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                                                       [FEE REQUIRED]
For the fiscal year ended:                                         June 30, 1997
                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934                                                [NO FEE REQUIRED]
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, 1997, was $9,538,482.

As of September 15, 1997, the following number of shares of each of the issuer's
classes of common stock were outstanding:
                       Common Stock              1,186,726
                       Class B Common Stock        296,230
                         Total                   1,482,956

Documents Incorporated by Reference:  None

Total number of pages of this report:     52
Index to Exhibits located at page:        46


<PAGE>

                                TABLE OF CONTENTS

PART I                                                                      Page

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

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

Item 3.   Legal Proceedings....................................................9

Item 4.   Submission of Matters to a Vote of Security Holders..................9

PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder
          Matters.............................................................10

Item 6.   Selected Financial Data.............................................11

Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations...............................................12

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..................34

Item 11.  Executive Compensation..............................................36

Item 12.  Security Ownership of Certain Beneficial Owners and Management......43

Item 13.  Certain Relationships and Related Transactions......................45

PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.....46




                                  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.

         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

         As of June  30,  1997,  substantially  all of the  Company's  revenues,
operating results and identifiable assets are attributable to the rehabilitation
and  repair of  underground  sewers  and other  pipelines,  the  Company's  only
remaining  business  segment.  See Part IV, Item 14, Exhibit 99,  "CERBCO,  Inc.
Consolidating  Schedules:  Statement of Earnings  Information for the Year Ended
June 30, 1997; Balance Sheet Information and Consolidating  Elimination  Entries
as of June 30, 1997" for additional  information  pertaining to Insituform East,
Inc.

(c)      Narrative Description of Business

                                  CERBCO, Inc.

GENERAL

         As of June 30, 1997,  CERBCO,  Inc.  ("CERBCO" or the  "Company")  is a
parent holding company with a controlling interest in one principal  subsidiary,
Insituform  East, Inc. CERBCO  officers  participate  directly on the management
team of this subsidiary  corporation,  in varying  capacities and  officerships,
with a view to overseeing,  protecting and developing the long-term value of the
Company's  investment in such  subsidiary.  A business  description of CERBCO is
primarily a business  description  of  Insituform  East,  Incorporated  as given
below.

                          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  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, the Company's only business segment.

         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 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.

         A June 12, 1996  arbitration  award granted the Company the  unilateral
right to appoint a MIDSOUTH  Partners  Management  Committee  representative  in
place of another partner's  representative,  in connection with a default of the
Partnership  Agreement by that partner.  As a result of this award,  the Company
gained majority  representation on the Management  Committee  effective June 12,
1996.

         For  financial  reporting  purposes for the fiscal years ended June 30,
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.

         On May 1, 1987,  the Company  entered into supply  agreements  with ITI
whereby the Company has  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.  As a result of certain terms not previously  fulfilled by ITI,
the Company  believes it is no longer required to purchase 90% of its Insitutube
material requirements from ITI under the otherwise continuing agreements.  After
providing six months advance notice,  East terminated its supply  agreement with
ITI effective May 1, 1997.  However,  East  continues to purchase its Insitutube
material requirements from ITI.

         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.

         TRY TEK  manufactures  Insitucutter  devices  for  sale to ITI and East
under an agreement  with ITI, the  Insitucutter  device  patent  holder.  Unless
otherwise terminated, this agreement will continue until April 6, 1998, the date
of expiration of the Insitucutter device patent.

         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.

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 62
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 2015. 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 65% 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, 1997, Federal government  contracts
(collectively),  a municipal  government in central Ohio, a county government in
the  Washington,  D.C.  metropolitan  area,  and  a  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.  During the year
ended June 30,  1995,  Federal  government  contracts  (collectively),  the same
regional sanitary  authority in southwest Ohio and Washington  Metropolitan Area
Transit Authority ("WMATA") accounted for 21%, 15% 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 total value of all uncompleted and multi-year  contract awards from
customers was approximately  $24.4 million at June 30, 1997, as compared to $5.1
million  at June  30,  1996.  The  twelve-month  backlog  at June  30,  1997 was
approximately  $16.1  million as compared to $4.9 million at June 30, 1996.  The
total value of all  uncompleted  and  multi-year  contracts at June 30, 1997 and
1996  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.  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.

         Cured-in-Place Trenchless Technologies. Over the years, the Company has
witnessed a continuing  introduction  of alternative  cured-in-place  trenchless
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  cured-in-place  trenchless
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 nineteen 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 in place of a
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.  However, a
majority of the Company's  customers  already use or are  implementing  improved
procurement  specifications and contract award evaluation  criteria  emphasizing
technical value instead of simply low price. In a "best value" and quality based
market,  Insituform remains at a distinct advantage. As customers and consulting
engineers  increasingly rely on quality based purchasing criteria to help ensure
long  term  solutions  to  their   infrastructure   needs,   they  help  clearly
differentiate  proven products such as Insituform from cheaply priced trenchless
substitutes  with  technical,  performance  and  installation  risks not equally
tested by time or independent third parties.

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  team
includes seven 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, 1997, the Company employed 184 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.

         Insituform East also leases a 13,000 square foot branch facility in the
Cincinnati,  Ohio, metropolitan area to service operations in the western region
of its licensed territory.

         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
12:  Contingencies" for details concerning (a) a previously disclosed lawsuit in
the  Court of  Chancery  of the  State of  Delaware  currently  on appeal to the
Delaware  Supreme  Court,  (b) a  previously  disclosed  lawsuit  pending in the
Superior  Court of the  District of  Columbia,  and (c) 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

         On June 27, 1997, a special meeting of  stockholders  was held to allow
stockholders  to vote for or against the sale by the  Company of its  two-thirds
stake in Capitol  Office  Solutions,  Inc.  ("Capitol"),  held by the  Company's
wholly-owned  subsidiary,   CERBERONICS,  Inc.  pursuant  to  the  terms  of  an
Investment,  Redemption and Stock Purchase Agreement. The Agreement contemplated
a sales price of $19  million  and  two-thirds  of an  approximately  $5 million
pre-sale   distribution  of  excess  cash  from  Capitol.  The  transaction  was
conditioned  upon  the  affirmative  vote of a  majority  of the  votes  cast by
stockholders other than the Company's controlling  stockholders,  Messrs. Robert
W. Erikson and George Wm. Erikson.  Based on the vote for the transaction by the
non-controlling  stockholders,   the  controlling  stockholders  voted  for  the
transaction.  The number of votes cast for and against the proposal,  as well as
abstentions and broker non-votes, were as follows:

<TABLE>
<CAPTION>
                                                                                                         BROKER
                                         FOR                   AGAINST               ABSTAIN            NON-VOTES
                                 Shares      Votes       Shares      Votes       Shares    Votes         Shares
Non-Controlling Stockholders
<S>                              <C>        <C>          <C>        <C>           <C>      <C>           <C>    
     Common                      510,211    510,211      297,538    297,538       14,367   14,367        198,454
     Class B Common               22,397    223,970        7,447     74,470          250    2,500          3,911
                                --------    -------      -------    -------       ------   ------        -------
         Total                   532,608    734,181      304,985    372,008       14,617   16,867        202,365
                                 -------    -------      -------    -------       ------   ------        -------

Controlling Stockholders
     Common                      115,056    115,056            0          0            0        0              0
     Class B Common              245,318  2,453,180            0          0            0        0              0
                                 -------  ---------            -          -            -        -              -
         Total                   360,374  2,568,236            0          0            0        0              0
                                 -------  ---------            -          -            -        -              -

     GRAND TOTAL                 892,982  3,302,417      304,985    372,008       14,617   16,867        202,365
                                 =======  =========      =======    =======       ======   ======        =======

</TABLE>


                                     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:

                                  Common Stock
     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               71/4

     Fiscal Year Ended June 30, 1996                      High             Low
     -------------------------------                      ----             ---
           1st Quarter                                    8 1/4            4 7/8
           2nd Quarter                                    7 5/8            6
           3rd Quarter                                    7 1/2            5 7/8
           4th Quarter                                    8 1/8            6

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

         (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, 1997, the  approximate  number of  shareholders  of
record of each class of common equity of CERBCO was as follows:

         Common Stock                       319
         Class B Common Stock               130

(c)      Dividends

         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.
No dividends were declared in 1995.

         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.  Statement of earnings  information for
fiscal years prior to 1997 has been restated to account for inclusion of Capitol
Office Solutions as discontinued operations.

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

STATEMENT OF EARNINGS INFORMATION
<CAPTION>
                                                                     Years ended June 30
                                                 1997       1996       1995        1994         1993
                                                 ----       ----       ----        ----         ----

<S>                                         <C>          <C>        <C>         <C>         <C>      
Sales ....................................   $ 26,542    $ 30,471   $ 21,594    $ 14,804    $ 13,105
Operating profit (loss) ..................   $ (1,633)   $  2,551   $  1,529    $   (771)   $ (2,611)
Earnings (loss) before non-owned interests
  and income taxes .......................   $ (1,243)   $  3,121   $  2,615    $   (180)   $ (2,007)
Earnings (loss) before non-owned interest
  in Insituform East .....................   $   (565)   $  1,389   $  1,247    $   (301)   $ (1,223)
Earnings (loss) from continuing operations   $   (199)   $    247   $   (202)   $   (403)   $   (639)
Net earnings (loss) ......................   $ 10,169    $  2,055   $  1,542    $  1,319    $   (290)
Net earnings (loss) per share:
  Continuing operations ..................   $  (0.13)   $   0.17   $  (0.13)   $  (0.28)   $  (0.44)
  Net earnings (loss) ....................   $   6.91    $   1.40   $   1.06    $   0.90    $  (0.20)
Weighted average number of shares ........      1,471       1,465      1,460       1,457       1,457
Dividends declared per share .............   $   1.55    $   0.05   $      0    $      0    $      0

</TABLE>

<TABLE>
<CAPTION>
BALANCE SHEET INFORMATION                                                 June 30
                                                 1997         1996          1995         1994         1993
                                                 ----         ----          ----         ----         ----
<S>                                         <C>           <C>          <C>          <C>          <C>      
Accounts receivable                         $   6,691     $  8,497     $   6,386    $   6,675    $   3,641
Working capital                             $  24,537     $ 17,886     $  12,152    $   9,480    $   7,313
Total assets                                $  51,471     $ 39,451     $  32,980    $  29,507    $  27,559
Short-term debt                             $      29     $     55     $      53    $     611    $     962
Long-term debt                              $     139     $    136     $      42    $      96    $     458
Non-owned interests                         $  13,042     $ 16,509     $  12,367    $  10,318    $   9,809
Stockholders' equity                        $  24,935     $ 17,002     $  15,000    $  13,445    $  12,127
Book value per share                        $   16.88     $  11.58     $   10.26    $    9.23    $    8.32
Average stockholders' equity
  [Weighted average equity during year
  exclusive of current earnings (loss)]     $  17,033     $ 15,010     $  13,452    $  12,127    $  12,454
Return on equity
  [Current earnings (loss) divided by average
  stockholders' equity as defined above]        59.7%        13.7%        11.5%        10.9%         (2.3)%
</TABLE>

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

Overview and Outlook

         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), a 59.7% return
on equity, for its fiscal year ended June 30, 1997. Overall net earnings include
earnings from the  operations of, and a gain from the redemption of its interest
in, the Company's now discontinued  copy machine products and services  segment.
In the previous fiscal year, the Company recognized  consolidated  earnings from
continuing  operations of $247,219  ($0.17 per share) on sales of $30.5 million,
and net  earnings of  $2,055,291  ($1.40 per share),  a 13.7%  return on equity,
including earnings from the operations of the discontinued copy machine products
and services segment.

         The Company's  significant  net earnings for the fiscal year ended June
30, 1997 were attributable to the stockholder approved  redemption,  closed June
30, 1997, of its interest in Capitol Office  Solutions.  In addition to earnings
from  discontinued  operations  of  $2,166,894  attributable  to Capitol  Office
Solutions, the Company recognized a gain on disposal of the discontinued segment
of $8,201,812, net of income taxes of $6,230,000. Insituform East, the Company's
pipeline   rehabilitation   segment,   recognized  a  net  loss  of   -$543,646,
contributing a loss of -$177,641 to CERBCO,  on sales of $26.5 million in fiscal
year 1997, as compared to net earnings of $1,678,557,  contributing  earnings of
$537,138 to CERBCO,  on sales of $30.5  million in fiscal year 1996.  Insituform
East's  current  annual  loss was  attributable  to an  unfavorable  balance  of
negative  factors  coalescing  in fiscal year 1997  including a 13%  decrease in
period  sales,  delays in the  start-up  and  execution  of several  significant
projects and dilution to normal  overall  margin  levels  caused by increases in
subcontracted  services,  in modified  sliplining  installations  and in certain
discounted work undertaken for strategic reasons.

         The  Company's  results were also affected by  unallocated  net general
corporate  expenses in the amount of $551,755  (up  $261,836  from the  previous
year),  including $171,484 (down $15,471 from the previous year), related to the
demands made of, and  litigation  being  continued  against,  the Company by two
associated,  minority  stockholders in connection with the unconsummated private
sale of a controlling  interest in the Company abandoned in September 1990. From
inception in 1990 through the year ended June 30, 1997,  legal fees and expenses
resulting  from  this  litigation  totaled   approximately  $2.3  million.   For
additional  information  concerning this matter,  see Part II, Item 8, "Notes to
Consolidated Financial Statements - Note 12. 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  believes  that  increases in workable
backlog  should result in favorable  operating  results  through the opening two
quarters of fiscal year 1998.

         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. However,
a majority  of  Insituform  East's  customers  already  use or are  implementing
improved  procurement  specifications  and contract  award  evaluation  criteria
emphasizing  technical  value instead of simply low price. In a "best value" and
quality based market,  Insituform remains at a distinct advantage.  As customers
and consulting engineers  increasingly rely on quality based purchasing criteria
to help ensure long term  solutions  to their  infrastructure  needs,  they help
clearly  differentiate  proven  products such as Insituform  from cheaply priced
trenchless  substitutes with technical,  performance and installation  risks not
equally tested by time or independent third parties.

Results of Operations

         The following table sets forth, for the periods indicated, the relative
percentages  that  certain  items of expense and  earnings  bear to the sales of
CERBCO and the  percentage  increases  in the  dollar  amounts of each item from
period to period.
<TABLE>
                              Results of Operations

<CAPTION>
                                               Percentage Relationship to Revenues   Period to Period Changes
                                                        Years ended June 30             Years ended June 30
                                                                                        1997         1996
                                                   1997         1996         1995       vs 1996      vs 1995
                                                   ----         ----         ----       -------      -------
<S>                                               <C>          <C>           <C>          <C>           <C>  
Sales                                             100.0%       100.0%        100.0%       (12.9%)       41.1%
                                                  -----        -----         -----
Costs and Expenses:
  Cost of sales                                    84.5         73.1          69.5          0.6         48.4
  Selling, general and administrative expenses     21.7         18.5          23.4          2.1         11.6
                                                  -----        -----         -----
    Total Costs and Expenses                      106.2         91.6          92.9          0.9         39.2
                                                  -----        -----         -----
Operating Profit (Loss)                            (6.2)         8.4           7.1       (164.0)        66.8
Investment Income                                   1.0          1.0           0.9        (11.1)        45.3
Equity in Earnings of MIDSOUTH Partners             0.0          0.0           3.4          0.0       (100.0)
Interest Expense                                   (0.1)        (0.2)          0.0        137.3         NA
Other Income - net                                  0.6          1.0           0.7        (42.5)       102.3
                                                  -----        -----         -----
Earnings (Loss) Before Non-Owned Interests
  and Income Taxes                                 (4.7)        10.2          12.1       (139.8)        19.4
Non-Owned Interest in MIDSOUTH Partners             0.7          2.2           0.0        (70.2)        NA
                                                  -----        -----         -----
Earnings (Loss) Before Non-Owned Interests in
  Insituform East and Income Taxes                 (5.4)         8.0          12.1       (158.4)        (5.8)
Income Taxes                                       (3.3)         3.5           6.3       (181.4)       (21.5)
                                                  -----        -----         -----
Earnings (Loss) Before Non-Owned Interests in
  Insituform East                                  (2.1)         4.5           5.8       (140.7)        11.3
Non-Owned Interests in Insituform East             (1.3)         3.7           6.7       (132.1)       (21.2)
                                                  -----        -----         -----
Earnings (Loss) from Continuing Operations         (0.8)         0.8          (0.9)      (180.7)        NA
Discontinued Operations                            39.1          5.9           8.0        473.5          3.7
                                                   ----        -----         -----
Net Earnings                                       38.3%         6.7%          7.1%       394.8         33.3
                                                  =====        =====         =====
</TABLE>

                                  1997 vs 1996

         Consolidated  sales  decreased  $3.9  million  (-12.9%)  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.  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 (-164.0%) 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 26.9% to 15.5%  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  (-2.1%) in fiscal year 1997, a
much smaller decrease than the decrease in sales. The parent company's operating
loss increased $0.2 million (46.7%)  primarily due to a one-time increase in the
accrued supplemental executive retirement plan liability.

         Earnings from  discontinued  operations  increased $0.4 million (19.8%)
due to an increase in Capitol  Office  Solutions'  sales  (16.5%) and  operating
profit (10.8%). 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.

                                  1996 vs 1995

         Consolidated sales increased $8.9 million (41.1%), primarily due to the
inclusion of MIDSOUTH  Partners' sales in Insituform East's  consolidated  sales
total.  Comparable  period East sales  increased  4%,  primarily  as a result of
expanded  production  capacity  and high levels of workable  backlog  during the
first six months of fiscal year 1996.

         Consolidated operating profit increased $1.0 million (66.8%) in 1996 as
compared to 1995 as Insituform  East's operating profit increased and the parent
company's operating loss decreased. Insituform East's operating profit increased
22.2% as a result of  including  MIDSOUTH  Partners'  operating  profit in 1996.
Insituform East's gross profit margin decreased from 30.5% to 26.9% primarily as
a result of increased  semi-fixed  operating costs associated with expanded East
production capacity in 1996 and reduced margins on MIDSOUTH Partners' Insituform
contracts. Insituform East's selling, general and administrative costs increased
25.8% primarily as a result of including MIDSOUTH Partners' selling, general and
administrative costs in 1996. The parent company's operating loss decreased $0.5
million (48.9%) primarily due to a decrease in corporate legal expenses.

         Earnings from  discontinued  operations  increased $0.2 million (13.5%)
due to an increase in Capitol  Office  Solutions'  sales  (15.2%) and  operating
profit (10.1%).  Discontinued operations in fiscal year 1995 included a gain due
to receipt by the Company of final payments on five Federal government contracts
completed by CERBERONICS on or before June 30, 1991.

Liquidity and Capital Resources

         Liquidity  may be defined as the  Company's  ability to mobilize  cash.
Cash and cash equivalents increased $16.8 million, $5.0 million and $3.0 million
in fiscal years 1997, 1996 and 1995, 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 increase in
1995 was due primarily to cash generated from operations.

         The Company's operating activities provided approximately $4.6 million,
$6.2 million and $4.9 million in cash during  fiscal years 1997,  1996 and 1995,
respectively.

         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.  Net  cash  used  in  investing  activities  was
approximately  $0.7  million  and $1.1  million  in fiscal  years 1996 and 1995,
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 used in financing  activities  was $0.3 million,  $0.4 million
and $0.7  million in fiscal  years  1997,  1996 and 1995,  respectively.  During
fiscal years 1997, 1996 and 1995,  Insituform East paid cash dividends  declared
for fiscal years 1996,  1995 and 1994,  respectively.  During  fiscal year 1996,
Capitol Office Solutions paid cash dividends declared at mid-year. During fiscal
year 1995, Capitol Office Solutions paid down its line of credit.

         CERBCO  believes that its principal  operating  subsidiary,  Insituform
East has cash reserves,  an existing  $3,000,000 undrawn bank line of credit and
borrowing potential against unencumbered assets sufficient to meet its cash flow
requirements  for operating funds and capital  expenditures  in the future.  The
parent holding  company,  CERBCO,  does not have a separate bank line of credit,
but has cash and temporary  investments in excess of $18.0 million,  principally
from the redemption of its interests in Capitol Office Solutions, which, pending
longer term  investment,  are believed to be 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 on appeal to the Delaware
Supreme Court.

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,  1997  and  1996,  and the  related  consolidated
statements  of earnings,  stockholders'  equity,  and cash flows for each of the
three years in the period ended June 30, 1997.  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, 1997 and 1996, and the results of their operations and their cash flows
for each of the three years in the period  ended June 30,  1997,  in  conformity
with generally accepted accounting principles.


/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Washington, D.C.
September 22, 1997



<PAGE>


<TABLE>
                                  CERBCO, Inc.
                       CONSOLIDATED STATEMENTS OF EARNINGS


<CAPTION>
                                                         1997           1996           1995
                                                      -----------    -----------    -----------

<S>                                                   <C>            <C>            <C>        
Sales                                                 $26,541,542    $30,470,867    $21,594,313
                                                      -----------    -----------    -----------

Costs and Expenses:
    Cost of sales                                      22,422,831     22,288,437     15,016,598
    Selling, general and administrative expenses        5,751,328      5,631,827      5,048,244
                                                      -----------    -----------    -----------
        Total Costs and Expenses                       28,174,159     27,920,264     20,064,842
                                                      -----------    -----------    -----------

Operating Profit (Loss)                                (1,632,617)     2,550,603      1,529,471
Investment Income                                         258,947        291,173        200,421
Equity in Earnings of MIDSOUTH Partners                         0              0        738,798
Interest Expense                                          (39,871)       (16,799)             0
Other Income - net                                        170,469        296,483        146,571
                                                      -----------    -----------    -----------
Earnings (Loss) Before Non-Owned Interests
    and Income Taxes                                   (1,243,072)     3,121,460      2,615,261
Non-Owned Interest in Pretax Earnings of MIDSOUTH
    Partners                                              196,329        658,822              0
                                                      -----------    -----------    -----------
Earnings (Loss) Before Non-Owned Interests in
    Insituform East, Inc. and Income Taxes             (1,439,401)     2,462,638      2,615,261
Provision (Credit) for Income Taxes                      (874,000)     1,074,000      1,368,000
                                                      -----------    -----------    -----------
Earnings (Loss) Before Non-Owned Interests in
    Insituform East, Inc.                                (565,401)     1,388,638      1,247,261
Non-Owned Interests in Earnings (Loss) of
    Insituform East, Inc.                                (366,005)     1,141,419      1,449,131
                                                      -----------    -----------    -----------
Earnings (Loss) from Continuing Operations               (199,396)       247,219       (201,870)
                                                      -----------    -----------    -----------
Discontinued Operations:
    Earnings from discontinued operations of copier
        machine products and services segment           2,166,894      1,808,072      1,592,909
    Gain on disposal of copier machine products and
        services segment - net of income taxes of
        $6,230,000                                      8,201,812              0              0
    Gain on disposal of defense services segment                0              0        151,349
                                                      -----------    -----------    -----------
        Total Discontinued Operations                  10,368,706      1,808,072      1,744,258
                                                      -----------    -----------    -----------
NET EARNINGS                                          $10,169,310    $ 2,055,291    $ 1,542,388
                                                      ===========    ===========    ===========

Net Earnings per Share of Common Stock:
    Earnings (loss) from continuing operations        $     (0.13)   $     (0.13)   $      0.17
    Earnings from discontinued operations                    1.47           1.23           1.09
    Gain on disposal                                         5.57           0.00           0.10
                                                      -----------    -----------    -----------
        Net Earnings per Share                        $      6.91    $      1.40    $      1.06
                                                      ===========    ===========    ===========
</TABLE>




<PAGE>


<TABLE>
                                  CERBCO, Inc.
                           CONSOLIDATED BALANCE SHEETS

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

ASSETS

Current Assets:
<S>                                                            <C>             <C>         
    Cash and cash equivalents                                  $ 27,081,412    $ 10,234,224
    Accounts receivable                                           6,691,313       8,497,050
    Inventories                                                   1,538,017       3,336,052
    Prepaid and refundable taxes                                    813,872         135,242
    Deferred income taxes                                                 0         133,000
    Prepaid expenses and other                                      251,572         359,631
                                                               ------------    ------------
        Total Current Assets                                     36,376,186      22,695,199
                                                               ------------    ------------
Property, Plant and Equipment:
    Land and improvements                                         2,018,587       2,018,587
    Buildings and improvements                                    5,904,448       6,127,007
    Vehicles and production equipment                            11,406,621       9,867,451
    Vehicles under capital leases                                         0         136,178
    Small tools, radios and machine shop equipment                4,658,431       4,119,870
    Office furniture and equipment                                1,066,526       1,417,449
                                                               ------------    ------------
                                                                 25,054,613      23,686,542
    Less accumulated depreciation and amortization              (13,296,041)    (12,394,724)
                                                               ------------    ------------
        Total Property, Plant and Equipment                      11,758,572      11,291,818
                                                               ------------    ------------

Other Assets:
    Excess of  acquisition  cost  over  value of net  assets
        acquired  - net of accumulated amortization of
        $1,077,844 in 1997 and $1,615,227 in 1996                 2,408,508       4,728,662
    Cash surrender value of life insurance                          779,041         498,974
    Deferred income taxes                                                 0          41,000
    Deposits and other                                              148,837         195,082
                                                               ------------    ------------
        Total Other Assets                                        3,336,386       5,463,718
                                                               ------------    ------------
            Total Assets                                       $ 51,471,144    $ 39,450,735
                                                               ============    ============
</TABLE>




<PAGE>


<TABLE>
                                  CERBCO, Inc.
                           CONSOLIDATED BALANCE SHEETS

<CAPTION>
                                                                         June 30
                                                                       ------------
                                                                   1997            1996
                                                               ------------    ------------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
<S>                                                            <C>             <C>         
    Accounts payable and accrued liabilities                   $  6,006,361    $  3,629,255
    Income taxes payable                                          5,804,724         623,618
    Deferred revenue                                                      0         500,643
    Current portion of long-term debt                                     0           5,104
    Current portion of capital lease obligations                     28,508          50,176
                                                               ------------    ------------
        Total Current Liabilities                                11,839,593       4,808,796
                                                               ------------    ------------

Long-Term Liabilities:
    Long-term debt (less current portion shown above)                     0               0
    Capital lease obligations (less current portion shown above)    139,480         135,844
    Deferred income taxes                                         1,074,000         818,000
    Accrued SERP liability                                          440,950         176,955
                                                               ------------    ------------
    Total Long-Term Liabilities                                   1,654,430       1,130,799
                                                               ------------    ------------
        Total Liabilities                                        13,494,023       5,939,595
                                                               ------------    ------------

Commitments and Contingencies

Non-Owned Interests in Consolidated Subsidiaries                 13,042,117      16,509,371
                                                               ------------    ------------

Stockholders' Equity:
    Common stock, $.10 par value
        Authorized:  3,500,000 shares
        Issued and outstanding: 1,180,601 shares
        (at June 30, 1997)                                          118,060
        Issued and outstanding: 1,157,101 shares
        (at June 30, 1996)                                                          115,710
    Class B Common stock (convertible), $.10 par value
        Authorized:  700,000 shares
        Issued and outstanding: 296,355 shares
        (at June 30, 1997)                                           29,635
        Issued and outstanding: 310,855 shares
        (at June 30, 1996)                                                           31,085
    Additional paid-in capital                                    7,493,378       7,432,071
    Retained earnings                                            17,293,931       9,422,903
                                                               ------------    ------------
        Total Stockholders' Equity                               24,935,004      17,001,769
                                                               ------------    ------------
             Total Liabilities and Stockholders' Equity        $ 51,471,144    $ 39,450,735
                                                               ============    ============
</TABLE>




<PAGE>


<TABLE>
                                  CERBCO, Inc.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                    YEARS ENDED JUNE 30, 1997, 1996 and 1995
   
<CAPTION>
                                      Common Stock            Class B Common Stock       Additional                   Total Stock-
                               -----------------------------------------------------       Paid-in       Retained       holders'
                                  Shares       Amounts       Shares         Amounts        Capital       Earnings        Equity
                               -----------------------------------------------------------------------------------------------------
<S>            <C>               <C>          <C>            <C>            <C>          <C>           <C>            <C>        
BALANCE - JULY 1, 1994           1,146,489    $114,649       310,967        $31,096      $7,401,012    $ 5,898,622    $13,445,379


Net earnings                             0           0             0               0               0      1,542,388      1,542,388
Issuance of stock pursuant to
    exercise of stock options        4,500         450             0               0          11,925              0         12,375
Change in ownership interest
    in subsidiary                        0           0             0               0             117              0            117
                                 ---------     -------       -------      ----------      ----------     ----------     ----------

BALANCE - JUNE 30, 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
                                 =========    ========       =======         =======      ==========    ===========    ===========
</TABLE>





<PAGE>


<TABLE>
                                  CERBCO, Inc.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<CAPTION>
                                                                             Years ended June 30
                                                               --------------------------------------------
                                                                     1997           1996           1995
                                                               -------------  -------------  --------------
Cash Flows from Operating Activities:
<S>                                                            <C>             <C>             <C>          
    Earnings from continuing operations                        $   (199,396)   $    247,219    $   (201,870)
    Earnings from discontinued operations                        10,368,706       1,808,072       1,744,258
                                                               ------------    ------------    ------------
    Net earnings                                                 10,169,310       2,055,291       1,542,388
    Adjustments to reconcile net earnings to net cash
        provided by operations:
        Depreciation and amortization                             2,142,711       1,949,292       1,364,171
        Gain on sale of Capitol Office Solutions included
            in earnings from discontinued operations             (8,201,812)              0               0
        Equity in earnings of unconsolidated affiliate                    0               0        (738,798)
        Amounts attributable to non-owned interests                 913,771       2,704,277       2,245,586
        Deferred income taxes                                       256,000        (102,000)         50,000
        (Increase) decrease in other assets                            (447)        (24,321)         56,441
        Increase in long-term liabilities                           263,995          77,283          67,932
        Changes in operating assets and liabilities:
            (Increase) decrease in accounts receivable             (218,805)        165,729         289,043
            (Increase) decrease in inventories                      (55,063)        (42,324)       (762,694)
            (Increase) decrease in other current assets            (640,025)             59         430,273
            Increase (decrease) in accounts payable and
                accrued expenses                                  1,127,014        (861,126)        (78,792)
            Increase (decrease) in income taxes payable          (1,198,658)        221,140         411,322
            Increase (decrease) in deferred revenue                   4,202          20,785         (15,747)
                                                               ------------    ------------    ------------
    Net Cash Provided by Operating Activities                     4,562,193       6,164,085       4,861,125
                                                               ------------    ------------    ------------

Cash Flows from Investing Activities:
    Capital expenditures                                         (2,629,247)     (2,111,648)     (1,627,540)
    Disposal of equipment - net                                      28,529          28,387          40,133
    Proceeds from sale of Capitol Office Solutions - net         15,652,845               0               0
    Increase in investment in Insituform East                       (85,938)              0               0
    Acquisition of non-owned interest in TRY TEK                          0               0         (18,816)
    Cash distribution from MIDSOUTH Partners to non-owned
        interests                                                  (101,200)       (368,000)              0
    Cash balance of majority-controlled Partnership prior to
        consolidation                                                     0         241,094               0
    Cash distribution from MIDSOUTH Partners                              0               0         123,250
    Redemption of temporary investments - net                             0       1,760,950         531,086
    Increase in cash surrender value of insurance                  (280,067)       (244,914)       (180,857)
    Increase in other assets                                              0         (13,000)              0
                                                               ------------    ------------    ------------
    Net Cash Provided by (Used in) Investing Activities          12,584,922        (707,131)     (1,132,744)
                                                               ------------    ------------    ------------

Cash Flows from Financing Activities:
    Proceeds from revolving lines of credit and long-term
        borrowings                                                  800,000               0       2,150,000
    Principal payments on revolving lines of credit, capital
        lease obligations and long-term borrowings                 (835,260)       (108,738)     (2,760,795)
    Dividends paid                                                 (301,042)       (331,041)       (148,036)
    Proceeds from exercise of stock options                          36,375          19,500          12,375
                                                               ------------    ------------    ------------
    Net Cash Used in Financing Activities                          (299,927)       (420,279)       (746,456)
                                                               ------------    ------------    ------------

Net Increase in Cash and Cash Equivalents                        16,847,188       5,036,675       2,981,925
Cash and Cash Equivalents at Beginning of Year                   10,234,224       5,197,549       2,215,624
                                                               ------------    ------------    ------------
 Cash and Cash Equivalents at End of Year                      $ 27,081,412    $ 10,234,224    $  5,197,549
                                                               ============    ============    ============

Supplemental disclosure of cash flow information:
    Interest paid                                              $     39,871    $     27,529    $     28,290
                                                               ============    ============    ============
    Income taxes paid                                          $    313,854    $  3,076,269    $  2,173,715
                                                               ============    ============    ============

Supplemental disclosure of non-cash investing and
    financing activities:
    Additions to capital leases                                $     58,543    $    133,088    $          0
                                                               ============    ============    ============
</TABLE>

<PAGE>




                                  CERBCO, Inc.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    YEARS ENDED JUNE 30, 1997, 1996 AND 1995

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,  and  previously  reported  statements  of
earnings  have been  restated  to reflect  the  operating  results of Capitol as
discontinued  operations  (see  Note  6:  Discontinued  Operations).  Previously
reported balance sheets have not been restated.

         All  significant  intercompany  balances  and  transactions  have  been
eliminated in consolidation..

Business Operations

         As of  June  30,  1997,  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.  Prior to
June 30, 1997, CERBCO had a second principal subsidiary,  Capitol,  which was 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.

         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 or  market.  Cost  for
pipeline  rehabilitation  materials is  determined  by the  first-in,  first-out
method.

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  $984,000,  $1,022,000 and $789,000 in fiscal years 1997, 1996 and
1995, 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, 1997.

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
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 5: Investment in MIDSOUTH Partners).

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

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

         Accounts receivable consist of:
                                                          1997          1996
                                                       -----------  -----------

         Due from municipal and commercial customers   $ 6,479,230  $ 8,113,075
         Miscellaneous                                     212,083      426,831
                                                       -----------  -----------
                                                         6,691,313    8,539,906
         Less: Allowance for doubtful accounts                   0      (42,856)
                                                       -----------  -----------
                                                       $ 6,691,313  $ 8,497,050
                                                       ===========  ===========

3.       Inventories

         Inventories consist of:
                                                          1997         1996
                                                       ----------   ----------

         Pipeline rehabilitation materials             $1,538,017   $1,159,532
         Copier and facsimile equipment                         0    1,662,375
         Copier and facsimile supplies                          0      182,475
         Copier and facsimile parts                             0      331,670
                                                       ----------   ----------
                                                       $1,538,017   $3,336,052
                                                       ==========   ==========

4.       Equity in Insituform East

         At  June  30,  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 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 1997,  1996 or 1995. If all the
options and warrants outstanding at June 30, 1997 were exercised,  the resulting
percentages of CERBCO's  equity  ownership and total voting power would be 29.7%
and 54.7%, 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 1997, 1996 or
1995.

5.       Investment in MIDSOUTH Partners

         CERBCO's consolidated financial statements as of June 30, 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, 1997 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.  The seven-member  Partnership  Management Committee
consisted  of  four  Insitu,   Inc.   representatives,   two  E-Midsouth,   Inc.
representatives and one Insituform  Southwest,  Inc.  representative at June 30,
1997.  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 an 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 following is condensed  financial  information of MIDSOUTH Partners
at June 30, 1997,  1996 and 1995,  and for each of the three years in the period
ended June 30, 1997:

                                             1997         1996         1995
                                          ----------   ----------   ----------

Cash                                      $  817,144   $  678,176   $  241,094
Accounts receivable                        2,143,197    2,193,636    2,249,690
Inventories                                  514,502      445,210      431,738
Property, plant and equipment, net         1,435,193    1,298,593    1,319,303
Other assets                                 153,492      129,359      185,097
                                          ----------   ----------   ----------
     Total Assets                         $5,063,528   $4,744,974   $4,426,922
                                          ==========   ==========   ==========

Current liabilities                       $  707,593   $  581,228   $  859,489
Long-term obligations under capital lease    139,480      112,732       22,196
                                          ----------   ----------   ----------
     Total Liabilities                    $  847,073   $  693,960   $  881,685
                                          ==========   ==========   ==========

Revenues                                  $7,210,604   $8,395,698   $8,894,746
                                          ==========   ==========   ==========

Gross Profit                              $1,158,926   $2,074,144   $2,739,390
                                          ==========   ==========   ==========

Partnership Earnings                      $  341,441   $1,145,777   $1,738,347
                                          ==========   ==========   ==========

6.       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 year ended June 30, 1997 are shown
separately in the  accompanying  consolidated  statement of earnings as earnings
from discontinued  operations.  The consolidated  statements of earnings for the
fiscal  years  ended  June 30,  1996 and 1995  have been  restated  to also show
separately  CERBCO's  shares of Capitol's  operating  results.  Capitol's  sales
revenues of $23,552,754,  $20,209,196 and $17,548,471 for the fiscal years ended
June 30,  1997,  1996 and 1995,  respectively,  are not included in sales in the
accompanying consolidated statements of earnings.

         On March 31, 1991, the Company adopted a formal plan to discontinue the
operations  of its  defense  contract  services  segment  conducted  through its
wholly-owned subsidiary, CERBERONICS, Inc. ("CERBERONICS").  The segment did not
operate  subsequent  to June 30,  1991.  During  fiscal  year 1995,  the Company
obtained final payment from the Federal  government on five contracts  completed
by  CERBERONICS on or before June 30, 1991.  These  payments  resulted in a gain
from  discontinued  operations  of  $151,349  for the fiscal year ended June 30,
1995.  There are no material open items  remaining  that pertain to other former
contracts of CERBERONICS.

7.       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
$263,995, $77,784 and $67,932 for the fiscal years ended June 30, 1997, 1996 and
1995, 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 $779,040  and $498,974 at
June 30, 1997 and 1996, respectively. This trust is subject to the claims of the
Company's creditors in the event of bankruptcy or insolvency.

8.       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, 1997, 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  $1,000,000  for  operating  purposes from CERBCO at
interest  rates not less than it would pay to its  respective  bank. At June 30,
1997, Insituform East had no amounts outstanding under this agreement.

9.       Accounts Payable and Accrued Liabilities

         Accounts payable and accrued liabilities consist of:

                                                          1997         1996
                                                       ----------   ----------

         Accounts payable                              $1,655,097   $1,075,893
         Accrued compensation and related expenses      1,876,988    2,302,320
         Dividends payable                              2,474,276      251,042
                                                       ----------   ----------
                                                       $6,006,361   $3,629,255
                                                       ==========   ==========

10.      Long-Term Debt

         Long-term debt consists of:
                                                                       1996
                                                                       ----
         Installment note payable due in full in September 1996,
           with equal monthly payments of $1,734
           including interest at 11.5%                              $ 5,104

         Less:  Current portion                                      (5,104)
                                                                    -------
                                                                    $     0
                                                                    =======

11.      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  $500,000,  $361,000 and
$377,000  for the years ended June 30,  1997,  1996 and 1995,  respectively.  In
addition,   the  Company  obtains  certain  mobile  production  equipment  under
long-term  capital leases.  The net book value of equipment under capital leases
was  approximately  $150,000  and  $137,000  as  of  June  30,  1997  and  1996,
respectively.  Minimum future rental  commitments  under  long-term  capital and
operating leases in effect at June 30, 1997, are as follows:


          Years Ending                                    Capital    Operating
            June 30                                       Leases       Leases

             1998                                      $  61,080    $  81,292
             1999                                         61,080       41,669
             2000                                         61,080        3,472
             2001                                         39,000            0
             2002                                         34,125            0
             2003 and thereafter                           6,500            0
                                                       ---------    ---------
             Total Minimum Payments                      262,865    $ 126,433
                                                                    =========
             Less:  Interest                             (94,877)
                                                       ---------
             Present Value of Minimum Payments         $ 167,988
                                                       =========

         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
$1,428,000,  $1,847,000 and  $1,354,000 for the years ended June 30, 1997,  1996
and 1995, 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 has operated  under supply  agreements  with ITI committing
the Company to purchase 90% of its Insitutube(R) material requirements from ITI.
These agreements are renewable annually unless notice of termination is provided
by either party six months prior to the end of the current renewal  period.  The
MIDSOUTH  Partners supply  agreement  presently  extends through April 30, 1998.
After providing six months advance notice,  East terminated its supply agreement
with ITI effective May 1, 1997.  However,  during the three years ended June 30,
1997, the Company purchased substantially all of its Insitutube from ITI.

12.      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.

         In August  1990,  a complaint  against the Company and the Eriksons was
filed in the  Delaware  Court of  Chancery  (the  "Delaware  Complaint")  by two
stockholders of the Company,  on their own behalf and  derivatively on behalf of
the Company,  which sought (i) damages  against the  individual  defendants  for
alleged  breach  of  fiduciary  duties in an  amount  not less than  $6,000,000,
together with interest  thereon from March 12, 1990; (ii) to permanently  enjoin
the Eriksons from  completing any  transaction  with ITI similar in substance to
the Proposed  Transaction;  (iii) a  declaration  of the  invalidity of the 1982
authorization  for and  issuance of the  Company's  Class B Common  Stock,  and,
therefore,  of the  entitlement  of holders of Class B Common Stock to elect any
members of the Company's Board; (iv) a declaration of the invalidity of the 1990
election of the Company's directors and the issuance of new proxy materials that
fully and fairly disclose all facts which  plaintiffs  claim are material to the
election of such  directors;  (v) an award to the  plaintiffs  of their costs of
bringing the action,  including reasonable attorneys' fees; and (vi) an award to
plaintiffs of such further relief as the Court of Chancery  deemed  appropriate.
In addition,  the Complaint  asserted a claim against the individual  defendants
alleging that the Company had forgone a corporate  opportunity  by the continued
failure to pursue a transaction with ITI.

         All but one of the plaintiffs' claims subsequently were dismissed.  The
claim remaining in the litigation was  plaintiffs'  allegation that the Proposed
Transaction  was an  opportunity  belonging to the Company and that the Eriksons
breached  their duty to the  Company  by  precluding  the  Company  from  taking
advantage of that opportunity so that the Eriksons might have a chance to do so.
Trial in this matter was held beginning February 21, 1995.

         Following  a trial,  Chancellor  Allen  issued an  opinion on August 9,
1995, in which he ruled in favor of the  Eriksons.  The court  determined  that,
while the Eriksons failed in certain  limited  respects to meet the standards of
loyalty  required of them under  Delaware  corporate law, that  "deviation  from
proper corporate  practice"  neither caused injury to CERBCO nor resulted in any
substantial  gain to the  Eriksons.  The Court also found that the  Eriksons met
their burden of showing that their conduct was "wholly fair to the corporation."
The Court  denied in toto the  plaintiffs'  request for legal fees and  expenses
totaling  $1,513,499.  The Court  concluded  that the  litigation  conferred  no
substantial  benefit on  CERBCO,  so that it would be  inappropriate  to require
CERBCO and its stockholders to share the costs that plaintiffs incurred.

         The plaintiffs  appealed to the Delaware  Supreme  Court.  On April 10,
1996, the Supreme Court ruled that "[t]he  Eriksons were entitled to profit from
their  control  premium  and to that end  compete  with  CERBCO  but only  after
informing CERBCO of the  opportunity"  for a transaction with ITI.  Although the
Eriksons were deemed to have breached  their duty of loyalty,  the Supreme Court
affirmed  the  finding  of the  Court  of  Chancery  that  there  was no  viable
transaction  that could take place between  CERBCO and ITI,  given the Eriksons'
ability  to veto such a  transaction  as  controlling  shareholders  of  CERBCO.
Therefore,  no damages could be awarded for the loss of a transaction that had a
"zero probability of occurring due to the lawful exercise of statutory  rights."
The Supreme Court did rule, however, that the Eriksons were liable to CERBCO for
$75,000  they  received  from  ITI for  extending  the  Letter  of  Intent  (the
"Extension  Fee"),  and had to  reimburse  the  expenses,  if any,  that  CERBCO
"incurred to accommodate the Eriksons'  pursuit of their own interests" prior to
the  abandonment  of the  proposed  transaction  with  ITI.  The  Supreme  Court
concluded that the Chancery Court's opinion was therefore  "affirmed in part and
reversed in part,  and this  matter is  remanded  to the Court of  Chancery  for
further  determination of damages.  Once those damages are fixed, the [Chancery]
court should  proceed to examine anew any petition for counsel fees on behalf of
the  plaintiffs." The Eriksons filed motions for reargument and for rehearing en
banc, which the Supreme Court denied.

         The plaintiffs  filed a motion for  post-remand  relief in the Court of
Chancery,  seeking (i) a "disgorgement  of benefits"  allegedly  received by the
Eriksons in the aggregate amount of $451,000;  (ii) "damages attributable to the
Eriksons'  breach of  fiduciary  duty" in an  aggregate  amount  of almost  $1.4
million;  and (iii) certain  injunctive relief against the Eriksons with respect
to "any further  negotiations  with ITI  respecting  ITI's interest in obtaining
control of [Insituform East]."

         On  September  13, 1996,  the Court of Chancery  issued its decision on
remand.  The Court  ruled that the  Eriksons  were  obligated  to pay CERBCO the
principal amount of $188,200, plus interest, representing legal fees paid to the
law firm of Morgan,  Lewis & Bockius as counsel for the special committee of the
CERBCO Board of Directors  that was  appointed  in 1990 in  connection  with the
Proposed  Transaction.  The Court of Chancery  also ruled that the Eriksons were
obligated to pay CERBCO interest on the $75,000  Extension Fee the Supreme Court
had ordered the Eriksons to pay to CERBCO.  All of the plaintiffs'  other claims
were  rejected,  except  that the  Court  ruled it was  premature  to  determine
plaintiffs'  claim that the Eriksons  were  obligated  to  reimburse  CERBCO for
advances to them of the defense costs of the litigation. On October 2, 1996, the
plaintiffs  filed a  petition  seeking  attorneys'  fees and  expenses  totaling
$1,663,266. On February 6, 1997, the Court of Chancery entered a final order and
judgment  (revised on February  14,  1997)  encompassing  the above  rulings and
awarding the plaintiffs  attorneys' fees of $143,364.23 to be paid by CERBCO and
court  costs  of  $9,359.20  to be paid by the  Eriksons.  The  plaintiffs,  the
Eriksons,  and CERBCO have each appealed  those rulings to the Delaware  Supreme
Court where the appeals were  briefed and,  subsequently,  oral  arguments  were
presented on September 9, 1997.  The Delaware  Supreme  Court  currently has the
appeals under consideration.

         As  previously  reported by the  Company,  in January  1993, a separate
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").  The
plaintiffs are the same two stockholders,  and a former director of the Company,
and have  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. The plaintiffs also claim that Rogers & Wells
committed  malpractice by allegedly making  misrepresentations  to the Company's
Board and  allegedly  failing  to  properly  inform  the  Company's  Board.  The
plaintiffs  claim 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 seeks 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.

         Motions to  dismiss  this case by the  Company  and Rogers & Wells were
denied,  but a stay in 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 to the Delaware Supreme Court and, subsequently,  the stay
was continued at least until such time as the Delaware  Court of Chancery  ruled
upon the plaintiffs' pending motion for post-remand relief. As of this date, the
District of Columbia action remains stayed.

         As  previously  reported by the Company,  on October 23, 1996,  Inliner
U.S.A. and CAT Contracting, Inc. (collectively, "plaintiffs") filed an antitrust
suit  against  Insituform   Technologies,   Inc.  ("ITI")  and  Insituform  East
(collectively,  "defendants")  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 are seeking from the defendants an unspecified amount
of compensatory damages, treble damages and attorneys' fees, as well as punitive
damages of $50 million.

         Insituform  East  believes it has strong  defenses to and is vigorously
contesting  the suit.  Insituform  East filed two  motions to dismiss the action
which were pending at June 30, 1997. On August 25, 1997, the Court denied one of
the motions to dismiss,  granted in part and denied in part the second motion to
dismiss and ordered  plaintiffs to file an amended  complaint.  As a result, the
plaintiffs  have  until  September  29,  1997 to amend  certain  claims  or face
dismissal  outright.  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.

         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.  CERBCO 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.

13.      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 1997,  14,500 shares of
Class B Common Stock were  converted  to Common  Stock.  In 1996,  112 shares of
Class B Common Stock were converted to Common Stock. In 1995, no shares 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.

14.      Income Taxes

         The provision for taxes is composed of the following (in thousands):

                                      1997       1996       1995
                                   -------    -------    -------
Current:
   Federal                         $ 5,177    $ 1,082    $ 1,135
   State                               (77)       159        167
                                   -------    -------    -------
     Total current                   5,100      1,241      1,302
                                   -------    -------    -------
Deferred:
   Federal                             223       (146)        58
   State                                33        (21)         8
                                   -------    -------    -------
     Total deferred                    256       (167)        66
                                   -------    -------    -------
       Total provision for taxes   $ 5,356    $ 1,074    $ 1,368
                                   =======    =======    =======

         The  provision 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):
<TABLE>

<CAPTION>
                                                        1997              1996            1995
                                                 ---------------   --------------  --------------
                                                 Amounts      %    Amounts     %   Amounts     %

<S>                                              <C>       <C>     <C>       <C>   <C>       <C> 
Taxes computed at statutory rate                 $ 5,154   34.0    $ 1,061   34.0  $   890   34.0
Increase (decrease) in taxes resulting from:
   State and local income taxes, net of Federal
     income tax benefit (expense)                    (59)  (0.6)       103    3.3      146    5.6
   Non-taxable income                                  0    0.0          0    0.0       (1)   0.0
   Nondeductible items                                17                22    0.7       13    0.5
   Effect of NOL                                       0    0.0        112    3.6      299   11.4
   Federal taxes on partnership income
     attributable to  non-owned interests              0    0.0       (224)  (7.2)       0    0.0
   Other                                             244    1.5          0    0.0       21    0.8
                                                 -------   ----    -------   ----  -------   ----
     Total provision for taxes                   $ 5,356   34.9%   $ 1,074   34.4  $ 1,368   52.3
                                                 =======   ====    =======   ====  =======   ====
</TABLE>

         The  components  of the  deferred  tax  provisions  are as follows  (in
thousands):

                                1997     1996     1995
                               -----    -----    -----

Depreciation                   $  80    $  52    $  16
MIDSOUTH Partners operations     (10)     (76)     126
Deferred compensation            (12)       8       33
Deferred revenue                 201     (155)    (107)
Other                             (3)       4       (2)
                               -----    -----    -----
  Total deferred taxes         $ 256    $(167)   $  66
                               =====    =====    =====


         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):

                                  1997       1996
                               -------    -------

Depreciation                   $ 1,101    $ 1,021
MIDSOUTH Partners operations        75         85
Deferred compensation              (27)       (15)
Deferred revenue                   (61)      (262)
NOL carryforwards                    0       (240)
Valuation allowance                  0        240
Other                              (14)       (11)
                               -------    -------
                               $ 1,074    $   818
                               =======    =======

15.      Earnings Per Share

         Earnings  per share data have been  computed  based  upon the  weighted
average number of common shares  outstanding and common share equivalents during
each period. The following numbers of shares have been used in the computations:

                 1997        1996        1995
              ---------   ---------   ---------

              1,471,178   1,465,169   1,459,848
              =========   =========   =========

         Statement of Financial Accounting Standards No. 128, Earnings Per Share
("SFAS  No.  128")  was  issued in  February  1997 by the  Financial  Accounting
Standards Board. SFAS No. 128 is effective for periods ending after December 15,
1997 and early adoption is not permitted.  SFAS No. 128 will require the Company
to compute and present  basic and diluted  earnings  per share.  Had the Company
computed net earnings per share in accordance  with SFAS No. 128, both basic and
diluted  earnings  per  share  would  have been the same as  earnings  per share
presented on the Company's statements of earnings.

16.      Retirement Benefit Plans

         Employees of  Insituform  East 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,  1997.
Contributions to the plan are determined  annually by the respective  companies.
Contributions to Insituform East's plan were $212,409,  $198,844 and $183,489 in
fiscal years 1997,  1996 and 1995,  respectively.  The  contribution to MIDSOUTH
Partners'  plan  was  $51,373  and  $64,878  in  fiscal  years  1997  and  1996,
respectively.

17.      Stock Option Plans

         CERBCO granted options under the Directors'  Stock Option Plan on 3,000
shares of  CERBCO's  Common  Stock on  December  15,  1995 and  6,000  shares of
CERBCO's  Common Stock on December 16, 1994,  at the option prices of $6.375 and
$5.125,  respectively,  per share, exercisable within three years of the date of
the grant. The following is a summary of transactions:

                                          Shares under Option
                                      1997       1996       1995
                                    ------     ------     ------
Outstanding, beginning of year      15,000     18,000     18,000
Granted during the year                  0      3,000      6,000
Exercised during the year           (9,000)    (6,000)    (4,500)
Expired/canceled during the year         0          0     (1,500)
                                   -------    -------    -------
Outstanding, end of year             6,000     15,000     18,000
                                   =======    =======    =======

         At June 30, 1997, no further grants were anticipated.

         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.  As such, 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.

         Summary  information  for stock options  granted  during the year ended
June 30, 1996 is as follows:

                                                Year ended June 30, 1996

         Date of grant                                    12/15/95
         Option shares granted                              3,000
         Per share exercise price                           $6.38
         Fair value per option share                        $4.63

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

                                                  Year ended June 30, 1996

         Risk-free interest rate                            5.30%
         Expected option term                              3 years
         Expected stock price volatility                    207%
         Expected dividend yield                             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 net earnings per share for the
year ended June 30, 1996 would be as follows:

                                                       Year ended June 30, 1996
                                                      As reported      Pro forma

         Earnings from Continuing Operations          $   247,219    $   238,046
         Earnings from Discontinued Operations          1,808,072      1,808,072
                                                      -----------    -----------
         Net Earnings                                  $2,055,291     $2,046,118
                                                       ==========     ==========

         Earnings per Share from Continuing Operations      $0.17          $0.16
         Earnings per Share from Discontinued Operations     1.23           1.23
                                                           ------         ------
         Net Earnings per Share                             $1.40          $1.39
                                                            =====          =====


18.      Unaudited Quarterly Financial Data

         The following table provides summarized quarterly results of operations
for fiscal years 1997 and 1996 (in thousands, except per share information):

<TABLE>
<CAPTION>
                                                              Three Months Ended
1997                                        September 30   December 31    March 31    June 30
----                                        ------------   -----------    --------    -------

<S>                                            <C>            <C>          <C>         <C>   
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 per share:
  Continuing operations                         (0.16)         (0.06)       (0.37)       0.46
  Net earnings                                   0.18           0.33         0.06        6.34

                                                              Three Months Ended
1996                                         September 30   December 31    March 31    June 30
----                                         ------------   -----------    --------    -------

Sales                                          $8,470         $8,370       $6,898      $6,732
Gross profit                                    2,625          2,556        1,555       1,447
Earnings (loss) from continuing operations        144             54          (19)         67
Net earnings                                      591            532          383         549
Net earnings (loss) per share:
  Continuing operations                          0.10           0.04        (0.01)       0.04
  Net earnings                                   0.40           0.37         0.26        0.37
</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        52    December 1974(1) President & Treasurer
George Wm. Erikson       55    November 1975(1) Chairman & General Counsel
Webb C. Hayes, IV        49    April 1991       None
Paul C. Kincheloe, Jr.   56    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)

Name                Age Position(s)                            Held Since

Robert W. Erikson   52  President & Treasurer                  February 1988
George Wm. Erikson  55  Chairman & General Counsel             February 1988
Robert F. Hartman   50  Vice President, Secretary & Controller February 1988 (1)
(Robert W. Erikson) 52  President (Insituform East)            September 1991
(Armen A. Manoogian)54  President (Capitol Office Solutions)   October 1987

(1)  Elected as Secretary in June 1991.

         Each officer  holds office until his successor is elected and qualified
or until his earlier resignation or removal.  Capitol Office Solutions was not a
subsidiary  subsequent  to June  30,  1997,  and thus  Mr.  Manoogian  is not an
executive officer of CERBCO after such date.

(c)      Identification of Certain Significant Employees

         Not applicable.

(d)      Family Relationships

         Mr. Robert Erikson,  Director,  President and Treasurer, 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 was elected  Secretary  of CERBCO,  Insituform  East and
Capitol Office  Solutions.  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 Executive Vice President of George
Mason Bankshares,  Inc. and was 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.  He holds a B.A. degree from
the  University  of North  Carolina  and an  executive  management  degree  from
Columbia University School of Business.

                  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.  He
has been a practicing  attorney and  businessman  in Fairfax  County,  Virginia,
since 1967. He previously  served on the Board of Herndon Federal Savings & Loan
and then First Federal Savings & Loan of Alexandria.  He 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. Mr. Kincheloe serves as a Director
of Insituform East and was a Director of Capitol Office Solutions until June 30,
1997.

         (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

           CERBCO is a parent  holding  company  with  controlling  interests in
Insituform  East ("IEI")  and,  until June 30, 1997,  Capitol  Office  Solutions
("COS").   CERBCO  officers   participate   also  in  the  management  of  these
subsidiaries.   The  following  table  sets  forth  information  concerning  the
compensation paid to each of the named executive  officers of the Company and/or
its subsidiaries for the fiscal years ended June 30, 1997, 1996 and 1995:
<PAGE>

<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          ($)       ($)        ($) (2)       ($)       ($)       (#)      ($)       ($)
-------------------------------------------------------------------------------------------------------------------
<S>                  <C>  <C>    <C>         <C>          <C>          <C>        <C>      <C>     <C>      <C>        <C>
Robert W. Erikson    1997 CERBCO $ 11,053    $      0     $       0    $ 11,053   $    0        0   $    0   $      0
Director, President       IEI     208,649           0             0     208,649        0   15,000        0     11,247  (3)
 & Treasurer (1)          COS      65,924      23,095             0      89,019        0        0        0          0
                                ---------   ---------    ----------  ----------  ------- -------- -------- ----------
                                 $285,626    $ 23,095     $       0    $308,721   $    0        0   $    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
                                =========   =========    ==========  ==========  ======= ======== ======== ==========

                     1995 CERBCO $ 10,412    $      0     $       0    $ 10,412   $    0    1,500   $    0   $      0
                          IEI     196,555      31,457             0     228,012        0   15,000        0     10,118
                          COS      61,063      28,267             0      89,330        0        0        0      1,549
                                ---------   ---------    ----------  ----------  ------- -------- -------- ----------
                                 $268,030    $ 59,724     $       0    $327,754   $    0   16,500  $     0   $ 11,667
                                =========   =========    ==========  ==========  ======= ======== ======== ==========

George Wm. Erikson   1997 CERBCO $ 11,053    $      0     $       0    $ 11,053   $    0        0   $    0   $      0
Director, Chairman        IEI     208,649           0             0     208,649        0   15,000        0     11,613 (3)
 & General Counsel (1)    COS      65,924      23,095             0      89,019        0        0        0          0
                                ---------   ---------    ----------  ----------  ------- -------- -------- ----------
                                 $285,626    $ 23,095     $       0    $308,721   $    0        0   $    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
                                =========   =========    ==========  ==========  ======= ======== ======== ==========

                     1995 CERBCO $ 10,412    $      0     $       0    $ 10,412   $    0    1,500   $    0   $      0
                          IEI     196,555      31,457             0     228,012        0   15,000        0     12,033
                          COS      61,063      28,267             0      89,330        0        0        0      1,549
                                ---------   ---------    ----------  ----------  ------- -------- -------- ----------
                                 $268,030    $ 59,724     $       0    $327,754   $    0   16,500  $     0   $ 13,582
                                =========   =========    ==========  ==========  ======= ======== ======== ==========

Robert F. Hartman    1997 CERBCO $ 11,053    $      0     $       0    $ 11,053   $    0        0   $    0   $      0
Vice President,           IEI      88,808           0             0      88,808        0   15,000        0      8,010 (3)
Secretary & Controller          ---------   ---------    ----------  ----------  ------- -------- -------- ----------
                                 $ 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
                                =========   =========    ==========  ==========  ======= ======== ======== ==========

                     1995 CERBCO $ 10,412    $      0     $       0    $ 10,412   $    0        0   $    0   $      0
                          IEI      83,664      13,390             0      97,054        0        0        0     5,754
                                ---------   ---------    ----------  ----------  ------- -------- -------- ----------
                                 $ 94,076    $ 13,390     $       0    $107,466   $    0        0  $     0   $ 5,754
                                =========   =========    ==========  ==========  ======= ======== ======== =========

Armen A. Manoogian   1997 COS    $247,444    $ 86,605     $   9,173    $343,222   $    0        0  $     0   $ 7,500 (5)
[Subsidiary                     =========   =========    ==========  ==========  ======= ======== ======== =========
 President, COS](4)  1996 COS    $235,660    $ 85,545     $   8,736    $329,941   $    0        0  $     0   $ 7,500
                                =========   =========    ==========  ==========  ======= ======== ======== =========
                     1995 COS    $224,955    $105,962     $   8,400    $339,317   $    0        0  $     0   $ 6,129
                                =========   =========    ==========  ==========  ======= ======== ======== =========

(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. The amounts reported represent payment for hours of leave in lieu of time
off.
(3) Insituform East contributions to the IEI Advantage Plan.
(4) Capitol's Chief Executive Officer Committee (the "CEOC"),  consisting of the
Chairman,  the  Vice  Chairman  and the  President,  exercised  the  duties  and
responsibilities of the Chief Executive Officer of Capitol. Mr. Armen Manoogian,
age 54, was  President  and a member of the CEOC of Capitol from October 1987 to
June  30,  1997.  Prior  to  joining  Capitol,  he  served  as  President  of  a
publicly-traded East Coast computer retailing organization. Mr. Manoogian served
on the Company's Board of Directors from October 1990 to April 1993.
(5) Capitol contributions to the COS Profit Sharing Plan.
</TABLE>

<PAGE>


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
Supplemental  Retirement  Plan").  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 Supplemental Retirement Plan 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   Supplemental
Retirement Plan to various rules under the Employee  Retirement  Income Security
Act of 1974,  CERBCO has  established  an irrevocable  trust (the "CERBCO,  Inc.
Supplemental  Executive  Retirement Trust Agreement").  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  Supplemental  Retirement  Plan 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  Supplemental
Retirement  Plan  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.

         The following  table sets forth  information  concerning  vested annual
benefits  as of  June  30,  1997  for  the  executives  listed  in  the  Summary
Compensation Table covered by the CERBCO Supplemental Retirement Plan:
<TABLE>
<CAPTION>

                                           Years of Credited      Current Annual       Vested          Vested
Name                   Years of Service   Service Under Plan   Covered Compensation  Percentage    Annual Benefit
----                   ----------------   ------------------   --------------------  ----------    --------------

<S>                            <C>                 <C>          <C>     <C>           <C>          <C>      
Robert W. Erikson              24                  5            $   270 608           27.78%       $  37,584
George Wm. Erikson             21                  5            $   270 608           33.33%       $  45,101
Robert F. Hartman              16                  5            $    97,419           25.00%       $   6,089
</TABLE>


CERBCO 1986 Directors' Stock Option Plan

         CERBERONICS  adopted,  with  stockholder  approval  at the 1986  Annual
Meeting of Stockholders,  the  CERBERONICS,  Inc. 1986 Board of Directors' Stock
Option Plan (now called the "CERBCO Directors'  Plan").  This plan automatically
terminated on December 19, 1996,  which did not affect options  already  granted
and still outstanding.  The purpose of the CERBCO Directors' Plan was to promote
the growth and general  prosperity of CERBCO by permitting the Company,  through
the granting of options to purchase  shares of CERBCO's 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 75,000  shares of Common  Stock were made subject to
options under the CERBCO Directors' Plan. Options may be granted to directors of
CERBCO  or any  of its  subsidiaries.  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 three years from the date of grant.

         The CERBCO Board of Directors  administers  the CERBCO  Directors' Plan
and has exclusive authority to interpret,  construe and implement the provisions
of the CERBCO Directors' 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
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 CERBCO
Directors' Plan as it deems necessary to carry out the purposes thereof.

         The terms of the CERBCO Directors' Plan contemplated that each director
of the Company be granted an option to purchase  1,500  shares of the  Company's
Common  Stock each year for five  years,  for a total of 7,500  shares of Common
Stock per director,  beginning in fiscal year 1986. On June 28, 1986, options on
1,500  shares  of  Common  Stock  were  granted  to each of the six  CERBERONICS
directors then in office. No additional  options were granted until December 19,
1991. On December 19, 1991, the CERBCO Directors' Plan was amended by the CERBCO
Board of  Directors  to ensure  its  original  purpose  by  granting  options to
purchase  1,500  shares of Common  Stock to CERBCO  directors in fiscal 1992 and
subsequent  years,  so that  each  director  serving  on the date of grant  will
receive  options for a total  amount of 7,500  shares  over a five year  period.
Messrs.  Robert  Erikson and George  Erikson,  being the only current  directors
having  received  options in 1986,  each received  options for a total amount of
6,000 shares over a four year period, from 1992 through 1995. Messrs.  Hayes and
Kincheloe  each  received  options for a total of 7,500  shares over a five year
period,  from 1992 through  1996,  and thus each  current  director has received
options  for a total  of  7,500  shares.  Options  on a total  of  9,000  shares
available  under this plan were  exercised by  directors  of the Company  during
fiscal year 1997.  Options on a total of 6,000 shares were  outstanding  at June
30, 1997. These options were exercised on July 10, 1997.

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.

         During fiscal year 1997, Insituform East contributed an amount equal to
4.0% of the total compensation paid to all participating employees.
<TABLE>
<CAPTION>

Names and Capacities in Which                Contributions for               Vested Percent
Cash Contributions Were Made               Fiscal Year 1997 (1)               as of 6/30/97
----------------------------               --------------------               -------------

<S>                                               <C>                             <C> 
George Wm. Erikson, Chairman                      $11,247                         100%
Robert W. Erikson, President                      $11,247                         100%
Robert F. Hartman, Vice
  President - Administration & Secretary          $ 6,351                          80%
Executive Officers of Insituform East as a Group,
  (6 persons, including those named above)        $57,128                          N/A

(1) Total  contributions  to employees  of $276,123  include  Insituform  East's
contribution of $212,409 and reallocated  amounts totaling $63,714  forfeited by
former participants who terminated employment with Insituform East during fiscal
year 1997.
</TABLE>

         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.  During fiscal year 1997, 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.
<TABLE>
<CAPTION>

Names and Capacities in Which                Contributions for               Vested Percent
Cash Contributions Were Made                 Fiscal Year 1997                 as of 6/30/97
----------------------------                 ----------------                 -------------

<S>                                                <C>                            <C> 
George Wm. Erikson, Chairman                       $   366                        100%
Robert W. Erikson, President                       $     0                        100%
Robert F. Hartman, Vice
  President - Administration & Secretary            $1,659                        100%
Executive Officers of Insituform East as a Group,
  (6 persons, including those named above)          $6,350                         N/A
</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,  i.e., 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) over a
five  year  period.  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  13,  1996,  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 $2.625.  No options
available  under this plan were exercised by directors of Insituform East during
fiscal year 1997.

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
1997.  Under the terms of this plan,  up to 120,000  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 1997 under the CERBCO  Directors'
Plan or the IEI 1989 Directors' Plan. The following table sets forth information
concerning options granted to each of the named executive officers during fiscal
year 1997, under 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
<S>                             <C>              <C>             <C>          <C>           <C>          <C>    
  IEI 1994 Directors' Plan      15,000           14%             $2.625       12/13/01      $10,875      $24,045

George Wm. Erikson
  IEI 1994 Directors' Plan      15,000           14%             $2.625       12/13/01      $10,875      $24,045
</TABLE>

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

         No option or Stock Appreciation Right grants made under the IEI 1989 or
1994  Directors'  Plans to any of the named  executive  officers were  exercised
during fiscal year 1997.  During fiscal year 1997,  Messrs.  Robert  Erikson and
George Erikson each exercised  options to purchase 3,000 shares of CERBCO Common
Stock granted under the CERBCO  Directors'  Plan. 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, 1997:

<TABLE>

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

<CAPTION>
                                                                                             Value of
                                                           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
<S>                            <C>        <C>           <C>               <C>         <C>                 <C>
  CERBCO Directors' Plan       3,000      $  12,563          0            0           $       0           $0
  IEI 1994 Directors' Plan         0      $       0     45,000            0           $       0           $0
  IEI 1989 Directors' Plan         0      $       0     30,000            0           $     938           $0

George Wm. Erikson
  CERBCO Directors' Plan       3,000      $  12,563          0            0           $       0           $0
  IEI 1994 Directors' Plan         0      $       0     45,000            0           $       0           $0
  IEI 1989 Directors' Plan         0      $       0     30,000            0           $     938           $0
</TABLE>

REPRICING OF OPTIONS/SARs

         Neither the Company nor its  subsidiaries  have adjusted or amended the
exercise price of stock options or SARs  previously  awarded to any of the named
executive officers during fiscal year 1997.

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

         Until December 31, 1996, each  non-officer  director of the Company was
paid an annual fee of $3,000, and attendance fees of $500 for Board of Directors
meetings where he attended in person and $100 if he  participated  by telephone.
The annual fee was increased to $5,000,  and attendance fees to $1,000 and $200,
respectively,  effective as of January 1, 1997.  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  Directors' Stock
Option Plan, as described under the section entitled,  "Compensation Pursuant to
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 & Treasurer,  respectively,  participated during
fiscal year 1997 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 and, until June 30, 1997,
Capitol Office  Solutions.  In their capacities as directors of these subsidiary
companies,  they  participated  during fiscal year 1997 in  deliberations of the
respective  subsidiaries'  Boards  of  Directors  concerning  executive  officer
compensation.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

(a)      Security Ownership of Certain Beneficial Owners

         The  following  table  reflects,  as of September  15,  1997,  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:
<TABLE>
<CAPTION>

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

<S>                                                      <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

Koonce Securities, Inc.      Common Stock                230,588  (3)                   19.4%
6550 Rock Spring Dr
Bethesda, MD

(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

         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, 1997, and with respect to all directors
and officers of CERBCO as a group:
<TABLE>

<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)               0                 5.1%
                                 Class B Common Stock         131,750  (1)               0                44.5%
George Wm. Erikson               Common Stock                  59,602  (2)               0                 5.0%
                                 Class B Common Stock         115,814  (2)               0                39.1%
Webb C. Hayes, IV                Common Stock                   4,500                    0                 0.4%
Paul C. Kincheloe, Jr.           Common Stock                   7,500                    0                 0.6%
All Directors and Officers as a
  Group (5 persons including     Common Stock                 132,302                    0                11.1%
  those named above)             Class B Common Stock         247,564                    0                83.6%

(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.
</TABLE>

         The following information is furnished with respect to all directors of
Insituform  East who were the  beneficial  owners of any  shares  of  Insituform
East's  Common Stock and Class B Common Stock as of September 2, 1997,  and with
respect to all directors and officers of Insituform East as a group:
<TABLE>
<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> 
Thomas J. Schaefer             Common Stock                      0                75,000                   1.8%
George Wm. Erikson             Common Stock                 16,500                75,000                   2.2%
Robert W. Erikson              Common Stock                      0                75,000                   1.8%
Jack Massar                    Common Stock                      0                75,000                   1.8%
Webb C. Hayes, IV              Common Stock                      0                45,000                   1.1%
Paul C. Kincheloe, Jr.         Common Stock                      0                45,000                   1.1%
Calvin G. Franklin             Common Stock                      0                45,000                   1.1%

All Directors and
  Officers as a Group          Common Stock                 17,000               435,000                  10.1%
  (11 persons including        Class B Common Stock              0                     0                   0.0%
  those named above)
</TABLE>

(c)      Changes in Control

         There were no changes in control of the  Company  during the year ended
June 30, 1997.  However, in March 1990 George Wm. Erikson and Robert W. Erikson,
the  controlling  stockholders  of the Company,  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") (formerly
Insituform of North American, Inc. or INA) to effect a sale of their controlling
interest in the Company to ITI for $6,000,000 (the "Proposed Transaction").  The
Proposed  Transaction,  had it been  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
Office Solutions and CERBERONICS.  On September 19, 1990,  however,  the Company
issued a press  release  announcing  that the  Eriksons had 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.

         A lawsuit  challenging  the  proposed,  but  unconsummated  transaction
brought by two of the  Company's  stockholders  is described in Part II, Item 8,
"Notes to Consolidated Financial Statements - Note 12:
Contingencies."

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 &
Treasurer (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 12.
Contingencies").

         As of September 16, 1997,  pursuant to such Board  authorizations,  the
Company has advanced and expensed in total  $592,854 to Mr.  George  Erikson and
has advanced and expensed in total $592,854 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, 1997,
  1996 and 1995                                                               17

Consolidated Balance Sheets as of June 30, 1997 and 1996                   18-19

Consolidated Statements of Stockholders' Equity for the Years Ended
  June 30, 1997, 1996 and 1995                                                20

Consolidated Statements of Cash Flows for the Years Ended June 30, 1997,
  1996 and 1995                                                               21

Notes to Consolidated Financial Statements                                 22-32

         (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 Earning
         Information for the Year Ended June 30, 1997; Balance Sheet
         Information and Consolidating Elimination Entries as of
         June 30, 1997, and Related Independent Auditors' Report           48-51

(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, 1997.  However,  subsequent  to fiscal year end, the Company
filed two reports:

         The first  report,  filed on July 3, 1997,  reported  on the  following
items:  Item 2.  Acquisition  or  Disposition  of Assets  and Item 7.  Financial
Statements  and  Exhibits,  which  concerned the  redemption  by Capitol  Office
Solutions of the entire  two-thirds  equity interest in Capitol Office Solutions
held by the Company through its wholly-owned subsidiary, CERBERONICS.

         The second  report,  filed on July 10, 1997,  reported on the following
item: Item 5. Other Events,  which announced  through a press release dated June
30, 1997 that the Company was  declaring a special cash  dividend in  connection
with the transaction reported in the first report.


                                   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 26, 1997.


                                    /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. 26, 1997
President & Treasurer          Principal Executive Officer,
                               Principal Financial Officer



/s/  GEORGE Wm. ERIKSON
George Wm. Erikson             Director,                          Sept. 26, 1997
Chairman & General Counsel     Principal Executive Officer



/s/  ROBERT F. HARTMAN
Robert F. Hartman              Principal Accounting Officer       Sept. 26, 1997
Vice President, Secretary
  & Controller



/s/  WEBB C. HAYES, IV
Webb C. Hayes, IV              Director                           Sept. 26, 1997



/s/  PAUL C. KINCHELOE, JR.
Paul C. Kincheloe, Jr.         Director                           Sept. 26, 1997



                       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,  1997;  Balance  Sheet
                Information  and  Consolidating  Elimination  Entries as of June
                30, 1997, and Related Independent Auditors' Report.