Insituform East                        $     127     $   (565)    $   1,389    $   1,247    $    (301)
Earnings (loss) from continuing operations  $     359     $   (199)    $     247    $    (202)   $    (403)
Net earnings                                $     359     $ 10,169     $   2,055    $   1,542    $   1,319
Earnings (loss) per share:
  Continuing operations                     $    0.24     $  (0.13)    $    0.17     $  (0.13)   $    (0.28)
  Net earnings                              $    0.24     $   6.91     $    1.40     $   1.06    $     0.90
Weighted average number of shares               1,483        1,471         1,465        1,460         1,457
Dividends declared per share                $    0.10     $   1.55     $    0.05     $      0    $        0

BALANCE SHEET INFORMATION                                                 June 30
                                                 1998         1997          1996         1995         1994
                                                 ----         ----          ----         ----         ----

Accounts receivable                         $   5,185     $  6,691     $   8,497    $   6,386    $   6,675
Working capital                             $  24,004     $ 24,537     $  17,886    $  12,152    $   9,480
Total assets                                $  43,211     $ 51,471     $  39,451    $  32,980    $  29,507
Short-term debt                             $     285     $     29     $      55    $      53    $     611
Long-term debt                              $     105     $    139     $     136    $      42    $      96
Non-owned interests                         $  12,068     $ 13,042     $  16,509    $  12,367    $  10,318
Stockholders' equity                        $  25,180     $ 24,935     $  17,002    $  15,000    $  13,445
Book value per share                        $   16.98     $  16.88     $   11.58    $   10.26    $    9.23
Average stockholders' equity
  [Weighted average equity during year
  exclusive of current earnings]            $  24,878     $ 17,033     $  15,010    $  13,452    $  12,127
Return on equity
  [Net earnings divided by average
  stockholders' equity as defined above]         1.4%        59.7%        13.7%        11.5%         10.9%

</TABLE>

Item 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations

Overview and Outlook

         The Company  reported  net  earnings  of $358,790  ($0.24 per share) on
sales of $23.9  million.  In the previous  fiscal year,  the Company  reported a
consolidated loss from continuing operations of -$199,396 (-$0.13. per share) on
sales of $26.5 million,  but  extraordinarily  positive  overall net earnings of
$10,169,310  ($6.91  per  share).  Net  earnings  in fiscal  year 1997  included
earnings from the  operations of, and a gain from the redemption of its interest
in, Capitol Office Solutions,  the Company's  discontinued copy machine products
and services segment.

         The Company  attributed  its  positive net earnings for the fiscal year
ended June 30, 1998  primarily  to the parent  company's  short-term  investment
earnings. Insituform East, the Company's majority-controlled subsidiary and only
remaining operating segment,  recognized a consolidated net loss of -$331,907 on
sales of $23.9 million,  contributing  a loss of -$108,453 to CERBCO,  in fiscal
year 1998.  Insituform East  recognized a consolidated  net loss of -$543,646 on
sales of $26.5 million,  contributing  a loss of -$177,641 to CERBCO,  in fiscal
year 1997. The operations of Insituform East and its  wholly-owned  subsidiaries
(collectively,  "East") produced  positive fiscal year 1998 operating results as
the favorable  impact of the Perry  Nuclear  project in the first quarter of the
fiscal year more than offset the impact of reduced  sales volume during the rest
of the year. However, Midsouth Partners,  Insituform East's  majority-controlled
subsidiary partnership, experienced significantly reduced margins throughout the
year,  producing  contributory  losses  that more than  offset  East's  modestly
favorable results.

         The Company  recorded  unallocated  general  corporate  expenses in the
amount of $708,479  (down  $12,402  from the  previous  year),  including  legal
expenses of $66,090 (down  $105,394  from the previous  year) related to the two
lawsuits   filed  against  CERBCO  and  others  by  two   associated,   minority
stockholders in connection with the unconsummated  private sale of a controlling
interest in the Company  abandoned in September 1990. The first-filed of the two
lawsuits (the "Delaware Action") was finally concluded during the second quarter
of fiscal year 1998,  when the  Delaware  Supreme  Court  affirmed  the Court of
Chancery's  rejection of all but $143,364 of  plaintiffs'  petition for an award
against CERBCO of  approximately  $1.6 million in attorneys'  fees and expenses.
After the final disposition of the Delaware Action,  plaintiffs filed an amended
complaint in their District of Columbia lawsuit (the "D.C. Complaint"),  and the
attendant  legal  expenses  are  expected to  continue.  From  inception  of the
litigations  in 1990 through the year ended June 30, 1998,  CERBCO's  legal fees
and expenses  relating to both lawsuits total  approximately  $2.3 million.  For
additional  information  concerning this matter,  see Part II, Item 8, "Notes to
Consolidated Financial Statements - Note 10. Contingencies."

         With  respect to  forward-looking  information,  while  there can be no
assurances  regarding the Company's future operating  performance,  based on the
volume and mix of Insituform  East's  present and expected  workable  backlog of
customer orders,  the Company presently  anticipates  positive operating results
for the first  quarter of fiscal year 1999. A combination  of additional  normal
margin  sales and  increased  production  levels  will be  required  to  sustain
positive operating results through the remainder of the fiscal year. Income from
the Company's  non-operating  activities presently is anticipated to approximate
the normal levels of its holding company expenses into the future;  accordingly,
absent  unusual items,  the Company's  forward-looking  results are  anticipated
substantially  to parallel the Company's  approximate 33%  participation  in the
forward results of Insituform East.

         The principal factor affecting the Company's future performance remains
the  volatility of Insituform  East's  earnings as a function of sales volume at
normal margins. Accordingly,  because a substantial portion of Insituform East's
costs are semi-fixed in nature,  earnings can, at times, be severely  reduced or
eliminated  during  periods of  depressed  sales at normal  margins or  material
increases in  discounted  sales,  even where total  revenues may  experience  an
apparent  buoyancy or growth from the addition of  discounted  sales  undertaken
from  time to  time  for  strategic  reasons.  Conversely,  at  normal  margins,
increases in period sales typically leverage positive earnings significantly.

         The Company believes the trenchless pipeline reconstruction marketplace
is  continuing  to expand,  thereby  enticing,  however,  the entry of ever more
imitations and substitute products hoping that cheap price alone may permit them
to succeed in a market  otherwise  dominated  by  Insituform.  In those  limited
markets where the lowest priced product may be deemed technically "good enough,"
Insituform  is at a  disadvantage.  Market share  participation  in this segment
strategically  undertaken  by  Insituform  East  from  time to time to  preserve
competitive  presence,  typically at levels  materially  below  normal  margins,
necessarily   dilutes  the  overall  margin   performance  of  Insituform  East.
Conversely,  in "best value" and quality-based markets,  Insituform remains at a
distinct advantage. While both the Federal Government and industry routinely use
best value and  quality-weighted  contract award criteria in more  sophisticated
procurements,   municipalities  and  local  governments  are  often  politically
reluctant to modernize  from simply "low bid" buying to "best value" buying when
evaluating  sophisticated  processes and  technologies.  In the face of mounting
technical failures from awards based upon lowest price,  municipalities are also
expected  over time to  reevaluate  simple low bid award  criteria - in favor of
"best value"  award  criteria - when  procuring  trenchless  technology  for the
rehabilitation of older pipelines.

Results of Operations

         The following table sets forth, for the periods indicated, the relative
percentages that certain items of expense and earnings or loss bear to the sales
of CERBCO and the  percentage  increases or  decreases in the dollar  amounts of
each item from period to period:

<TABLE>
<CAPTION>
                                               Percentage Relationship to Revenues   Period to Period Changes
                                                        Years ended June 30             Years ended June 30
                                                                                        1998         1997
                                                 1998         1997         1996       vs 1997      vs 1996
                                                 ----         ----         ----       -------      -------

<S>                                               <C>          <C>           <C>          <C>          <C>    
Sales                                             100.0%       100.0%        100.0%       (10.0%)      (12.9%)
                                                  -----        -----         ------
Costs and Expenses:
  Cost of sales                                    88.7         84.5          73.1         (5.5)         0.6
  Selling, general and administrative expenses     22.2         21.7          18.5         (7.7)         2.1
                                                  -----        -----         -----
    Total Costs and Expenses                      110.9        106.2          91.6         (5.9)         0.9
                                                  -----        -----        ------
Operating Profit (Loss)                           (10.9)        (6.2)          8.4        (59.7)      (164.0)
Investment Income                                   4.3          1.0           1.0        300.1        (11.1)
Interest Expense                                   (0.3)        (0.1)         (0.2)       (51.7)       137.3
Other Income - net                                  3.1          0.6           1.0        329.0        (42.5)
                                                  -----        -----        ------
Earnings (Loss) Before Non-Owned Interests
  and Income Taxes                                 (3.8)        (4.7)         10.2         27.7       (139.8)
Non-Owned Interest in Midsouth Partners            (4.3)         0.7           2.2       (622.8)       (70.2)
                                                  -----        -----        ------
Earnings (Loss) Before Non-Owned Interests in
  Insituform East and Income Taxes                  0.5         (5.4)          8.0          N/A       (158.4)
Provision (Credit) for Income Taxes                (0.0)        (3.3)          3.5         99.1       (181.4)
                                                  -----        -----        -----
Earnings (Loss) Before Non-Owned Interests in
  Insituform East                                   0.5         (2.1)          4.5          N/A       (140.7)
Non-Owned Interests in Insituform East              1.0         (1.3)          3.7          N/A       (132.1)
                                                  -----        -----        ------
Earnings (Loss) from Continuing Operations          1.5         (0.8)          0.8          N/A       (180.7)
Discontinued Operations                             0.0         39.1           5.9       (100.0)       473.5
                                                  -----        -----        ------
  Net Earnings                                      1.5%        38.3%          6.7%       (96.5)       394.8
                                                  =====        =====        ======
</TABLE>


                                  1998 vs. 1997

         Consolidated  sales  decreased  $2.7 million (-10%) in fiscal year 1998
primarily as a result of reduced workable backlog levels  experienced during the
last three quarters of the fiscal year. East's sales decreased 9% in fiscal year
1998; Midsouth Partners' sales decreased 12%.

         Consolidated  operating  results  decreased $1.0 million (-60%) from an
operating loss of -$1.6 million in 1997 to an operating loss of -$2.6 million in
1998.  Insituform  East's  gross  profit  margin  decreased  from 16% to 11% due
primarily to reduced  margins on work  performed by Midsouth  Partners more than
offsetting  improved margins  recognized by East.  Improved East margins in 1998
were due in part to completion  of the Perry  Nuclear  Project and a mix of work
that included a reduced  volume of  discounted  work and work  subcontracted  to
others.  Reduced  margins  for  Midsouth  Partners  were due  primarily  to both
discounted  sales and  performance  inefficiencies.  Insituform  East's selling,
general and administrative  expenses decreased $0.4 million (-9%) in fiscal year
1998, primarily as a result of reduced legal expenses and lower costs to support
reduced  production   activities.   The  parent  company's  unallocated  general
corporate expenses were down slightly from the previous year, as decreased legal
expenses were largely offset by increased salary expense.

         Investment income increased $0.8 million (300%) as a result of interest
earned on short-term  investment of cash realized from the sale of the Company's
interest in Capitol Office  Solutions on June 30, 1997.  Other income  increased
$0.6 million (329%) primarily as a result of the payment of damages to CERBCO in
connection with the Delaware Action.

         Earnings from discontinued operations in fiscal year 1997 resulted from
the then operations of Capitol Office Solutions.

                                  1997 vs 1996

         Consolidated  sales decreased $3.9 million (-13%) primarily as a result
of periods of reduced  workable  backlog levels  experienced by Insituform  East
during  fiscal  year  1997 and third  quarter  fiscal  year  1997  delays in the
start-up and execution of several significant projects. East sales decreased 12%
in fiscal  year  1997;  Midsouth  Partners  sales  decreased  14%.  The  Company
experienced a 25% decrease in comparable year Insituform  installation  revenues
which was offset to some extent by increased  NuPipe  installation  revenues and
increased services subcontracted to others.

         Consolidated  operating  results decreased $4.2 million (-164%) from an
operating  profit of $2.6 million in 1996 to an operating  loss of -$1.6 million
in 1997. Insituform East's operating results decreased $4.0 million.  Insituform
East's gross profit  margin  decreased  from 27% to 16% primarily as a result of
both sales mix and absorption of semi-fixed  operating  costs over reduced sales
levels.   Fiscal  year  1997  sales  mix   included   increases  in  low  margin
subcontracted services, modified sliplining installations and certain discounted
work undertaken for strategic  reasons.  Insituform East's selling,  general and
administrative expenses decreased $0.1 million (-2%) in fiscal year 1997, a much
smaller decrease than the decrease in sales. The parent company's operating loss
increased $0.2 million (47%) primarily due to a one-time increase in the accrued
supplemental executive retirement plan liability.

         Earnings from discontinued  operations increased $0.4 million (20%) due
to an increase in Capitol  Office  Solutions'  sales (17%) and operating  profit
(11%).  Discontinued  operations in fiscal year 1997 also included a gain due to
the sale of the Company's interests in Capitol Office Solutions of $8.2 million,
net of income taxes of $6.2 million.

Liquidity and Capital Resources

         Liquidity  may be defined as the  Company's  ability to mobilize  cash.
Cash and cash  equivalents  decreased  $6.7  million  in  fiscal  year  1998 due
primarily  to payment  of income  taxes on the gain  resulting  from the sale of
Capitol  Office  Solutions  and cash  dividends to  stockholders.  Cash and cash
equivalents  increased  $16.8  million and $5.0 million in fiscal years 1997 and
1996,  respectively.  The increase in 1997 was due  primarily to the sale of the
Company's  investment in Capitol Office Solutions.  The increase in 1996 was due
primarily  to  cash  generated  from   operations  and  the  sale  of  temporary
investments by the parent holding company.

         The Company's  operating  activities used approximately $2.7 million in
cash in fiscal  year  1998 and  provided  approximately  $4.6  million  and $6.2
million in cash during fiscal years 1997 and 1996, respectively.

         Net cash used in investing  activities was  approximately  $1.7 million
and $0.7 million in fiscal years 1998 and 1996, respectively. The primary use of
such funds was for capital expenditures by Insituform East in each of the fiscal
years to upgrade, expand and improve production  capabilities,  and purchases of
vehicles and production  equipment to replace aging units.  Net cash provided by
investing  activities was  approximately  $12.6 million in fiscal year 1997, due
primarily  to the proceeds of the  Company's  sale of Capitol  Office  Solutions
which more than offset capital expenditures by Insituform East in that year.

         Net cash used in financing  activities  was $2.3 million,  $0.3 million
and $0.4  million in fiscal  years  1998,  1997 and 1996,  respectively.  During
fiscal  year 1998,  CERBCO  and  Insituform  East paid  regular  cash  dividends
declared for fiscal year 1997 and CERBCO paid special cash dividends declared in
connection  with the sale of Capitol Office  Solutions on June 30, 1997.  During
fiscal  years  1997 and 1996,  CERBCO  and  Insituform  East paid  regular  cash
dividends declared for fiscal years 1996 and 1995, respectively.

         Although the Company experienced a $6.7 million decrease in cash during
fiscal  year  1998,  its  liquidity  remained  strong  with  working  capital of
approximately  $24 million and a current  ratio of 6.5 at June 30, 1998.  CERBCO
believes  that  Insituform   East  has  cash  reserves,   bank  line  of  credit
availability or borrowing  potential against  unencumbered  assets sufficient to
meet its immediate cash flow requirements.  The parent holding company,  CERBCO,
does  not have a  separate  bank  line of  credit,  but has  cash and  temporary
investments in excess of $18 million which,  pending longer term investment,  it
believes are more than adequate to meet its own cash flow  requirements,  or the
temporary  requirements of Insituform East in the foreseeable future,  including
continuing  legal  fees  and  expenses  of the  parent  in  connection  with the
stockholder litigation now moved to the District of Columbia.

Year 2000 Issues

         The  inability  of  present   computerized  systems  to  process  dates
correctly  beyond  December 31, 1999 and the potential  impact on businesses and
governments in the future are generally referred to as "Year 2000 Issues."

         The Company has implemented plans to address Year 2000 issues.  Primary
areas of  focus  include  the  Company's  information  technology  systems,  the
Company's  non-information  technology  systems,  the Year 2000 readiness of the
Company's  vendors and  suppliers  and the Year 2000  readiness of the Company's
major  customers.  Because the Company's  primary  products and services neither
include nor rely upon computerized  components,  the Company believes that there
are no additional  contingencies  associated  with actual or implied  warranties
related to its products and services resulting from year 2000 issues.

         With  respect to the  Company's  information  technology  systems,  the
Company's  primary  accounting  and  information  process  system  is Year  2000
compliant and will recognize years 2000 through 2029 in the proper century.  The
Company's preliminary assessment of supporting information systems is that these
systems  either are Year 2000  compliant,  can be  modified  to become Year 2000
compliant,  or  should  not have a  significant  impact on  either  the  primary
accounting and information system or the Company's  operating  activities should
non-compliant systems not be properly modified.

         With respect to the Company's  non-information  technology systems, the
Company is still in the preliminary  assessment  stage. The Company is dependent
on  information  from vendors and  suppliers in assessing and  evaluating  these
systems. As potential year 2000 issues are identified,  implementation plans are
developed and executed.  The Company has initiated  plans for corrective  action
for its office telephone system and headquarters  facility security system,  two
systems that are not presently year 2000 compliant.

         With respect to the Company's suppliers and customers,  the Company has
initiated  preliminary  correspondence  with  selected  critical  suppliers  and
customers.  Responses  received to date indicate that  responding  suppliers and
customers  either are  currently  Year 2000  compliant or expect to be Year 2000
compliant by December 31, 1999. Prior to December 31, 1998, the Company plans to
seek to  obtain  responses  from  suppliers  and  customers  who have not as yet
responded  to  inquiries  and  develop a plan to monitor  and  assess  Year 2000
readiness from respondents not as yet Year 2000 compliant.

         The Company currently  estimates that the cost of implementing its Year
2000  Plan will not  exceed  $200,000.  This  preliminary  estimate  is based on
presently available information and will be updated as the Company continues its
assessment and proceeds with implementation.  Specifically,  this estimate would
change if, after  receipt of  information  from key  suppliers or  customers,  a
formal contingency plan required development and implementation.

         There can be no assurances  that the  Company's  Year 2000 Plan will be
successful.  The Company is  dependent  on vendors to identify  and correct Year
2000 issues related to the Company's  utilities and equipment using computerized
components.  In addition,  if key vendors fail to provide materials  critical to
the  Company's  operations,   or  with  sufficient  electrical  power  or  other
utilities,  or if  transportation  of the  Company's  personnel and equipment is
seriously impeded,  any such failure could have a material adverse effect on the
operational performance and financial condition of the Company.

         In  addition,  if major  municipal,  industrial  or federal  government
customers are seriously  affected,  directly or  indirectly,  by Year 200 issues
such that pipeline  rehabilitation  programs are delayed or abandoned,  this too
could  have a  material  adverse  effect  on  the  operational  performance  and
financial condition of the Company.

         The Company has not yet established a contingency  plan, but intends to
formulate one prior to June 30, 1999, based primarily on potential  actions that
would be required if key vendors or customers were unable to address and resolve
Year 2000 issues that would directly or indirectly  impact the Company's ability
to conduct normal business operations in the Year 2000 and beyond.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

         Not applicable.

Item 8.  Financial Statements and Supplementary Data

         See  financial  statements  and  supplementary   financial  information
provided following Item 9 below.

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

         Not applicable.



<PAGE>


INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of CERBCO, Inc.

We have audited the accompanying consolidated balance sheets of CERBCO, Inc. and
subsidiaries  as of  June  30,  1998  and  1997,  and the  related  consolidated
statements  of earnings,  stockholders'  equity,  and cash flows for each of the
three years in the period ended June 30, 1998.  These  financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects, the financial position of CERBCO, Inc. and subsidiaries as of
June 30, 1998 and 1997, and the results of their operations and their cash flows
for each of the three years in the period  ended June 30,  1998,  in  conformity
with generally accepted accounting principles.


/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Washington, D.C.
September 22, 1998


<PAGE>


<TABLE>
                                                   CERBCO, Inc.
                                        CONSOLIDATED STATEMENTS OF EARNINGS

<CAPTION>
                                                                             Years Ended June 30
                                                            --------------------------------------------------------
                                                                 1998                1997                1996
                                                            ----------------   ------------------   ----------------

<S>                                                            <C>                <C>                  <C>        
Sales                                                          $23,891,215        $26,541,542          $30,470,867
                                                            ----------------   ------------------   ----------------
Costs and Expenses:
    Cost of sales                                               21,190,803         22,422,831           22,288,437
    Selling, general and administrative expenses                 5,307,431          5,751,328            5,631,827
                                                            ----------------   ------------------   ----------------
        Total Costs and Expenses                                26,498,234         28,174,159           27,920,264
                                                            ----------------   ------------------   ----------------
Operating Profit (Loss)                                         (2,607,019)        (1,632,617)           2,550,603
Investment Income                                                1,037,186            258,947              291,173
Interest Expense                                                   (60,489)           (39,871)             (16,799)
Other Income - net                                                 731,256            170,469              296,483
                                                            ----------------   ------------------   ----------------
Earnings (Loss) Before Non-Owned Interests
    and Income Taxes                                              (899,066)        (1,243,072)           3,121,460
Non-Owned Interest in Pretax Earnings (Loss) of
    Midsouth Partners                                           (1,026,402)           196,329              658,822
                                                            ----------------   ------------------   ----------------
Earnings (Loss) Before Non-Owned Interests in
    Insituform East, Inc. and Income Taxes                         127,336         (1,439,401)           2,462,638
Provision (Credit) for Income Taxes                                 (8,000)          (874,000)           1,074,000
                                                            ----------------   ------------------   ----------------
Earnings (Loss) Before Non-Owned Interests in
    Insituform East, Inc.                                          135,336           (565,401)           1,388,638
Non-Owned Interests in Earnings (Loss) of
    Insituform East, Inc.                                         (223,454)          (366,005)           1,141,419
                                                            ----------------   ------------------   ----------------
Earnings (Loss) from Continuing Operations                         358,790           (199,396)             247,219
                                                            ----------------   ------------------   ----------------
Discontinued Operations:
    Earnings from discontinued operations of copier
        machine products and services segment                            0          2,166,894            1,808,072
    Gain on disposal of copier machine products and
        services segment - net of income taxes of                        0          8,201,812                    0
        $6,230,000
                                                            ----------------   ------------------   ----------------
        Total Discontinued Operations                                    0         10,368,706            1,808,072
                                                            ----------------   ------------------   ----------------
                                                            $      358,790       $ 10,169,310         $  2,055,291
NET EARNINGS
                                                            ================   ==================   ================
Basic Earnings per Share of Common Stock:
    Earnings (loss) from continuing operations              $                   $                    $
                                                                      0.24              (0.13)               0.17
    Earnings from discontinued operations                             0.00               1.47                1.23
    Gain on disposal                                                  0.00               5.57                0.00
                                                            ================   ==================   ================
        Basic Earnings per Share                            $                   $                    $
                                                                      0.24               6.91                1.40
                                                            ================   ==================   ================

Diluted Earnings per Share of Common Stock:
    Earnings (loss) from continuing operations              $                  $                    $
                                                                      0.24              (0.13)               0.17
    Earnings from discontinued operations                             0.00               1.47                1.23
    Gain on disposal                                                  0.00               5.57                0.00
                                                            ----------------   ------------------   ----------------
        Diluted Earnings per Share                          $                  $                    $
                                                                      0.24               6.91                1.40
                                                            ================   ==================   ================

See notes to consolidated financial statements.
</TABLE>


<PAGE>


<TABLE>
                                                   CERBCO, Inc.
                                            CONSOLIDATED BALANCE SHEETS

<CAPTION>
                                                                                       June 30
                                                                    -----------------------------------------------
                                                                          1998                          1997
                                                                    -----------------             -----------------

ASSETS

Current Assets:
<S>                                                                  <C>                           <C>           
    Cash and cash equivalents                                        $   20,405,039                $   27,081,412
    Accounts receivable                                                   5,185,047                     6,691,313
    Inventories                                                           1,381,861                     1,538,017
    Prepaid and refundable taxes                                            948,486                       813,872
    Prepaid expenses and other                                              420,931                       251,572
                                                                    -----------------             -----------------
        Total Current Assets                                             28,341,364                    36,376,186
                                                                    -----------------             -----------------

Property, Plant and Equipment:
    Land and improvements                                                 2,018,587                      2,018,587
    Buildings and improvements                                            5,845,185                     5,904,448
    Vehicles and production equipment                                    11,853,458                    11,406,621
    Small tools, radios and machine shop equipment                        4,545,414                     4,658,431
    Office furniture and equipment                                        1,178,939                     1,066,526
                                                                    -----------------             -----------------
                                                                         25,441,583                    25,054,613
    Less accumulated depreciation and amortization                      (14,245,135)                  (13,296,041)
                                                                    -----------------             -----------------
        Total Property, Plant and Equipment                              11,196,448                    11,758,572
                                                                    -----------------             -----------------

Other Assets:
    Excess of acquisition cost over value of net assets
        acquired - net of accumulated amortization of
        $1,165,712 in 1998 and $1,077,844 in 1997                         2,320,640                     2,408,508
    Cash surrender value of SERP life insurance                           1,230,255                       779,041
    Deposits and other                                                      122,479                       148,837
                                                                    -----------------             -----------------
        Total Other Assets                                                3,673,374                     3,336,386
                                                                    =================             =================
            Total Assets                                             $   43,211,186                 $  51,471,144
                                                                    =================             =================

See notes to consolidated financial statements.
</TABLE>


<PAGE>


<TABLE>
                                                   CERBCO, Inc.
                                            CONSOLIDATED BALANCE SHEETS

<CAPTION>
                                                                                     June 30
                                                                  ----------------------------------------------
                                                                        1998                         1997
                                                                  -----------------            -----------------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
<S>                                                                <C>                          <C>            
    Partners' loans to Midsouth Partners                           $       250,000              $             0
    Accounts payable and accrued liabilities                             2,701,678                    6,006,361
    Income taxes payable                                                 1,350,825                    5,804,724
    Current portion of capital lease obligations                            34,621                       28,508
                                                                  -----------------            -----------------
        Total Current Liabilities                                        4,337,124                   11,839,593
                                                                  -----------------            -----------------

Long-Term Liabilities:
    Capital lease obligations (less current portion shown above)           104,829                      139,480
    Deferred income taxes                                                  915,000                    1,074,000
    Accrued SERP liability                                                 605,973                     440,950
                                                                  -----------------            -----------------
    Total Long-Term Liabilities                                          1,625,802                    1,654,430
                                                                  -----------------            -----------------
        Total Liabilities                                                5,962,926                   13,494,023
                                                                  -----------------            -----------------

Commitments and Contingencies

Non-Owned Interests in Consolidated Subsidiaries                        12,068,262                   13,042,117
                                                                  -----------------            -----------------

Stockholders' Equity:
    Common stock, $.10 par value
        Authorized:  3,500,000 shares
        Issued and outstanding: 1,186,976 shares (at June 30, 1998)         118,697
        Issued and outstanding: 1,180,601 shares (at June 30, 1997)                                     118,060
    Class B Common stock (convertible), $.10 par value
        Authorized:  700,000 shares
        Issued and outstanding: 295,980 shares (at June 30, 1998)           29,598
        Issued and outstanding: 296,355 shares (at June 30, 1997)                                        29,635
    Additional paid-in capital                                           7,527,278                    7,493,378
    Retained earnings                                                   17,504,425                   17,293,931
                                                                  -----------------            -----------------
        Total Stockholders' Equity                                      25,179,998                   24,935,004
                                                                  -----------------            -----------------
            Total Liabilities and Stockholders' Equity            $     43,211,186               $   51,471,144
                                                                  =================            =================


See notes to consolidated financial statements.
</TABLE>


<PAGE>


<TABLE>
                                                   CERBCO, Inc.
                                  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                     YEARS ENDED JUNE 30, 1998, 1997 and 1996

<CAPTION>
                                                                                  Additional                  Total Stock-
                                     Common Stock         Class B Common Stock     Paid-in       Retained       holders'
                               --------------------------------------------------
                                  Shares      Amounts       Shares     Amounts     Capital       Earnings        Equity
                               ---------------------------------------------------------------------------------------------
<S>                               <C>        <C>             <C>       <C>        <C>          <C>              <C>        
BALANCE - JULY 1, 1995            1,150,989  $   115,099     310,967   $ 31,096   $ 7,413,054  $  7,441,010     $15,000,259

Net earnings                              0            0           0          0             0     2,055,291       2,055,291
Issuance of stock pursuant to
    exercise of stock options         6,000          600           0          0        18,900             0          19,500
Conversion of Class B stock
    into Common stock                   112           11        (112)       (11)            0             0               0
Dividends declared                        0            0           0          0             0       (73,398)        (73,398)
Change in ownership interest
    in subsidiary                         0            0           0          0           117             0             117
                               ---------------------------------------------------------------------------------------------

BALANCE - JUNE 30, 1996           1,157,101      115,710     310,855     31,085     7,432,071     9,422,903      17,001,769

Net earnings                              0            0           0          0             0    10,169,310      10,169,310
Issuance of stock pursuant to
    exercise of stock options         9,000          900           0          0        35,475             0          36,375
Conversion of Class B stock
    into Common stock                14,500        1,450     (14,500)    (1,450)            0             0               0
Dividends declared                        0            0           0          0             0    (2,298,282)     (2,298,282)
Change in ownership interest
    in subsidiary                         0            0           0          0        25,832             0          25,832
                               ---------------------------------------------------------------------------------------------

BALANCE - JUNE 30, 1997           1,180,601      118,060     296,355     29,635     7,493,378    17,293,931      24,935,004

Net earnings                              0            0           0          0             0       358,790         358,790
Issuance of stock pursuant to
    exercise of stock options         6,000          600           0          0        33,900             0          34,500
Conversion of Class B stock
    into Common stock                   375           37        (375)       (37)            0             0               0
Dividends declared                        0            0           0          0             0      (148,296)       (148,296)
                               ---------------------------------------------------------------------------------------------

BALANCE - JUNE 30, 1998           1,186,976 $    118,697     295,980   $ 29,598   $7,527,278    $17,504,425     $25,179,998
                               =============================================================================================


See notes to consolidated financial statements.
</TABLE>


<PAGE>


<TABLE>
                                                   CERBCO, Inc.
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
                                                                                    Years Ended June 30
                                                                      -------------------------------------------------
                                                                           1998            1997              1996
                                                                      ---------------  --------------   ---------------
Cash Flows from Operating Activities:
<S>                                                                   <C>             <C>                <C>        
    Earnings (loss) from continuing operations                        $     358,790   $   (199,396)      $   247,219
    Earnings from discontinued operations                                         0     10,368,706         1,808,072
                                                                      ---------------  --------------   ---------------
    Net earnings                                                            358,790     10,169,310         2,055,291
    Adjustments to reconcile net earnings to net cash
      provided by operations:
        Depreciation and amortization                                     2,209,231      2,142,711         1,949,292
        Gain on sale of Capitol Office Solutions included in earnings
            from discontinued operations                                          0     (8,201,812)                0
        Amounts attributable to non-owned interests                      (1,249,856)       913,771         2,704,277
        Deferred income taxes                                              (159,000)       256,000          (102,000)
        (Increase) decrease in other assets                                     358           (447)          (24,321)
        Increase in long-term liabilities                                   165,023        263,995            77,283
        Changes in operating assets and liabilities:
            (Increase) decrease in accounts receivable                    1,591,684       (218,805)          165,729
            (Increase) decrease in inventories                              156,156        (55,063)          (42,324)
            (Increase) decrease in other current assets                    (303,973)      (640,025)               59
            Increase (decrease) in accounts payable and accrued            (978,703)     1,127,014          (861,126)
                expenses
            Increase (decrease) in income taxes payable                  (4,453,899)    (1,198,658)          221,140
            Increase in deferred revenue                                          0          4,202            20,785
                                                                      ---------------  --------------   ---------------
    Net Cash Provided by (Used in) Operating Activities                  (2,664,189)     4,562,193         6,164,085
                                                                      ---------------  --------------   ---------------

Cash Flows from Investing Activities:
    Capital expenditures                                                 (1,704,188)    (2,629,247)       (2,111,648)
    Disposal of equipment - net                                             170,950         28,529            28,387
    Proceeds from sale of Capitol Office Solutions - net                          0     15,652,845                 0
    Increase in investment in Insituform East                                     0        (85,938)                0
    Cash contributions to Midsouth Partners by non-owned interests          276,000              0                 0
    Cash distribution from Midsouth Partners to non-owned interests               0       (101,200)         (368,000)
    Cash balance of Midsouth Partners prior to consolidation                      0              0           241,094
    Redemption of temporary investments - net                                     0              0         1,760,950
    Increase in cash surrender value of life insurance                     (451,214)      (280,067)         (244,914)
    Increase in other assets                                                      0              0           (13,000)
                                                                      ---------------  --------------   ---------------
    Net Cash Provided by (Used in) Investing Activities                  (1,708,452)    12,584,922          (707,131)
                                                                      ---------------  --------------   ---------------

Cash Flows from Financing Activities:
    Proceeds from revolving lines of credit and long-term borrowings      1,800,000        800,000                 0
    Principal payments on revolving lines of credit, capital lease
        obligations and long-term borrowings                             (1,828,538)      (835,260)         (108,738)
    Loans to Midsouth Partners from non-owned interests                     250,000              0                 0
    Dividends paid                                                       (2,559,694)      (301,042)         (331,041)
    Proceeds from exercise of stock options                                  34,500         36,375            19,500
                                                                                                        ---------------
                                                                      ---------------  --------------
    Net Cash Used in Financing Activities                                (2,303,732)      (299,927)         (420,279)
                                                                      ---------------  --------------   ---------------

Net Increase (Decrease) in Cash and Cash Equivalents                     (6,676,373)    16,847,188         5,036,675
Cash and Cash Equivalents at Beginning of Year                           27,081,412     10,234,224         5,197,549
                                                                      ===============  ==============   ===============
Cash and Cash Equivalents at End of Year                               $ 20,405,039    $27,081,412       $10,234,224
                                                                      ===============  ==============   ===============

Supplemental disclosure of cash flow information:
    Interest paid                                                     $      60,489     $   39,871       $    27,529
    Income taxes paid                                                 $   4,739,513     $  313,854       $ 3,076,269

Supplemental disclosure of non-cash investing and financing activities:
    Additions to capital leases                                       $           0     $   58,543       $   133,088
See notes to consolidated financial statements.
</TABLE>
<PAGE>

                                  CERBCO, Inc.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    YEARS ENDED JUNE 30, 1998, 1997 AND 1996

1.       Summary of Significant Accounting Policies

Basis of Presentation

         Prior to June 30, 1997, the consolidated  financial statements included
the  accounts  of the parent  holding  company,  CERBCO,  Inc.  ("CERBCO");  its
majority-owned subsidiary,  Capitol Office Solutions, Inc. ("Capitol") (formerly
Capitol Copy Products, Inc.); and its majority-controlled subsidiary, Insituform
East,  Incorporated  ("Insituform  East").  Effective  June 30, 1997,  CERBCO no
longer  has an  interest  in  Capitol,  which  is in the  business  of  selling,
servicing and  providing  supply  products for copier and  facsimile  equipment,
operating pursuant to certain dealer agreements,  primarily with Canon,  U.S.A.,
Inc.  (see  Note  5:  Discontinued  Operations).  All  significant  intercompany
balances and transactions have been eliminated in consolidation..

Business Operations

         CERBCO is a parent holding  company with a controlling  interest in one
principal   subsidiary.   Insituform  East,  operating  pursuant  to  sublicense
agreements  with  Insituform  Technologies,  Inc.  ("ITI"),  provides a patented
process called  "Insituform"  primarily to municipalities and state agencies for
the  repair  and  reconstruction  of sewers and other  types of  pipelines.  The
Insituform(R) process creates a hard, jointless,  impact and corrosion resistant
Insitupipe(R)  product inside deteriorating pipes, with a principal benefit that
it can usually be installed without excavation.

         As a result of the  disposal of its  interest  in  Capitol,  CERBCO has
eliminated the reporting of business segment information.

Revenue Recognition

         The Company recognizes revenue under contracts to rehabilitate pipeline
sections using the units of completion method. A rehabilitated  pipeline section
is considered completed work and is generally billable to the customer.

Cash and Cash Equivalents

         Cash  and  cash  equivalents  are  composed  of  unrestricted  checking
accounts and  short-term  investments  in  repurchase  agreements,  money market
funds,  certificates of deposit and U.S. Treasury instruments.  Cash equivalents
are stated at cost plus accrued interest which approximates market. For purposes
of the consolidated  statements of cash flows, the Company considers only highly
liquid debt instruments  purchased with a maturity of three months or less to be
cash equivalents.

Inventories

         Inventories  are  stated  at  the  lower  of  cost  (determined  by the
first-in,  first-out method) or market. Substantially all inventories consist of
raw materials utilized in the Insituform process.

Property, Plant and Equipment

         Property, plant and equipment are stated at cost. Depreciation has been
provided  in the  financial  statements  using the  straight-line  or  declining
balance  methods  at rates  which are based  upon  reasonable  estimates  of the
properties'  useful  lives.  These  lives  range  from  three to ten  years  for
vehicles,  equipment  and  furniture,  and twenty to forty years for  buildings.
Leasehold  improvements  are amortized using the  straight-line  method over the
life of the lease.

         Betterments or improvements which increase the estimated useful life of
an asset are  capitalized.  Repairs  and  maintenance  are  charged  directly to
expense as  incurred.  The  Company  incurred  repair and  maintenance  costs of
approximately  $742,000,  $984,000 and $1,022,000 in fiscal years 1998, 1997 and
1996, respectively.

Goodwill

         The  excess  of cost  over the fair  value of the  Insituform  East net
tangible   assets   ("goodwill")   acquired  in  1985  is  amortized  using  the
straight-line method over forty years. The Company annually reviews its goodwill
recoverability by assessing the historical  profitability of Insituform East and
expectations as to its future nondiscounted cash flows and operating income; the
continued use of its name; the continued use of its license agreements;  and the
status of various  patents which govern the Insituform  process.  Based upon its
most recent analysis, the Company believes that no impairment of goodwill exists
at June 30, 1998.

Income Taxes

         The  Company  provides  for  federal  and  state  income  taxes  at the
statutory rates in effect on taxable  income.  Deferred income taxes result from
recognizing  certain  items of income  and  expense  in  consolidated  financial
statements in different years from those in income tax returns.  These temporary
differences  relate principally to use of accelerated  depreciation  methods for
income tax purposes;  timing of the payment of compensated absences;  and timing
of the recognition of income from the Company's  investment in Midsouth Partners
(see Note 4: Investment in Midsouth Partners).

         Insituform East files separate  federal and state tax returns,  and its
provision  is  combined  with  CERBCO's  consolidated  provision  for  financial
reporting purposes.

Use of Estimates in the Preparation of Financial Statements

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the reported  amounts of assets and  liabilities at the
date of the  financial  statements,  and the  reported  amounts of  revenue  and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

2.       Accounts Receivable

<TABLE>
         Accounts receivable consist of:
<CAPTION>
                                                                     1998                  1997
                                                                     ----                  ----

<S>                                                              <C>                   <C>       
         Due from municipal and commercial customers             $5,134,644            $6,479,230
         Miscellaneous                                               50,403               212,083
                                                                 ----------            ----------
                                                                  5,185,047             6,691,313
         Less: Allowance for doubtful accounts                            0                     0
                                                                 ----------            ----------
                                                                 $5,185,047            $6,691,313
                                                                 ==========            ==========
</TABLE>

3.       Equity in Insituform East

         At June 30, 1998 and 1997, CERBCO beneficially held 1,127,500 shares of
Insituform  East Common Stock and 296,141 shares of convertible  Insituform East
Class B Common Stock representing approximately 27.8% of the Common Stock, 99.5%
of the Class B Common  Stock,  32.7% of the total  equity and 58.1% of the total
voting power of all  outstanding  classes of Insituform  East stock. At June 30,
1996, CERBCO  beneficially held 1,100,000 shares of Insituform East Common Stock
and  296,141  shares  of  convertible  Insituform  East  Class  B  Common  Stock
representing  approximately  27.1% of the  Common  Stock,  99.5% of the  Class B
Common  Stock,  32.0% of the total equity and 57.7% of the total voting power of
all  outstanding  classes of  Insituform  East stock.  Holders of Class B Common
Stock,  voting  separately  as a class,  have the right to elect  the  remaining
members of the  Insituform  East Board of Directors  after  election of not less
than  25% of the  directors  by  holders  of  shares  of  Common  Stock,  voting
separately as a class.
         From time to time, Insituform East issues additional shares of stock as
a result of stock  dividends and  exercised  stock  options.  Changes in capital
structure  resulting from such additional stock issues decrease  CERBCO's equity
ownership.  No additional  shares were issued in 1998,  1997 or 1996. If all the
options and warrants outstanding at June 30, 1998 were exercised,  the resulting
percentages of CERBCO's  equity  ownership and total voting power would be 29.4%
and 54.4%, respectively.

         From  time to time,  Insituform  East  purchases  shares  of stock  for
treasury.  Changes  in capital  structure  resulting  from such stock  purchases
increase  CERBCO's equity  ownership.  No shares were purchased in 1998, 1997 or
1996.

4.       Investment in Midsouth Partners

         CERBCO's  consolidated  financial  statements as of June 30, 1998, 1997
and 1996 and for each of the years then ended  include the  accounts of Midsouth
Partners,  Insituform East's  majority-controlled  subsidiary  partnership since
June 12,  1996.  Midsouth  Partners  was  organized as  Insituform  Midsouth,  a
Tennessee  general  partnership,  in  December  1985 with  Insituform  East as a
general partner.  Midsouth Partners is the exclusive licensee for the Insituform
process and NuPipe process in Tennessee,  Kentucky  (excluding Boone, Kenton and
Campbell counties) and northern Mississippi.  The Partnership's general partners
at June 30, 1998 are Insitu, Inc., a wholly-owned subsidiary of Insituform East;
E-Midsouth,  Inc., an affiliate of Insituform  Technologies,  Inc. ("ITI");  and
Insituform Southwest, Inc., also an affiliate of ITI.

         Management  and conduct of the business of Midsouth  Partners is vested
in a  Management  Committee.  At June 30,  1998,  the  seven-member  Partnership
Management  Committee  consisted  of  four  Insitu,  Inc.  representatives,  one
disputed and one undisputed E-Midsouth, Inc. representatives, and one Insituform
Southwest,   Inc.   representative.   Insituform  East  did  not  have  majority
representation on the Partnership  Management Committee prior to a June 12, 1996
arbitration  award,  which,  in  connection  with a default  of the  Partnership
Agreement by E-Midsouth,  Inc.,  granted  Insitu,  Inc. the unilateral  right to
appoint an additional  Management  Committee  member in place of one E-Midsouth,
Inc. representative.

       Partnership profits and losses are allocated to the partners as follows:
         Insitu, Inc.                              42.5%
         E-Midsouth, Inc.                          42.5%
         Insituform Southwest, Inc.                15.0%

         The Company and Insituform  Southeast Corp., both affiliates of general
partners,  have each  unconditionally  committed  to advance  funds to  Midsouth
Partners,  up to a maximum of  $250,000  each,  with  interest  payable at Chase
Manhattan Bank's Prime Lending Rate. These commitments  currently extend through
December 31, 1998.

5.       Discontinued Operations

         Prior to June 30,  1997,  CERBCO  beneficially  held  800  shares,  and
Capitol's  president held 400 shares, of Capitol Class B Stock,  representing 66
2/3% and 33 1/3%, respectively, of the one outstanding class of Capitol stock.

         On June 30, 1997, Capitol redeemed the 800 shares of Class B stock held
by the Company for $19 million plus a  pre-redemption  dividend of two-thirds of
the cash  held by  Capitol  in  excess  of  $800,000  equaling  $3,789,593.  The
redemption price ultimately is subject to formula adjustment based upon June 30,
1997  audited  financial  statements.  This  transaction  was  approved  by  the
Company's  stockholders  at a meeting held on June 27, 1997.  CERBCO's  share of
Capitol's  operating  results for the fiscal  years ended June 30, 1997 and 1996
are shown separately in the accompanying  consolidated  statement of earnings as
earnings from discontinued  operations.  Capitol's sales revenues of $23,552,754
and $20,209,196 for the fiscal years ended June 30, 1997 and 1996, respectively,
are not  included  in  sales  in the  accompanying  consolidated  statements  of
earnings.

6.       Supplemental Executive Retirement Plan

         The  Company has an unfunded  supplemental  pension  plan for its three
executive  officers,  effected  January 1, 1994.  The  expense for this plan was
$165,023,  $263,995 and $77,784 for the fiscal  years ended June 30, 1998,  1997
and 1996, respectively.

         The  Company  has  established  a trust to  facilitate  the  payment of
benefits  under the  plan.  Funds in the trust are  invested  in  variable  life
insurance  policies  and are  included in the  Company's  balance  sheet as cash
surrender  value of life  insurance in the amounts of $1,230,255 and $779,040 at
June 30, 1998 and 1997, respectively. This trust is subject to the claims of the
Company's creditors in the event of bankruptcy or insolvency.

7.       Loans Payable

         Insituform  East  maintains a  $3,000,000  bank line of credit which is
currently  available to it through  December 31,  1998.  Interest on  borrowings
against  this line of credit is payable  monthly at the bank's  prime rate.  The
line is unsecured; however, Insituform East must comply quarterly with financial
liquidity,  net worth, tangible net worth and debt to equity leverage covenants.
At June 30, 1998, the amount  available as undrawn on this line was  $3,000,000.
Insituform East also has an agreement in place with the parent company,  CERBCO,
whereby it may borrow up to $3,000,000 for operating  purposes for an indefinite
period  from  CERBCO  at  interest  rates  not  less  than it  would  pay to its
respective  bank. At June 30, 1998,  Insituform East had no amounts  outstanding
under this agreement.

8.       Accounts Payable and Accrued Liabilities

<TABLE>
         Accounts payable and accrued liabilities consist of:
<CAPTION>
                                                                     1998                  1997
                                                                     ----                  ----

<S>                                                              <C>                   <C>       
         Accounts payable                                        $1,154,576            $1,655,097
         Accrued compensation and related expenses                1,398,806             1,876,988
         Dividends payable                                          148,296             2,474,276
                                                                 ----------            ----------
                                                                 $2,701,678            $6,006,361
                                                                 ==========            ==========
</TABLE>

9.       Commitments

         The Company utilizes  certain  equipment and facilities under operating
leases  providing  for  payment of fixed rents and the  pass-through  of certain
landlord  expenses.  Rental expense was approximately  $452,000,  $499,000,  and
$361,000  for the years ended June 30,  1998,  1997 and 1996,  respectively.  In
addition,   the  Company  obtains  certain  mobile  production  equipment  under
long-term  capital  leases.  Minimum future rental  commitments  under long-term
capital and operating leases in effect at June 30, 1998, are as follows:

<TABLE>
<CAPTION>
     Years Ending                                        Capital     Operating
        June 30                                          Leases      Leases

<S>      <C>                                              <C>         <C>    
         1999                                             $61,080     $46,796
         2000                                              61,080       3,472
         2001                                              39,000           0
         2002                                              34,125           0
         2003                                               6,500           0
         2004 and thereafter                                    0           0
                                                         --------    --------
         Total Minimum Payments                           201,785     $50,268
                                                                      =======
         Less:  Interest                                  (62,335)
                                                         --------
         Present Value of Minimum Payments                139,450
         Less:  Current Portion                           (34,621)
                                                         --------
                Long-term Capital Lease Obligations      $104,829
                                                         ========
</TABLE>

         The Company's pipeline  rehabilitation  using the Insituform process is
performed under seven sublicense  agreements with ITI. These  sublicenses  grant
the Company rights to perform the Insituform  process in the states of Maryland,
Virginia, Delaware, the District of Columbia, Pennsylvania, Ohio, West Virginia,
Kentucky, Tennessee and northern Mississippi. The agreements are for the life of
the patents or the patent rights unless sooner  terminated by a specified action
of either party. The agreements  obligate the Company to pay ITI a royalty equal
to 8% of the gross  contract  price of all  contracts  performed  utilizing  the
process,  less  certain  fees.  The  total  royalty  expense  was  approximately
$1,410,000,  $1,428,000 and  $1,847,000 for the years ended June 30, 1998,  1997
and 1996, respectively.

         The Company has also  entered  into license  agreements  for  identical
territories  with NuPipe,  Inc., a wholly-owned  subsidiary of ITI, for the sale
and  installation  of  pre-formed  PVC  thermoplastic  pipe under the  NuPipe(R)
process and  trademark.  The Company has committed to pay royalty equal to 6.75%
of gross contract revenues  utilizing the NuPipe process and to purchase certain
installation equipment and installation materials from NuPipe, Inc.

         The Company  operates under supply  agreements  with ITI committing the
Company to purchase 90% of its Insitutube(R) material requirements from ITI. The
East supply  agreement runs for an initial five year period from January 1, 1998
to  December  31,  2002 and will extend for one year  periods  unless  notice of
termination  is  provided  by either  party six months  prior to the end of such
annual period.  The Midsouth  Partners  supply  agreement is renewable  annually
unless  notice of  termination  is provided by either  party prior to the end of
current renewal period and presently extends through April 30, 1999.

10.      Contingencies

         As previously  reported by the Company,  in March 1990, the controlling
stockholders  of the Company,  Messrs.  George Wm. Erikson and Robert W. Erikson
(together,  the  "Eriksons"),  executed  a letter  of  intent  and  subsequently
executed four amendments thereto (collectively referred to herein as the "Letter
of Intent") with Insituform Technologies, Inc. ("ITI") to effect a sale of their
controlling  interest  in the  Company  to ITI  for  $6,000,000  (the  "Proposed
Transaction").  The Proposed  Transaction,  if  consummated,  would have had the
effect  of  making  ITI  the  controlling   stockholder  of  the  Company,  and,
indirectly,  of each of the  Company's  three direct  subsidiaries  at the time,
Insituform  East,  Capitol,  and  CERBERONICS.  In September  1990, the Eriksons
informed the Company that the Letter of Intent had expired without  consummation
of any transaction, that it would not be further extended, that negotiations had
ceased,  and that the Eriksons had no further  intention at the time of pursuing
the proposed sale of their controlling interest in the Company to ITI.

         Also as previously reported by the Company, two stockholders  commenced
a derivative  lawsuit in the Delaware Court of Chancery  against the Eriksons in
August,  1990,  making certain  claims with respect to the Proposed  Transaction
(the "Delaware  Action").  The Delaware Action finally was concluded on December
3, 1997, when the Delaware Supreme Court issued its order affirming the findings
of the Court of Chancery  with respect to (a) the trial  court's  assessment  of
certain  damages  against the Eriksons on remand from a previous  appeal and (b)
the renewed  petition of plaintiffs'  attorneys for an award of attorneys'  fees
and  expenses.  Those  findings by the Court of Chancery had been made on remand
from the same  Delaware  Supreme  Court after a 1996 ruling in which the Supreme
Court affirmed the Court of Chancery's  holding that CERBCO had not suffered any
transactional damages with respect to the Proposed Transaction.

         As  previously  reported by the  Company,  in January  1993,  a lawsuit
against the partners in the law firm of Rogers & Wells and the Company,  arising
out of the subject matter of the Delaware litigation,  was filed in the Superior
Court of the District of Columbia (the "D.C.  Complaint").  Plaintiffs  were the
same two stockholders  who were plaintiffs in the Delaware Action,  and a former
director of the Company,  and alleged  that Rogers & Wells  breached its duty of
loyalty and care to the Company by representing  allegedly conflicting interests
of the Eriksons in the Proposed  Transaction  with ITI.  Plaintiffs also claimed
that Rogers & Wells committed malpractice by allegedly making misrepresentations
to the Company's  Board and allegedly  failing to properly  inform the Company's
Board.  Plaintiffs claimed that the conduct of Rogers & Wells caused the Company
to lose an opportunity to sell its control of Insituform East to ITI, caused the
Company to incur substantial  expense, and unjustly enriched Rogers & Wells. The
D.C.  Complaint  sought to recover  from Rogers & Wells (i) damages in an amount
equal to all fees paid to Rogers & Wells,  (ii)  damages  in an amount  not less
than  $6,000,000  for the loss of the  opportunity  for the  Company to sell its
control of Insituform East to ITI, and (iii) punitive damages. Although the D.C.
Complaint stated that it was filed on behalf of the Company, management does not
believe  that  Rogers & Wells  should  be sued on any of the  claims  set  forth
therein.

         Motions to  dismiss  this case by the  Company  and Rogers & Wells were
denied,  but a stay of the  proceedings  was granted  until  after the  Delaware
trial.  Plaintiffs  agreed to a stay in the Superior  Court  action  pending the
outcome of the  appeal of the  outcome of the  Delaware  Action to the  Delaware
Supreme Court and, subsequently, the stay was continued at least until such time
as the Delaware  Court of Chancery  ruled upon  plaintiffs'  pending  motion for
post-remand  relief.  After the Delaware  Supreme  Court's most recent ruling on
December 3, 1997,  finally affirming the Delaware Court of Chancery with respect
to such post-remand relief and a renewed petition for counsel fees and expenses,
the stay of the District of Columbia action was lifted,  and plaintiffs filed an
amended  D.C.  Complaint.  In the  amended  D.C.  Complaint,  plaintiffs  assert
essentially  the same conflicts of interest  charges  against Rogers & Wells but
shift  their  focus  from  the  value of the  alleged  lost  opportunity  to the
litigation  expenses incurred by the Company in the Delaware Action.  Plaintiffs
now seek to recover  from Rogers & Wells (i)  damages in an amount  equal to all
fees paid to Rogers & Wells, (ii) damages for more than $2 million in attorneys'
fees  and  expenses  incurred  by  CERBCO  in  the  Delaware  Action  and  other
unspecified compensatory damages, and (iii) punitive damages. On March 27, 1998,
the Company filed its answer to the amended D.C.  Complaint,  in which it denied
all liability and asserted  certain  affirmative  defenses.  On the same day, it
filed its motion for summary judgment,  together with a supporting memorandum of
law, on the grounds of  collateral  estoppel  and res  judicata.  Rogers & Wells
likewise answered the amended D.C.  Complaint,  denying  liability,  and filed a
motion for summary judgment on collateral estoppel grounds. On Thursday,  May 7,
1998,  the  Company  filed its reply  memorandum  of points and  authorities  in
support of its motion for summary  judgment.  A decision from the D.C.  Court is
expected later this year.

         As  previously  reported by the Company,  on October 23, 1996,  Inliner
U.S.A.  and CAT  Contracting,  Inc. filed an antitrust  suit against  Insituform
Technologies,  Inc.  ("ITI") and Insituform East in United States District Court
for the Southern District of Texas, Houston Division, alleging violations by ITI
(including  all of its subsidiary  licensees) and Insituform  East of Sections 1
and 2 of the Sherman Act, Section 43(a) of the Lanham Act, Section 15(a) and (b)
of the Texas Business and Commercial Code, tortious  interference with contracts
and business  disparagement.  Plaintiffs  sought from  defendants an unspecified
amount of compensatory  damages,  treble damages and attorneys' fees, as well as
punitive damages of $50 million.

         In an  extensive  memorandum  and order of August 25,  1997,  the Court
granted a partial  dismissal of  plaintiffs'  claims and ordered  plaintiffs  to
replead  remaining  potential  claims.  On January 30, 1998,  the Court by order
denied  plaintiffs'  motion  to file a  second  amended  complaint  and  granted
plaintiffs twenty days to file a third amended complaint.  On June 18, 1998, the
Court by order  granted  plaintiffs'  motion  for leave to file a third  amended
complaint and denied defendants' motion to dismiss.  On June 23, 1998, the Court
ordered  this  action  dismissed  without  prejudice,  pursuant  to a notice  of
dismissal  initiated by plaintiffs prior to receipt of the Court's June 18, 1998
order.

         On June 30,  1998,  Inliner  U.S.A.  and CAT  Contracting,  Inc.  filed
another antitrust suit against Insituform Technologies, Inc. ("ITI"), Insituform
East, Inc. and Insituform  Gulf South,  Inc. in United States District Court for
the Southern  District of Texas,  Houston Division,  alleging  violations by ITI
(including all of its subsidiary  licensees),  Insituform Gulf South,  Inc., and
the  Company of Sections 1 and 2 of the  Sherman  Act,  Section 2 of the Clayton
Act, as amended by the  Robinson-Patman  Act,  Section  43(a) of the Lanham Act,
business  disparagement,  tortious  interference  with contracts and prospective
business relationships, and unfair competition.  Plaintiffs are seeking from the
defendants an unspecified  amount of  compensatory  damages,  treble damages and
attorneys'  fees,  as well  as  punitive  damages  of $50  million.  Plaintiffs'
allegations were consistent with the allegations  contained in the third amended
complaint of the previously dismissed litigation

         Insituform  East believes it has strong  defenses to, and is vigorously
contesting,  this second  suit.  On August  17,1998,  Insituform  East filed its
answer denying  plaintiffs claims and a motion to dismiss this action. The court
has not yet taken  action with  respect to this  motion.  Although  the ultimate
outcome and  consequences of the suit cannot be ascertained at this time and the
results of legal  proceedings  cannot be  predicted  with  certainty,  it is the
opinion of the management of Insituform East that the suit is meritless and will
not have a material adverse effect on the financial  condition or the results of
operations of Insituform East.

         Management  believes ultimate resolution of these matters will not have
a  material  effect on the  financial  statements  of  CERBCO.  Accordingly,  no
provision for these  contingencies  has been reflected  therein.  The Company is
also  involved in other  contingencies,  none of which could,  in the opinion of
management,  materially  affect the Company's  financial  position or results of
operations.

11.      Common Stock

         The Company has two classes of Common  Stock,  which are  designated as
Common Stock and Class B Common Stock. Each share of Class B Common Stock can be
converted  into one share of Common Stock at any time.  In 1998,  1997 and 1996,
375 shares, 14,500 shares and 112 shares, respectively,  of Class B Common Stock
were converted to Common Stock.

         Each share of Common  Stock is  entitled  to one vote and each share of
Class B Common  Stock is  entitled  to ten  votes,  except  with  respect to the
election of directors and any other matter  requiring  the vote of  shareholders
separately as a class. The holders of Common Stock,  voting as a separate class,
are entitled to elect that number of  directors  which  constitutes  twenty-five
percent (25%) of the authorized number of members of the Board of Directors and,
if such 25% is not a whole number, then the holders of Common Stock are entitled
to elect the nearest  higher whole  number of directors  that is at least 25% of
such membership.  The holders of Class B Common Stock, also voting as a separate
class, are entitled to elect the remaining directors.  In addition,  the holders
of Common Stock have certain dividend preferences.

12.      Income Taxes

<TABLE>
         The  provision  (credit)  for taxes is  composed of the  following  (in
thousands):

<CAPTION>
                                                   1998         1997       1996
                                                   ----         ----       ----
Current:
<S>                                               <C>         <C>        <C>   
    Federal                                       $ 158       $5,177     $1,082
    State                                            (7)         (77)       159
                                                  -----       ------      -----
        Total current                               151        5,100      1,241
                                                  -----       ------      -----
Deferred:
    Federal                                        (139)         223       (146)
    State                                           (20)          33        (21)
                                                  -----       ------      -----
        Total deferred                             (159)         256       (167)
                                                  -----       ------      -----
            Total provision (credit) for taxes    $  (8)      $5,356     $1,074
                                                  =====       ======     ======
</TABLE>

<TABLE>
         The provision (credit) for income taxes is different from that computed
using the statutory federal income tax rate of 34% for the following reasons (in
thousands, except percentages):

<CAPTION>
                                                               1998                  1997                  1996
                                                               ----                  ----                  ----
                                                         Amounts       %        Amounts       %       Amounts     %

<S>                                                         <C>        <C>       <C>         <C>       <C>        <C>
Taxes computed at statutory rate                            $44        34        $5,154      34        $1,061     34
Increase (decrease) in taxes resulting from:
    State and local income taxes, net of federal
        income tax benefit (expense)                        (45)      (35)         (59)      (1)          103      3
    Non-taxable income                                      (54)      (42)            0       0             0      0
    Nondeductible items                                      47        37            17       0            22      1
    Effect of NOL                                             0         0             0       0           112      4
    Federal taxes on partnership income
        attributable to  non-owned interests                  0         0             0       0         (224)     (7)
    Other                                                     0         0           244       2             0      0
                                                           ----       ---     ----- ---     ---     ---------    ---
        Total provision for taxes                           $(8)       (6)       $5,356      35        $1,074     35
                                                            ====       ===       ======      ==        ======     ==
</TABLE>

<TABLE>
         The components of the deferred tax expense (benefit) resulting from net
temporary differences are as follows (in thousands):

<CAPTION>
                                                 1998                  1997                  1996
                                                 ----                  ----                  ----

<S>                                            <C>                    <C>                 <C>    
Depreciation                                   $   14                 $  80               $    52
Midsouth Partners operations                     (188)                  (10)                  (76)
Deferred compensation                              10                   (12)                    8
Deferred revenue                                   12                   201                  (155)
Other                                              (7)                   (3)                    4
                                             --------                ------              --------
  Total deferred taxes                          $(159)                 $256                 $(167)
                                                =====                  ====                 =====
</TABLE>

<TABLE>
         Deferred  Income  Taxes,  provided  for the tax  effect  of  cumulative
temporary  differences  between  income tax and  financial  reporting  purposes,
consists of the following (in thousands):

<CAPTION>
                                                 1998                  1997
                                                 ----                  ----

<S>                                            <C>                   <C>   
Depreciation                                   $1,115                $1,101
Midsouth Partners operations                     (113)                   75
Deferred compensation                             (51)                  (27)
Deferred revenue                                  (15)                  (61)
Other                                             (21)                  (14)
                                              -------              --------
                                                $ 915                $1,074
                                                =====                ======
</TABLE>

13.      Earnings (Loss) Per Share

         Basic earnings  (loss) per share data have been computed based upon the
weighted average number of common shares outstanding during each period. Diluted
earnings  (loss) per share have been  computed  based upon the weighted  average
number of common shares  outstanding  during the period  including  common stock
equivalents  from dilutive stock options.  The weighted average number of common
shares  outstanding  used in computing  diluted  earnings per share for the year
ended June 30,  1996  included  7,492 net  shares  associated  with  unexercised
dilutive  stock options.  The following  numbers of shares have been used in the
earnings (loss) per share computations:

                     1998                       1997                      1996
                     ----                       ----                      ----

  Basic          1,482,808                  1,471,178                 1,465,169
                 =========                  =========                 =========
  Diluted        1,482,808                  1,471,178                 1,472,661
                 =========                  =========                 =========

14.      Retirement Benefit Plans

         Employees of East,  including employees of the parent company,  CERBCO,
and Midsouth Partners who meet certain minimum eligibility  requirements and who
are not covered by a collective  bargaining  agreement  participate  in separate
profit-sharing  plans.  No  employees  were  covered  by  collective  bargaining
agreements  as of June 30,  1998.  Contributions  to the  plans  are  determined
annually by the respective companies. During the years ended June 30, 1998, 1997
and 1996, the Company recognized profit sharing expense of $47,739, $276,359 and
$263,722, respectively.

15.      Stock Option Plans

         CERBCO granted options under the 1986  Directors'  Stock Option Plan on
3,000  shares of CERBCO's  Common Stock on December 15, 1995 at the option price
of $6.375 per share,  exercisable  within  three years of the date of the grant.
All options  granted  under this plan have been  exercised or expired as of June
30, 1998. No further grants under this plan are anticipated.  The following is a
summary of transactions for the 1986 Directors' Stock Option Plan:

<TABLE>
<CAPTION>
                                                                       Shares Under Option
                                                            1998            1997           1996

<S>                                                        <C>            <C>            <C>   
         Outstanding, beginning of year                    6,000          15,000         18,000
         Granted during the year                               0               0          3,000
         Exercised during the year                        (6,000)         (9,000)        (6,000)
         Expired/canceled during the year                      0               0              0
                                                       ---------      ----------     ----------
         Outstanding, end of year                              0           6,000         15,000
                                                       =========         =======         ======
</TABLE>

         During  fiscal  year 1998,  CERBCO  adopted the 1997  Directors'  Stock
Option Plan.  Under the terms of this plan, up to 125,000 shares of Common Stock
have been reserved for the Company's  Directors.  All grants of options are made
at the market price on the date of the grant.  CERBCO granted  options on 20,000
shares  (options on 5,000 shares to each of four  directors) of CERBCO's  Common
Stock on  December  19,  1997,  at the  option  price  of  $9.40625  per  share,
exercisable  within  five years of the date of the  grant.  The  following  is a
summary of transactions for the 1997 Directors' Stock Option Plan:

                                                         Shares Under Option
                                                                1998

         Outstanding, beginning of year                           0
         Granted during the year                             20,000
         Exercised during the year                                0
         Expired/canceled during the year                         0
                                                             ------
         Outstanding, end of year                            20,000
                                                             ======

         The  Company  adopted  the  disclosure  requirements  of  Statement  of
Financial Accounting Standards No. 123, Accounting for Stock-Based  Compensation
("SFAS  No.  123")  during  the year  ended  June 30,  1997.  As  allowed  under
provisions of SFAS 123, the Company will continue to measure  compensation  cost
for employee  stock-based  compensation  plans using the  intrinsic  value based
method of accounting  prescribed by the Accounting  Principles Board Opinion No.
25, Accounting for Stock Issued to Employees. Under SFAS No. 123, the Company is
required to make pro forma  disclosures of net earnings  (loss) and net earnings
(loss)  per  share as if the fair  value-based  method  of  accounting  had been
applied.

<TABLE>
         Summary  information  for stock  options  granted  during  the years
ended  June 30,  1998 and 1996 is as follows:

<CAPTION>
                                                                Years ended June 30
                                                                -------------------
                                                          1998                      1996
                                                          ----                      ----

<S>                                                   <C>   <C>                 <C>   <C>
         Date of grant                                12/19/97                  12/15/95
         Option shares granted                          20,000                     3,000
         Per share exercise price                        $9.41                     $6.38
         Fair value per option share                     $4.65                     $4.63
</TABLE>

         The fair value of options  granted during the years ended June 30, 1998
and  1996  was   estimated  on  the  date  of  the  grants  using  the  binomial
option-pricing model using the following assumptions:

                                                    Years ended June 30
                                                1998                  1996

         Risk-free interest rate                4.69%                 5.30%
         Expected option term                  5 years               3 years
         Expected stock price volatility          55%                  207%
         Expected dividend yield                   1%                   13%

         If  compensation  costs for the Company's  stock option grants had been
determined  using the fair  value-based  method of accounting  per SFAS 123, the
Company's  pro forma net  earnings  and pro forma basic and diluted net earnings
per share for the years ended June 30, 1998 and 1996 would be as follows:

<TABLE>
<CAPTION>
                                                                       Years ended June 30
                                                                     1998            1996

<S>                                                                <C>          <C>       
         Earnings from Continuing Operations                       $297,384     $  238,046
         Earnings from Discontinued Operations                            0      1,808,072
                                                                   --------     ----------
         Net Earnings                                              $297,384     $2,046,118
                                                                   ========     ==========

         Earnings per Share from Continuing Operations                $0.20          $0.16
         Earnings per Share from Discontinued Operations               0.00           1.23
                                                                     ------         ------
         Net Earnings per Share                                       $0.20          $1.39
                                                                      =====          =====
</TABLE>

16.      Unaudited Quarterly Financial Data

<TABLE>
         The following  table provides  summarized  quarterly  results of
operations for fiscal years 1998 and 1997 (in thousands, except per share
information):

<CAPTION>
                                                                            Three Months Ended
1998                                              September 30      December 31        March 31       June 30
----                                              ------------      -----------        --------       -------

<S>                                                  <C>               <C>              <C>            <C>   
Sales                                                $9,148            $5,488           $4,147         $5,108
Gross profit (loss)                                   2,778               114            (364)            172
Earnings (loss) from continuing operations              393                36            (109)             39
Net earnings (loss)                                     393                36            (109)             39
Net earnings (loss) per share                          0.27              0.02           (0.07)           0.02

1997                                              September 30      December 31        March 31       June 30
----                                              ------------      -----------        --------       -------

Sales                                                $5,321            $6,638          $6,272          $8,311
Gross profit                                            610             1,714             458           1,337
Earnings (loss) from continuing operations             (231)              (90)           (540)            662
Net earnings                                            269               480              93           9,327
Net earnings (loss) per share:
  Continuing operations                               (0.16)            (0.06)          (0.37)           0.46
  Net earnings                                         0.18              0.33            0.06            6.34

</TABLE>


                                                     PART III

Item 10.  Directors and Executive Officers of the Registrant

(a)      Identification of CERBCO Directors

Name                     Age    Director Since   Other Positions with Registrant

Robert W. Erikson        53     December 1974 1/     President
George Wm. Erikson       56     November 1975 1/     Chairman & General Counsel
Webb C. Hayes, IV        50     April 1991           None
Paul C. Kincheloe, Jr.   57     April 1991           None

1/ Date of initial election as a director of the Company's then  publicly-traded
predecessor company, CERBERONICS. Elected as a CERBCO director in February 1988,
under  a  Plan  of  Reorganization  and  Merger  whereby  CERBERONICS  became  a
wholly-owned subsidiary of CERBCO.

         Directors of CERBCO are elected at the Annual  Meeting of  Stockholders
except  that  vacancies  and newly  created  directorships  may be filled by the
directors  then in office.  Each  director  holds office until his  successor is
elected and qualified or until his earlier resignation or removal.

(b)      Identification of CERBCO Executive Officers and (Executive Officers of
         Each Subsidiary)

<TABLE>
<CAPTION>
Name                  Age   Position(s)                                 Held Since

<S>                   <C>   <C>                                         <C> 
Robert W. Erikson     53    President                                   February 1988
George Wm. Erikson    56    Chairman & General Counsel                  February 1988
Robert F. Hartman     51    Vice President, Secretary & Treasurer       February 1988 1/

1/ Elected as Secretary in June 1991 and as Treasurer in December 1997.
</TABLE>

         Each officer  holds office until his successor is elected and qualified
or until his earlier resignation or removal.

(c)      Identification of Certain Significant Employees

         Not applicable.

(d)      Family Relationships

         Mr. Robert  Erikson,  Director and  President,  and Mr. George Erikson,
Director,  Chairman and General Counsel are brothers.

(e)      Business Experience

         (1) Mr. Robert Erikson was a Supply Corps officer in the Navy from 1968
through 1972. Mr.  Erikson joined  CERBERONICS in December 1972. In May 1974, he
was elected Vice President of Finance and Administration  and, in December 1974,
he became Executive Vice President,  Treasurer and a Director.  In October 1977,
he was  elected  President.  In February  1988,  he was  elected  President  and
Treasurer of CERBCO.  Mr.  Erikson  currently is a Director,  Vice  Chairman and
President  of  Insituform  East and  serves as a member  of the Chief  Executive
Officer  Committee of Insituform  East.  He was a Director,  Vice Chairman and a
member of the Chief Executive Officer Committee of Capitol Office Solutions from
October 1987 to June 30,  1997.  He was a Director of Palmer  National  Bancorp,
Inc. and The Palmer  National Bank from 1983 to 1996,  and was a Director of The
Palmer National Bank's successor,  The George Mason Bank, N.A., from May 1996 to
June 1997.  Mr. Erikson holds a B.A.  degree in  Engineering  and Economics from
Brown University and an M.B.A. degree from The George Washington University.

                  Mr. George  Erikson  joined  CERBERONICS  in July 1976 as Vice
President and General Counsel, and in August 1976, he was elected Secretary.  He
served as Executive Vice President until July 1987, at which time he was elected
to the position of  Chairman.  He became a Director of  CERBERONICS  in November
1975 and served as  Chairman of the Board of  Directors  from  February  1979 to
February 1988. In February 1988, he was elected  Chairman and General Counsel of
CERBCO.  Mr. Erikson currently is a Director and Chairman of Insituform East and
serves as a member of the Chief Executive  Officer Committee of Insituform East.
He was a  Director,  Chairman  and a  member  of  the  Chief  Executive  officer
Committee of Capitol Office  Solutions from October 1987 to June 30, 1997.  From
December  1972 to July  1976,  he was  employed  as Vice  President  - Legal  by
National  Securities & Research  Corporation and, prior thereto, he was employed
as an  attorney  to the  Dreyfus  Corporation.  He is a member of the Bar of the
State of New York,  District of  Columbia  and  Commonwealth  of  Virginia.  Mr.
Erikson holds a B.S. degree in Business  Administration  from Pennsylvania State
University,  an LL.B.  degree from Fordham  University Law School,  and an LL.M.
degree from New York University Law School.

                  Mr.  Hartman  joined  CERBERONICS in August 1979 as Controller
and  Manager of the  Accounting  Department.  In November  1981,  he was elected
Assistant  Vice  President  and in April 1984,  he was elected Vice  President &
Treasurer,  in which positions he served until his departure from CERBERONICS in
September  1985.  From October 1985 to February 1988, Mr. Hartman was Controller
of  Dynamac  International,  Inc.  He  returned  to  CERBERONICS  and his former
positions in February  1988 and, in addition,  was elected  Vice  President  and
Controller of CERBCO.  In June 1991, he joined Insituform East as Vice President
of Administration and Secretary. He was also elected Secretary of CERBCO in June
1991 and Treasurer and Chief  Financial  Officer in December 1997.  From 1976 to
1977,  Mr.  Hartman was an  accountant  for Coopers & Lybrand,  and from 1977 to
1979,  he was a partner in the  accounting  firm of  Hartman  and  Hartman.  Mr.
Hartman is a Certified Public Accountant and holds a B.S. degree from the United
States Naval Academy,  a B.A. degree from the University of South Florida and an
M.B.A. degree from The George Washington University.

                  Mr. Hayes is a Director and Vice  Chairman of United Bank. He
was a Director and Executive Vice President of George Mason Bankshares, Inc. and
Chairman,  President  and CEO of The George Mason Bank,  N.A.,  from May 1996 to
June 1997. Previously,  he was Chairman of the Board of Palmer National Bancorp,
Inc. and The Palmer National Bank from March 1985 to May 1996, and President and
Chief  Executive  Officer  from March 1983 to May 1996.  Mr.  Hayes  serves as a
Director of Insituform East and was a Director of Capitol Office Solutions until
June 30,  1997.  He is also a  Director  of  Citizens  Corporation  in  Eastman,
Georgia,  and is a member of the Board of  Visitors of the  University  of North
Carolina.  In January  1995, he completed a three year term as a Director of the
Federal  Reserve  Bank of  Richmond.  Mr.  Hayes  holds a B.A.  degree  from the
University of North  Carolina and an executive  management  degree from Columbia
University School of Business.

                  Mr.  Kincheloe has been a practicing  attorney and businessman
in Fairfax County,  Virginia,  since 1967. Mr. Kincheloe serves as a Director of
Insituform  East and was a Director of Capitol Office  Solutions  until June 30,
1997. He also currently serves on the Board, as Finance Chairman,  of Flint Hill
School in Oakton,  Virginia,  and on the Board of  Trustees  for  Randolph-Macon
College. He previously served on the Board of Herndon Federal Savings & Loan and
then First Federal  Savings & Loan of  Alexandria.  Mr.  Kincheloe  holds a B.A.
degree from  Randolph-Macon  College and a J.D. degree from T.C. Williams School
of Law, University of Richmond.

         (2) Directorships. See Part III, Item 10 (e)(1), paragraphs 1, 2, 4 and
5, as to  Messrs.  Robert  Erikson  and  George  Erikson,  Hayes and  Kincheloe,
respectively.

(f)      Involvement in Certain Legal Proceedings

         Not applicable.

Item 11.  Executive Compensation

         As of  July  1,  1997,  CERBCO  is a  parent  holding  company  with  a
controlling  interest,  through its wholly  owned  subsidiary,  CERBERONICS,  in
Insituform East ("IEI").  Prior to June 30, 1997,  CERBCO also had a controlling
interest  in Capitol  Office  Solutions,  Inc.  ("COS").  CERBCO  officers  also
participate,  or  participated in the case of COS prior to June 30, 1997, in the
management of one or more of these subsidiaries.  The following table sets forth
information  concerning  the  compensation  paid to each of the named  executive
officers of the Company and its subsidiaries for the fiscal years ended June 30,
1998, 1997 and 1996:

<TABLE>
                                            SUMMARY COMPENSATION TABLE

<CAPTION>
                                                                                            Long-Term Compensation
                                                                                     --------------------------------
                                               Annual Compensation                             Awards         Payouts
                                 ----------------------------------------------      ----------------------   -------
   Name                                                     Other        Total       Restricted
    and                                                    Annual       Annual         Stock       Options/     LTIP     All Other
 Principal                       Salary      Bonus     Compensation Compensation      Awards        SARs      Payouts   Compensation
 Position    Year                    ($)         ($)       ($) 2/         ($)           ($)          (#)         ($)      ($) 3/
------------------------------------------------------------------------------------------------------------------------------------

<S>           <C>    <C>         <C>          <C>            <C>       <C>                <C>      <C>           <C>    <C>
Robert W.     1998   CERBCO       $11,480          $0         $0        $11,480            $0       5,000         $0         $0
Erikson
Director &           IEI          215,030           0          0        215,030             0      15,000          0      2,345
President 1/         CERBERONICS   90,339           0          0         90,339             0           0          0          0
                                 --------          --         --       --------            --      ------         --     ------
                                 $316,849          $0         $0       $316,849            $0      20,000         $0     $2,345
                                 ========          ==         ==       ========            ==      ======         ==     ======

              1997   CERBCO       $11,053         $ 0         $0        $11,053            $0           0         $0         $0
                     IEI          208,649           0          0        208,649             0      15,000          0     11,247
                     COS           65,924      23,095          0         89,019             0           0          0          0
                                  -------     -------         --        -------            --      ------          --   -------
                                 $285,626     $23,095         $0       $308,721            $0      15,000         $0    $11,247
                                 ========    ========         ==       ========            ==      ======         ==    =======

             1996    CERBCO       $10,677          $0         $0        $10,677            $0           0         $0         $0
                     IEI          201,555      22,393          0        223,948             0      15,000          0      9,014
                     COS           62,784      22,812          0         85,596             0           0          0          0
                                 --------     -------         --       --------            --      ------         --     ------
                                 $275,016     $45,205         $0       $320,221            $0      15,000         $0     $9,014
                                 ========     =======         ==       ========            ==      ======         ==     ======

George Wm.   1998    CERBCO       $11,480          $0         $0        $11,480            $0       5,000         $0         $0
Erikson
Director,            IEI          215,030           0          0        215,030             0      15,000          0      4,745
Chairman
 & General           CERBERONICS   90,339           0          0         90,339             0           0          0          0
Counsel 1/                       --------     -------         --       --------            --       ------        --     ------
                                 $316,849          $0         $0       $316,849            $0       20,000        $0     $4,745
                                 ========     =======         ==       ========            ==       ======        ==     ======

             1997    CERBCO       $11,053         $ 0         $0        $11,053            $0           0         $0         $0
                     IEI          208,649           0          0        208,649             0      15,000          0     11,613
                     COS           65,924      23,095          0         89,019             0           0          0          0
                                 --------     -------         --       --------            --       ------        --     ------
                                 $285,626     $23,095         $0       $308,721            $0      15,000         $0    $11,613
                                 ========     =======         ==       ========            ==      ======         ==     ======

             1996    CERBCO      $ 10,677          $0         $0        $10,677            $0           0         $0         $0
                     IEI          201,555      22,393          0        223,948             0      15,000          0     11,264
                     COS           62,784      22,812          0         85,596             0           0          0          0
                                 --------     -------         --       --------            --       ------        --     ------
                                 $275,016     $45,205        $ 0       $320,221            $0      15,000         $0    $11,264
                                 ========     =======         ==       ========            ==      ======         ==     ======

Robert F.    1998    CERBCO        $9,207          $0         $0         $9,207            $0           0         $0         $0
Hartman
Vice                 IEI           91,524       2,000          0         93,524             0           0          0      2,874
President,
 Secretary &         CERBERONICS    2,273           0          0          2,273             0           0          0          0
  Treasurer                      --------     -------         --       --------            --       ------        --     ------
                                 $103,004      $2,000         $0       $105,004            $0           0         $0     $2,874
                                 ========     =======         ==       ========            ==      ======         ==     ======

             1997    CERBCO       $11,053          $0          0        $11,053            $0           0         $0         $0
                     IEI           88,808           0          0         88,808             0           0          0      8,010
                                 --------     -------         --       --------            --       ------        --     ------
                                  $99,861         $ 0         $0        $99,861            $0           0         $0     $8,010
                                 ========     =======         ==       ========            ==      ======         ==     ======

             1996    CERBCO       $10,677          $0         $0        $10,677            $0           0         $0         $0
                     IEI           85,891       9,542          0         95,433             0           0          0      6,666
                                 --------     -------         --       --------            --       ------        --     ------
                                  $96,568      $9,542         $0       $106,110            $0           0         $0     $6,666
                                 ========     =======         ==       ========            ==      ======         ==     ======


1/   The Company's Corporate Executive Committee, consisting of the Chairman and
     the  President,  exercises  the  duties and  responsibilities  of the Chief
     Executive Officer of the Company.
2/   None of the named executive officers received perquisites or other personal
     benefits in excess of the lesser of $50,000 or 10% of his
     total salary and bonus.
3/   Insituform East contributions to the IEI Advantage Plan.

</TABLE>

COMPENSATION PURSUANT TO PLANS

CERBCO, Inc. Plans

CERBCO Supplemental Executive Retirement Plan

         During fiscal year 1994,  CERBCO  entered into  Supplemental  Executive
Retirement  Agreements with Messrs.  Robert  Erikson,  George Erikson and Robert
Hartman  pursuant  to a  Supplemental  Executive  Retirement  Plan (the  "CERBCO
SERP").  The agreements  provide for monthly  retirement  benefits of 50% of the
executive's  final aggregate  monthly salary from CERBCO and its subsidiaries as
defined in and limited by the executives' agreement,  for Messrs. Robert Erikson
and George Erikson.  In the case of Mr. Robert Hartman,  the agreement  provides
for 25% of the executive's  final  aggregate  monthly salary from CERBCO and its
subsidiaries  as  defined  in and  limited by the  executive's  agreement.  Each
covered  executive's  benefit under the plan is payable in equal monthly amounts
for the remainder of the covered executive's life beginning as of any date on or
after his 62nd birthday (at the covered executive's election) but not before his
termination of service.  Payments under the CERBCO Supplemental  Retirement Plan
are not subject to any reduction for Social Security or any other offset amounts
but are subject to Social Security and other applicable tax withholding.

         To compute the monthly  retirement  benefits,  the  percentage of final
monthly salary is multiplied by a ratio (not to exceed 1) of:

         the completed years of employment by CERBCO after 1992
                  to
         the total number of years of  employment  after 1992 that the executive
         would have completed if he had continued in employment to age 65.

         If the executive dies prior to retirement,  the executive's beneficiary
will receive a  pre-retirement  death  benefit  under a split  dollar  insurance
arrangement.  The  executive's  beneficiary  will  receive a  one-time  lump sum
payment in the amount of $1,400,000  (in the case of Messrs.  Robert  Erikson or
George  Erikson)  or  $700,000  (in the  case  of Mr.  Robert  Hartman).  If the
executive dies after  commencement  of the payment of retirement  benefits,  but
before receiving 180 monthly payments, the executive's beneficiary will continue
to receive  payments until the total payments  received by the executive  and/or
his beneficiary equal 180.

         The CERBCO SERP is  technically  unfunded,  except as described  below.
CERBCO will pay all benefits from its general revenues and assets. To facilitate
the payment of benefits  and  provide the  executives  with a measure of benefit
security without  subjecting the CERBCO SERP to various rules under the Employee
Retirement  Income  Security Act of 1974,  CERBCO has established an irrevocable
trust called the CERBCO,  Inc.  Supplemental  Executive  Retirement  Trust. This
trust is subject to the claims of CERBCO's  creditors in the event of bankruptcy
or  insolvency.  The  trust has  purchased  life  insurance  on the lives of the
executive officers covered by the Supplemental  Executive Retirement  Agreements
to provide for  CERBCO's  financial  obligations  under the plan.  Assets in the
trust  consist of the cash  surrender  values of the  executive  life  insurance
policies and are carried on CERBCO's balance sheet as assets. The trust will not
terminate  until  participants  and  beneficiaries  are no  longer  entitled  to
benefits under the plan.  Upon  termination,  all assets  remaining in the trust
will be returned to CERBCO.

         The  following  tables set forth the annual  retirement  benefits  that
would be received under the CERBCO SERP at various compensation levels after the
specified years of service:


<TABLE>
Pension Plan Table Where Formula Provides 50% of Compensation 1/

<CAPTION>
(Final)                            Years of Service (Under Plan)
Remuneration        15                20                25               30                35
------------        --                --                --               --                --

<S>             <C>              <C>               <C>               <C>              <C>        
$   125,000     $    58,594      $    62,500       $    62,500       $    62,500      $    62,500
$   150,000     $    70,313      $    75,000       $    75,000       $    75,000      $    75,000
$   175,000     $    82,031      $    87,500       $    87,500       $    87,500      $    87,500
$   200,000     $    93,750      $   100,000       $   100,000       $   100,000      $   100,000
$   225,000     $   105,469      $   112,500       $   112,500       $   112,500      $   112,500
$   250,000     $   117,188      $   125,000       $   125,000       $   125,000      $   125,000
$   300,000     $   140,625      $   150,000       $   150,000       $   150,000      $   150,000
$   350,000     $   154,627      $   175,000       $   175,000       $   175,000      $   175,000
$   400,000     $   154,627      $   182,101       $   200,000       $   200,000      $   200,000
$   450,000     $   154,627      $   182,101       $   201,055       $   221,961      $   225,000
$   500,000     $   154,627      $   182,101       $   201,055       $   221,961      $   245,085

1/ Assumes at the time the Plan was  established  (i) the  individual is age 50,
(ii) maximum  covered  compensation  is $250,000 and is increased 2% (compounded
annually) each year of service after 1992, and (iii)  retirement is effective at
the beginning of the year.
</TABLE>

<TABLE>
Pension Plan Table Where Formula Provides 25% of Compensation 2/

<CAPTION>
(Final)                            Years of Service (Under Plan)
Remuneration           15               20                25               30                35
------------           --               --                --               --                --

<S>               <C>               <C>              <C>               <C>              <C>      
$    50,000       $   8,929         $ 11,905         $  12,500         $  12,500        $  12,500
$    75,000       $  13,393         $ 17,858         $  18,750         $  18,750        $  18,750
$   100,000       $  17,858         $ 23,810         $  25,000         $  25,000        $  25,000
$   200,000       $  21,206         $ 31,218         $  36,190         $  39,957        $  44,115
$   300,000       $  21,206         $ 31,218         $  36,190         $  39,957        $  44,115
$   400,000       $  21,206         $ 31,218         $  36,190         $  39,957        $  44,115
$   500,000       $  21,206         $ 31,218         $  36,190         $  39,957        $  44,115

2/ Assumes at the time the Plan was  established  (i) the  individual is age 45,
(ii) maximum  covered  compensation  is $90,000 and is increased 2%  (compounded
annually) each year of service after 1992, and (iii)  retirement is effective at
the beginning of the year.
</TABLE>

         Each executive's covered compensation under the CERBCO SERP is equal to
his final base  salary.  The maximum  covered  compensation  for Messrs.  Robert
Erikson and George Erikson is limited to $250,000  annually ($20,834 per month),
increased 2% annually  beginning in 1993. The maximum covered  compensation  for
Mr. Robert Hartman is limited to $90,000 annually ($7,500 per month),  increased
2% annually beginning in 1993.

<TABLE>
         The following  table sets forth  information  concerning  vested annual
benefits  as of  June  30,  1998  for  the  executives  listed  in  the  Summary
Compensation Table covered by the CERBCO SERP:

<CAPTION>
                              Years of Credited        Current Annual            Vested                Vested
Name                         Service Under Plan     Covered Compensation       Percentage          Annual Benefit

<S>                                   <C>                 <C>                     <C>              <C>        
Robert W. Erikson                     6                   $   276,020             33.33%           $    48,003
George Wm. Erikson                    6                   $   276,020             40.00%           $    55,204
Robert F. Hartman                     6                   $    99,367             30.00%           $     7,453
</TABLE>


CERBCO 1997 Directors' Stock Option Plan

     CERBCO  adopted,  with  stockholder  approval at the 1997 Annual Meeting of
Stockholders,  the CERBCO,  Inc. 1997 Board of Directors' Stock Option Plan (the
"CERBCO  1997  Directors'  Plan").  The  purpose of this plan is to promote  the
growth and general  prosperity of CERBCO by permitting the Company,  through the
granting  of options to  purchase  shares of its Common  Stock,  to attract  and
retain the best available persons as members of CERBCO's Board of Directors with
an  additional  incentive  for such persons to  contribute to the success of the
Company.  A maximum of  125,000  shares of Common  Stock may be made  subject to
options under the CERBCO 1997 Directors'  Plan.  Options shall be granted to all
directors of CERBCO pursuant to the terms of the plan. Each option granted under
the CERBCO Directors' Plan entitles each director to whom such option is granted
the right to purchase  shares of CERBCO's  Common Stock at a  designated  option
price, any time and from time to time, within five years from the date of grant.

     The CERBCO Board of Directors  administers  the CERBCO 1997 Directors' Plan
and has exclusive authority to interpret,  construe and implement the provisions
of the plan,  except as may be  delegated  in whole or in part by the Board to a
committee  of the Board which may consist of three or more members of the Board.
No  such   delegation   of  authority   has  been  made.   Each   determination,
interpretation  or other  action  that may be taken  pursuant to the CERBCO 1997
Directors'  Plan by the  Board is  final  and  binding  and  conclusive  for all
purposes and upon all persons. The Board from time to time may amend the plan as
it deems necessary to carry out the purposes thereof.

     The  terms of the  CERBCO  1997  Directors'  Plan  contemplated  that  each
director  of the Company be granted an option to  purchase  5,000  shares of the
Company's Common Stock each year for five years, for a total of 25,000 shares of
Common Stock per director,  beginning in fiscal year 1997. On December 19, 1997,
options on a total of 20,000 shares of Common Stock were granted to directors of
the Company  (options on 5,000 shares to each of four  directors) at a per share
price of  $9.40625.  No  options  available  under  the plan were  exercised  by
directors of the Company during fiscal year 1998.

Insituform East, Incorporated Plans

Insituform East Employee Advantage Plan

         As executive  officers of  Insituform  East,  Messrs.  Robert  Erikson,
George  Erikson  and  Robert  Hartman   participate  in  the  Insituform   East,
Incorporated  Employee  Advantage  Plan  (the  "IEI  Advantage  Plan").  The IEI
Advantage Plan is a  noncontributory  profit sharing  (retirement) plan in which
all employees not covered by a collective bargaining agreement and employed with
Insituform East for at least one year are eligible to  participate.  No employee
is covered by a  collective  bargaining  agreement.  The IEI  Advantage  Plan is
administered by the Insituform East Board of Directors which determines,  at its
discretion, the amount of Insituform East's annual contribution.  The Insituform
East Board of Directors  can authorize a  contribution,  on behalf of Insituform
East, of up to 15% of the compensation  paid to  participating  employees during
the year.  The plan is  integrated  with  Social  Security.  Each  participating
employee is allocated a portion of Insituform East's  contribution  based on the
amount of that  employee's  compensation  plus  compensation  above FICA  limits
relative to the total  compensation  paid to all  participating  employees  plus
total compensation above FICA limits.  Amounts allocated under the IEI Advantage
Plan  begin to vest  after  three  years of  service  (at which  time 20% of the
contribution  paid vests) and are fully vested after seven years of service.  No
contribution was authorized for the fiscal year ended June 30, 1998.

     The IEI Advantage  Plan also  includes a salary  reduction  profit  sharing
feature under Section 401(k) of the Internal  Revenue Code. Each participant may
elect to defer a portion of his  compensation by any whole percentage from 2% to
16% subject to certain  limitations.  As mandated by the plan,  Insituform  East
contributed an employer matching  contribution equal to 25% of the participant's
deferred  compensation up to a maximum of 1.5% of the  participant's  total paid
compensation  for the fiscal year.  Participants are 100% vested at all times in
their deferral and employer matching accounts. During the fiscal year ended June
30, 1998,  Insituform  East made the following  contributions  for the Company's
officers:


<TABLE>
<CAPTION>
Names and Capacities in Which                         Contributions for          Vested Percent
Cash Contributions Were Made                          Fiscal Year 1998  1/        as of 6/30/98

<S>                                                        <C>                        <C> 
George Wm. Erikson, Chairman                               $ 4,745                    100%
Robert W. Erikson, President                               $ 2,345                    100%
Robert F. Hartman, Vice
  President - Administration & Secretary                   $ 2,875                    100%
Executive Officers of Insituform East as a Group,
  (6 persons, including those named above)                 $19,912                    N/A

1/   Total  contributions  to employees of $101,791  include  Insituform  East's
     matching  contribution of $48,575 and reallocated  amounts totaling $53,216
     forfeited by former participants who terminated  employment with Insituform
     East during fiscal year 1998.
</TABLE>

Insituform East 1994 Board of Directors' Stock Option Plan

         Insituform East adopted,  with stockholder  approval at the 1994 Annual
Meeting  of  Stockholders,  the  Insituform  East,  Incorporated  1994  Board of
Directors'  Stock Option Plan (the "IEI 1994 Directors'  Plan").  The purpose of
this plan is to promote the growth and general  prosperity of Insituform East by
permitting  Insituform East,  through the granting of options to purchase shares
of its Common Stock, to attract and retain the best available persons as members
of Insituform  East's Board of Directors  with an additional  incentive for such
persons to contribute to the success of Insituform East. The IEI 1994 Directors'
Plan is  administered  and options are granted by the  Insituform  East Board of
Directors.  As directors of Insituform East,  Messrs.  Robert Erikson and George
Erikson participate in this plan.

         Each grant of options under the IEI 1994  Directors'  Plan will entitle
each  Insituform  East  director  to whom such  options are granted the right to
purchase 15,000 shares of Insituform  East's Common Stock at a designated option
price, any time and from time to time, within five years from the date of grant.
Options are granted  under the IEI  Directors'  Plan each year for five years to
each member of the Board of Directors of Insituform  East serving as such on the
date of grant;  that is, for each  director  serving for five years,  a total of
five options covering in the aggregate 75,000 shares of Common Stock (subject to
adjustments upon changes in the capital structure of Insituform East). Under the
terms of this plan, up to 525,000 shares of Insituform  East's Common Stock have
been reserved for directors of Insituform East.

         On  December  12,  1997,  options  on a  total  of  105,000  shares  of
Insituform  East's  Common Stock were granted to  directors of  Insituform  East
(options on 15,000 shares to each of seven directors,  including Messrs.  Robert
Erikson and George Erikson) at a per share option price of $2.46875.  No options
available  under this plan were exercised by directors of Insituform East during
fiscal year 1998.

Insituform East 1989 Board of Directors' Stock Option Plan

         Insituform East adopted,  with stockholder  approval at the 1989 Annual
Meeting  of  Stockholders,  the  Insituform  East,  Incorporated  1989  Board of
Directors  Stock Option Plan (the "IEI 1989  Directors'  Plan").  The purpose of
this plan was the same as the IEI 1994 Directors' Plan. The plan is administered
by the  Insituform  East  Board of  Directors.  Options  were  first  granted to
directors on December 1, 1989 and each of the four succeeding Board of Directors
meetings  following the Annual Meetings of Stockholders in 1990,  1991, 1992 and
1993.  Each grant of options  under the plan entitles each director to whom such
options were granted the right to purchase  15,000 shares of  Insituform  East's
Common  Stock at a  designated  option  price,  any time and from  time to time,
within  five  years from the date of grant.  Although  no  further  options  are
anticipated to be granted under this plan, options previously granted, and which
have not already been exercised or expired, will remain in effect until exercise
or expiration,  whichever comes first. The plan will automatically  terminate in
1999, unless  terminated sooner by the Board of Directors.  No options available
under the plan were exercised by directors of Insituform East during fiscal year
1998.  Under the terms of this  plan,  up to 60,000  shares of  Insituform  East
Common Stock remain reserved for the directors of Insituform East.

OPTION/SAR GRANTS TABLE

     No option or Stock  Appreciation Right grants were made to any of the named
executive  officers during fiscal year 1998 under the IEI 1989 Directors'  Plan.
The following table sets forth information concerning options granted to each of
the named  executive  officers  during  fiscal  year 1998 under the CERBCO  1997
Directors' Plan or the IEI 1994 Directors' Plan:

<TABLE>
                      OPTION/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
                                                                                         Potential Realized Value
                                                                                          at Assumed Annual Rates
                                                                                        of Stock Price Appreciation
                                        Individual Grants                                       for Option Term
                         ---------------------------------------------                  ---------------------------
                                           % of Total
                                            Options/
                           Option/        SARs Granted       Exercise
                            SARs          to Employees        or Base       Expiration
Name                     Granted(#)      in Fiscal Year      ($/Share)         Date          5% ($)      10%($)
----                     ----------      --------------      ---------         ----          ------      ------

Robert W. Erikson
  CERBCO 1997
<S>                         <C>                <C>            <C>             <C>           <C>          <C>    
     Directors' Plan        5,000              25%            $9.40625        12/19/02      $12,994      $28,713
  IEI 1994 Directors' Plan 15,000              14%            $2.46875        12/12/02      $10,231      $22,608

George Wm. Erikson
CERBCO 1997
     Directors' Plan        5,000              25%            $9.40625        12/19/02      $12,994      $28,713
  IEI 1994 Directors' Plan 15,000              14%            $2.46875        12/12/02      $10,231      $22,608
</TABLE>

AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE

         No option or Stock Appreciation Right grants made under the CERBCO 1997
Directors'  Plan, or the IEI 1989 or 1994 Directors'  Plans, to any of the named
executive  officers were exercised  during fiscal year 1998. The following table
sets forth information concerning option or Stock Appreciation Right grants held
by each of the named executive officers under all plans as of June 30, 1998:

<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES

                                                                                             Value of
<CAPTION>
                                                           Number of Unexercised       Unexercised in the Money
                              Shares                     Options/SARs at FY-End(#)     Options/SARs at FY-End($)
                            Acquired on      Value
Name                        Exercise(#)  Realized ($)  Exercisable   Unexercisable   Exercisable    Unexercisable
----                        -----------  ------------  -----------   -------------   -----------    -------------

Robert W. Erikson
  CERBCO 1997
<S>                                <C>           <C>    <C>               <C>                <C>          <C>
    Directors' Plan                0             $0      5,000            0                  $0           $0
  IEI 1994 Directors' Plan         0             $0     60,000            0                  $0           $0
  IEI 1989 Directors' Plan         0             $0     15,000            0                  $0           $0

George Wm. Erikson
  CERBCO 1997
    Directors' Plan                0             $0      5,000            0                  $0           $0
  IEI 1994 Directors' Plan         0             $0     60,000            0                  $0           $0
  IEI 1989 Directors' Plan         0             $0     15,000            0                  $0           $0
</TABLE>


REPRICING OF OPTIONS/SARs

         Neither the Company nor  Insituform  East have  adjusted or amended the
exercise price of stock options or SARs  previously  awarded to any of the named
executive officers during fiscal year 1998.

LONG-TERM INCENTIVE PLAN AWARDS

         Neither  the Company nor its  subsidiaries  have a long-term  incentive
plan.

DEFINED BENEFIT OR ACTUARIAL PLANS

         The  Company  maintains  a  defined  benefit  plan  called  the  CERBCO
Supplemental  Executive Retirement Plan to provide annual retirement benefits to
covered  executives.  See "Compensation  Pursuant to Plans - CERBCO, Inc. Plans,
Supplemental  Executive  Retirement  Plan" as to the basis upon  which  benefits
under the Plan are computed.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS

         There  are  no  employment   contracts   between  the  Company  or  its
subsidiaries and any named executive officer.  There are no arrangements between
the Company or its  subsidiaries  and any named executive  officer,  or payments
made  to  an  executive  officer,  that  resulted,  or  will  result,  from  the
resignation,  retirement or other  termination of employment with the Company or
its subsidiaries, in an amount that exceeds $100,000.

COMPENSATION OF DIRECTORS

         Non-officer  directors  of the Company are paid an annual fee of $5,000
and an attendance fee of $1,000 for each meeting of the Board of Directors,  and
each committee meeting,  attended in person.  Meetings attended by telephone are
compensated at the rate of $200.  Directors who are also officers of the Company
do not receive separate fees for service as directors, but are eligible with all
other directors to participate in the CERBCO 1997 Directors'  Stock Option Plan,
as  described  under the  section  entitled,  "Compensation  Pursuant to Plans -
CERBCO,  Inc.  Plans." All directors of the Company are  reimbursed  for Company
travel-related expenses.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The  Company's   Board  of  Directors  does  not  have  a  compensation
committee; the Board of Directors as a whole serves in that equivalent capacity.
Messrs.  George  Erikson  and  Robert  Erikson,  both  members  of the  Board of
Directors and executive officers of the Company, holding the offices of Chairman
& General Counsel and President,  respectively,  participated during fiscal year
1998 in deliberations  of the Board of Directors  concerning  executive  officer
compensation.

         Messrs. George Erikson and Robert Erikson are both members of the Board
of Directors and executive  officers of Insituform  East. In their capacities as
directors of this subsidiary company,  they participated during fiscal year 1998
in  deliberations  of  its  Board  of  Directors  concerning  executive  officer
compensation.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

(a)      Security Ownership of Certain Beneficial Owners

<TABLE>
         The  following  table  reflects,  as of September  15,  1998,  the only
persons  known to the  Company  to be the  beneficial  owners  of more than five
percent of any class of CERBCO's voting securities:


<CAPTION>
Name & Address of                                                      Amount and Nature of
Beneficial Owner                            Title of Class             Beneficial Ownership       Percent of Class

<S>                                         <C>                            <C>      <C>                 <C> 
Robert W. Erikson                           Common Stock                    60,700  1/                   5.1%
3421 Pennsy Drive                           Class B Common Stock           131,750  1/                  44.5%
Landover, MD

George Wm. Erikson                          Common Stock                    59,602  2/                   5.0%
3421 Pennsy Drive                           Class B Common Stock           115,814  2/                  39.1%
Landover, MD

Schaenen Fox Capital Management, LLC        Common Stock                   167,600  3/                  14.1%
200 Park Avenue, Suite 3900
New York, NY

1/ Record and beneficial ownership, sole voting and sole investment power.
2/ Record and beneficial ownership. Includes 2,246 shares of each class of stock
owned jointly with Mr. Erikson's  spouse, as to which there is shared voting and
investment power.
3/ Beneficial ownership, sole voting and sole investment power
as publicly  disclosed in current  Schedule  13G  Beneficial  Ownership  Report,
reporting  securities  acquired by such  financial  institution  in the ordinary
course of its business.
</TABLE>

 (b)     Security Ownership of Management

<TABLE>
         The following information is furnished with respect to all directors of
CERBCO who were the beneficial owners of any shares of CERBCO's Common Stock and
Class B Common Stock as of September 15, 1998, and with respect to all directors
and officers of CERBCO as a group:

<CAPTION>
                                                       Amount & Nature of Beneficial Ownership
Name of Beneficial Owner     Title of Class            Owned Outright      Exercisable Options    Percent of Class
------------------------     --------------            --------------      -------------------    ----------------

<S>                          <C>                         <C>      <C>          <C>                        <C> 
Robert W. Erikson            Common Stock                 60,700  1/            5,000                      5.4%
                             Class B Common Stock        131,750  1/                0                     44.5%

George Wm. Erikson           Common Stock                 59,602  2/            5,000                      5.4%
                             Class B Common Stock        115,814  2/                0                     39.1%

Webb C. Hayes, IV            Common Stock                  4,500                5,000                      0.8%

Paul C. Kincheloe, Jr.       Common Stock                  7,500                5,000                      1.0%

All Directors and Officers
  as a Group (5 persons      Common Stock                132,302               20,000                     12.6%
  including those named      Class B Common Stock        247,564                    0                     83.6%
  above) 3/

1/ Record and beneficial ownership, sole voting and sole investment power.
2/ Record and beneficial ownership. Includes 2,246 shares of each class of stock
owned jointly with Mr. Erikson's  spouse, as to which there is shared voting and
investment  power.
3/ Mr. George Erikson also is the beneficial  owner of 16,500 shares of Common
Stock  (less  than 1% of such  class)  of  Insituform  East, Incorporated, a
subsidiary of the Company. In addition,  Messrs. George Erikson and Robert
Erikson each are the  beneficial  owners of  exercisable  options on 75,000
shares  of the  Common  Stock  (approximately  1.7%  of such  class)  of
Insituform  East,  Incorporated,  pursuant to the Insituform  East 1989 and 1994
Board of Directors' Stock Option Plans.
</TABLE>


(c)      Changes in Control

         There were no changes in control of the  Company  during the year ended
June 30, 1998.

Item 13.  Certain Relationships and Related Transactions

(a)      Transactions with Management and Others

         See Item 13.(c) below.

(b)      Certain Business Relationships

         Not applicable.

(c)      Indebtedness of Management

         Pursuant to authorizations  by the Board of Directors,  the Company has
made certain  advancements to Mr. George Erikson,  Director,  Chairman & General
Counsel,  and certain  advancements to Mr. Robert Erikson,  Director & President
(together,  "the Eriksons") for their  respective  legal fees and expenses which
each  has  incurred,   and  may  incur  in  the  future,   for  personal   legal
representation  in connection with the stockholder  lawsuit filed in August 1990
challenging  a  proposed  but  unconsummated  transaction  between  each  of the
Eriksons  and  Insituform  Technologies,  Inc.  (see Part II,  Item 8, "Notes to
Consolidated financial Statements - Note 10. Contingencies").

         As of September 15, 1998,  pursuant to such Board  authorizations,  the
Company has advanced and expensed in total  $600,482 to Mr.  George  Erikson and
has advanced and expensed in total $600,482 to Mr. Robert Erikson.

         Pending  a final  outcome  of these  legal  proceedings,  the  Board of
Directors has deferred consideration or ultimate determination of entitlement of
Mr. George Erikson and/or Mr. Robert Erikson to  indemnification  by the Company
for such legal fees and expenses. If it is ultimately determined by the Board of
Directors or otherwise in  accordance  with Section 145 of Delaware  Corporation
Law that Mr.  George  Erikson  and/or Mr.  Robert  Erikson  are not  entitled to
indemnification  for any such  legal  fees and  expenses  under  Section  145 of
Delaware  Corporation  Law,  such  advances  shall be  reimbursed  by Mr. George
Erikson and/or Mr. Robert  Erikson to the Company  pursuant to an agreement with
the  Company  executed by each of the  Eriksons  and  delivered  to the Board of
Directors.

(d)      Transactions with Promoters

         Not applicable.

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)      (1)      Financial Statements

The following consolidated financial statements of CERBCO, Inc. and subsidiaries
are included in PART II, Item 8:
                                                                          Pages

Independent Auditors' Report                                              16

Consolidated Statements of Earnings for the Years Ended June 30,
1998, 1997 and1996                                                        17

Consolidated Balance Sheets as of June 30, 1998 and 1997                  18-19

Consolidated Statements of Stockholders' Equity for the Years Ended
June 30, 1998, 1997 and 1996                                              20

Consolidated Statements of Cash Flows for the Years Ended June 30,
1998, 1997 and 1996                                                       21

Notes to Consolidated Financial Statements                                22-31

         (2)      Financial Statement Schedules

         Schedules  have been omitted for the reason that they are not required,
or are  not  applicable,  or that  the  required  information  is  given  in the
financial statements and notes thereto.

         (3)      Exhibits

27.      Financial Data Schedule

                                                                          Pages
99.      CERBCO, Inc. Consolidating Schedules: Statement of Earnings
Information for the Year Ended June 30, 1998; Balance Sheet
Information and Consolidating Elimination Entries
as of June 30, 1998, and Related Independent Auditors' Report             46-49

(b) Reports on Form 8-K:

No  reports on Form 8-K were filed  during the last  quarter of the fiscal  year
ended June 30, 1998.



                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned,  thereunto duly authorized, in Landover, Maryland, on
September 25, 1998.


                              /s/ ROBERT W. ERIKSON
                                  Robert W. Erikson
                                  President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the  following  persons on behalf of the  Registrant in
the capacities and on the dates indicated.

Signature & Title                   Capacity                           Date



/s/  ROBERT W. ERIKSON
Robert W. Erikson                   Director,                     Sept. 25, 1998
President                           Principal Executive Officer



/s/  GEORGE Wm. ERIKSON
George Wm. Erikson                  Director,                     Sept. 25, 1998
Chairman & General Counsel          Principal Executive Officer



/s/  ROBERT F. HARTMAN
Robert F. Hartman                   Principal Financial Officer,
Vice President, Secretary           Principal Accounting Officer  Sept. 25, 1998
  & Treasurer



/s/  WEBB C. HAYES, IV
Webb C. Hayes, IV                   Director                      Sept. 25, 1998



/s/  PAUL C. KINCHELOE, JR.
Paul C. Kincheloe, Jr.              Director                      Sept. 25, 1998


<PAGE>


















                       Exhibits to CERBCO, Inc. Form 10-K






Exhibit 27.    CERBCO, Inc. Financial Data Schedule

Exhibit 99.    CERBCO,  Inc. Consolidating  Schedules:  Statement of Earnings
               Information for the Year  Ended June 30, 1998; Balance Sheet
               Information and Consolidating  Elimination  Entries as
               of June 30, 1998, and Related Independent Auditors' Report.