SECURITIES AND EXCHANGE COMMISSION
                                              Washington, D.C. 20549

                                                     FORM 10-K/A

                  [X]      Annual  Report  Under  Section  13 or 15(d) of the
                           Securities  Exchange  Act of 1934 for the Fiscal Year
                           Ended September 30, 1997

                  [ ]      Transition  Report Under  Section 13 or 15(d) of the
                           Securities  Exchange  Act of 1934 for the  Transition
                           Period from _________ to _________.

                                        Commission File Number   0-20986

                                         ENVIRONMENTAL TECHNOLOGIES CORP.
                                (Name of Registrant as Specified in Its Charter)


            Delaware                                             22-3005943
(State or Other Jurisdiction of                               (I.R.S. Employer
Incorporation or Organization)                               Identification No.)

         550 James Street
       Lakewood, New Jersey                                           08701
Address of Principal Executive Offices)                             (Zip Code)

                                           (732) 370-3400
                           (Issuer's Telephone Number, Including Area Code)

Securities  registered  under  Section 12(b) of the  Securities  Exchange Act of
1934:

                                                           Name of Each Exchange
      Title of Each Class                                   On Which Registered

                                          NONE

Securities  registered  pursuant to Section 12(g) of the Securities Exchange Act
of 1934:

                         Common Stock, par value $.01 per share


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

                                         Page 1 of 59 Pages





<PAGE>





     Check  if  disclosure  of  delinquent  filers  in  response  to Item 405 of
Regulation  S-K is not  contained  in  this  form,  and no  disclosure  will  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.[ ]

     State the aggregate market value of the voting stock held by non-affiliates
of the  registrant  on January 9, 1998,  computed by  reference  to the price at
which the stock was sold on that date: $17,852,072.

     The number of shares  outstanding  of the  registrant's  Common Stock,  par
value $.01 per share (the "Common Stock"), as of January 9, 1998, was 4,989,719.


            Documents Incorporated by Reference:  None



<PAGE>



                                         ENVIRONMENTAL TECHNOLOGIES CORP.
                                            ANNUAL REPORT ON FORM 10-K

                                                 Table of Contents

Item                                                                        Page

1.   Description of Business                                                  1

2.   Description of Property                                                 15

3.   Legal Proceedings                                                       16

4.   Submission of Matters to a Vote of Security
     Holders                                                                 16

5.   Market for Common Equity and Related
     Stockholder Matters                                                     17

6.   Selected Financial Data                                                 18

7.   Management's Discussion and Analysis of Financial
     Condition and Results of Operations                                     19

8.   Financial Statements                                                    26

9.   Changes in and Disagreements with Accountants
     on Accounting and Financial Disclosure                                  49

10.  Directors, Executive Officers, Promoters and
     Control Persons; Compliance with Section 16(a)
     of the Exchange Act                                                     50

11.  Executive Compensation                                                  51

12.  Security Ownership of Certain Beneficial Owners
     and Management                                                          55

13.  Certain Relationships and Related Transactions                          56

14.  Exhibits and Reports on Form 8-K                                        56



<PAGE>



ITEM 1.   DESCRIPTION OF BUSINESS.

Item 1 first discusses the refrigerant  business and then the ballast  recycling
business and concludes with certain information related to the entire Company.

     The  Company  is  engaged  in  the  marketing  and  sale  of  refrigerants,
refrigerant reclaiming services, the manufacture and distribution of refrigerant
recycling and recovery equipment and the recycling of fluorescent light ballasts
and lamps.

     The  following  table sets forth  information  relating to the  approximate
dollar  amounts (in  thousands)  and  percentages  of revenues  derived from the
Company's sales of refrigerants, equipment and ballast recycling services:

<TABLE>
<CAPTION>
<S>                                  <C>                      <C>                       <C>

                                                     Years Ended September 30,
                                     1997                       1996                     1995
                                    -------                   --------                  -----

Refrigerants....                    $50,606  88%              $26,871  75%              $26,020  75%
Ballast Recycling                     4,491   8                 5,787  17                 6,013  17
Equipment.......                      2,353   4                 2,885   8                 2,645   8
                                    ------- ----               ------ ----               -------  --

                                    $57,450 100%              $34,543 100%              $34,678 100%
                                    ======= ====              ======= ====              ======= ====

</TABLE>

                                                   REFRIGERANTS

Refrigerant Industry Background

     In  recent   years,   increasing   concern  about  damage  to  the  earth's
stratospheric  ozone layer has  resulted in  significant  legislation  governing
production and use of products containing Chlorofluorocarbons ("CFCs"). In 1987,
the United States became a signatory to the Montreal Protocol on Substances that
Deplete the Ozone Layer (the  "Montreal  Protocol"),  as amended in 1992,  which
requires its  signatories  to reduce and  ultimately  eliminate  production  and
consumption of certain ozone depleting substances,  including R-12. The Montreal
Protocol has been implemented in the United States through the Clean Air Act and
the  regulations  promulgated  thereunder by the EPA.  Pursuant to the Clean Air
Act,  which was amended in 1990 in response to evidence  linking the use of CFCs
to damage to the earth's  ozone layer,  production  of CFCs ceased at the end of
1995.  The Clean Air Act also  requires the  recycling of  refrigerants  used in
automobile  air  conditioning  systems  and  recovery  of  refrigerants  used in
residential and commercial air conditioning and refrigeration systems.

     The Company believes that continuing  initiatives of government authorities
relating  to  refrigerants  in  general  and  ozone  depleting  substances,   in
particular,  has resulted in significant  opportunities for companies engaged in
the  development  and  commercialization  of  equipment  designed to recycle and
recover



                                                

<PAGE>



refrigerants and the recovery,  reclaiming and resale of refrigerants  which are
still in demand, but production of which has been eliminated, such as R-12. CFCs
and refrigerants  have an indefinite  useful life if the chemicals are stored in
well-sealed containers or systems.

     The Company is not aware of any  industry-wide  stockpiling of refrigerants
containing CFCs, such as R-12. The Company is also not aware of any governmental
agenda to curtail or eliminate the use of and/or reuse of such refrigerants.

     In  general,  working  capital  levels for the  Company  and  industry-wide
reflect the highly seasonal nature of sales for  refrigerants  which are related
to weather.  Sales of the Company's  products generally precede warm weather and
continue through much of the warm weather months.

     The  Company,  and other  companies in the  industry,  no longer have ready
access to sources of newly  manufactured CFC  refrigerants.  The CFC replacement
products are now readily  available to the Company,  and other  companies in the
industry. In anticipation of the cessation of a predictable  manufactured supply
of R-12, the primary source of the Company's historical sales and profitability,
the  Company  has access to a supply of R-12 for sale in 1998.  Beyond  1998 the
Company's  access to R-12 is much less certain.  See  "Production and Sources of
Supply" below.

Products and Services

     Refrigerants

     Refrigerants are liquid compounds  characterized by their ability to absorb
heat and vaporize at low  temperatures  that can be used in air conditioning and
refrigeration  systems.  Compounds such as R-12 and R-134a serve as refrigerants
through the principle of heat transfer by absorbing heat while in a liquid state
and releasing  heat while in a gaseous state.  CFC substances  contained in most
commonly   used   refrigerants,    including   R-12,   have   been   linked   to
upper-atmospheric  ozone  depletion  due to the ability of these  substances  to
chemically   combine  with  and  separate  ozone  molecules.   Manufacturers  of
refrigerants, however, have developed new refrigerants such as tetrafluorethane,
or R-134a, which do not contain CFCs, as a replacement for R-12.

     The most widely  used  commercial  refrigerants  are R-11,  R-12,  R-22 and
R-502. Other than R-134a,  which has recently been introduced,  R-12 is the only
significant  refrigerant used in automobile air conditioning  systems.  R-12 can
also be used as a refrigerant in residential air conditioning and  refrigeration
systems.  R-22 is a refrigerant  capable of providing extensive cooling of large
areas,   making  it  suitable  for  use  in   residential   and  commercial  air
conditioning.   R-502  is  used  extensively  as  a  refrigerant  in  commercial
refrigeration systems.



<PAGE>




     The Company's line of refrigerants includes R-12, R-22 and R- 134a marketed
under the  Company's  "Arctic  Air" label to  wholesalers  and  distributors  of
automobile supplies for use by mechanics and technicians in servicing automobile
air conditioning systems.

     The  Company  markets  R-134a in spray  cans under its  customers'  private
labels for use in  moisture-sensitive  equipment,  including  personal  computer
screens, cabinets, peripherals and photographic equipment.

     As a result of the Clean Air Act mandates,  automobile  manufacturers  have
developed and are  installing  new air  conditioning  systems in vehicles  using
R-134a, a refrigerant  which does not contain ozone depleting CFCs,  rather than
R-12. The Company commenced  marketing R-134a in 1992 as a replacement for R- 12
for new air  conditioning  systems.  The Company has also begun marketing R-134a
for use in dusting moisture-sensitive equipment.

     The  Company  acquired  Refrigerant  Reclaim  Services,  Inc.  ("RRSI")  in
February  1994  and  Global  Refrigerant  Management,   Inc.  in  February  1995
(collectively by their d/b/a, "Full Circle,  Inc.").  RRSI provides services for
the recovery and reclamation of all refrigerants in response to the requirements
of the  Clean  Air  Act,  which  strictly  regulates  the  use and  disposal  of
refrigerants  containing  certain  chemicals.  The Company's  recovery  services
consist of removing used  refrigerants  from air conditioning and  refrigeration
systems and  transferring  them into pressurized  cylinders for collection.  Its
reclamation services consist of "cleaning" refrigerants to remove impurities and
contaminants  and returning them to their original purity  standards.  Reclaimed
refrigerants,  unlike recycled  refrigerants,  meet the same  specifications  as
newly  manufactured  products.  RRSI  markets  its  services  to large  users of
refrigerants   such  as  wholesalers  of  air  conditioning  and   refrigeration
equipment,  air  conditioning  and  refrigeration  contractors and owners of air
conditioned buildings and refrigeration and cold storage facilities, and it also
purchases used  refrigerants  for  reclamation  and resale from any entity using
large amounts of  refrigerant.  Typically  refrigerant  is purchased  from users
choosing to retrofit or replace their CFC bearing  equipment for equipment using
a non CFC type.

     Recycling and Recovery Equipment

     The Clean Air Act requires the  recycling of certain  refrigerants  used in
automobile  air  conditioning  systems  and  recovery  of  refrigerants  used in
residential  and commercial air  conditioning  and  refrigeration  systems.  The
purpose of recycling and recovery of  refrigerants  is to extend the useful life
of such  refrigerants.  Recycled products can be reused by its original owner or
sold to a certified  reclaimer who, after purifying the refrigerant to specified
standards,  can resell the refrigerant to any third party. To address this newly
created market, the Company developed and, since March 1991, has marketed a line
of equipment designed to recycle and recover refrigerants.

     The Company's line of refrigerant recycling equipment is marketed under its
"Envirotech"  label and includes:  System 1, Alpha I, Gold Line Series and Omega
(collectively,  "Recycling Systems"). These are integrated refrigerant recycling
systems  which are designed to purify R-12 and R-134a,  contained in  automobile
air  conditioning  systems.  Although R-134a does not contain CFCs the Clean Air
Act requires that it too must be recycled.  When being  serviced all  automotive
air conditioning  systems must be purified to filter out air, moisture,  oil and
other contaminants for its reuse. More importantly, the alternative, which is to
vent the  refrigerant is illegal.  In addition,  the Company markets The PRO and
PRO PLUS  portable  refrigerant  recovery  systems  designed to extract  various
refrigerants  from residential and commercial air conditioning and refrigeration
systems.  Since the Clean Air Act requires  only recovery  (extraction),  rather
than recycling of refrigerants, The PRO and PRO PLUS are intended for use by air
conditioning  and  refrigeration  technicians who do not need the full recycling
capabilities  of the  Recycling  Systems.  The PRO and PRO  PLUS  also  have the
capability to purify recovered refrigerant to an extent sufficient to permit its
reuse.  To  date,  the  Company  believes  that  sales of  refrigerant  recovery
equipment  has  been  less  than  anticipated  because  of a lack of  government
enforcement of the Clean Air Act  provisions.  The Company  believes that future
recovery system sales will increase for the following reasons:  CFC refrigerants
will be harder to replace  following the cessation of their  production;  use of
recovery  equipment is more frequently  being required by the inquiring  public;
the practice of charging  customers  for the use of the machine is becoming more
accepted and profitable as even the cost of non CFC  refrigerants is increasing;
and  the  trend  of  mechanics  to  use  recovery  equipment  to  extract  mixed
refrigerant  from  automobiles to avoid  contamination  of their larger recycled
supplies.

     The  Company  markets a number of  accessories  for its line of  equipment,
including vacuum pumps, and replacement parts for its equipment,  such as hoses,
filters and refrigerant  storage  cylinders.  To date, sales of such accessories
and replacement parts have not been material.

     The  Company  typically  provides  a  one-year  unlimited  warranty  on its
equipment which it believes equals or exceeds the warranties  offered by most of
its  competitors for comparable  products.  To date,  warranty  expense has been
insignificant.  The Company's line of equipment  does not require  installation.
Each product is sold with a detailed instruction manual and the Company provides
a toll-free  (800)  telephone  number  service  during normal  business hours to
assist its  customers  and answer  questions  relating to the  operation  of its
equipment.  Servicing of the  Company's  recycling  and recovery  equipment,  as
required,  is  performed  at  the  Company's  Keller,  Texas  facility  or by an
authorized  independent  repair facility.  The Keller facility,  which currently
runs on one daytime shift, is the Company's main site for component  fabrication
and  product  integration  and  assembly,  as well as  warranty  servicing.  See
"Facilities."

     The  Company  continues  to devote  time and  effort to expand  its line of
equipment  by  developing  new versions of its  equipment  which are designed to
anticipate product demand and satisfy evolving industry standards.  The expenses
associated  with such  efforts  have been  immaterial  to date.  There can be no
assurance that the Company will be able to successfully develop or commercialize
any new products or that such  products will prove to be reliable and durable in
widespread  commercial  use. All the  Company's  equipment has been endorsed and
approved  for  use by the  relevant  sanctioning  authorities.  See  "Government
Regulation."

Marketing and Sales

     The Company markets R-12 to wholesale distributors of automobile suppliers,
throughout  the United  States who purchase R- 12 from the Company for resale to
automobile repair shops, service stations and retail automotive supply stores.

     The Company also markets R-134a as a replacement  refrigerant  for R-12 for
newer automobile air conditioning  systems.  Because automobile air conditioning
systems  capable of utilizing  R-134a have only been  recently  introduced,  the
Company  believes that it could take several  years for a meaningful  market for
R-134a to develop  as a  replacement  for R-12.  The  Company is also  marketing
R-134a as a duster for moisture sensitive equipment.

     The  Company  markets  System 1,  Alpha I, Gold  Line  series  and Omega to
wholesalers and distributors of automobile parts and service equipment.  The PRO
and PRO  PLUS  models  are  marketed  to  wholesalers  of air  conditioning  and
refrigeration equipment ("Heating,  Ventilation, Air Conditioning/Refrigeration"
or "HVAC/R") distributors who supply contractors engaged in servicing commercial
and residential air conditioning and refrigeration systems.

     The Company believes that its wholesale  distributors market other products
that compete with the Company's products.

     The Company markets its automotive and HVAC/R  equipment  through a network
of    independent    manufacturers'    representatives.    The    manufacturers'
representatives  are paid on a commission  basis and are  responsible  for their
geographical  markets for identifying  customers and soliciting customer orders.
Other marketing efforts include  advertising in trade journals and attendance at
trade shows.

     The Company also directly  markets its various  reclaimed  refrigerants and
reclaiming  services to HVAC/R  wholesalers,  mechanical  contractors  and large
corporate, institutional and governmental users of refrigerants.

     No single  customer  accounted for more than 10% of the Company's  revenues
during the years ended September 30, 1997, 1996 and 1995.

Production and Sources of Supply

     The Company's refrigerants are packaged and/or distributed at its Lakewood,
New Jersey,  Hurst  (Fort  Worth) and  Houston,  Texas,  Blue Island  (Chicago),
Illinois, Livermore, California and Orlando, Florida facilities.  Refrigerant is
delivered  to the  Company's  Lakewood  facility  by tank  truck  and is held in
storage tanks until packaged.  Refrigerant is delivered to the Company's various
reclaiming  facilities  in  various  size  containers  where  it is  stored  and
consolidated and eventually  transported to Hurst,  Texas where it is reclaimed,
packaged and redistributed.  All packaged refrigerant is shipped to customers by
common carrier.

     The  Company  is not  dependent  on any one source of  refrigerant  for its
supply of refrigerants.

     The  Company   purchases  used   refrigerant  from  major  HVAC  mechanical
contractors,  salvage  operations,  large industrial and institutional  users of
refrigerant as well as brokers. The Company also purchases used refrigerant from
a network of wholesale HVAC supply stores serving as collection stations.

     The  availability  and  price of  virgin  R-12 are  influenced  by  several
factors,  principally  among which are the limitations on commercial  production
and  use  imposed  by the  Clean  Air  Act.  To the  extent  that  suppliers  of
refrigerant have ceased production of R- 12, they have  correspondingly  reduced
or stopped allocations to their customers. Consequently, the Company anticipates
that its access to R-12 will continue to be reduced in the future.  The price of
R-12 has increased  dramatically  since the 1990 amendments to the Clean Air Act
and the Company  anticipates that the price of R-12 will continue to increase as
the supply of R-12 continues to decrease.  The Omnibus Act imposes an excise tax
on CFC chemicals,  including virgin R-12. The purchase of virgin R-12 is subject
to  taxation as a result of the Omnibus  Act,  including a tax on CFC  chemicals
held in the Company's inventory.  Under the Omnibus Act, a tax of $.45 per pound
was imposed for  inventory  on hand at January 1, 1996 and 1997 and is scheduled
to be $.45 per pound for  inventory  on hand on  January 1,  1998.  The  Company
believes,  based upon the strong  demand for R-12 created by the Clean Air Act's
limitations  on  production,  that the increased  cost of R-12 has not adversely
affected sales of R-12 to date.  There can be no assurance that increases in the
Company's  cost of R-12 and the  corresponding  increased  price  at  which  the
Company must sell R-12 will not adversely affect the Company's ability to market
this product in the foreseeable future. There can be no assurance, however, that
sufficient  quantities of R-12 will be available to the Company on  commercially
reasonable  terms,  or at all, or that sales of R-12 at  increased  price levels
will offset anticipated declining revenues as a result of reduced supply.

     The Company  produces its refrigerant  recycling and recovery  equipment by
integrating and assembling  components which it fabricates,  certain  components
and sub-assemblies fabricated to the Company's specifications, and off-the-shelf
components  available  from a variety of sources.  In order to maintain  quality
control,  Company employees test its products at several stages of production in
order to ensure  adherence  to product  specifications.  The Company  undertakes
component  fabrication and product integration and assembly in its Keller, Texas
facility. See "Item 2 Description of Property."

     The Company  purchases all of its refrigerant  containers and its supply of
raw  materials  used in the  production  of  refrigerant  recycling and recovery
equipment,  principally  copper  tubing  and  steel,  and  component  parts  and
subassemblies  incorporated into these products,  from third-party suppliers and
manufacturers. The Company believes that there are numerous available sources of
supply for the Company's  refrigerant  containers and raw  materials.  While the
Company attempts to maintain  alternative sources for the Company's  refrigerant
containers and raw materials,  the Company's  business is subject to the risk of
price fluctuations and periodic delays in delivery of refrigerant containers and
raw materials.  The Company has  subcontracted  production of substantially  all
component parts and subassemblies  incorporated into its products to third-party
manufacturers.  Accordingly,  the  Company  is  substantially  dependent  on the
ability of such  manufacturers,  among other  things,  to meet  performance  and
quality  specifications  and to conform to  delivery  schedules.  Failure by the
Company's manufacturers to comply with these and other requirements would have a
material adverse effect on the Company.  Further, there can be no assurance that
such manufacturers will dedicate  sufficient  production capacity to satisfy the
Company's  requirements for component parts within scheduled delivery times. The
Company generally purchases refrigerant containers,  raw materials and component
parts from sole  suppliers  and  manufacturers.  The Company  does not  maintain
supply agreements with its suppliers or manufacturers and purchases  containers,
raw materials and component  parts  pursuant to purchase  orders in the ordinary
course of business. Failure or delay by suppliers and manufacturers in supplying
necessary  containers,  raw materials  and component  parts to the Company could
adversely affect the Company's profit margin and the Company's ability to obtain
and  deliver  products  on a timely and  competitive  basis  which  could have a
material adverse effect on the Company.




                                                      

<PAGE>



     The Company  typically seeks to fill customer orders for both  refrigerants
and  refrigerant  recycling and recovery  equipment  within ten days of receipt.
Accordingly,  at  September  30, 1997,  the Company had no material  backlog for
either  product line.  In order to fill orders within the foregoing  time frame,
the Company  seeks to maintain a  significant  inventory  of  refrigerants,  raw
materials,  components and subassemblies for production of refrigerant recycling
and recovery  equipment and finished  goods.  At September 30, 1997, the Company
had a significant  inventory of completed  refrigerant  recovery equipment which
had not  been  sold in  earlier  periods.  The  Company  had  manufactured  such
inventory in anticipation of sales which did not occur in earlier  periods,  due
in management's opinion, to lack of enforcement of Clean Air Act provisions. The
Company  anticipates  that a significant  portion of such inventory will be sold
during fiscal 1998.

Competition

     The markets for the Company's products are highly competitive.

     The Company competes with numerous well-established  companies which market
refrigerants,  many of which possess substantially greater financial, marketing,
personnel  and  other  resources  than the  Company,  which  may  position  such
companies to more  effectively  compete for reduced  allocations  of supplies of
refrigerants and the marketing of refrigerants  intended to replace refrigerants
containing ozone depleting CFCs.

     The Company also competes with other manufacturers of refrigerant recycling
and recovery  equipment.  These products are marketed by companies with, in some
cases,  significantly greater financial,  manufacturing,  distribution and other
resources than the Company,  including large advertising budgets,  enabling them
to implement extensive advertising campaigns,  both generally and in response to
efforts by  additional  competitors  to enter into new  markets.  The Company is
aware of other  companies  which have  developed or are  developing  products or
alternative  technologies  which are  competitive  with the Company's  products.
Other products or alternative  technologies  which are  functionally  similar to
those of the Company are currently available from numerous competitors.

     The Company believes that it competes on the basis of product  availability
and customer  service in the marketing and sale of refrigerants and on the basis
of price,  reliability  and ease of operation  with  respect to its  refrigerant
recycling and recovery equipment.




                                                      
<PAGE>



     The Company  believes that RRSI, its  refrigerant  recovery and reclamation
operation,  is one of the  largest  companies  in  its  industry.  However,  the
business in which the Company is engaged is relatively new and competition will,
in all  probability,  increase  from  existing  competitors  as well as from new
entrants.  The Company seeks to compete on the basis of offering full  services,
including on-site, high volume and emergency services,  and employing the latest
equipment at reasonable  prices.  Such  capabilities are not possessed by all of
its competitors.

Government Regulation

     In recent years, increasing concern about damage to the earth's ozone layer
caused by ozone  depleting  substances has resulted in  significant  legislation
governing  production and use of products  containing  CFCs. In 1987, the United
States became a signatory to the Montreal  Protocol,  as amended in 1992,  which
required its  signatories  to reduce and  ultimately  eliminate  production  and
consumption  of  certain  ozone  depleting  substances,   including  R-12.  U.S.
production of refrigerant  products  containing  CFCs ceased at the end of 1995.
The Montreal  Protocol has been  implemented  in the United  States  through the
Clean  Air  Act and the  regulations  promulgated  thereunder  by the  EPA.  The
production and use of refrigerants  containing CFCs, including R-12, are subject
to extensive  and  changing  federal and state laws and  substantial  regulation
under these laws by  government  agencies,  including the EPA, and various state
agencies and county and local authorities acting in conjunction with federal and
state authorities.

     The Clean Air Act also  requires the  recycling of R-12 and its various non
CFC replacements used in automobile air conditioning systems and recovery of all
refrigerants   used  in  residential   and  commercial  air   conditioning   and
refrigeration systems.  Equipment used to recycle R-12 and other refrigerants is
required  to  meet  stringent  performance  standards  imposed  by the  EPA  and
administered by UL. The Company's  System 1, Alpha I, Gold Line series and Omega
have received UL approval to recycle R-12 and R-134a. UL approval, however, does
not  constitute  an  endorsement  of  these  products.  The EPA has  promulgated
performance  standards for refrigerant  recovery equipment,  and the Company has
obtained  UL  approval  for the PRO and PRO PLUS to  recover  refrigerants.  The
Company  believes  that it has  obtained  all  licenses,  permits and  approvals
required in connection with the production and sale of its refrigerant recycling
and  recovery  equipment.  Amendments  to  existing  statutes  and  regulations,
adoption of new statutes and regulations  which affect the marketing and sale of
refrigerants  and recycling and recovery  equipment,  including the marketing of
replacement   refrigerants  such  as  R-134a,   could  require  the  Company  to
continually  adapt its  methods of  operations  and/or  discontinue  the sale of
certain  products at costs that could be substantial.  There can be no assurance
that the Company will be able, for financial reasons or otherwise,  to adapt its
operations to comply with  applicable laws or regulations or obtain and maintain
applicable licenses, permits and approvals in the future. Failure to do so could
have a material adverse effect in the Company.

     Notwithstanding  the restrictions on the production and use of refrigerants
imposed by the Clean Air Act, the Company  believes that its business  prospects
are  significantly  enhanced by the stringent  enforcement of the  comprehensive
regulatory  framework by the EPA. The Company believes that government  mandates
requiring the recycling and recovery of refrigerants have created demand for the
Company's  equipment products.  However,  the delay in enforcement of regulatory
requirements governing the recycling and recovery of refrigerants has negatively
affected the Company and all other  participants  in the  recycling and recovery
equipment  market as purchasing  decisions by contractors and  technicians  have
been postponed as a result of the lack of enforcement.

     The Company's refrigerant operations require the handling,
storage and transportation of refrigerants, which are classified as
hazardous substances under applicable laws.  See "Environmental
Matters."


                                                 BALLAST RECYCLING

Ballast Recycling Industry Background

     FulCircle  Recyclers,  Inc.  (d/b/a  Full  Circle)  recycles  and  disposes
fluorescent  lighting ballasts of the type commonly found in office,  industrial
and institutional  buildings.  Prior to 1985,  ballasts were manufactured  using
hazardous  compounds,  which  created a need for special  handling  and disposal
procedures  when replacing  ballasts or removing them at the end of their useful
lives.

     Polychlorinated  biphenyls (commonly known as PCBs) were widely used before
1979 as insulators  in electrical  equipment  such as  capacitors,  switches and
voltage regulators. Virtually all fluorescent light ballasts manufactured before
1979 contain PCBs.  PCBs have been shown to cause cancer as well as reproductive
and developmental  defects in laboratory animals.  PCBs do not readily decompose
when  released  into the  environment.  Instead,  they  accumulate in plants and
animals,  working  their way up the food chain.  Between 1979 and 1985,  certain
ballasts were  manufactured  with di (2-ethylhexy)  phthalate (DEHP) in place of
PCBs.  DEHP has since been  identified  as a probable  human  carcinogen  and is
listed as a hazardous  substance under the Superfund laws;  however, it is not a
hazardous  waste under the Resource  Conservation  and Recovery  Act(RCRA)  when
discarded  inside  a  ballast.  Its  use  in  ballast   manufacturing  has  been
discontinued.

     Demand for Full Circle's services is triggered when facility owners replace
fluorescent light fixtures with more energy-efficient fixtures. In recent years,
lighting  manufacturers have made dramatic improvements in the energy efficiency
of fluorescent  lighting  fixtures.  Using electronic  ballasts and new types of
fluorescent lamps, the new fixtures are able to achieve comparable  illumination
with  approximately  25 to 50% less  electrical  energy  than  required by older
fixtures.  Thus, some light fixture  replacements have been motivated by utility
sponsored  "Demand Side  Management"  (DSM) programs,  where facility owners are
given economic incentives to install replacements.

Services - Disposal and Recycling

     Full Circle recycles and disposes of the hazardous wastes contained in used
ballasts.  Full Circle has  developed a unique  "demanufacturing"  process  that
efficiently  separates the ballast into recyclable products and hazardous waste.
Both PCBs and DEHP are interchangeably  demanufactured  using the same plant and
processes.

     As  part of its  service,  Full  Circle  subcontracts  with  transportation
companies to pick up ballasts from customers. At the point of receipt,  ballasts
have  already been  packaged in sealed drums and are ready for  demanufacturing.
The ballasts are  transported by truck to the Full Circle  facility in New York.
At the plant,  drums of ballasts are weighed,  stored and  demanufactured on its
processing lines.

     The disposal process separates the components,  recycles all materials that
can be economically  recovered and repackages volume reduced hazardous  elements
for safe destruction.  Over 75% of the weight of a ballast is copper,  steel and
aluminum,  which is  recovered  and sold to scrap metals  dealers.  Only the PCB
contaminated  materials are sent off-site to an incinerator of PCB waste or to a
chemical waste landfill, depending on the customer's preference.

     Full  Circle has PCB  disposal  contracts  with two major  companies  which
collectively control four PCB incinerators.  The Company also has a PCB disposal
contract with two major PCB landfill operators.

Marketing and Sales

     In addition to Full  Circle's New York  operation,  it has  regional  sales
offices located across the country.  Many of the sales persons have  significant
prior  experience  in  selling  hazardous  waste  disposal  services  or selling
lighting  products.  Sales  persons are  responsible  for sales,  marketing  and
customer service in their respective territories.

     Full Circle has extensive  educational and promotional  materials which are
distributed through trade journals,  targeted mailing campaigns and conferences.
Full Circle's sales personnel market at over 30 conferences and trade shows each
year. Full Circle also advertises in many magazines targeted at the lighting,
DSM, electric  utility,  facility  management,  waste disposal and environmental
remediation industries.

Competition

     The market for Full Circle's  services is highly  competitive.  Full Circle
competes with numerous well-established companies which market ballast recycling
services.

     Full Circle  believes  that it competes on the basis of price,  reliability
and reputation and that it is one of the largest companies in its industry.

Government Regulation

     The Toxic Substances Control Act ("TSCA") does not regulate the disposal of
non-leaking,  intact  "small  capacitors"  (such as those  contained in lighting
ballasts) in municipal solid waste landfills.  However, under the Superfund laws
(Comprehensive  Environmental  Response,   Compensation  and  Liability  Act  or
"CERCLA",  and the Superfund Amendments and Reauthorization Act or "SARA"), PCBs
are specifically listed as a "hazardous substance".  This means that if there is
a release  or threat of  release  of over one pound of PCBs  (equivalent  to the
amount of PCBs in approximately  16 ballasts),  the party disposing the ballasts
is  required  to notify the  National  Response  Center and is  responsible  for
corrective  action  for  cleanup  costs  and  damages  to  the  environment.   A
conservative  interpretation  of  CERCLA  is that the  disposal  of more than 16
ballasts in a municipal  solid waste landfill  constitutes a CERCLA PCB release,
which is unlawful,  and triggers an immediate Superfund cleanup requirement with
potential contamination liabilities.

     CERCLA  also  requires  that  the  Department  of  Transportation  list and
regulate the transportation of all hazardous materials, including PCBs.

     While  it  is  legal  to  dispose  of   ballasts   under  the   appropriate
circumstances  in a sanitary  landfill,  the EPA  encourages  disposers of large
quantities of PCB ballasts to treat them as if they were a regulated  waste. The
preamble to the May 31,  1979 PCB Final Rule in the Code of Federal  Regulations
(40 CFR Part 761)  makes it clear that the  intent of the Small  Capacitor  TSCA
disposal rule is to allow the "random  disposal" in landfills only by "household
and other  infrequent  disposers".  In the case of large quantities of small PCB
capacitors  by  commercial  and  industrial  activities,  which "pose a somewhat
larger  environmental  risk", the EPA strongly encourages the voluntary disposal
of  small  PCB  capacitors  in  chemical  waste  landfills  or  high-temperature
incinerators.

     In December 1994, the EPA disclosed plans to regulate PCB ballast disposal;
management  expects that the release and implementation of such regulations will
further expand the services provided by the Company. There are two categories of
new regulations  which may affect PCB ballast  disposal:  (i) elimination of the
"Small Capacitor Exemption",  and (ii) regulation of the entire ballast as a PCB
waste because the asphalt potting  material used in ballasts usually contains in
excess of 50 ppm of PCBs. Currently TSCA does not regulate small capacitors. The
final  regulations  are still under  review and could take several more years to
complete.

     Another area of growing regulatory attention is the disposal of fluorescent
lamps.  Fluorescent light bulbs have historically been manufactured with mercury
and therefore  require special  handling.  The EPA and lamp  manufacturers  have
conducted  detailed studies,  which have concluded that these lamps constitute a
hazardous waste because they fail the Toxicity Characteristic Leaching Procedure
(TCLP).

     The EPA has proposed  special  regulations  that address lamp  disposal and
these are  currently  receiving  comments  from the  public.  This  proposal  is
highlighting  the need for proper  disposal  of all  lighting  waste,  including
ballasts.

                                                    THE COMPANY

The balance of Item 1 relates to the whole Company including its refrigerant and
ballast recycling businesses.

Research and Development

     While the Company  places  significant  emphasis on ongoing  refinement and
enhancement  of its  equipment  and believes  that such efforts are important to
take advantage of market trends and to maintain its  competitive  position,  the
costs to do so to date have not been material.

     During the fiscal year ended  September 30, 1995 the Company entered into a
50% joint venture with two unaffiliated individuals. The venture's name is Total
Transformation, Ltd. ("TTL"). TTL is researching the applicability of using high
temperatures  with  chemical   catalysts  to  transform  mixed  or  contaminated
refrigerants  (defined  as a  hazardous  substance)  into a  useful  by-product.
Through September 30, 1997 the Company had invested approximately  $183,000. TTL
will require  additional  funding to complete its development phase. The Company
has no commitment  to continue  funding the project  beyond its current  levels.
There are no  assurances  that even if the  additional  funds are  sufficient to
allow completion of development that the technology will be commercially viable.

     During the fiscal year ended September 30, 1996, the Company entered into a
second 50% joint venture with an  unaffiliated  company.  The ventures's name is
Liberty  Technology   International,   Inc.  ("LTI").  LTI  utilized  technology
developed in Eastern Europe to construct a refrigeration  separation plant which
was completed in the year ended  September 30, 1997. The purpose of the plant is
to provide an alternative to total destruction of mixed refrigerants.  The plant
was  completed  in fiscal 1997 and began  operating  during  that  fiscal  year.
Through September 30, 1997 the Company has invested approximately $559,000.

         The Company's  earnings from these joint  ventures were not material to
its consolidated results of operations.

Proprietary Protection

     The Company  principally  relies on a combination  of trade secret laws and
employee and third-party  non-disclosure  agreements to protect its products and
technology.  However,  such methods may not afford complete protection and there
can be no assurance that others will not independently develop such technologies
or, despite the precautions taken by the Company, obtain access to the Company's
know-how,  concepts,  ideas and  documentation.  Since the Company believes that
proprietary  information  is important to its  business,  failure to protect its
trade secrets could have a material adverse effect on the Company.

Trademarks

     The Company has no registered trademarks.

Insurance

     The Company may be exposed to  potentially  significant  product  liability
claims by its customers and users of its products. The Company maintains product
liability coverage at $1,000,000 per occurrence and $2,000,000 aggregate,  which
it  believes  is  adequate  coverage  for the types of  recycling  and  recovery
equipment  presently  marketed.  There can be no assurance,  however,  that such
insurance will be sufficient to cover potential claims or that the present level
of coverage will be available in the future at reasonable  cost.  The Company is
self-insured for product  liability in connection with the marketing and sale of
its  refrigerants.  No material losses have occurred.  A partially  insured or a
completely  uninsured successful claim against the Company could have a material
adverse effect on the Company. The Company generally warrants its products to be
free from  defects in  materials  and  workmanship  and for a specified  period,
generally  limited  to one  year  from  the date of  shipment.  There  can be no
assurance that future  warranty  expenses will not have an adverse effect on the
Company's results of operations.

Environmental Matters

     The Company's  refrigerant  operations  require the  handling,  storage and
transportation  of  refrigerants,  which are classified as hazardous  substances
under  applicable laws. The Company does not maintain  environmental  impairment
insurance.   There  can  be  no  assurance  that  the  Company  will  not  incur
environmental liability arising out of the use of hazardous substances.  The use
of hazardous substances is subject to extensive federal, state and local law and
substantial regulation under these laws by governmental agencies,  including the
United States  Environmental  Protection  Agency,  the  Occupational  Safety and
Health  Administration,  various state agencies and county and local authorities
acting in conjunction  with federal and state  authorities.  Among other things,
these  regulatory  bodies  impose  requirements  to control air,  soil and water
pollution, to protect against occupational exposure to such chemicals, including
health and  safety  risks,  and to  require  notification  or  reporting  of the
storage,  use and release of certain  hazardous  chemicals and  substances.  The
Company believes that it is in substantial compliance with all material federal,
state and local laws and  regulations  governing its operations and has obtained
all material  licenses and permits  required for the  operation of its business.
Amendments to statutes and  regulations  and/or the Company's  expanded level of
operations  in the future  could  require the Company to  continually  modify or
alter  methods of  operations  at costs  which  could be  substantial  and could
subject the Company to increased regulation.  There can be no assurance that the
Company will be able, for financial or other reasons,  to comply with applicable
laws and regulations.  Failure by the Company to comply with applicable laws and
regulations  could subject the Company to civil  remedies,  including  fines and
injunctions,  as  well as  potential  criminal  sanctions,  which  could  have a
material adverse effect on the Company.

Employees

     At September  30, 1997,  the Company  employed  approximately  125 persons,
including its executive officers.  None of the Company's employees is subject to
a  collective  bargaining  agreement  and  the  Company  believes  its  employee
relations are good.

ITEM 2.     DESCRIPTION OF PROPERTY.

     The Company occupies ten locations in the United States, all of which, with
one  exception,  are leased from third  parties.  The following  summarizes  the
location,  square  footage  of the  building  or leased  space,  and use of each
facility.  The Company  believes  that these  facilities  are  adequate  for its
existing and near-term future needs and that its facilities are adequate for its
current and proximate future needs.

<TABLE>
<CAPTION>
<S>                                 <C>                                <C> 

Location                            Square Footage                                 Use

Lakewood, NJ                                21,000                     Refrigerant packaging and
                                                                       distribution; executive
                                                                       and administrative offies.

Bronx, NY                                   13,500                     Ballast recycling; execu-
                                                                       tive and administrative offices.

Keller, TX                                  55,000                     Recycling and recovery
                                                                       equipment production and
                                                                       servicing.

Hurst, TX                                   26,000                     Refrigerant reclaiming

Houston, TX                                 14,170                     Refrigerant reclaiming

Bridgeview, IL                              15,000                     Refrigerant reclaiming

Livermore, CA                                8,700                     Refrigerant reclaiming

Garden Grove, CA                             1,500                     Refrigerant reclaiming

Orlando, FL                                  7,000                     Refrigerant reclaiming

Kapolei, HI                                  6,000                     Refrigerant reclaiming

Memphis, TN                                  1,500                     Office


</TABLE>

         The Company leases the 21,000 square foot building in Lakewood, NJ from
George Cannan, Sr., the Company's founder,  Chairman and principal  stockholder.
The pays a gross rental of $10,000 per month pursuant to an oral, month-to-month
lease.  The  Company  believes  that  the  terms of this  lease  are at least as
favorable as it could  obtain from an  unaffiliated  third party.  See Item 13 -
Certain Relationships and Related Party Transactions.

ITEM 3.     LEGAL PROCEEDINGS.

     There are no legal  proceedings  pending against the Company or to which it
is a party which, if adversely  determined,  would result in a material  adverse
effect on the Company.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     None.



                                                      

<PAGE>





                                                      PART II

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's  Common Stock is quoted on the NASDAQ  National Market System
under the symbol "EVTC".  The following  table sets forth,  for the period since
October 1, 1995,  the high and low prices for the Common  Stock as  reported  by
NASDAQ.  The NASDAQ  quotations  represent  quotations  between  dealers without
adjustments for retail markups, markdowns or commissions and may not necessarily
represent actual transactions.

                                   Common Stock
                                   High     Low

Year Ended September 30, 1997

First Quarter.................... $ 8 7/8   6 5/8

Second Quarter...................   8 1/4   6 7/8

Third Quarter....................   9 7/8   7 1/8

Fourth Quarter...................  10 7/8   7 7/8

Year Ended September 30, 1996

First Quarter.................... $12-3/8   $8-1/2

Second Quarter...................  10        7-1/2

Third Quarter....................  10-7/8    6-5/8

Fourth Quarter...................  11-1/8    7-3/8


      As of September  30, 1997,  there were 41 record  holders of the Company's
Common Stock.  The Company believes that there are in excess of 1,000 beneficial
owners of the Company's Common Stock.

     The Company has not paid any cash  dividends  on its Common  Stock and does
not currently intend to declare or pay cash dividends in the foreseeable future.
The Company  intends to retain any  earnings  that may be  generated  to provide
funds for the operation and expansion of its business.




                                                      

<PAGE>



ITEM 6     SELECTED FINANCIAL DATA

         Selected  financial  data is set forth  below as of and for each of the
five  fiscal  years  ended  September  30,  1997.  This  data  should be read in
conjunction with  "Management's  Discussion and Analysis of Financial  Condition
and Results of  Operations"  and the audited  financial  statements  and related
notes thereto included elsewhere in this Report.


  

                                         Years Ended September 30,
                                    1997     1996     1995      1994     1993
                      (In thousands, except per share data)
STATEMENT OF INCOME DATA:

Net Sales..................        $57,450   $34,543   $34,678  $24,727 $21,895
Cost of Sales..............         47,301    24,330    24,914   17,400  15,088
Selling, General and
 Administrative Expenses...          7,386     6,843     6,199    4,645   4,818
Operating Income...........          2,763     3,370     3,565    2,682   1,988
Interest Expense...........          1,000       414       297      208     157
Income before Income Tax
  Expense..................          1,782     3,006     3,321    2,536   1,765
Income Tax Expense.........            897     1,278     1,338    1,033     709
Net Income.................        $   885    $1,728    $1,983  $ 1,504  $1,056
Net Income Per Common and
Common Equivalent Shares("Primary")$  0.18      0.34    $ 0.43  $  0.37  $ 0.27
Weighted Average
 Number of Common
 Shares Outstanding                  5,040     5,151     4,863    4,014   3,971



<TABLE>

<S>                                            <C>           <C>          <C>            <C>         <C>     
                                                                         September 30,
BALANCE SHEET DATA:                              1997          1996        1995          1994         1993
                                                ------        ------      ------        ------       -----
(In thousands)
Working Capital....                            $14,519       $15,538     $15,489       $ 4,484      $ 6,146
Total Assets.......                             36,934        31,907      22,164        13,427       11,318
Total Debt.........                             13,500         9,498       1,267         1,920        2,329
Total Shareholders'
 Equity............                            $18,595        19,064     $17,600       $ 8,187      $ 6,594





                                                      
</TABLE>

<PAGE>



ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS

Results of Operations

     General

     The  Company  is  engaged  in  the  marketing  and  sale  of  refrigerants,
refrigerant   reclaiming  services,   refrigerant   separation   services,   the
manufacture and distribution of refrigerant recycling and recovery equipment and
the recycling of hazardous waste materials from fluorescent light ballasts.  The
Company's  line  of  refrigerants  include  dichlorofluoromethane  ("R-12")  and
tetrafluoroethane ("R-134a"), marketed under the Company's "Arctic Air" label to
distributors  of  automotive  supplies for use by mechanics and  technicians  in
servicing  automotive air  conditioning  systems.  The Company markets R-134a in
spray   cans   under  its   customers'   private   labels  for  use  in  dusting
moisture-sensitive  equipment,  including  personal computer screens,  cabinets,
peripherals and photographic  equipment.  Through its  wholly-owned  subsidiary,
Refrigerant  Reclaim  Services,  Inc.,  ("RRSI")(d/b/a  Full Circle,  Inc.), the
Company markets  refrigerant  reclaiming  services as well as R-12, R-134a and a
variety of other  refrigerants  primarily to large users of air conditioning and
refrigeration   chemicals.   Through  its  wholly-owned  subsidiary  Envirogroup
Services,  Inc.  (d/b/a  Envirotech  Systems)  the  Company  has  developed  and
commercialized a line of equipment designed to recycle and recover  refrigerants
contained  in  air  conditioning   and   refrigeration   systems.   Through  its
wholly-owned  subsidiary  FulCircle  Recyclers,  Inc.  (d/b/a  Full  Circle) the
Company  is in  the  business  of  extracting  hazardous  waste  materials  from
fluorescent  light  ballasts and  arranging  environmentally  accepted  means of
treatment and disposal. The Company contracts for these disposals with regulated
PCB  Disposal  outlets.  The  Company  provides  services  to public  utilities,
governmental  agencies and commercial  industrial  organizations  throughout the
United  States.  Full  Circle is subject to the rules and  standards  of several
governmental  agencies and commercial  industrial  organizations  throughout the
United States.

     The Company's fiscal year-end is September 30.

     The  following  discussion  of results of  operations  for the fiscal years
ended September 30, 1997,  1996 and 1995 should be read in conjunction  with the
consolidated  financial  statements,   including  the  notes  thereto,  included
elsewhere in this Report. All of the Company's  historical  financial statements
presented herein include the effects of acquiring FulCircle  Recyclers,  Inc. on
December 31, 1995  accounted  for as a pooling of interests  and the purchase of
the assets of Global Refrigerant  Management,  Inc. ("Global") in February 1995.
As a result of the February 1995 purchase of Global, the Company's  consolidated
operating  results for 1995 include seven months with the assets of Global.  See
Notes to Consolidated Financial Statements for details of the acquisitions.




                                                      

<PAGE>




     Year ended September 30, 1997 compared to year ended September 30,
1996

     Net sales for the year  ended  September  30,  1997  were  $57,449,743,  as
compared to net sales of $34,542,675  for the year ended  September 30, 1996, an
increase of  $22,907,068,  or 66.3%.  The  increase  in net sales was  primarily
attributed to a 95.6% increase in sales of refrigerant products,  resulting from
increased  sales of R-134a  and  increased  sales of  reclaiming  services.  The
increase in net sales was offset by a 18.5%  decrease on sales of recycling  and
recovery equipment resulting from competitive forces and mild weather conditions
which  reduced  demand  for  such  products,  and a 22.4%  decrease  of  ballast
recycling sales due to enhanced competition.

     Cost of sales for the year ended  September  30, 1997 was  $47,300,645,  as
compared to $24,330,064 for the year ended September 30, 1996, which resulted in
a gross profit of  $10,149,098 or 17.7% in 1997 as compared to a gross profit of
$10,212,611  or 29.6% in 1996.  The decrease in the gross profit  percentage  in
fiscal 1997  related to the  Company's  efforts to increase  its market share of
refrigerant   products,   primarily   R-134a  and  reclaiming   services  sales.
Refrigerant product net sales represented approximately 88.1% of total net sales
in 1997 compared to 74.9% of total net sales in 1996 with a corresponding  18.9%
gross  profit  in 1997  compared  to 21.0% in 1996.  The  gross  profit  further
declined in 1997 as a result of  decreased  higher  margin  sales at the ballast
recycling  subsidiary  and decreased  sales in recycling and recovery  equipment
operations. Additionally, as a result of Management's decision at the end of the
mild 1997 summer to reduce sales prices of its commercial  refrigerant  recovery
equipment,  during the fourth  quarter of fiscal  1997,  the Company  recorded a
charge  of  approximately   $500,000  to  write  down  the  existing  commercial
refrigerant  recovery  equipment to its estimated  net  realizable  value.  Also
during  the  fourth  quarter  of  1997,   the  Company   recorded  a  charge  of
approximately  $1,100,000 to write down both automotive and commercial  recovery
equipment  raw  materials  inventories  for obsolete  and excess  (slow  moving)
inventory as well as for inventory shrink.

     Selling,  general and administrative expenses increased $543,482 or 7.9% to
$7,386,341 in 1997 from  $6,842,859 in 1996. The increase  primarily  relates to
expanding the  infrastructure of the refrigerant  recycling  business  including
sales offices and employees.

         Interest expense increased $595,554 from $413,554 in 1996 to $1,009,108
in 1997.  The increase is a result of increased  borrowing  during the year used
primarily to maintain the Company's supply of R- 12.

     During the year ended September 30, 1997, the Company's  effective tax rate
increased to 50.3% from 42.5% in 1996.  The increase  relates to and increase in
state income taxes.

     Year ended September 30, 1996 as compared to year ended September
30, 1995

     Net  sales  for the year  ended  September  30,  1996 was  $34,542,675,  as
compared to net sales of  $34,677,971  for the year ended  September 30, 1995, a
decrease of  $135,296,  or  approximately  0.4%.  The  decrease in net sales was
primarily  attributable to a 3.8% decrease in ballast  recycling sales which was
partially offset by an 9.1% increase on a smaller sales dollar base in recycling
and recovery  equipment  sales.  Refrigerant  related  revenues  were  virtually
unchanged.  Equipment revenues were increased  primarily as a result of the sale
of  equipment  assets  purchased  from Wynn's  International,  Inc.  ("Wynn's").
Management  believes that equipment  revenues  remain lower than expected due in
large part to the continued lack of governmental enforcement of laws prohibiting
the venting of CFC refrigerants into the atmosphere. The lack of enforcement has
resulted in postponed  purchasing  decisions by the  contractors and technicians
required  by law to own  equipment  of the  type  manufactured  and  sold by the
Company.

     As a result of the prohibition of the manufacture of new CFC  refrigerants,
which  includes  R-12,  the Company  will no longer  have ready  access to newly
manufactured  R-12. As a result,  the Company's  ability to maintain its current
level of R-12 sales for the  foreseeable  future will be  dependent,  to a large
extent,  upon the availability of adequate sources of stockpiled and alternative
supplies.  While  Management  believes that in 1997 it has access to significant
sources  and  amounts  of R-12 and plans to  continue  to seek to  increase  its
sources of alternative supply,  beyond 1997 the Company's access to R-12 is much
less  certain.  The  Company  discontinued  the  sale  of R-22  used in  dusting
applications  on January 1, 1994 while  replacing it with R- 134a.  As a result,
the  Company  has  become  increasingly  dependent  on  sales  of  R-134a,  as a
replacement  for both R-12 and R-22,  and  believes  that  R-134a will become an
increasing portion of the Company's revenues in the future.

     Cost of sales for the year ended  September  30, 1996 was  $24,330,064,  as
compared to  $24,914,443  for the year ended  September  30, 1995, a decrease of
$584,379.  Of this decrease,  approximately  $1.3 million was  attributable to a
decrease in refrigerant  related costs which was partially offset by an increase
in equipment  related  costs which were related to the  inefficiencies  incurred
following the relocation of the manufacturing plant from Michigan to Texas.

     Selling,  general and  administrative  expenses increased to $6,842,859 for
the year  ended  September  30,  1996 from  $6,198,552  for the prior  year,  an
increase of $644,307.  The majority of this increase is attributable to expenses
associated  with  increased  sales  and  administrative  expenses  at  RRSI,  as
operations  and  staffing  were  significantly  increased  during  the year.  In
addition,  expenses  related to the purchase of FulCircle  Recyclers,  Inc. were
recognized  in the period as expenses.  The excise tax,  paid by the Company for
virgin CFC floor stocks as of December 31, 1995 was $.45 per pound for the year.
The Company  believes that expenses  associated with the Federal Excise Tax will
continue.  Such  tax for  fiscal  year  1997  will  also be $.45 per  pound.  In
addition, the Company is continually seeking to enhance its current products and
develop new  versions  of its  products.  However,  the  Company  believes  that
expenses to enhance or develop  new  products  for its  recycling  and  recovery
equipment  will not  materially  change the  relationship  between the Company's
revenues and expenses.

     During the year ended  September 30, 1996 the Company's  effective tax rate
increased from approximately 40.3% to 42.5%. This increase reflects the relative
shift of income to states with higher tax rates.

     The Company  generated net income during the year ended  September 30, 1996
of  $1,728,207,  as compared to net income of  $1,982,654  during the year ended
September 30, 1995, a 12.8% decrease.

Liquidity and Capital Resources

         The Company had working  capital of  $14,518,736  at September 30, 1997
compared to  $15,537,803  at September 30, 1996, a decrease of  $1,019,067.  The
significant  components of working  capital  changed during the year as follows:
Cash and cash  equivalents  increased  $1,378,362 from $942,709 at September 30,
1996  to  $2,321,071  at  September  30,  1997;  accounts  receivable  increased
$1,167,011;  inventory increased $1,825,056; notes payable increased $4,002,481;
and accounts payable increased $1,562,185. Accounts receivable, inventory, notes
payable and accounts  payable  increased  as a result of increased  sales in the
refrigerant product businesses.

     The Company relies on its bank debt as a source of funds for operations.  
The Company has financed its working capital requirements through operating
cash flow and a $13.5 million working capital  revolving line of credit obtained
from a bank (the "Credit Facility").

     The Credit Facility  provides for advances bearing interest per annum based
upon a percentage of the Bank's prime rate or at 1.75% over LIBOR and is secured
by a pledge of  substantially  all the  Company's  assets.  The Credit  Facility
expires on June 30, 1998. The Company  expects to renew the Credit Facility with
the Bank during June 1998.




                                                      

<PAGE>



     Net cash used in operating  activities  for the years ended  September  30,
1997 and 1996 was  $395,038  and  $9,907,485,  respectively.  Net cash (used in)
investing  activities  in  1997  of  $(874,923) and in 1996 of $(1,177,446)
primarily  relates  to  capital expenditures  during the year. The net cash
provided by financing  activities in 1997 of $2,648,323  primarily  reflects
the proceeds from the utilization of the Company's Credit Facility during the
period offset by approximately $2,188,000 of funds used in 1997 for stock 
repurchases.

     The Company anticipates,  based on currently proposed plans and assumptions
relating  to its  operations,  that  cash flow from  operations  and its  Credit
Facility are sufficient to satisfy its  contemplated  cash  requirements  for at
least 12 months. These assumptions give full effect to the Company's current and
desired levels of refrigerant inventory, including R-12 and R134a; recycling and
recovery equipment; joint venture arrangements and planned capital expenditures.
In the event that the Company's plans change, its assumptions change or prove to
be inaccurate  to fund  operations  (due to  unanticipated  expenses,  technical
problems  or  difficulties  otherwise),  the  Company  could be required to seek
additional financing sooner than anticipated.

     As of the date of this Report,  other than as set forth in this Report, the
Company  has no material  commitments  for capital  expenditures,  research  and
development, or additional employees.


Seasonality

     Refrigerant  sales are highly  seasonal,  with  Company  shipments  of such
products  heavily  concentrated in the months of March through July,  reflecting
seasonal  use and  sales  in  advance  of the  seasonal  use of  automobile  air
conditioning  systems in most regions of the United States.  The Company expects
that sales of R-134a for use in servicing  automobile air  conditioning  systems
will also be  seasonal  in  nature.  Accordingly,  the first and  fourth  fiscal
quarters  of the  Company's  operations  have been  characterized  by  inventory
build-up and seasonal operating losses resulting in periodic operating cash flow
short falls,  which in the past necessitated loans from the Company's banks. The
Company  believes  that its seasonal  cash needs are  adequately  handled by the
Company's Credit Facility. In addition, based on experience to date, the Company
anticipates  that  a  substantial  portion  of  its  customers  for  refrigerant
recycling and recovery  equipment  will place their orders for equipment  during
the second and third fiscal quarters.


Year 2000

     During recent years,  there has been  significant  global  awareness raised
regarding the potential  disruption to business  operations  worldwide resulting
from the inability of current technology to process properly the change from the
year 1999 to 2000. Although, based on a review of its data processing, operating
and other computer-based systems, the Company does not currently believe that it
will experience any significant  adverse  effects or material  unbudgeted  costs
resulting  therefrom,  the Company  cannot provide any assurance in this regard,
and any  such  costs  or  effect  could  materially  and  adversely  effect  the
operations of the Company.

Recent Accounting Pronouncements

     In June 1997,  Statement of Financial  Accounting  Standards (SFAS) No. 130
(SFAS 130), "Reporting  Comprehensive Income," was issued to establish standards
for reporting and  displaying of  comprehensive  income and its  components in a
full  set of  general-purpose  financial  statements.  This  statement  requires
disclosure  of the  components of  comprehensive  income  including  among other
things,  foreign currency  translation  adjustments,  minimum pension  liability
items and unrealized gains and losses on certain  investments in debt and equity
securities.  The Company would be required to show  components of  comprehensive
income in a financial  statement  displayed as prominently as the other required
financial  statements.  The  statement is effective  for fiscal years  beginning
after  December 15, 1997.  The Company  anticipates  adoption this  Statement in
fiscal 1999.

     In June 1997,  SFAS 131  "Disclosures  About  Segments of an Enterprise and
Related  Information",  was issued to establish  standards  for public  business
enterprises  reporting  information  regarding  operating segments in annual and
interim  financial  statements  issued  to  shareholders.  It  also  establishes
standards for related disclosures about products and services,  geographic areas
and major  customers.  This statement is effective for financial  statements for
periods beginning after December 15, 1997. The Company anticipates adopting this
Statement in fiscal 1999 which will result in certain additional  disclosures to
the current segment disclosure information.

Forward Looking Information

     This  Annual  Report on Form 10-K may contain  forward-looking  information
about the Company.  The following  factors,  and others, may cause the Company's
actual results to differ from those set forth in any forward-looking  statements
made  by  the  Company.   Some  of  the  most  significant  factors  include  an
unanticipated downturn in the demand for the Company's refrigerant products, the
lack of demand for the Company's  refrigerant  recycling and recovery equipment,
and any unforeseen inefficiencies at the Company's new manufacturing facility in
Texas.  Accordingly,  there can be no assurances that any future results will be
achieved.




                                                      

<PAGE>




ITEM 8.                               FINANCIAL STATEMENTS.

          INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                    Page

Independent Auditors' Reports                                       27-28

Consolidated Balance Sheets as of
 September 30, 1997 and 1996                                        29

Consolidated Statements of Income
 for each of the years ended September 30, 1997, 1996
 and 1995                                                           30

Consolidated  Statements  of  Stockholders'  Equity for
 each of the years  ended  September 30, 1997, 1996 and 1995        31

Consolidated  Statements of Cash Flows for each of the years 
ended September 30, 1997, 1996 and 1995                             32

Notes to Consolidated Financial Statements                          33-47

__________________

Schedule II - Valuation and Qualifying Accounts                     48

                                                      

<PAGE>



 
                                           Independent Auditors' Report


The Board of Directors
Environmental Technologies Corp.:


We have audited the  accompanying  consolidated  balance sheets of Environmental
Technologies  Corp. and  subsidiaries as of September 30, 1997 and 1996, and the
related consolidated statements of income,  stockholders' equity, and cash flows
for each of the years in the  three-year  period ended  September  30, 1997.  In
connection with our audits of the  consolidated  financial  statements,  we also
have audited the financial  statement schedule listed in the accompanying index.
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements  and  financial  statement
schedule  based on our  audits.  We did not audit the  financial  statements  of
FulCircle  Recyclers,  Inc.  as of and for the year ended  September  30,  1995,
acquired  pursuant  to a  business  combination  as of  December  31,  1995  and
accounted  for as a pooling of interests,  which  financial  statements  reflect
total assets and net sales constituting 7% and 17%, respectively, of the related
consolidated  totals in 1995.  Those financial  statements were audited by other
auditors whose report has been  furnished to us, and our opinion,  insofar as it
relates to the amounts included for FulCircle Recyclers,  Inc. as of and for the
year  ended  September  30,  1995,  is based  solely on the  report of the other
auditors.

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,  based on our  audits  and the  report of other  auditors,  the
consolidated  financial  statements  referred to above  present  fairly,  in all
material respects,  the financial  position of Environmental  Technologies Corp.
and  subsidiaries  as of September  30, 1997 and 1996,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  September  30, 1997 in  conformity  with  generally  accepted  accounting
principles.  Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole,  presents  fairly,  in all material  respects,  the information set forth
therein.



KPMG Peat Marwick LLP

Short Hills, New Jersey
December 30, 1997



                                                    


<PAGE>



                                           Independent Auditors' Report


FulCircle Recyclers, Inc.:


     We have  audited  the  balance  sheet of  FulCircle  Recyclers,  Inc. as of
September 30, 1995 and the related statements of income,  retained earnings, and
cash flows for the year then  ended (not  presented  separately  herein).  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

     We conducted  our audit 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 audit provides a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material respects, the financial position of FulCircle Recyclers, Inc. as
of September 30, 1995,  and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.

     The Company  agreed to merge with  Environmental  Technologies  Corp. in an
acquisition accounted for using the pooling of interest method.




Yohalem Gillman & Company

New York, New York
December 30, 1995



                                                     


<PAGE>



                                         ENVIRONMENTAL TECHNOLOGIES CORP.
                                                 AND SUBSIDIARIES

                                            Consolidated Balance Sheets

                                            September 30, 1997 and 1996

<TABLE>
<CAPTION>
 
                            Assets                                              1997              1996
                                                                                ----              ----
<S>                                                                             <C>                <C> 

Current assets:
    Cash and cash equivalents                                                    $ 2,321,071          942,709
    Accounts receivable, less allowance for doubtful
       accounts of $317,430 in 1997 and $191,085
       in 1996                                                                     5,665,329        4,498,318
    Due from officer                                                                 100,000               -
    Inventories                                                                   24,430,301       22,605,245
    Prepaid expenses and other current assets                                        341,237          334,336
                                                                                  ----------       ----------
                  Total current assets                                            32,857,938       28,380,608

Property and equipment, net                                                        2,243,797        2,153,150
Goodwill, net                                                                        610,101          659,236
Other assets                                                                       1,222,520          713,733
                                                                                  ----------       ----------        
                                                                                 $36,934,356       31,906,727
                                                                                  ==========       ==========

             Liabilities and Stockholders' Equity

Current liabilities:
    Notes payable                                                                 13,500,000        9,497,519
    Accounts payable                                                               3,690,787        2,128,602
    Accrued liabilities                                                            1,148,415        1,216,684
                                                                                  ----------       ----------

                  Total current liabilities                                       18,339,202       12,842,805
                                                                                  ----------       -----------

Stockholders' equity:
    Preferred stock, $.01 par value.  Authorized
       1,000,000 shares; none issued or out-
       standing                                                                          -                 -
    Common stock, $.01 par value.  Authorized
       10,000,000 shares; issued 4,989,719
       shares in 1997 and 5,153,411 shares
       in 1996                                                                        49,897           51,534
    Additional paid-in capital                                                    11,396,532       12,749,053
    Retained earnings                                                              7,148,725        6,263,335
                                                                                  ----------       ----------
                  Total stockholders' equity                                      18,595,154       19,063,922

Commitments and contingencies                                                     ----------       ----------

                                                                                 $36,934,356       31,906,727
                                                                                  ==========       ==========


See accompanying notes to consolidated financial statements.

                                                     

</TABLE>

<PAGE>



                                         ENVIRONMENTAL TECHNOLOGIES CORP.
                                                 AND SUBSIDIARIES

                                         Consolidated Statements of Income

                                   Years ended September 30, 1997, 1996 and 1995





<TABLE>
<CAPTION>
<S>                                                          <C>                     <C>           <C>

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

Net sales                                                  $57,449,743               34,542,675    34,677,971
Cost of sales                                               47,300,645               24,330,064    24,914,443
                                                           -------------           -------------   ----------
                  Gross profit                              10,149,098               10,212,611     9,763,528

Selling, general and administrative
    expenses                                                 7,386,341                6,842,859     6,198,552
                                                           -------------            -------------   ----------
                  Operating income                           2,762,757                3,369,752     3,564,976

Interest expense                                             1,009,108                  413,554       296,534
Other income, net                                              (28,741)                 (50,009)      (52,212)
                                                           -------------            -------------    ------------
                  Income before income
                  tax expense                                1,782,390                3,006,207     3,320,654

Income tax expense                                             897,000                1,278,000     1,338,000
                                                           -------------            -------------    -------------

                  Net income                              $    885,390                1,728,207      1,982,654
                                                           =============            =============    ============

Net income per common and common equivalent shares:
       Primary                                               $     .18                      .34            .43
                                                                   ===                       ===           ===

       Fully diluted                                         $    .18                       .34            .42
                                                                   ===                       ===           ===


See accompanying notes to consolidated financial statements.


</TABLE>
                                                    


<PAGE>



                                      ENVIRONMENTAL TECHNOLOGIES CORP.
                                            AND SUBSIDIARIES
 
                             Consolidated Statements of Stockholders' Equity

                               Years ended September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>



<S>                                                            <C>            <C>         <C>          <C>           <C>   

                                                                                         Additional
                                                                     Common stock          paid-in      Retained
                                                                 Shares        Amount      capital      earnings      Total


Balance at September 30, 1994                                  4,013,942      $ 40,139    4,725,134    3,422,036      8,187,309
Issuance of common stock for Global 
  Refrigerant Management, Inc.                                    58,089           581      499,419        -            500,000
Proceeds from exercise of warrants                             1,078,380        10,784    7,200,382        -          7,211,166
Distributions to shareholders                                       -              -       (70,566)     (619,923)      (690,489)
Contributions to capital                                            -              -       350,000         -            350,000
Adjustment to conform fiscal year of
 FulCircle Recyclers, Inc. and eliminate 
 duplicative net income                                             -              -          -          (59,631)       (59,631)
Pro forma tax adjustment                                            -              -       119,265         -            119,265
Net income                                                          -              -          -        1,982,654      1,982,654
                                                              ----------        -------    -------     ----------     ----------
Balance at September 30, 1995                                  5,150,411        51,504  12,823,634     4,725,136     17,600,274

Distributions to shareholders                                       -              -          -         (190,008)      (190,008)
Pro forma tax adjustment                                            -              -       (34,000)        -            (34,000)
Proceeds from options exercised                                    3,000            30      17,970         -             18,000
Costs related to warrants                                           -              -       (58,551)        -            (58,551)
Net income                                                          -              -          -         1,728,207     1,728,207
                                                              ----------        -------    --------     ---------     ----------
Balance at September 30, 1996                                  5,153,411        51,534   12,749,053     6,263,335    19,063,922

Proceeds from options exercised                                   47,833           478      373,970        -            374,448
Proceeds from warrants exercised                                  61,500           615      458,760        -            459,375
Stock repurchase and retirement                                 (273,025)       (2,730)  (2,185,251)       -         (2,187,981)
Net income                                                          -               -         -           885,390       885,390
                                                              ----------        -------   ----------     ---------   -----------

Balance at September 30, 1997                                  4,989,719       $49,897   11,396,532     7,148,725    18,595,154
                                                              ==========        =======   =========     =========    ==========    



See accompanying notes to consolidated financial statements.

</TABLE>

<PAGE>



                                        ENVIRONMENTAL TECHNOLOGIES CORP.
                                                AND SUBSIDIARIES

                                     Consolidated Statements of Cash Flows

                                 Years ended September 30, 1997, 1996 and 1995



<TABLE>
<CAPTION>
<S>                                                                                  <C>                <C>            <C> 
                                                                                     1997               1996            1995
                                                                                     ----               ----            ----

Cash flows from operating activities:
    Net income                                                                       885,390           1,728,207         1,982,654
    Adjustments to reconcile net income to net cash
       (used in) provided by operating activities:
          Pro forma tax adjustment                                                      -              (34,000)          119,265
          Conform fiscal year of FulCircle Recyclers, Inc.
              and eliminate duplicate net income                                        -                   -            (59,631)
          Depreciation and amortization                                              848,414             706,096           400,569
          Provision for bad debt                                                     290,659             206,683           185,124
          (Gain) loss on sale of equipment                                           (15,003)              3,422                -
          (Increase) decrease in assets:
              Accounts receivable                                                 (1,557,670)            234,417        (1,444,943)
              Inventory                                                           (1,825,056)        (12,658,532)         (123,688)
              Prepaid expenses and other current assets                               (6,901)            438,750          (219,354)
              Other assets                                                          (508,787)           (580,376)          (35,476)
          Increase (decrease) in accounts payable and
              accrued liabilities                                                  1,493,916              47,848           (22,477)
                                                                                  -------------     ---------------    -------------

                  Net cash (used in) provided by
                     operating activities                                          (395,038)         (9,907,485)          782,043
                                                                                  -------------     ---------------    -------------

Cash flows from investing activities:
    Proceeds from sale of equipment                                                 52,485              70,215                -
    Capital expenditures                                                          (927,408)         (1,247,661)         (882,743)
    Acquisition of business                                                             -                   -         (1,925,000)
                                                                                  -------------     --------------     -------------

                  Net cash used in investing activities                           (874,923)         (1,177,446)       (2,807,743)
                                                                                  -------------     ---------------    -------------

Cash flows from financing activities:
    Principal payments on note payable - related party                                 -                  -            (252,144)
    Net proceeds (payments) on notes payable                                      4,002,481          8,997,519       (1,911,749)
    Principal payments on long-term debt                                               -              (766,669)        (239,164)
    Costs related to warrants                                                          -               (58,551)            -
    Distributions to stockholders                                                      -              (190,008)        (690,489)
    Proceeds from long-term debt                                                       -                 -            1,000,000
    Stock repurchase and retirement                                              (2,187,981)             -                 -
    Proceeds from exercise of warrants                                              459,375              -            7,211,166
    Proceeds from contributions to capital                                             -                 -              350,000
    Proceeds from options exercised                                                 374,448             18,000              -
                                                                                 -------------     ---------------    --------------

                  Net cash provided by financing
                     activities                                                   2,648,323          8,000,291        5,467,620
                                                                                 -------------     ---------------    --------------

                  Net increase (decrease) in cash and
                     cash equivalents                                             1,378,362         (3,084,640)       3,441,920

Cash and cash equivalents at beginning of year                                      942,709          4,027,349          585,429
                                                                                 -------------     ---------------    --------------

Cash and cash equivalents at end of year                                        $ 2,321,071            942,709        4,027,349
                                                                                 =============     ===============    ==============


See accompanying notes to consolidated financial statements.

</TABLE>

                                                    


<PAGE>



                                         ENVIRONMENTAL TECHNOLOGIES CORP.
                                                 AND SUBSIDIARIES

                                    Notes to Consolidated Financial Statements

                                            September 30, 1997 and 1996



     (1) Nature of Business,  Basis of Presentation  and Significant  Accounting
         Policies
       (a)    Nature of Business

     Environmental   Technologies   Corp.  and  subsidiaries  (the  Company)  is
primarily  engaged  in:  the  marketing  and  sale  of  refrigerants  (including
dichlorofluoromethane  (R-12)  and  tetrafluoroethane   (R-134a)),   refrigerant
reclaiming services;  the manufacture and distribution of refrigerant  recycling
and recovery  equipment for automotive and commercial  use; and the recycling of
fluorescent light fixture ballasts and lamps.

       (b)    Basis of Presentation

              On December 30, 1995, the Company  executed and  consummated as of
December 31, 1995, an agreement under which it agreed to issue 1,150,000  shares
of common stock in exchange for all of the issued and outstanding  capital stock
of FulCircle Recyclers, Inc. (FulCircle). The acquisition has been accounted for
using  the  pooling  of  interests  method,  and the  accompanying  consolidated
financial   statements  include  the  accounts  of  FulCircle  for  all  periods
presented.

              As FulCircle had elected to be taxed as an S corporation under the
provisions of the Internal Revenue Code, income tax expense has been adjusted to
reflect  the  effective  C  corporation  income tax rate of the  Company for all
periods  presented.  The pro forma  income  tax  expense of  FulCircle  has been
credited to additional paid-in capital.

              Financial information attributable to the Company and FulCircle is
set forth below:

<TABLE>
<CAPTION>
<S>                                                         <C>                  <C>                <C> 

                                                                   Environ-
                                                                    mental         FulCircle
                                                                 Technologies      Recyclers
                                                                     Corp.           Inc.            Combined

              Year ended September 30, 1995:
                 Net sales                                   $     28,665,227        6,012,744        34,677,971
                 Net income                                         1,776,187          206,467         1,982,654
                 Net income per common and
                    common equivalent shares:
                        Primary                                       .50               -               .43
                        Fully diluted                                 .49               -               .42
                                                                =============     ============    ==============


       (c)    Risks and Uncertainties
</TABLE>

     Financial   instruments   which   potentially   subject   the   Company  to
concentrations  of credit  risk  consist  of cash,  cash  equivalents  and trade
receivables.  The  Company  considers  such  risk in  placing  its cash and cash
equivalents in financial  institutions and other  instruments.  Concentration of
credit risk with respect to trade  receivables  is limited  because of the large
number  of  customers  that  make  up the  Company's  customer  base  and  their
dispersion in various industries and across different  geographies.  The Company
performs ongoing credit evaluations of its customers'  financial  condition.  No
single customer accounted for more than 10% of total net sales in 1997 and 1996.

     In  conformity  with  generally  accepted  accounting  principles,
management  of the  Company  has  made a number  of  estimates  and  assumptions
relating to the reported amounts of assets and liabilities and the disclosure of
contingent  assets and  liabilities  and the  reported  amounts of revenues  and
expenses to prepare the  Company's  consolidated  financial  statements.  Actual
results could differ from these estimates.

     Some of the  Company's  products and services are  regulated by the Federal
Clean Air Act (the Clean Air Act) and the regulations  promulgated thereunder by
the   Environmental   Protection   Agency  (EPA),   as  well  as  certain  state
environmental  regulations.  As such, the Company's  business is affected by the
requirements of the Clean Air Act, the EPA and other  regulations and the degree
of enforcement thereof.

     The  Company's  sales are  highly  seasonal  in  nature,  as  industry-wide
refrigerant  and related  equipment  sales are related to weather  temperatures,
primarily in the warmer months. The Company's historical  refrigerant sales have
primarily come from the sale of R-12, a refrigerant that is a chlorofluorocarbon
(CFC). As of January 1, 1996, however,  CFC-based  refrigerants can no longer be
manufactured  under  current  regulations.  CFC  replacement  products,  such as
R-134a, are now readily available to the Company.  Notwithstanding the cessation
of a predictable  manufactured supply of R-12,  management believes it will have
access to an adequate  supply of R-12 in fiscal 1998.  However,  beyond 1998 the
Company's access to R-12 is much less certain.  Management believes R-134a sales
will offset,  to a great  extent,  the decline of R-12 sales in future  periods;
however,  it could be  several  years  for a  meaningful  market  for  R-134a to
develop.

     The Company has a  significant  supply of commercial  refrigerant  recovery
equipment on hand at September 30, 1997. Management believes the demand for this
equipment  will  increase  in  1998 as  customers  in both  the  automotive  and
commercial  sectors  comply  with the Clean Air Act and as the  demand for R-12,
R-12 replacement  refrigerants  and other  refrigerants is expected to increase,
thus  heightening  the  economic  usefulness  of  the  equipment.  Additionally,
management  believes that the  imposition of  additional  Federal  requirements,
effective  November 1995, for the automotive  sector to recycle R-134a will also
have a favorable impact on the sales of this equipment. However, the achievement
of such anticipated sales cannot be assured.  Further,  the Company adjusted the
carrying value of certain  inventories to its estimated net realizable  value in
1997 since a reduction in sales prices may be offered by the Company to increase
sales (see note 3).


                                                      


<PAGE>


                                     ENVIRONMENTAL TECHNOLOGIES CORP.
                                             AND SUBSIDIARIES

                          Notes to Consolidated Financial Statements, Continued





 (1), Continued

     The Company's ballast  recycling  subsidiary has obtained approval from the
EPA as a qualified  recycler of waste materials.  In connection  therewith,  the
Company  entered into an agreement  with the EPA to set aside in a Closure Trust
Fund,  beginning  in  1994,   approximately   $112,500  (annually  adjusted  for
inflation),   which  is  payable  over  a  three-year  period  in  equal  annual
installments  of $37,500.  The purpose of this fund is to  accumulate  resources
required  to clean up the  Company's  recycling  facility  upon  closure.  As of
September 30, 1997,  the Company has fully funded this  obligation.  The Company
does not expect any significant  cleanup costs in connection with the closure of
its facility.

 (d)  Principles  of  Consolidation  

     The consolidated  financial  statements include the financial statements of
Environmental  Technologies  Corp.  and  its  wholly-owned   subsidiaries.   All
significant  intercompany  balances and  transactions  have been  eliminated  in
consolidation.

     The Company accounts for its 50% ownership  interests in two joint ventures
using the equity method.

(e) Revenue  Recognition  

     Sales are  generally  recorded by the Company when  products are shipped to
customers or services are performed.  Ballast recycling  revenues are recognized
upon the receipt and acceptance of waste  material at its recycling  facility in
the  Bronx,  New York.  Revenue  from sales of  recyclable  scrap  materials  is
recognized when shipped.  Equipment products shipped on consignment to customers
and sales representatives are not included in sales.

(f) Cash  Equivalents 

     The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.

(g) Marketable Equity Securities  

     Included in prepaid expenses and other current assets at September 30, 1997
and 1996 are  marketable  equity  securities of  approximately  $ 0 and $40,000,
respectively.  The Company  adopted the  provisions  of  Statement  of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," during the year ended September 30, 1995. Under SFAS No.
115, the Company has  classified  its  marketable  equity  securities as trading
securities.  Trading  securities are bought and held principally for the purpose
of selling them in the near term. Trading securities are recorded at fair value.
Unrealized  holding  gains and  losses on trading  securities  are  included  in
earnings. The effect of adopting SFAS No. 115 in fiscal 1995 was immaterial.

                                                       


<PAGE>


                                     ENVIRONMENTAL TECHNOLOGIES CORP.
                                             AND SUBSIDIARIES

                          Notes to Consolidated Financial Statements, Continued





 (1), Continued

       (h)    Inventories

              Inventory  is stated at the  lower of cost or  market,  determined
using the average cost and the first-in, first-out (FIFO) methods.

       (i)    Property and Equipment

     Property and equipment are stated at cost.  Depreciation  is computed using
the  straight-line and declining balance methods over the estimated useful lives
of the assets.  Costs of  maintenance  and  repairs are charged to expense  when
incurred.

       (j)    Goodwill

              Goodwill,  which  represents  the  excess of cost over net  assets
acquired, is being amortized over 15 years using the straight-line method.

       (k)    Excise Tax

     The federal government imposed a $0.45 per pound excise tax on certain R-12
and other CFC-based refrigerants owned by entities holding them for resale as of
January 1, 1997 and 1996. The Company paid excise tax on certain CFC refrigerant
inventory on hand at January 1, 1997 and 1996 and  accounted  for this tax as an
expense in the respective fiscal year. A $0.45 per pound excise tax will also be
imposed on January  1, 1998 for  certain  R-12 owned at January 1, 1998 and this
tax will be payable in June 1998.

       (l)    Income Taxes

     Income  taxes are  accounted  for using  the  asset and  liability  method.
Deferred  tax  assets  and   liabilities  are  recognized  for  the  future  tax
consequences  attributable  to  differences  between  the  carrying  amounts  of
existing  assets and  liabilities  and their  respective tax bases and operating
loss and tax credit  carryforwards.  Deferred  tax assets  and  liabilities  are
measured  using  enacted tax rates  expected  to apply to taxable  income in the
years in which those  temporary  differences  are  expected to be  recovered  or
settled.  The effect on deferred tax assets and  liabilities  of a change in tax
rates is recognized in income in the period that includes the enactment date.
    
   (m)    Income Per Share

              For 1997 and 1996,  both primary and fully  diluted net income per
share is based upon the weighted average number of shares outstanding during the
year (5,040,398  weighted average shares in 1997 and 5,150,911  weighted average
shares in 1996).

     In February 1997 the Financial  Accounting  Standard  Board issued SFAS No.
128, "Earnings Per Share," which is required to be adopted on December 31, 1997.
At that time,  the Company will be required to change the method  currently used
to compute  earnings per share and to restate all prior  periods.  Under the new
requirements, primary earnings per share is replaced by a new measure call basic
earnings per share which excludes common stock  equivalents.  The impact of SFAS
No. 128 on the  calculation of fully diluted  earnings per share is not expected
to be  material.  The impact of the new  statement  would not be material to the
Company's  reported  earnings  per share as both  primary and fully  diluted net
income per share in 1997 and 1996 is based upon the weighted  average  number of
shares outstanding during the year.
     Net  income  per  share in  fiscal  1995 is  computed  on the  basis of the
weighted  average  number  of  common  shares  and  common   equivalent   shares
outstanding  during the period  (4,862,648  for primary and  4,878,633 for fully
diluted after giving effect to 1,150,000  shares to be issued in connection with
the  acquisition  of  FulCircle,  accounted  for as a pooling of  interests)  in
accordance  with the  modified  treasury  stock  method  through  the date  that
outstanding  options and  warrants  exceeded  20% of the  Company's  outstanding
common stock, and in accordance with the treasury stock method thereafter. Under
such approach,  496,396 and 512,381 incremental shares for the primary and fully
diluted  calculations,  respectively,  have been added to the  weighted  average
number of shares outstanding (4,366,252),  and interest expense has been reduced
and  investment  income has been  increased  by an  aggregate  of  approximately
$92,000, net of tax ($83,000 for purposes of the fully diluted calculation).

       (n)    Fair Value of Financial Instruments

     Cash  and cash  equivalents,  accounts  receivable,  accounts  payable  and
accrued  expenses are  reflected in the  consolidated  financial  statements  at
carrying value,  which  approximates  fair value due to the short-term nature of
these instruments.  The carrying value of the Company's borrowings  approximates
the fair value based on the current  rates  available to the Company for similar
instruments.
    
     (o) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
             
     The Company  adopted the  provisions of SFAS No. 121,  "Accounting  for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," as
of October 1, 1996. This statement  requires that long-lived  assets and certain
identifiable  intangibles be reviewed for impairment  whenever events or changes
in  circumstances  indicate  that the  carrying  amount  of an asset  may not be
recoverable.  Recoverability  of  assets  to be held and used is  measured  by a
comparison  of the  carrying  amount of the  assets to the future net cash flows
expected  to be  generated  by the asset.  If such assets are  considered  to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower

                                                     


<PAGE>


                                     ENVIRONMENTAL TECHNOLOGIES CORP.
                                             AND SUBSIDIARIES

                          Notes to Consolidated Financial Statements, Continued





 (1), Continued

     of the  carrying  amount or fair value less the cost to sell.  Adoption  of
this  statement  did not have an impact on the Company's  financial  position or
results of  operations  as the Company  previously  followed the basic tenets of
this statement.

       (p)    Stock-Based Compensation

     Effective  as of  October  1,  1996,  the  Company  adopted  SFAS No.  123,
"Accounting For Stock-Based Compensation." SFAS No. 123 encourages, but does not
require,   companies  to  record  compensation  cost  for  stock-based  employee
compensation  plans at fair value. The Company has chosen to continue to account
for  stock-based   employee   compensation  using  the  intrinsic  value  method
prescribed in Accounting  Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees,"  and related  interpretations.  Accordingly,  compensation
cost for stock  options is measured at the excess,  if any, of the quoted market
price at the date of the grant over the amount an  employee  must pay to acquire
the stock.  Because  the Company  grants  options at a price equal to the market
price of the stock at the date of grant  plus 10%,  no  compensation  expense is
recorded.  The Company,  as required,  has  provided  pro forma  disclosures  of
compensation expense as determined under the provisions of SFAS No. 123.


 (2)     Acquisitions

     In February  1995,  the Company  acquired the assets of Global  Refrigerant
Management,  Inc.  for total  consideration  of  $3,175,000.  The  consideration
included  cash of  $1,925,000,  notes of $750,000,  and 58,089  shares of common
stock valued at $500,000.  The  acquisition was accounted for using the purchase
method of  accounting.  The excess of cost over the net assets  acquired  at the
date of acquisition amounted to approximately $749,000. Accumulated amortization
at  September  30,  1997  and  1996  was  approximately  $139,000  and  $90,000,
respectively.

       The following  unaudited pro forma  financial  information for 1995 gives
effect  to the 1995  acquisition  as  noted  above as  though  such  acquisition
occurred  on  October  1,  1994,  after  giving  effect to  certain  adjustments
including amortization of goodwill,  depreciation and adjusted interest expense.
The following pro forma financial  information does not necessarily  reflect the
results of operations that would have occurred had the  acquisition  occurred on
October 1, 1994:


                                                         1995

                Net sales                           $  35,783,193
                Net income                              1,961,916
                Net income per share                      .42
                                                       =========



                                                     


<PAGE>


                                     ENVIRONMENTAL TECHNOLOGIES CORP.
                                             AND SUBSIDIARIES

                          Notes to Consolidated Financial Statements, Continued





 (3)     Inventories

       Inventories at September 30, 1997 and 1996 consist of the following:


                                                     1997               1996
                                                     ----               ----

                Raw materials                  $ 9,566,779          12,527,735
                Work in process                    113,050               -
                Finished goods                  14,750,472          10,077,510
                                               -------------         ----------

                  Total inventories            $24,430,301          $2,605,245
                                               =============        ============


     Management  believes  that due to a number  of  circumstances  (i.e.,  mild
weather  conditions,  lack of enforcement of certain November 15, 1995 Clean Air
Act provisions  and certain  production  difficulties  encountered in connection
with a move of its  facilities  from Michigan to Texas) the Company did not meet
sales  expectations  in  recent  years on its  commercial  refrigerant  recovery
equipment. However as a result of increased sales and marketing efforts in 1997,
management  expected that a substantial  portion of its  commercial  refrigerant
recovery equipment would be sold during 1997.

     During  1997,  the  Company  did not  sell all of its  existing  commercial
refrigerant  recovery equipment which,  management believes was primarily due to
mild summer  weather  conditions  resulting in reduced demand for the equipment.
The Company continues to believe that it will be able to sell  substantially all
of its existing commercial  refrigerant recovery equipment;  however, at the end
of the mild  summer of 1997,  Management  decided  that it expects to reduce the
selling price to a level below the previously  existing  carrying cost for these
units.  Consequently,  during the fourth  quarter of fiscal  1997,  the  Company
recorded a charge of  approximately  $500,000 to write down the existing
commercial refrigerant recovery equipment to its estimated net realizable value.
Additionally,  during the fourth quarter of fiscal 1997, the Company  recorded a
charge of  approximately  $1,100,000 to write down both  automotive and
commercial  recovery equipment raw material  inventories for obsolete and excess
(slow moving) inventory as well as for inventory shrink.

     Through  September  30,  1996,  the Company  carried  certain raw  material
inventory at LIFO. The estimated  replacement  cost of inventories  exceeded the
LIFO  inventory cost by $190,000 at September 30, 1995.  During 1996,  inventory
layers of this raw material  inventory  were reduced and LIFO  reserves were not
required as of September 30, 1996.  This  reduction  resulted in charging  lower
inventory  costs  prevailing in previous  years to cost of sales,  thus reducing
cost of sales  below the  amount  that  would  have  resulted  from  liquidating
inventory  recorded at prices at September  30, 1996.  The effect of this was an
increase in net income of approximately $109,000 or $.02 per share in 1996.


                                                     



<PAGE>


                                     ENVIRONMENTAL TECHNOLOGIES CORP.
                                             AND SUBSIDIARIES

                          Notes to Consolidated Financial Statements, Continued





 (4)     Property and Equipment

       Property and  equipment at September  30, 1997 and 1996 is  summarized as
follows:

<TABLE>
<CAPTION>
<S>                                                            <C>                     <C>            <C>

                                                                                                      Depreciable
                                                                       1997             1996             lives
                                                                       ----             ----             -----

       Machinery and equipment                                 $       3,522,110        2,929,650      2-7 years
       Office equipment                                                  948,732          745,588      2-5 years
       Vehicles                                                          176,942          164,810        5 years
       Leasehold improvements                                            254,404          206,688      2-5 years
                                                                  --------------    -------------      =========
                                                                       4,902,188        4,046,736

       Accumulated depreciation                                       (2,658,391)      (1,893,586)
                                                                  --------------    -------------

                                                               $       2,243,797        2,153,150

                                                                  ==============    =============
</TABLE>

       Leasehold  improvements  are amortized  over the shorter of the estimated
useful life of the assets or the lease term.


 (5)     Investments and Loans

     During the fiscal year ended September 30, 1995, the Company entered into a
50% joint venture with two unaffiliated individuals. The venture's name is Total
Transformation, Ltd. (TTL). TTL is researching the applicability of transforming
mixed or  contaminated  refrigerants  (defined as a hazardous  substance) into a
useful   by-product.   At  September   30,  1997  and  1996,   the  Company  has
advanced/invested  approximately  $183,000 and $152,000,  respectively,  in TTL,
which is  included  in other  assets in the  accompanying  consolidated  balance
sheets. TTL has had no significant operations through September 30, 1997.


     During the fiscal year ended September 30, 1996, the Company entered into a
50% joint venture with an  unaffiliated  company.  The venture's name is Liberty
Technology  International,  Inc.  (LTI).  LTI has  constructed  a  refrigeration
separation  plant which provides an  alternative  to total  destruction of mixed
refrigerants.  At September 30, 1997 and 1996, the Company has advanced/invested
approximately $559,000 and $339,000,  respectively, in LTI, which is included in
other assets in the accompanying  consolidated  balance sheets. LTI's operations
commenced in fiscal 1997.

       The Company's share of earnings or loss from the aforementioned  ventures
is not material to its consolidated financial position or results of operations.

       Due from officer at September 30, 1997 represents a non-interest  bearing
advance to an executive officer of the Company.



                                                       


<PAGE>


                                     ENVIRONMENTAL TECHNOLOGIES CORP.
                                             AND SUBSIDIARIES

                          Notes to Consolidated Financial Statements, Continued





 (6)     Notes Payable

     At September 30, 1997 and 1996, notes payable consists of a secured line of
credit  in the  aggregate  amount  of  $13,500,000  with  a  bank.  The  balance
outstanding  at  September  30, 1997 and 1996 was  $13,500,000  and  $9,497,519,
respectively,  and  bears  interest  at LIBOR  plus  1.75%  (7.75%  and 7.25% at
September 30, 1997 and 1996, respectively).  Borrowings in excess of $10,000,000
bear interest at the bank's prime rate. The line is secured by eligible accounts
receivable and inventory. The line of credit is due June 30, 1998.


 (7)     Cash Flows

       Cash paid during 1997,  1996 and 1995 for interest and income taxes is as
follows:


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

                Interest      $       1,011,233         413,554          292,766
                Income taxes          1,045,584       1,285,000        1,406,119
                                     =============    ============     =========


       For significant  noncash financing during 1995, the Company issued 58,089
shares of common  stock valued at $500,000 and a note payable for $750,000 for a
portion of the acquisition price for Global Refrigerant Management, Inc.


 (8)     Income Taxes

       The  components  of income tax expense for the years ended  September 30,
1997, 1996 and 1995 are as follows:


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

                Current:
                   Federal         $500,000           937,500       1,033,000
                   State            426,000           386,500         326,500
                                   ----------    ------------     ------------

                                    926,000         1,324,000       1,359,500
                                   ----------    ------------     ------------

                Deferred:
                   Federal          (24,600)        (40,000)         (21,500)
                  
                   State             (4,400)         (6,000)              -
                                   ----------    ------------     -----------

                                    (29,000)        (46,000)         (21,500)
                                   ----------    ------------     ------------

                              $     897,000       1,278,000        1,338,000
                                  ==========    ============     ============



                                                       


<PAGE>


                                     ENVIRONMENTAL TECHNOLOGIES CORP.
                                             AND SUBSIDIARIES

                          Notes to Consolidated Financial Statements, Continued





 (8), Continued

       Income tax expense for the years ended  September 30, 1997, 1996 and 1995
differed  from the  expected  income tax expense  (computed by applying the U.S.
Federal  income tax rate to income before income tax expense) as a result of the
following:


<TABLE>
<CAPTION>

<S>                                     <C>                <C>               <C>  
                                              1997             1996            1995
                                              -----            ----             ----            ----

        Computed "expected" in-
           come tax expense             $     606,013       1,022,110        1,129,022
        State income taxes, net
           of Federal benefit                 278,256         251,130          212,612
        Other                                  12,731           4,760           (3,634)
                                            ----------    ------------     ------------

                                        $     897,000       1,278,000        1,338,000
                                            ==========    ============     ============
</TABLE>

       The temporary  differences  which give rise to a  significant  portion of
deferred tax assets and  liabilities  as of  September  30, 1997 and 1996 are as
follows:

<TABLE>
<CAPTION>
<S>                                                                        <C>                   <C>                       
                                                                                1997               1996

                Deferred tax assets:
                   Allowance for bad debts                                  $     126,972         76,434
                   Inventory                                                       24,000         24,000
                   Accruals                                                         8,000         36,000
                   Net operating loss carryforwards                                13,050         13,050
                   Plant and equipment                                              4,780             -
                   Other                                                            4,048          4,048
                                                                                ---------     ----------
                                 Gross deferred tax assets                        180,850        153,532
                 

                   Valuation allowance                                                 -              -

                                 Net deferred tax assets                          180,850        153,532
                                                                                ---------     ----------

                Deferred tax liabilities:
                   Plant and equipment                                                 -           2,150
                   Other                                                           19,257         18,789

                                 Deferred tax liabilities                          19,257         20,939
                                                                                ---------     ----------

                                 Net deferred tax asset                     $     161,593        132,593
                                                                                =========     ==========
</TABLE>

     A valuation  allowance is provided when management believes that it is more
likely than not that some  portion or all of the deferred tax assets will not be
realized.  At September 30, 1997 and 1996, management believes that no valuation
allowance is required based on the Company's history of profitable operations.

                                                      


<PAGE>


                                     ENVIRONMENTAL TECHNOLOGIES CORP.
                                             AND SUBSIDIARIES

                          Notes to Consolidated Financial Statements, Continued





 (8), Continued

       At  September  30,  1997,  the Company has  federal  net  operating  loss
carryforwards of $38,000 which expire in 2007.


 (9)     Commitments and Contingencies

       The Company  leases its New Jersey office and  warehouse  facilities on a
month-to-month  basis  from  its  principal  shareholder  at an  annual  cost of
$120,000 in 1997, 1996 and 1995.

       The Company leases other  manufacturing and office facilities pursuant to
operating leases expiring in 1997 through 2001.

       The  following  is a schedule of future  minimum  rental  payments  under
operating leases:


                         1998               $       540,433
                         1999                       497,205
                         2000                       232,575
                         2001                        73,278
                         Thereafter                    -
                                                 -----------
                                Total       $     1,343,491
                                                 ============


       Total rental  expense was  $641,372,  $620,830 and $450,265 for the years
ended September 30, 1997, 1996 and 1995, respectively.

       During 1997 and 1996, consulting fees paid to related parties amounted to
$0 and $50,000, respectively.

       The Company is self-insured for product  liability in connection with the
marketing and sale of its refrigerants. No material losses have occurred.


 (10)             Stock Option Plan

     In July 1992 and in July 1996, the Company  adopted stock option plans (the
Option  Plans)  pursuant to which  500,000  shares of common stock for each plan
have been  reserved for  issuance  upon the  exercise of options  designated  as
either (a)  incentive  stock options  (ISOs) under the Internal  Revenue Code of
1986, as amended,  or (b) non-qualified  options.  ISOs may be granted under the
Option Plans to employees and officers of the Company.  Nonqualified options may
be  granted  to  consultants,  directors  (whether  or not they are  employees),
employees or officers of the Company.  The options are  exercisable for a period
that ends five years from the date the options become exercisable.
                                                       


<PAGE>


                                     ENVIRONMENTAL TECHNOLOGIES CORP.
                                             AND SUBSIDIARIES

                          Notes to Consolidated Financial Statements, Continued





 (10), Continued

       Transactions  relating to the Option Plans for the years ended  September
30, 1997, 1996 and 1995 are summarized as follows:

<TABLE>
<CAPTION>



                                                               1997                        1996                       1995 
<S>                                                   <C>          <C>                <C>       <C>              <C>         <C>
                                                      ------------------------        ------------------         -----------------

                                                                     Weighted                    Weighted                   Weighted
                                                                      average                     average                    average
                                                                      exercise                    exercise                  exercise
                                                       Shares          price           Shares      price          Shares      price

Outstanding at beginning of year
                                                       370,000    $   7.90            256,000    $7.40            237,000    $  6.55
Granted ...........................................     76,000        7.63            159,000     9.13            86,000        9.26
Exercised .........................................    (47,833)       7.83             (3,000)    6.00               --          --
Forfeited .........................................    (81,667)       9.25            (42,000)    9.40           (67,000)       6.76
                                                      --------       -----            --------    -----          --------      -----

Outstanding at end of year
                                                       316,500    $   7.56            370,000    $7.90           256,000    $   7.40
                                                      ========        ====            =======    =====           ========      =====

Options exercisable at year end ...................    204,668    $   7.35            209,670    $7.11           161,250    $   6.91
                                                      ========       =====            ========   =====           ========      =====

Weighted average fair value of
 options granted during the year ..................              $   1.70                        $2.20
                                                                     ======                      =====

</TABLE>


     The  fair  value  of each  stock  option  granted  during  1997 and 1996 is
estimated on the grant date using the  Black-Scholes  option  pricing model with
the following weighted average  assumptions for 1997 and 1996:  expected life of
5.0  years;  expected  volatility  of 17% in 1997,  20% in 1996 and 23% in 1995;
expected  dividend  yield of 0%; and  risk-free  interest rate of 6.22% in 1997,
6.17% in 1996 and 6.39% in 1995.

<TABLE>
<CAPTION>

                                        Options outstanding               Options exercisable
                                           at September 30, 1997             at September 30, 1997
                                      -------------------------------   --------------------------

<S>                   <C>              <C>                <C>                   <C>                 <C>    
                                       Weighted
 Range                                  average               Weighted                                Weighted
  of                Number             remaining              average            Number               average
exercise             out-             contractual             exercise         exercisable            exercise
 price             standing               life                 price                                   price

$5.25-$ 7.00        146,000            .83 years           $    6.39             146,000            $   6.39
$7.63-$11.88        170,500           5.39 years                8.56              58,668                9.75
                   ---------          ------------            -------            --------               -----        
                    316,500           3.29 years           $    7.56             204,668            $   7.35
                   ==========         ============            ========           ========              ======


</TABLE>


                                                       


<PAGE>


                                     ENVIRONMENTAL TECHNOLOGIES CORP.
                                             AND SUBSIDIARIES

                          Notes to Consolidated Financial Statements, Continued





(10), Continued

     The Company has adopted  the  disclosure-only  provisions  of SFAS No. 123,
"Accounting  for  Stock-Based  Compensation,"  and applies APB Opinion No. 25 in
accounting for its plans and, accordingly,  has not recognized compensation cost
for stock option plans and stock  purchase plans in its  consolidated  financial
statements. Had the Company determined compensation cost based on the fair value
at the grant date  consistent with the provisions of SFAS No. 123, the Company's
net income would have been changed to the pro forma  amounts as of September 30,
1997 and 1996  indicated  below  (in  thousands  of  dollars,  except  per share
amounts):
                                                                1997       1996

          Net income:
             As reported                                    $     885      1,728
             Pro forma                                            820      1,718
          Primary earnings per share:
             As reported                                         .18       .34
             Pro forma                                           .16       .33
             Fully diluted earnings per share:
             As reported                                         .18       .34
             Pro forma                                           .16       .33
                                                                 ===       ===


     The effects of applying SFAS No. 123 in this pro forma  disclosure  are not
indicative  of future  amounts.  SFAS No. 123 does not apply for awards prior to
1996.
 (11)             Stockholders' Equity

     In December  1992, a public sale was made of 800,000 shares of common stock
at $6.00 per share and 920,000 redeemable warrants at $.10 per share to purchase
920,000  shares  of common  stock at $6.90 per  share.  The  warrants  expire on
December  16, 1997.  In fiscal  1995,  the Company  received  $7,211,166  of net
proceeds from the exercise of warrants.  Certain costs  directly  related to the
exercise of the warrants of  approximately  $59,000  were charged to  additional
paid-in capital in fiscal 1996. In fiscal 1997, the Company received $459,238 of
net proceeds from the exercise of warrants.  At September 30, 1997,  warrants to
purchase  approximately  180,000  shares of common  stock  were  outstanding  at
exercise prices ranging from $7.13 to $8.88.


                                                       


<PAGE>


                                     ENVIRONMENTAL TECHNOLOGIES CORP.
                                             AND SUBSIDIARIES

                          Notes to Consolidated Financial Statements, Continued





(12)     Industry Segments

<TABLE>
<CAPTION>

                                      Refrigerant   Equipment products  Ballast        Elimi-      Consoli-
                                      product                           recycling      nations     dated
<S>                                   <C>           <C>                 <C>            <C>         <C>          

Year ended September 30, 1997:
Net sales                        $    50,605,971    2,352,789           4,490,983      -           57,449,743 
                                      ==========    =========           =========     =======      ==========              

   Operating income (loss)       $     5,989,790   (3,641,994)            414,961      -            2,762,757
                                      ==========    ==========          =========     =======      ==========   

   Net income (loss)             $     2,897,504   (2,193,915)            181,801      -              885,390
                                      ===========   ==========          =========     =======      ==========             

   Identifiable assets at
   September 30, 1997            $    37,674,658    7,908,464           1,485,291   (10,134,057)   36,934,356
                                      ==========    ==========          =========     =======      ==========             

Year ended September 30, 1996:
   Net sales                          25,870,777    2,885,295           5,786,603      -           34,542,675      
                                      ==========    ==========          =========     ========     ==========

   Operating income (loss)       $     4,267,622   (1,366,779)            468,909      -            3,369,752
                                      ==========    ==========          =========     ========     ==========  

   Net income (loss)             $     2,271,716     (820,079)            276,570      -            1,728,207
                                      ===========   ==========          =========     ========     ==========                       

   Identifiable assets at
   September 30, 1996            $    30,200,647    8,239,184           1,669,827    (8,202,931)   31,906,727
                                      ===========   =========           =========    ===========   ==========                       
Year ended September 30, 1995:
   Net sales                          26,020,530    2,644,697           6,012,744          -       34,677,971    
                                      ===========   =========           =========    ===========   ========== 

   Operating income (loss)       $     3,683,625     (464,241)            345,592          -        3,564,976
                                      ============  ==========          =========    ===========   ==========                      

   Net income (loss)             $     2,130,809     (354,622)            206,467          -        1,982,654
============                          ============  ==========          =========    ===========   ==========                  

   Identifiable assets at
   September 30, 1995            $    19,437,628    7,628,106           1,602,847    (6,504,200)   22,164,381
                                      ============  =========           =========    ===========   ==========  
</TABLE>

     The Company  operates in the refrigerant and the fluorescent  light ballast
recycling  industries  and reports  segment  information  for its product lines,
which are the sale of refrigerants and refrigerant reclaiming services, the sale
of  refrigerant  recovery  and  recycling  equipment  and the ballast  recycling
business.  Operating  income (loss) is net sales less cost of sales and selling,
general and administrative  expenses. In computing operating income, none of the
following was included:  income taxes,  interest expense and other  nonoperating
items.

                                                       


<PAGE>


                                     ENVIRONMENTAL TECHNOLOGIES CORP.
                                             AND SUBSIDIARIES

                          Notes to Consolidated Financial Statements, Continued





(12), Continued

       Depreciation and amortization for the refrigerant,  equipment and ballast
recycling segments was $657,287,  $60,087 and $131,040,  respectively,  in 1997,
$578,992, $40,026 and $87,078,  respectively, in 1996, and $278,893, $23,876 and
$97,800, respectively, in 1995.

     Capital  outlay  for  the  refrigerant,  equipment  and  ballast  recycling
segments was  $804,046,  $51,684 and $71,678,  respectively  in 1997,  $944,624,
$141,071 and $161,966, respectively, in 1996, and $727,446, $3,305 and $151,992,
respectively, in 1995.

                                                       

<PAGE>



                                                      Schedule II
                                          ENVIRONMENTAL TECHNOLOGIES CORP.
                                                  AND SUBSIDIARIES

                                         Valuation and Qualifying Accounts

                                   Years ended September 30, 1997, 1996 and 1995




<TABLE>
<CAPTION>

                                                                         Additions         Other
                                                                          charged        additions
                                                           Beginning        to              or          Ending
               Description                                  balance       expense      (deductions)     balance
<S>                                                    <C>                  <C>           <C>            <C> 

Allowance for doubtful accounts:
    1997                                               $      191,085       290,659       (164,314)      317,430
    1996                                                      106,400       206,683       (121,998)      191,085
    1995                                                       61,500       185,124       (140,224)      106,400
                                                           ==========    ==========    ===========     =========


</TABLE>





                                        

<PAGE>




ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE.

There were no  disagreements  with the  accountants in the years ended September
30, 1997, 1996 and 1995.



                                                      
<PAGE>





                                                     PART III

ITEM 10.          DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
                  PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
                  ACT.


         The directors and executive  officers of the Company as of September 30
were:

Name                                Age            Position

George Cannan, Sr                   54      Chairman and Director

Jim Burns                           47      President and Director

Caroline Costante                   35      Secretary and Director

John Stefiuk                        46      Director



     George  Cannan,  Sr.  founded  Environmental   Materials  Corp.  ("EMC")  a
wholly-owned  subsidiary  of the Company in 1975 and has been  President,  Chief
Executive  Officer and a director of EMC since that time. Mr. Cannan founded the
Company in 1989 and was President and Chief Executive Officer until December 31,
1995 and has been  Chairman  of the Board and a director  of the  Company  since
1989. In July 1992,  EMC became a  wholly-owned  subsidiary of the Company.  Mr.
Cannan has been responsible for all phases of the Company's operations since its
inception. Prior to founding EMC, Mr. Cannan was a manufacturer's representative
in the automotive industry.

     Jim Burns has been  President of EMC since April 1996 and  President  and a
Director of the Company since February 1997. Prior to that he owned and operated
a manufacturers' representative firm.

     Caroline Costante has been Secretary of the Company since its inception and
a director of the Company since July 1992. Ms. Costante has been employed by EMC
since 1979 and is responsible for the overall  administration  of the operations
of EMC.

     John Stefiuk is the  President  of Federal  Bronze  Products,  Inc. a metal
servicing  center and  representative  agency based in Newark,  New Jersey.  Mr.
Stefiuk joined Federal Bronze in 1972 and became  President in 1978.  During his
tenure  at  Federal  Bronze,  he  has  held  various  managerial  and  operating
positions.






                                                      

<PAGE>




Information Concerning Board

     The Board of  Directors  did not meet during the 1997 fiscal year and acted
once by unanimous consent.

     The Board of Directors has an Audit Committee and a Compensation Committee,
both consisting of George Cannan, Sr., and John Stefiuk.  The Audit Committee is
responsible for reviewing the Company's  audited financial  statements,  meeting
with the Company's  independent  accountants  to review the  Company's  internal
controls and financial  management  practices  and  examining all  agreements or
other  transactions  between the Company and its directors  and officers  (other
than those  compensation  functions  assigned to the Compensation  Committee) to
determine  whether such  agreements  or  transactions  are fair to the Company's
shareholders.

     The  Compensation  Committee is responsible for reviewing the  compensation
and benefits of the Company's executive officers,  making recommendations to the
Board of Directors  concerning  compensation  and  benefits  for such  executive
officers and administering the Company's stock option plans.

     Directors of the Company  receive no cash  compensation  for serving on the
Board of Directors,  other than reimbursement of reasonable expenses incurred in
attending meetings.

     Officers of the Company are elected  annually by the Board of Directors and
hold office at the discretion of the Board.

     Section 16(a) of the Securities Exchange Act of 1934, as amended,  requires
the  Company's  executive  officers,  directors,  and  holders  of more than ten
percent of the  Company's  Common Stock to file reports of ownership and changes
in ownership with the Securities and Exchange  Commission (the "Commission") and
NASDAQ.  Such  persons are  required  to furnish the Company  with copies of all
Section 16(a) forms they file.

     To the best knowledge of the Company, all filing requirements applicable to
its executive officers,  directors,  and greater than 10% beneficial owners were
complied with.


ITEM 11.  EXECUTIVE COMPENSATION.

     The following  table sets forth,  for the fiscal years ended  September 30,
1997, 1996 and 1995, cash and certain other  compensation paid or accrued by the
Company for the Chairman and Chief Executive Officer  ("CEO")(collectively,  the
"Named  Officers").  No other executive officer had a salary and bonus in excess
of $100,000 during such years:




                                                      


<PAGE>




<TABLE>
<CAPTION>
<S>                                <C>       <C>              <C>               <C>              <C>          <C>

                                                     Annual Compensation

                                                                                             Other Annual     Long-Term
                                                                                             Compensation     Compensation
Name and Principal Position         Year    Salary($)         Bonus($)              $        Options          Awards
---------------------------         -----   ----------        ---------         --------     -------          ------

George Cannan, Sr.
      Chairman/CEO                  1997     $200,000                  0           (1)            -                -
      Chairman                      1996     $200,000                  0           (1)            -                -
      Chairman/CEO                  1995     $200,000                  0           (1)            -                -

B. Brinkerhoff McCagg
      CEO                           1996     $125,000                  0           (1)            -                -

Jim Burns
      President                     1997     $110,000                  0           (1)            -                -

</TABLE>


(1) Represents less than 10% of the Executive's compensation.

Stock Option Grants in Last Fiscal Year

     The following table sets forth certain information  concerning the grant of
stock options during the year ended September 30, 1997 to the Named Officers. No
stock appreciation rights were awarded, either alone or in tandem with the stock
options, during the year ended September 30, 1997.
<TABLE>
<CAPTION>

                                     Option Grants in Last Fiscal Year
<S>                    <C>              <C>              <C>              <C>                <C>
                                                                                                         
                                                                                             Potential
                                                                                             Realizable
                                                                                             Value at
                                                                                             Assumed
                                                                                             Annual
                       Number of        % of Total                                           Rates of
                       Securities       Options                                              Stock Price
                       Underlying       Granted           Exercise                           Appreciation
                       Options          To Employees      Price            Expiration        For Option
Name                   Granted          In FY 1997        ($/Share)        Date              Term
---------------------------------       ------------------------------------------------------------------
                                                                                             (5%)    (10%)
                                                                                                 (000)
Jim Burns              26,000              34%             $7.63            3/31/03          $ 67    $153
                       25,000              33               7.63            3/31/04            78      181
                       25,000              33               7.63            3/31/05            91      218
                                          ---                                                 ----     ----
                                          100%                                               $236     $552
                                          ----                                                ----     ----

</TABLE>




                                                      
<PAGE>



Option Exercises During, and Stock Options Held at End of Fiscal 1997

     The following  table  indicates  the total number and value of  exercisable
stock  options held by the Named  Officers as of September  30, 1997. No options
were  exercised  by the Named  Officers in the fiscal year ended  September  30,
1997:

<TABLE>
<CAPTION>
<S>                                     <C>                <C>              <C>              <C>    

                                                                                    Value of Unexercised
                                        Number of Unexercised                       In-the-Money Options
                                        Options at Fiscal Year End                  at Fiscal Year End (1)
                                        --------------------------         -------------------------------

Name                                    Exercisable       Unexercisable    Exercisable       Unexercisable

George Cannan, Sr.                         90,000                     0      $171,000                 0
Jim Burns                                   8,000                92,000         6,960          $ 80,040
Caroline Costante                          20,000                     0        50,000                 0
John Stefiuk                               10,000                     0         4,150                 0


</TABLE>

 (1) Based on the last sale price for the  Company's  Common  Stock on September
30, 1997 (the last day the Common Stock traded in the 1997 fiscal year) of $8.50
per share, as reported by NASDAQ.

Stock Option Plans

     The Company  maintains  stock  option  plans  designated  as the 1992 Stock
Option Plan (the "1992  Plan") and the 1996 Stock  Option Plan (the "1996 Plan")
collectively  the "Option  Plans"  pursuant to each of which  500,000  shares of
Common  Stock have been  reserved  for  issuance  upon the  exercise  of options
designated as either (i) incentive  stock  options  ("ISOs")  under the Internal
Revenue Code of 1986, amended (the "Code") or (ii) non-qualified  options.  ISOs
may be granted to  consultants,  directors  (whether or not they are employees),
employees or officers of the Company. In certain circumstances,  the exercise of
stock  options may have an adverse  effect on the market price of the  Company's
Common Stock.

     The purpose of the Option Plans is to encourage  stock ownership by certain
directors,  officers  and  employees  of the Company and certain  other  persons
instrumental  to the  success of the  Company  and give them a greater  personal
interest in the success of the Company. The Option Plans are administered by the
Board of  Directors.  The Board,  within the  limitations  of the Option  Plans,
determines the persons to whom options will be granted,  the number of shares to
be covered by each option,  whether the options granted are intended to be ISOs,
the duration and rate of exercise of each option,  the option purchase price per
share and the manner of  exercise,  the time,  manner  and form of payment  upon
exercise of an option, and whether restrictions such as repurchase rights in the
Company are to be imposed on shares  subject to options.  ISOs granted under the
Option  Plans may not be granted at a price less than the fair  market  value of
the Common  Stock on the date of grant (or 110% of fair market value in the case
of  persons  holding  10% or more  of the  voting  stock  of the  Company).  The
aggregate fair market value of shares for which ISOs granted to any employee are
exercisable  for the first time by such employee during any calendar year (under
all stock  option  plans of the  Company and any  related  corporation)  may not
exceed $100,000. Non-qualified options granted under the Option Plans may not be
granted at a price less than the fair  market  value of the Common  Stock on the
date of grant.  Options granted under the Option Plans will expire not more than
ten years  from the date of grant  (five  years in the case of ISOs  granted  to
persons  holding 10% or more of the voting  stock of the  Company).  Any options
granted  under the  Option  Plans are not  transferable  during  the  optionee's
lifetime  but are  transferable  at death by will or by the laws of descent  and
distribution.

     As of the date of this Report,  options to purchase an aggregate of 240,500
shares of Common  Stock are  outstanding  under the 1992 Plan,  and to  purchase
76,000 shares of Common Stock are outstanding options under the 1996 Plan.




                                                      

<PAGE>



ITEM 12.               SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                       MANAGEMENT

     The  following  table sets forth,  as of December  31,  1997,  the name and
number of shares of Common Stock held by each person known to the Company to own
beneficially  more than five percent (5%) of the Company's  Common Stock and the
number of shares owned by each director and executive officer of the Company and
all directors and  executive  officers as a group.  Each of the following has an
address c/o Environmental  Technologies Corp., 550 James Street,  Lakewood,  New
Jersey 08701. All shares are owned directly by the named person.

                                        Number of
Name                                    Shares Owned      Percent of Class(1)

George Cannan, Sr.                      1,809,793(2)              35.6%

Jim Burns                                 100,000(3)               2.0%

Caroline Costante                          93,261(4)               1.9%

John Stefiuk                               10,000(5)               0.2%

Hartland Advisors                         600,000                 12.0%

---------
All Directors and Officers as
  a Group (4 persons)                   2,013,054(6)              38.6%
-----------------------

(1)   A person is deemed to be the  beneficial  owner of securities  that can be
      acquired by such  person  within 60 days from the date of this Report upon
      the exercise of warrants or options.  Each beneficial  owner's  percentage
      ownership is determined by assuming that options or warrants that are held
      by such  person  (but not those  held by any other  person)  and which are
      exercisable  within  60  days  from  the  date of this  Report  have  been
      exercised.

(2)   Includes 90,000 shares of Common Stock issuable upon the exercise of stock
      options which are presently exercisable.

(3)   Consists of 100,000  shares of Common Stock  issuable upon the exercise of
      stock options which are presently exercisable.

(4)   Includes of 20,000  shares of Common Stock  issuable  upon the exercise of
      stock options which are presently exercisable.

(5)   Consists of 10,000  shares of Common Stock  issuable  upon the exercise of
      stock options which are presently exercisable.

(6)   Includes  90,000,  100,000,  20,000  and  10,000  shares of  Common  Stock
      issuable to George  Cannan,  Sr.,  Jim Burns,  Caroline  Costante and John
      Stefiuk,  respectively,  upon the  exercise  of stock  options  which  are
      presently exercisable.


ITEM 13.               CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The Company's executive offices and refrigerant  packaging and distribution
operations  are located in a 21,000 square foot  building  situated at 550 James
Street,  Lakewood,  New  Jersey  08701.  The  building  is leased at a rental of
$10,000 per month from George Cannan,  Sr., the Company's founder,  Chairman and
principal stockholder,  pursuant to a month-to-month lease. The Company believes
that the terms of such lease are at least as  favorable  as those which it could
obtain from a non-affiliated third party.


ITEM 14.               EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibit            Description

       3.1             Amended and Restated Certificate of Incorporation*
       3.2             By-Laws*
       4.1             Form of Underwriter's Warrant*
       4.2             Form of Warrant Agency Agreement together with attached 
                       form of Redeemable
                       Common Stock Purchase Warrant*
      10.1             1992 Stock Option Plan*
      10.2             1996 Stock Option Plan**
      21.1             Subsidiaries of Registrant
      23.1             Consent of KPMG Peat Marwick LLP

*  Filed as an Exhibit to the Company's Registration Statement on
   Form S-1 (File No. 33-53496) and incorporated herein by reference.

** Filed as an Exhibit to the Company's  Proxy Statement dated June 27, 1996 and
incorporated herein by reference.



                                                      

<PAGE>



                                                        SIGNATURES

     Pursuant to the  requirements  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 the Township of Lakewood,  State of
New Jersey on the 12th day of January, 1998.

                                                ENVIRONMENTAL TECHNOLOGIES CORP.


                                                 BY:    /s/George Cannan, Sr.
                                                    GEORGE CANNAN, SR., Chairman


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
Report has been signed by the  following  persons in the  capacities  and on the
date indicated:
<TABLE>
<CAPTION>
<S>                                                       <C>                                <C>  

Signature                                                 Title                              Date


/s/George Cannan, Sr.                                     Chairman                           January 12, 1998
GEORGE CANNAN, SR.                                        and Director
                                                          Chief Financial Officer
                                                          Principal Financial
                                                          and Accounting Officer
                                                          Principal Executive
                                                          Officer


/s/Jim Burns                                              President and                      January 12, 1998
JIM BURNS                                                 Director


/s/Caroline Costante                                      Secretary and                      January 12, 1998
CAROLINE COSTANTE                                         Director


/s/John Stefiuk                                           Director                           January 12, 1998
JOHN STEFIUK



</TABLE>


                                                      

<PAGE>







Exhibit 21.1  Subsidiaries of Registrant

     Effective December 31, 1997 the subsidiaries of the Company were:

Environmental Materials Corp.
Envirogroup Services, Inc.
Refrigerant Reclaim Services, Inc.
FulCircle Recyclers, Inc.
E.M.C. Export Co., Inc.



                                                      

<PAGE>

                                            Exhibit 23.1
                                           Independent Auditors' Consent


The Board of Directors
Environmental Technologies Corp.:


We consent to  incorporation  by reference in the  Registration  Statements (No.
33-86494,   No.  333-8487  and  No.  333-8355)  on  Forms  SB-2,  S-3  and  S-8,
respectively,  of Environmental Technologies Corp. of our report, dated December
30,  1997,  relating  to  the  consolidated   balance  sheets  of  Environmental
Technologies  Corp. and  subsidiaries as of September 30, 1997 and 1996, and the
related consolidated statements of income,  stockholders' equity, and cash flows
and financial  statement schedule for each of the years in the three-year period
ended September 30, 1997,  which report appears in the September 30, 1997 annual
report on Form 10-K of Environmental Technologies Corp.

Our report indicates that we did not audit the financial statements of FulCircle
Recyclers,  Inc.  as of and for the year  ended  September  30,  1995,  acquired
pursuant to a business  combination as of December 31, 1995 and accounted for as
a pooling of interests,  which financial statements reflect total assets and net
sales constituting 7% and 17% , respectively, of the related consolidated totals
in 1995. Those financial  statements were audited by other auditors whose report
has been furnished to us, and our opinion,  insofar as it relates to the amounts
included for FulCircle  Recyclers,  Inc. as of and for the year ended  September
30, 1995, is based solely on the report of the other auditors.




KPMG Peat Marwick LLP

Short Hills, New Jersey
January 12, 1998