UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-QSB

[X]      Quarterly Report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934. For the quarterly period ended December 31, 1996

[ ]      Transition Report pursuant to 13 or 15(d) of the Securities Exchange
         Act For the transition period from ________________ to ______________

Commission File Number 33-55254

                            Essential Resources, Inc.
                            -------------------------
             (Exact name of Registrant as specified in its charter)

           Nevada                                             87-0485317
-------------------------------                     ----------------------------
(State or other jurisdiction of                     (IRS Employer Identification
     incorporation)                                              No.)

661 Palisades Avenue, Englewood Cliffs, New Jersey              07632
--------------------------------------------------            ---------
(Address of principal executive offices)                      (Zip Code)

Registrant's telephone number, including area code: (201) 567-9004

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

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.

                                                          Outstanding as of
             Class                                         April 16, 1997
------------------------------------                      -----------------

$.001 par value Class A Common Stock                      3,674,018 Shares


<PAGE>

                   ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES

                                      INDEX

                                                                            Page

Part I.  Financial Information

         Item 1.  Consolidated Financial Statements

         Balance Sheets as of June 30, 1996 and December 31, 1996............  1
         Statement of Operations for the Six

           Months and Three Months Ended December 31, 1996...................  2
         Statement of Stockholders' Equity for

           Six Months Ended December 31, 1996................................  3
         Statement of Cash Flows for the Six Months

           Ended December 31, 1996...........................................  4
         Summary of Accounting Policies and

           Notes to Financial Statements.....................................  5

         Item 2.  Management's Discussion and Analysis of

                    Financial Condition and Results of Operations............ 13

Part II. Other Information................................................... 16



<PAGE>
                   ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                                          June 30,          December 31,
                                                                                            1996               1996
                                                                                       ----------------   --------------
                                                                                                            (Unaudited)

<S>                                                                                    <C>                <C>           
ASSETS
Current:
       Cash                                                                            $       218,195    $      167,363
       Receivables from factors                                                                 73,601            92,715
       Accounts receivable                                                                     148,496           189,532
       Inventories                                                                             329,597           657,440
       Prepaid expenses                                                                        456,608           758,611
       Deferred plantation management costs                                                     62,299           182,731
       Deferred acquisition costs                                                                                236,771
       Other current assets                                                                     94,237           241,040
                                                                                       ----------------   ---------------
                   Total current assets                                                      1,383,033         2,526,203
                                                                                       ----------------   ---------------

Property, plant and equipment, at cost less accumulated depreciation                            76,291           275,590
Investment in Queensland Essential Oils Limited                                                133,250           142,578
Other assets                                                                                    62,813           116,998
                                                                                       ----------------   ---------------
                                                                                       $     1,655,387    $    3,061,369
                                                                                       ----------------   ---------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
       Accounts payable, accruals and other                                            $       477,152    $      841,455
       Income taxes payable                                                                     91,000           171,000
       Loans payable to related parties                                                        525,113           450,828
       Loans payable                                                                                             478,558
       Dividends payable                                                                        52,376            52,668
       Current portion of capitalized lease obligations                                                           29,031
       Deferred income taxes                                                                    79,000           135,000
                                                                                       ----------------   ---------------
                   Total current liabilities                                                 1,224,641         2,158,540
                                                                                       ----------------   ---------------
       Accounts payable, long-term                                                              98,680            27,980
       Capitalized lease obligations                                                                             126,880
                                                                                       ----------------   ---------------
                   Total liabilities                                                         1,323,321         2,313,400
                                                                                       ----------------   ---------------

Commitments and contingencies
Stockholders' equity
       Common stock, $.001par value - shares authorized 25,000,000; issued
         2,519,058 and 4,098,018 respectively                                                    2,519             4,098
       Additional paid-in capital                                                              863,960         3,270,901
       Retained earnings                                                                       370,182            47,308
       Foreign currency translation adjustment                                                  63,778            27,858
       Receivable from Collage                                                                (488,548)         (209,378)
       Receivable from stockholder                                                                            (1,633,823)
                                                                                       ----------------   ---------------
                                                                                               811,891         1,506,964
       Less:  Treasury stock, 238,662 shares and 344,569 shares at cost respectively          (479,825)         (758,995)
                                                                                       ----------------   ---------------
                   Total stockholders' equity                                                  332,066           747,969
                                                                                       ----------------   ---------------
                                                                                       $     1,655,387    $    3,061,369
                                                                                       ----------------   ---------------
</TABLE>


See accompanying summary of accounting policies and notes to consolidated
financial statements.

                                       1


<PAGE>
                   ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                               Three                Six
                                                                                               Months             Months
                                                                                               Ended               Ended
                                                                                            December 31,        December 31,
                                                                                                1996               1996
                                                                                          -----------------  ------------------

<S>                                                                                       <C>                <C>       
SALES                                                                                             $885,770          $2,073,312

COST OF SALES                                                                                      284,697             794,574
                                                                                          -----------------  ------------------
          GROSS PROFIT                                                                             601,073           1,278,738
                                                                                          -----------------  ------------------

OPERATING EXPENSES:

      Selling, general and administrative                                                          771,606           1,362,517

      Depreciation                                                                                  19,932              29,200
                                                                                          -----------------  ------------------
          TOTAL OPERATING EXPENSES                                                                 791,538           1,391,717
                                                                                          -----------------  ------------------

          OPERATING LOSS                                                                          (190,465)           (112,979)

OTHER INCOME (EXPENSE):

      Export grant                                                                                  39,780              79,390

      Loss on foreign currency transactions                                                         (8,876)            (15,516)

      Interest expense                                                                              (4,085)            (25,025)
                                                                                          -----------------  ------------------

          NET LOSS BEFORE INCOME TAXES                                                            (163,646)            (74,130)

INCOME TAXES - Australia                                                                           104,000             136,000

                                                                                          -----------------  ------------------

NET LOSS                                                                                         ($267,646)          ($210,130)
                                                                                          -----------------  ------------------

Loss per common share                                                                               ($0.08)             ($0.08)
                                                                                          -----------------  ------------------


Weighted average common shares outstanding                                                       3,160,311           2,770,790
                                                                                          -----------------  ------------------
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

                                        2

<PAGE>
                   ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                       Six months ended December 31, 1996

                                   (UNAUDITED)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                                                                      Foreign
                                                  Common stock             Additional                 currency      Receivable
                                             ------------------------       paid-in      Retained    translation      from    
                                               Shares         Amount        capital      earnings    adjustment      Collage  
------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>              <C>         <C>           <C>           <C>          <C>       

Balance, July 1, 1996                        2,519,058        $2,519        $863,960     $370,182      $63,778      ($488,548)

Net loss for the period                                                                  (210,130)                            

Foreign currency translation

  adjustment                                                                                           (35,920)               

Issuance of shares pursuant to

  conversion of debt                           170,200           170         370,530                                          

Net issuance of shares pursuant to

  exercise of options                        1,392,060         1,392         352,605                                          

Receivable from stockholder                                                1,633,823                                          

Issuance of shares for

  consulting services                           16,700            17          49,983                                          


Dividends                                                                                (112,744)                            

------------------------------------------------------------------------------------------------------------------------------
                                             4,098,018         4,098       3,270,901       47,308       27,858       (488,548)

Purchase of treasury stock                                                                                            279,170 

------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1996                    4,098,018        $4,098      $3,270,901      $47,308      $27,858      ($209,378)
------------------------------------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                                             
                                             Receivable                          Total
                                                from           Treasury      stockholders'
                                             stockholder        stock            equity
------------------------------------------------------------------------------------------
<S>                                          <C>              <C>               <C>     

Balance, July 1, 1996                                         ($479,825)        $332,066

Net loss for the period                                                         (210,130)

Foreign currency translation

  adjustment                                                                     (35,920)

Issuance of shares pursuant to

  conversion of debt                                                             370,700

Net issuance of shares pursuant to

  exercise of options                                                            353,997

Receivable from stockholder                   (1,633,823)

Issuance of shares for

  consulting services                                                             50,000


Dividends                                                                       (112,744)

-----------------------------------------------------------------------------------------
                                              (1,633,823)      (479,825)         747,969

Purchase of treasury stock                                     (279,170)

-----------------------------------------------------------------------------------------
Balance December 31, 1996                    ($1,633,823)     ($758,995)        $747,969
-----------------------------------------------------------------------------------------
</TABLE>

See accompanying summary of accounting policies and notes to consolidated
financial statements.

                                        3

<PAGE>

                   ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                             Six
                                                                            Months
                                                                            Ended
                                                                          December 31,
                                                                             1996
                                                                       ---------------
<S>                                                                    <C>

CASH FLOWS FROM OPERATING ACTIVITIES

     NET LOSS                                                               ($210,130)
                                                                       ---------------

     Adjustments to reconcile net loss to net cash used in operating
        activities:

            Depreciation                                                       29,200
            Deferred income taxes                                              56,000
            Foreign currency transactions and adjustments                     (35,920)
            (Increase) decrease in:
               Receivable from factors                                        (19,114)
               Accounts receivable                                            (41,036)
               Inventories                                                   (327,843)
               Prepaid expenses and other current assets                     (281,849)
               Deferred plantation management costs                          (120,432)
               Other assets                                                   (54,185)
            Increase in:
               Accounts payable, accruals and other                           364,572
               Income taxes payable                                            80,000
                                                                       ---------------
                    Total adjustments                                        (350,607)
                                                                       ---------------
                    Net cash used in operating activities                    (560,737)
                                                                       ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Acquisition of property, plant and equipment                             (66,620)
     Investment in Queensland Essential Oils                                   (9,328)
                                                                       ---------------
                    Net cash used in investing activities                     (75,948)
                                                                       ---------------


CASH FLOWS FROM FINANCING ACTIVITIES:
     Dividends paid                                                          (112,452)
     Loans payable                                                            704,273
     Capital lease payments                                                    (5,968)
                                                                       ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                     585,853
                                                                       ---------------
NET DECREASE IN CASH                                                          (50,832)
CASH, BEGINNING OF PERIOD                                                     218,195
                                                                       ---------------
CASH, END OF PERIOD                                                    $      167,363
                                                                       ---------------
</TABLE>


See accompanying summary of accounting policies and notes to consolidated
financial statements.

                                        4


<PAGE>

                   ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES

                  SUMMARY OF ACCOUNTING POLICIES - INFORMATION
                   AS OF DECEMBER 31, 1996 AND FOR THE PERIODS
                  ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED

Organization and Business              Essential Resources, Inc. ("Essential"),
                                       through its wholly- owned subsidiaries,
                                       Collage International Health Pty Ltd.
                                       ("Collage International Health"),
                                       Essential Nature Products Pty Ltd.
                                       ("Essential Nature Products"), Essential
                                       Family Care, Inc. ("Essential Family")
                                       and Essential Care USA, Inc. ("Essential
                                       Care") collectively referred to
                                       hereinafter as the "Company", develops,
                                       markets and distributes a wide variety of
                                       health, nutritional, beauty-aid and
                                       lifestyle products derived from the
                                       extracts and tissues of Asian- Pacific
                                       region plants, flowers and animals. The
                                       Company's products are sold primarily in
                                       duty-free and tax-free stores in
                                       Australia, New Zealand, Korea, Japan,
                                       Egypt, Qatar and the United Kingdom.

                                       Essential Family obtained the exclusive
                                       manufacturing and distribution rights for
                                       infant and toddler products under the
                                       Lamaze brandname and is currently
                                       developing numerous products for
                                       distribution and sale under that
                                       trademark.

Interim Financial Statements           The financial statements for the Company
                                       have been prepared in accordance with
                                       generally accepted accounting principles
                                       for interim financial information and
                                       with the instructions to Form 10-Q and
                                       Article 10 of Regulation S- X.
                                       Accordingly, they do not include all of
                                       the information and footnotes required by
                                       generally accepted accounting principles
                                       for complete financial statements. In the
                                       opinion of management, all adjustments
                                       (consisting of normal recurring accruals)
                                       considered necessary for a fair
                                       presentation have been included.
                                       Operating results for the six month
                                       period ended December 31, 1996 are not
                                       necessarily indicative of the results
                                       that may be expected for the year ended

                                       June 30, 1997. All significant
                                       intercompany balances and transactions
                                       have been eliminated in consolidation.
                                       For further information, refer to the
                                       audited consolidated financial statements
                                       of the Company as of June 30, 1996.

                                        5

<PAGE>

                   ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES

                  SUMMARY OF ACCOUNTING POLICIES - INFORMATION
                   AS OF DECEMBER 31, 1996 AND FOR THE PERIODS
                  ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED

Principles of Consolidation            The consolidated financial statements 
                                       include the accounts of Essential,
                                       Essential Care and Essential Family, and
                                       its wholly-owned Australian subsidiaries,
                                       Essential Nature Products and Collage
                                       International Health. All significant
                                       intercompany balances and transactions
                                       have been eliminated on consolidation.

Change in Fiscal Year                  In January 1996, the Company elected to 
                                       change from a December 31 to a June 30
                                       year-end to correspond to the fiscal year
                                       of its Australian subsidiaries.

Earnings Per Common Share              Primary and fully diluted earnings per 
                                       common share are computed using the
                                       treasury stock method, modified for stock
                                       options outstanding in excess of 20% of
                                       the total outstanding shares of common
                                       stock. Under this method, the aggregate
                                       number of shares outstanding reflects the
                                       assumed use of proceeds from the
                                       hypothetical exercise of the outstanding
                                       options and warrants, unless the effect
                                       on earnings is anti-dilutive. The assumed
                                       proceeds are used to repurchase shares of
                                       common stock at the average market value
                                       during the period to a maximum of 20% of
                                       the shares outstanding. The balance of
                                       the proceeds, if any, is used to reduce
                                       outstanding debt and invest in treasury
                                       bills with the assumed interest expense
                                       savings and interest income being added
                                       to the results of operations for the
                                       reported period.

                                       Fully diluted earnings per share also

                                       reflects the assumed use of proceeds from
                                       the hypothetical exercise of options to
                                       purchase common stock at the ending
                                       market price for the reported period.

Inventories                            Inventories are valued at the lower of 
                                       cost or market. Cost for raw materials
                                       and finished goods are determined by the
                                       first-in, first-out (FIFO) method.

                                        6

<PAGE>

                   ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES

                  SUMMARY OF ACCOUNTING POLICIES - INFORMATION
                   AS OF DECEMBER 31, 1996 AND FOR THE PERIODS
                  ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED

Property, Plant and Equipment          Assets are stated at cost. Depreciation 
                                       and amortization is computed over the
                                       estimated useful lives of the assets on
                                       the straight-line method for financial
                                       reporting purposes.

Foreign Currency Translation           The Company's subsidiaries in Australia 
                                       use the Australian dollar as the
                                       functional currency and translate all
                                       assets and liabilities at period-end
                                       exchange rates, all income and expense
                                       accounts at average rates and record
                                       adjustments resulting from the
                                       translation as a separate component of
                                       stockholders' equity titled, "Foreign
                                       currency translation adjustments."

Export Grants                          Grants received from the Australian
                                       government relating to expenses incurred
                                       in connection with export market
                                       development are recognized as income when
                                       conditions for receipt are met.

Taxes on Income                        The Company does not provide taxes on 
                                       unremitted earnings of its Australian
                                       subsidiaries since the Company's
                                       intention is to indefinitely reinvest
                                       these earnings.

Fair Value of
Financial Instruments                  The carrying value of financial 
                                       instruments at December 31, 1996,
                                       including cash, trade and other
                                       receivables, accounts payable, other

                                       payables and loans payable to related
                                       parties, approximate fair value due to
                                       the timing of expected settlement of
                                       these financial instruments.

                                        7


<PAGE>

                   ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - INFORMATION
                   AS OF DECEMBER 31, 1996 AND FOR THE PERIODS
                  ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED

1.      Receivables from Factors       The Company factors certain of its trade 
                                       accounts receivable, with recourse, up to
                                       maximums established by the factors for
                                       individual accounts.

2.      Inventories                    Inventories are summarized as follows:

<TABLE>
<CAPTION>
                                                              June 30, 1996      December 31, 1996
                                                                                     (Unaudited)
                                       -----------------------------------------------------------
                                       <S>                      <C>                <C>
                                       Raw materials             $117,141            $ 249,484
                                       Packaging and supplies     108,140              180,834
                                       Finished goods             104,316              227,122

                                       -----------------------------------------------------------
                                       Total                     $329,597            $ 657,440
                                                                 ========            =========
</TABLE>

3.      Property, Plant and
        Equipment                      Property, plant and equipment are 
                                       summarized by major classifications as
                                       follows:

<TABLE>
<CAPTION>
                                                                  June 30, 1996    December 31, 1996
                                                                                      (Unaudited)
                                       -------------------------------------------------------------
                                       <S>                          <C>              <C>
                                       Plant and equipment            $40,765           $ 47,429
                                       Display equipment               31,978             47,649
                                       Office equipment                10,065             46,965
                                       Furniture and fixtures           7,703             16,749
                                       Motor vehicles                   2,066              2,051
                                       Equipment under capital
                                        leases                                           166,233
                                       -------------------------------------------------------------
                                                                       92,577            321,076
                                       Less:

                                         Accumulated depreciation      16,286             45,486
                                                                      -------           --------

                                       Total                          $76,291           $275,590
                                                                      =======           ========
</TABLE>

4.      Dividends Payable              On September 12, 1996, dividends payable
                                       on October 30, 1996 of $.05 per share of
                                       common stock (on a post-split basis) were
                                       declared.

5.      Commitments and
         Contingencies             (a) In August 1996, the Company entered into 
                                       an agreement to purchase 200,000
                                       kilograms of tea tree oil annually for a
                                       period of ten years.

                                        8

<PAGE>

                   ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - INFORMATION
                   AS OF DECEMBER 31, 1996 AND FOR THE PERIODS
                  ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED

                                   (b) The Company has an oral agreement (which
                                       terminates in April 1997) to purchase for
                                       approximately $1,000,000 the 248.6 acres
                                       of plantation land currently being leased
                                       by Queensland Oils. Closing is subject to
                                       execution of an agreement satisfactory to
                                       the Company, delivery of clear title to
                                       the property and the securing of
                                       Australian Government Foreign Investment
                                       Review Board approval (Australian law
                                       prohibits ownership of land by foreign
                                       corporations without government
                                       approval). The Company does not currently
                                       possess sufficient funds for this
                                       purchase and is currently seeking equity
                                       and/or asset based financing to purchase
                                       the property. There can be no assurance
                                       that the Company will be able to obtain
                                       such funding.

                                   (c) The Company entered into a sales
                                       agreement as of November 15, 1996 with
                                       C.B. & P. Pty Ltd. ("C.B.P."), which is
                                       an overseas wholly-owned subsidiary of
                                       China National Export Bases Development
                                       Corporation, a state owned enterprise of
                                       the Peoples Republic of China. The
                                       contract covers the period November 15,
                                       1996 to February 15, 1998 (a total of 27

                                       months) for the supply principally of
                                       Omega-3 oil capsules under the Company's
                                       brand - Mother Nature. The agreement
                                       provides for a minimum purchase of
                                       $3,750,000 for the first 15 months of the
                                       agreement. As a result of changes in the
                                       Peoples Republic of China approval
                                       policies in December 1996, the initial
                                       shipment of $1,600,000 has been
                                       rescheduled to commence June 1997. There
                                       can be no assurances that the Company
                                       will obtain these approvals on a timely
                                       basis, or at all, which could result in
                                       further delays in shipments or an
                                       inability for the Company to fulfill the
                                       sales agreement.

6.      Stockholders' Equity           Stock Split

                                       On August 14, 1996, the Company's Board
                                       of Directors approved a two-for-one split
                                       of the common stock. The additional
                                       shares resulting from the stock split
                                       were distributed on September 23, 1996,
                                       to all stockholders of record at the
                                       close of business on August 26, 1996. The
                                       consolidated balance sheet as of December
                                       31, 1996 and the consolidated statement
                                       of stockholders' equity for the six
                                       months ended December 31, 1996 reflect
                                       the recording of the stock split as if it
                                       had occurred on January 1, 1996.

                                        9

<PAGE>

                   ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - INFORMATION
                   AS OF DECEMBER 31, 1996 AND FOR THE PERIODS
                  ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED

                                       Further, all references in the
                                       consolidated financial statements to
                                       average number of shares outstanding and
                                       related prices, per share amounts and
                                       stock option data have been restated for
                                       all periods to reflect the stock split.

7.      Related Party
        Transactions                   In January 1996, the Company acquired 
                                       assets consisting of inventories,
                                       receivables, plant and equipment from

                                       Collage in consideration of the issuance
                                       of 448,148 shares of common stock. In
                                       June 1996, Collage agreed to transfer
                                       238,662 of such shares to the Company in
                                       consideration of the Company's assumption
                                       of payment of certain trade payables of
                                       Collage totalling approximately $479,825
                                       which has been classified as treasury
                                       stock at June 30, 1996. At December 31,
                                       1996, $27,980 of such payables are
                                       classified as long-term since certain
                                       vendors have agreed to accept payment
                                       from the proceeds of sale of the treasury
                                       shares. In addition, in July 1996,
                                       Collage pledged the balance (185,338) of
                                       its shares of the Company's common stock
                                       as security for monies owed by Collage to
                                       the Company for purchases of goods
                                       totalling $488,548. The $488,548
                                       receivable from Collage, a stockholder,
                                       has been classified as a reduction of
                                       stockholders' equity at December 31,
                                       1996. Under the agreement the Company is
                                       entitled to 1/7 of the 185,338 shares
                                       pledged each month commencing September
                                       1996, for each month in which Collage
                                       fails to pay the Company for the
                                       indebtedness. Collage failed to pay the
                                       Company for the payments due September
                                       1996 to December 1996 and, accordingly,
                                       the Company is entitled to 105,907 of
                                       such shares to date which have been
                                       classified as treasury stock as of
                                       December 31, 1996. In addition, the
                                       allocable portion of the receivable from
                                       Collage has been reclassified to treasury
                                       stock.

                                       The accompanying consolidated statement
                                       of operations for the six months ended
                                       December 31, 1996 does not include any
                                       compensation to the Company's Chief
                                       Executive Officer since the Company did
                                       not pay and it did not accrue any
                                       compensation to him since it was not
                                       obligated to do so. An employment
                                       agreement for the period subsequent to
                                       December 31, 1996 is currently being
                                       negotiated.

                                       On November 25, 1996, Mr. Cook, the
                                       Company's

                                       10


<PAGE>

                   ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - INFORMATION
                   AS OF DECEMBER 31, 1996 AND FOR THE PERIODS
                  ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED

                                       Chairman agreed to tender warrants to
                                       purchase 1,587,143 shares of Common
                                       Stock, exercisable at a price of $2.50
                                       per share until March 31, 2001, in
                                       exchange for 653,529 shares of the
                                       Company's Common Stock. Such tender was
                                       made in consideration of the Company's
                                       agreement to accept payment for the
                                       653,529 shares pursuant to the terms of a
                                       ten-year 8.5% promissory note in the
                                       principal amount of $1,633,822.50. In
                                       January 1997, Mr. Cook pledged such
                                       shares to Lionhart Global Appreciation
                                       Fund ("Lionhart") to secure payment of
                                       the Lionhart Debentures and certain other
                                       obligations under the Company's agreement
                                       with Lionhart.

8.      Subsequent Events
        Sale of Convertible Debentures

        In January 1997, the Company sold a total of $1,750,000 of Convertible
Debentures due January 15, 2000, to Lionhart. The Debentures bear interest at
the rate of 8% per annum, payable monthly. The Debentures are convertible into
shares of Common Stock commencing 75 days after the closing at a price equal to
the lesser of $2.681 or 70% of the closing bid price of the Common Stock for the
five trading days immediately preceding the date of conversion. All Debentures
not sooner converted are automatically convertible into shares of the Company's
Common Stock three years after the closing date. In connection with the
transaction, Lionhart also received warrants to purchase a total of 652,174
shares of Common Stock, exercisable at a price of $4.60, until January 15, 2000.
Lionhart also received certain registration rights in connection with the shares
of Common Stock issuable upon conversion of the Debentures and upon exercise of
the Lionhart Warrants. Payment of the Debentures and other obligations arising
as a result of the transaction is secured by 485,529 shares of the Company's
Common Stock owned by the Company's Chairman. The Company has the right to
redeem the Debentures at any time after April 14, 1997.


9.      Statements of Cash Flows       Supplemental Disclosures of Cash Flow 
                                       Information:
                                       -------------------------------------
                                       Cash paid during the six months ended
                                       December 31, 1996 for:

                                       Interest            $25,025
                                       Taxes               -

                                       Supplemental Schedule of Non-Cash
                                       Investing and Financing Activities:
                                       ---------------------------------

                                       Capital lease obligations of $161,879
                                       were incurred for equipment during the
                                       six months ending December 31, 1996.

                                       11

<PAGE>

                   ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - INFORMATION
                   AS OF DECEMBER 31, 1996 AND FOR THE PERIODS
                  ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED

                                       During the quarter ended September 30,
                                       1996 the Company issued 170,200 shares
                                       pursuant to conversion of debt in the
                                       amount of $370,700 and issued 165,826
                                       shares pursuant to the exercise of
                                       warrants for services rendered in the
                                       quarter ($23,200) and services to be
                                       rendered in later quarters ($92,800).

                                       During the quarter ended December 31,
                                       1996 (i) the Company issued 1,462,857
                                       options to consultants for services to be
                                       rendered in conjunction with the
                                       completion of specific projects. The
                                       valuation of these options were
                                       calculated to be $465,871 and are
                                       classified as deferred costs; (ii) the
                                       Company issued 1,226,234 shares pursuant
                                       to the exercise of warrants; and (iii) an
                                       additional 16,700 shares for consulting
                                       services rendered in the quarter
                                       ($30,000) and services to be rendered in
                                       later quarters ($20,000).

                                       12

<PAGE>


                   ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - INFORMATION
                   AS OF DECEMBER 31, 1996 AND FOR THE PERIODS
                  ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED

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

               Effective January 1, 1996 the Company acquired certain assets of
Collage in a transaction accounted for as a reverse acquisition. The following
discussion and analysis of financial condition and results of operations are for
the three month period ending September 30, 1996 (post acquisition) compared to
the three month period ending September 30, 1995 (pre-acquisition).

(dollars in           Three months    Six months   Three months    Six months
thousands)               ending         ending        ending         ending
                      December 31,   December 31,  December 31,   December 31,
                          1996           1996          1995           1995

                                            (Unaudited)
                      -------------------------------------------------------
Sales                   $  886          $2,073         $  728        $1,456


Cost of Sales              285             795            239           478
                        ------          ------         ------        ------

Gross Profit               601           1,278            489           978
                                                                     ------

Operating Expenses         791           1,391            400           800
                        ------          ------         ------        ------

Operating
Income/(Loss)             (190)           (113)            89           178

Other
Income/(Expense)            27              39             (3)           (7)
                        ------          ------         ------        ------

Net Income/(Loss)
Before Taxes              (163)            (74)            86           171
                        ------          ------         ------        ------

Income Taxes -
Australia                  104             136             30            59
                        ------          ------         ------        ------

Net Income/(Loss)       $ (267)         $ (210)        $   56        $  112
                        ======          ======         ======        ======



               Results of Operations

        Sales increased by approximately $617,000 (42.3%) and approximately
$158,000 (21.7%) for the six month and three month periods ended December 31,
1996 as compared to the same periods ended December 31, 1995. The increase in
sales was primarily due to sales to additional customers, in particular Korean
Airlines, as a result of increased sales and marketing efforts by the Company.

        The gross profit percentage declined by 10% for both the six month and
three month periods ended December 31, 1996 as compared to the same periods
ended December 31, 1995. The reduction in gross margin was due to the Company's
pricing strategies to increase sales to new

                                       13

<PAGE>

                   ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - INFORMATION
                   AS OF DECEMBER 31, 1996 AND FOR THE PERIODS
                  ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED

customers as well as existing customers. This strategy enabled the Company to
increase gross margin contribution by approximately $300,000 (30.7%) and
approximately $112,000 (22.9%) for the six month and three month periods ended
December 31, 1996 as compared to the same periods ended December 31, 1995.

        Operating expenses increased by approximately $591,000 (73.9%) and
approximately $391,000 (97.8%) for the six month and the three month periods
ended December 31, 1996 as compared to the same periods ended December 31, 1995.
The increase in expenses were primarily due to the increase in sales and
marketing efforts for existing geographical regions and the commencement of
marketing efforts in the United States through the Company's wholly owned
subsidiary, Essential Care and Essential Family commencing November 1996 in
connection with the development of products to be distributed under the Lamaze
trademark which the Company obtained in November 1996. The three months ended
December 31, 1996 includes a management fee of $75,000 charged to Australian
operations by Essential Resources, Inc. for administration, operational and
financial services. The expenses attributable to the Company's sales and
marketing efforts in the United States represented $320,00 of the $391,000
increase for the comparable three months ended December 31, 1996 versus December
31, 1995.

        The Company's net income before income taxes for the Australian export
business increased by $197,000 (87.7%) and decreased by $24,000 (75.0%) for the
six month and the three month periods ended December 31, 1996 as compared to the
same periods ended December 31, 1995. The increases were primarily attributable
to the increase in gross profit as described above.

        Net income before income taxes decreased by $245,000 and by $249,000 for
the six month and the three month periods ended December 31, 1996 as compared to
the same periods ended December 31, 1995 primarily due to initial sales and
marketing expenses for the development of the United States markets.


               Liquidity and Capital Resources

        The Company's working capital increased by approximately $209,000 from
June 30, 1996 to December 31, 1996 primarily due to an increase in current
assets of $1,143,000, which includes $236,771 of deferred charges relating to
the completion of a specific project, offset by an increase in current
liabilities of $934,000.

        The increase in current assets from June 30, 1996 to December 31, 1996
consisted primarily of an increase in inventory of $327,000, an increase in
prepaid expenses of $302,000 and an increase in deferred acquisition costs of
$236,771 (as explained above). The increase in current liabilities consisted
primarily of an increase in accounts payable of $364,000 and an increase in
loans payable of $478,558.

        On November 25, 1996, Mr. Cook, the Company's Chairman agreed to tender
warrants to purchase 1,587,143 shares of Common Stock, exercisable at a price of
$2.50 per share until March

                                       14

<PAGE>

                   ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - INFORMATION
                   AS OF DECEMBER 31, 1996 AND FOR THE PERIODS
                  ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED

31, 2001, in exchange for 653,529 shares of the Company's Common Stock. Such
tender was made in consideration of the Company's agreement to accept payment
for the 653,529 shares pursuant to the terms of a ten-year 8.5% promissory note
in the principal amount of $1,633,822.50. In January 1997, Mr. Cook pledged such
shares to Lionhart to secure payment of the Lionhart Debentures and certain
other obligations under the Company's agreement with Lionhart.

         In January 1997, the Company received net proceeds of a private
placement of $1,750,000. See Note 8 - Subsequent Events.

                                       15


<PAGE>

                   ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES

Part II.    Other Information

            Item 1.  Legal Proceedings - None

            Item 2.  Changes in Securities - None

            Item 3.  Defaults upon Senior Securities - None

            Item 4.  Submission of Matters to a Vote of Securityholders - None

            Item 5.  Other Information - None

            Item 6.  Exhibits and Reports to Form 8-K

                     (a) Exhibits - None

                     (b) Reports on Form 8-K - None

                                       16


<PAGE>

                   ESSENTIAL RESOURCES, INC. AND SUBSIDIARIES

SIGNATURES

         Pursuant to the requirements of the Securities and Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Essential Resources, Inc.                                      April 16, 1997
-------------------------
Registrant

By: /s/ Phillip G. Cook
   ----------------------
   Phillip G. Cook
   President, Chief Executive
   Officer, Chief Financial
   Officer and Chairman of the
   Board and a Director (Principal
   Executive and Financial Officer)

                                       17