SECURITIES AND EXCHANGE COMMISSION
                           Washington, D. C. 20549


                                 FORM 10-K/A

[x]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934. 
For the fiscal year ended May 31, 1996

[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.

For the transition period from            to 
                                ---------      -----------
Commission File:  0-19678

                           ETS INTERNATIONAL, INC.
           (Exact Name of Registrant as Specified in its Charter)

            Virginia                                 54-1414643
  (State or other Jurisdiction              (IRS Employer Identification
  of Incorporation or Organization)         Number)


       1401 Municipal Road, NW
       Roanoke, VA                                   24012-1319
 (Address of Principal Executive Offices)            (Zip Code)


Registrant's Telephone Number, including Area Code: (540) 265-0004

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

                       Common Stock without par value
                              (Title of Class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.      [x]
<PAGE>
The aggregate market value of the voting stock held by non-affiliates of
registrant is (based on closing price on July 31, 1996) was $4,638,641*.

The total number of shares outstanding as of July 31, 1996 was 12,580,733.

*Affiliates for the purposes of this item refer to the officers, directors
and/or any persons or firms owning 5% or more of the registrant's common
stock, both of record and beneficially. 

DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
                           ETS INTERNATIONAL, INC.
                                 FORM 10-K/A
                   For the Fiscal Year Ended May 31, 1996


                                                                        Page
Part I
      Item 1.     Business                                                 4
      Item 2.     Properties                                              25
      Item 3.     Legal Proceedings                                       26
      Item 4.     Submission of Matters to a Vote of Securityholder       26

Part II
      Item 5.     Market for Registrant's Common Equity and Related  
                  Stockholder Matters                                     27
      Item 6.     Selected Financial Data                                 29
      Item 7.     Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                     29
      Item 8.     Financial Statements and Supplementary Data             35
      Item 9.     Changes in and Disagreements with Accountants
                  on Accounting and Financial Disclosure                  35

Part III
      Item 10.    Directors and Executive Officers of the Registrant      36
      Item 11.    Executive Compensation                                  39
      Item 12.    Security Ownership of Certain Beneficial
                  Owners and Management                                   40
      Item 13.    Certain Relationships and Related Transactions          42

Part IV
      Item 14.    Exhibits, Financial Statement Schedules,
                  and Reports on Form 8-K                                 42

SIGNATURES                                                                45

SUPPLEMENTAL INFORMATION AND EXHIBITS                                     46

<PAGE>
PART I 

Item 1.     Business

Introduction.

ETS International, Inc. ("ETSI"), a Virginia corporation, was incorporated on
February 25, 1987.  On January 28, 1988, it acquired all of the issued and
outstanding common Stock of ETS, Inc. ("ETS"), from John D. McKenna and John
C. Mycock (officers and directors of ETSI) and two others and, the next day
completed a public offering pursuant to the rules of the Vancouver Stock
Exchange ("VSE").  On October 29, 1989, certain sophisticated analytical
laboratory equipment of Centec Analytical Services, Inc. ("Centec"), an
analytical laboratory, were purchased by ETSI and, in 1990, placed in
ETS Analytical Services, Inc. ("ETSAS"), a subsidiary.  In 1992, the common
stock of ETSI commenced trading on the Emerging Company Marketplace of the
American Stock Exchange; and ETSI voluntarily delisted its securities from
the VSE.

In June, 1994, ETSI exchanged 2,730,000 of its shares of common stock
("Shares of Common Stock") for all the outstanding common stock of Stamie E.
Lyttle Co., Inc., Lyttle Utilities, Inc. and LPS Corp. all of which were
merged into a wholly-owned subsidiary, ETS Water and Waste Management, Inc.
("ETSW").  In January, 1995, Environmental Laboratories Incorporated, an
environmental laboratory located in Richmond, Virginia, was merged into ETS
Analytical Services, Inc., the Company's analytical laboratory subsidiary, in
exchange for 183,600 Shares of Common Stock issued to its stockholders; and,
in April, 1995, the assets of Air Compliance, Inc. were acquired by ETS,
Inc., the Company's air quality subsidiary for 113,000 Shares of Common Stock
issued to the stockholders of Air Compliance, Inc.

In February, 1996, ETSI acquired certain assets of Olympic Industries, Inc.,
Pompano Beach, Florida, for 539,130 Shares of Common Stock.  The assets were
placed in a newly-formed corporation, ETS Liner, Inc. ("ETSL").  ETSL became
a wholly-owned subsidiary of ETSW and the business continues to be operated
from the same location.

In April, 1996, ETSI acquired the assets of an environmental laboratory in
Fairfax, Virginia from Dewberry & Davis in exchange for 65,617 Shares of
Common Stock.  The assets were placed in ETSAS and continue to be operated at
the same location.
<PAGE>
The Subsidiaries

ETS, Inc.

History and Overview

ETS, formed in 1973, has been engaged in designing, manufacturing and
supplying air pollution control systems, with particular emphasis on fabric
filter particulate collectors, providing software and testing services to
industry and utilities and conducting industrial and government contract
research and development.  It also has developed three products designed for
use in the air pollution control industry - the Limestone Emission Control
System, the Baghouse Performance Monitor and the Dry Reactor.  It has
suspended the development of one product, the Reduced Entrainment
Precipitator until suitable funding can be obtained of which there is no
guarantee.  In fiscal 1996, its service business generated almost all of its
operating revenues.  Since its acquisition by ETSI in 1988, ETS has expanded
the services it offers, particularly in the fields of air pollution control,
consulting, regulatory assistance, toxic emission testing, asbestos surveys
and fabric filter testing and has developed and sold related systems and
products.  It intends to continue to develop, market and license proprietary
products for the air pollution control industry.  In April, 1995, it expanded
its service area to Pennsylvania and New Jersey through the acquisition of
the assets of Air Compliance, Inc., an air pollution control and toxic
emission testing company, located in Feasterville, Pennsylvania. 

Products

The Limestone Emission Control System (the "LEC")

The LEC is an air pollution control system which controls acid gas and
particulate emissions from utility and industrial boilers.  Development of
the LEC began in 1982 and was successfully completed in 1993.  A commercial
unit was constructed and made operational in December, 1994 and is in
successful operation. 
<PAGE>
In the LEC, hot sulfur dioxide ("SO2") laden flue gas passes through the
cross section of a vertical moving bed of standard quarry limestone ("CaCO3")
gravity fed from a hopper and covered by a thin film of water.  The rate of
flow of the limestone can be adjusted by varying the speed of a screw
conveyor into which the limestone falls.  Sulfur dioxide is absorbed from the
flue gas into the water and subsequently reacts with the limestone to form a
surface layer principally of calcium sulfate ("CaSO2") and calcium sulfite
("CaSO3").  The limestone granules are then reactivated by mild abrasion to
remove the calcium sulfite and calcium sulfate layers.  The particles of
calcium sulfate and calcium sulfite fall through a fine screen, thereby
exposing the active limestone for further reaction.  Gypsum, the waste
product is the main content of wallboard.

Management believes that the gypsum produced by the LEC will be readily
marketable by utilities or other users as it conforms to commercial
standards.  The recycled limestone, supplemented by a new supply, is then fed
back into the hopper for continued reaction with flue gas.

Title IV of the Clean Air Act Amendments of 1990 ("CAAA") deals with the
prevention of smokestack pollution causing "acid rain."  It finds that acidic
compounds and their precursors in the atmosphere threaten natural resources,
ecosystems, materials, visibility and public health and that the principal
sources of acid rain are sulfur dioxide and nitrous oxides.  It regulates the
emissions of those substances from fossil fuel fired combustion devices, in
part by permitting companies with low emissions to trade pollution credits
with companies with higher levels.  As a consequence, the LEC, with its
ability to remove 99% sulfur dioxide may be considered attractive in meeting
the SO2.

Allowance Program and the ability of companies to trade pollution credits.
<PAGE>
On June 23, 1992, ETS entered into a license agreement with Procedair
Industries, Montreal, Canada, a subsidiary of Stein Heurtey, an industrial
furnace manufacturer and a sister company of Procedair, S.A., a French air
pollution control firm, and EGCI, S.A., a French engineering firm
specializing in combustion, to license the LEC.  The license was extended on
July 1, 1995 for a period of twelve months.  Presently, this agreement has
been extended orally on an "at will" basis.  The license is exclusive in
North America and non-exclusive outside North America.  ETS will receive
royalties at the rate of 8% of sales until a sales level of $8,333,333 is
reached.  Thereafter, until the expiration of the agreement, ETS will receive
royalties of 5% of sales.  ETS is obligated to maintain patents, provide and
make available know-how, provide sufficient information to enable the
licensee to design applications for the system, to make available fully
qualified and competent employees and make available technical information
and sales support at specified levels.  No sales have resulted from this
agreement to date and there is no assurance that any license fees will be
generated.

In February, 1993, ETS entered into a license agreement with U-Tah Industrial
Company, Ltd. ("U-Tah") located in Taipei, Taiwan to market the LEC within
Taiwan, R.O.C.  The five year contract calls for U-Tah to provide ETS an
up-front license fee, followed by 5% royalties on LEC system sales.  In 1993,
ETS opened an office in Taipei, to provide technical support to its
licensees.  In March, 1994, the first commercial sale of the LEC system was
made through U-Tah to Shing Ming Metal Industrial Company, a plant near
Taipei.  The plant is modest in size, but represents, to ETS, an opportunity
to prove the technology on a commercial basis.  The LEC system was made
operational in December, 1994 and has performed pursuant to its
specifications to date.  Management believes that this installation
represents a breakthrough for future sales as it proves the LEC technology in
ability to remove SO2 from smokestack emissions on a commercially viable
basis as well as its reliability and its cost effectiveness.
<PAGE>
The Baghouse Performance Monitor (the "BPM") and the Baghouse Performance
Monitor Expert System 

A baghouse, also referred to as a "fabric filter," is essentially a
collection of numerous fabric bags.  Baghouses are the leading method of
collecting particulates from industrial and commercial smokestacks.  Of the
250,000 baghouses presently operating in the United States, ETSI has targeted
the 2,500 largest as its present market.  Each bag works in a fashion similar
to a vacuum cleaner to trap dust and particulate matter from a gas stream.
However, as particulates collect on the fabric of each bag, they form a dust
cake which develops increasing resistance to the flow of gas.  Thus, the dust
cake must be periodically removed to maintain system flow stability.  

The BPM, and its associated expert system software (both devices referred to
as the "BPM," unless otherwise noted), collects, organizes, displays and
assists the analysis of all the important parameters of a baghouse emission
control system.  Its primary purpose is to monitor current status and
stability, warn operators of any system instability or developing problems
and prepare an easy to access and use database of operational history for any
necessary troubleshooting.  A BPM can directly monitor the flow and pressure
drop characteristics of many individual bags within an operating baghouse,
thus providing the capability of simultaneous side-by-side evaluations of
alternative fabrics, designs, or operational methods.  To date, the BPM has
been utilized extensively for this purpose in all types of baghouses.

The BPM is manufactured to order from standard components, such as printed
circuit boards and fabricated metal parts which are readily available from
multiple sources.  After purchase, materials and components are inventoried
and some subassemblies are completed in-house.  Upon receipt of an order,
ETSI technicians assemble, calibrate and test the devices prior to shipment
and installation.  ETS's present manufacturing facilities are considered
adequate.

ETS's marketing strategy for the BPM has been to concentrate on the utility
and large industrial baghouse markets which include utilities, industrial
boilers, chemical plants, forest products plants, steel mills, cement plants
and nonferrous mining and smelting operations.  ETS believes that potential
customers in these markets may require a monitoring system.  Bag replacement
costs are relatively high and a small percentage of savings justifies the
purchase of this relatively inexpensive monitor.  In addition, reduced
baghouse capacity may reduce performance of a given customer's production
rates and may result in emissions of unacceptable levels of pollutants and
the closure of the process and/or imposition of monetary penalties.
<PAGE>
The first commercial BPM installation was completed in 1983.  Customers have
included chemical plants, steel mills, glass manufacturers, foundries,
industrial coal-fired boilers and utilities.  The BPM has been described in
literature published by the Electric Power Research Institute, Inc. ("EPRI")
which is distributed to all electric utilities.  The EPRI refers all
inquiries to ETS.  To implement its marketing strategy, ETS has initiated a
direct mail advertising campaign and employs in-house sales personnel.  In
addition, ETS conducts technical seminars and has entered into agreements
with firms in both Mexico and Taiwan for the sale and servicing of the BPM.

Although ETS believes that ultimately Title IV of the CAAA dealing with
permitting will have a positive impact on sales of the BPM.  At present,
enforcement is lax and sales of the BPM have been sporadic.  Title IV
requires that after the effective date of any permit program relating to
major sources of pollution, it would be unlawful to violate the conditions of
such a permit.  States are required, within three years, to submit a
conforming permit program.  Major sources are those which emit, per year, ten
tons of any hazardous air pollutant or a combination of 25 tons of hazardous
air pollutants.  Title III of the CAAA relating to Air Toxics establishes a
list of 189 substances and compounds which must be considered hazardous air
pollutants and a procedure for review of that list.  Title VII of the CAAA
expands and defines the authority of the individual states to include
enhanced monitoring and requires major source owners to demonstrate
compliance at regular intervals using approved continuous monitoring
technology which the BPM can provide.

The Dry Reactor

The "Dry Reactor" is an air pollution control system designed to control
emission of acid gases, such as hydrochloric acid, sulfur oxides and nitrous
oxides and particulates.  Hot flue gases pass through the Dry Reactor and the
acid gases and particles are substantially removed before the flue gases
enter the atmosphere.  The Dry Reactor has applications for emission control
in hospital and hazardous waste incinerators and small municipal solid waste
facilities.  Both the LEC and the Dry Reactor use a dry scrubber system to
control acid gas pollutants.  However, the Dry Reactor is a smaller, modular
unit, designed for use in smaller installations, whereas the LEC is targeted
at larger utility and industrial boilers.
<PAGE>
The Dry Reactor uses a process called a "dry" scrubber, in contrast to
competing "wet" and "semidry" (sometimes referred to as "half-dry" or
"spraydrying") systems.  In wet and semidry systems, when noxious gases are
brought into contact with alkaline materials, these systems produce liquid
wastes which must be handled with pumping and plumbing systems.  Such waste
often is corrosive, causing scale, flaking and clogging of the handling
systems and requiring further treatment.  In the Dry Reactor, flue gas is
directed into a chamber where it is mixed with a dry reagent (lime) by the
mechanical action of a rotating plate, known as a "slinger."  The slinger
delivers the lime perpendicularly to the flue gas allowing intimate contact
of the dry reagent and any pollutants in the flue gas.  This contact causes a
reaction which forms a non-acidic compound and removes as much as 90% of
unwanted acid gases.  An internal recirculator, located above the slinger,
increases the contact time thus enhancing the removal of pollutants.

ETS's only commercially sold Dry Reactor was installed at the Fairfax
Hospital, Fairfax, Virginia in 1987 and has been in successful operation to
date.  It has removed greater than 98% of unwanted acid gases since
installation without degradation or greater than normal maintenance.  In
management's opinion, future sales, if any, of the Dry Reactor will be
generated through increasing enforcement and the imposition of tougher
standards of clean air legislation and regulations.  Specifically, the CAAA
institutes a program under which all subject air pollution sources must
obtain an operating permit.  The USEPA is responsible for issuing regulations
and monitoring compliance.  The various states must develop and implement the
programs.  If a state fails to develop or implement such a permitting
program, the USEPA must develop and implement a federal permit program for
that state.  However, until enforcement is strengthened, ETS does not
contemplate substantial sales, if any of the Dry Reactor.

In 1992, Gibbson Engineering Company Ltd. ("Gibbson"), located in Taipei,
Taiwan, was granted the exclusive right to market the Dry Reactor throughout
Taiwan, R.O.C.  The agreement provides that Gibbson pay ETS an upfront
license fee followed by a 7% royalty fee on all system components.  No sales
have resulted from the agreement.
<PAGE>
The Reduced Entrainment Precipitator (the "REP")

An electronic precipitator gives dust particles an electric charge which
attracts them out of a gas stream onto the sidewalls of the collector for
subsequent collection and disposal.  However, in standard designs, not all
the dust particles remain captured on the side walls and some become
dislodged by the gas motion and are "re-entrained" in the gas flow.  The REP
prevents reentrainment of dust particles.  The REP uses a conventional
electrostatic precipitator to attract dust particles to a porous fabric
collecting surface.  Since the collection surface is porous, a small portion
of the gas stream containing the dust flows through the pores which ensures
that the dust layers remain attached to the collection surface.  Specified
applications for REP include control of fine particulate emissions from
coal-fired utility boilers and, possibly, fine particulate control in
so-called "clean rooms" in which complex electronic and computer circuits are
produced.

On the basis of the pilot plant test conducted in 1990, management concluded
that the test identified additional design parameters which, if adopted,
would improve performance and that the REP concept can be utilized, when
properly developed, to enhance the collection of fine particulates at lower
cost than existing methods.  ETS has not pursued further testing, does not
intend to fund future development and will require future Government or
private funding to continue development.  As the Company's more mature
technologies, such as the BPM and LEC, neared commercial development, the
Company determined that its financial commitment to products should be
concentrated on commercializing and marketing the BPM and LEC.  Although it
continues to seek outside funding sources, ETS has no current proposals
outstanding for further funding.  In the event the question of commercial
viability is successfully resolved, of which there is no guarantee, ETS
intends to secure a licensee to market the REP of which there is no
guarantee.  Even if commercial viability is established to ETS's
satisfaction, it is unlikely that development will be completed and delivery
of orders will commence in the foreseeable future.
<PAGE>
Services

Contract Research and Development. 

ETS has performed specific research and development projects for both
government and private industry.  These projects primarily involve the
advancement of air pollution control technology and have included the design
and fabrication of pilot plants to demonstrate certain air pollution control
hardware, operation of equipment within the pilot plants and long-term
testing and monitoring of systems.  ETS has designed, built, operated and
tested pilot plants for coal-fired industrial boiler systems, refuse-fired
boilers, cement kilns and glass furnaces.  These pilot plants have examined,
among other things, control of fly ash, sulfur dioxide and toxic emissions.

For clients such as Dupont, Celanese, Phillips Fibers, Baltimore Gas &
Electric, Serrine, ARCO and General Electric, ETS has performed studies of
alternative filtration.  Studies have ranged from bench top swatch test
programs to pilot plant evaluations, to full scale tests within operating
baghouses utilizing the BPM analysis tools.  Some programs were designed to
evaluate the usability of new fabric offerings in specific applications,
others to provide evaluation of new fabrics as a viable general fabric filter
candidate and others to select the optimum candidate from a group of possible
fabric alternatives in a specific baghouse.  Except for U.S. Government
sponsored research and development, all research and development contracts
have been performed on behalf of customers.

Fabric Testing Services. 

The fabrics used in baghouses to collect dust must meet certain requirements
as to strength, permeability, pressure resistance, air flow characteristics
and chemical content.  ETS offers quality control and other fabric testing
services to the fabric filtration industry to determine whether baghouse
fabrics meet these standards.
<PAGE>
Stack Testing and Other Field Services. 

ETS offers analyses of particulate and gaseous emissions for evaluating the
performance of pollution control devices and statutory compliance.  Customers
include both government and private industry.  Testing has been undertaken at
steel plants, cement factories, quarries, foundries, chemical plants and
utilities.  To assist in supplying these services, ETS has four mobile field
testing laboratories for on-site testing and analysis.

Other field services include continuous emission monitor certification,
asbestos surveys, environmental audits, analysis and evaluation of on-line
systems, filter bag analysis of operating systems through on-site and
laboratory examinations, evaluation of bags for use in particulate filtration
systems, new filter media inspection and testing, compliance with emissions
standards, on-site and laboratory particle size analysis and OSHA in-plant
air quality testing.  This service is appropriate for compliance with Title
III of the CAAA involving Air Toxics because compliance requires
sophisticated field and laboratory capability.  Title IV of the 1990 CAAA
requires the annual testing of 2,000 utility continuous emissions systems.
ETS has become a major vendor for this service.

Major clients, on a continuing basis, for ETS's field service activities
include Westinghouse, Philip Morris, DuPont, Air and Water Technologies,
Allied Chemical, Duke Power, Tennessee Valley Authority and Baltimore Gas &
Electric.

Regulatory Assistance. 

ETS offers its industrial clients which operate facilities subject to state
and federal environmental regulations professional assistance in
understanding relevant environmental regulations.  Many environmental
regulations are complicated, apply only to certain types of operations and
not to others and change in their scope and content from time to time.  They
are written by technical personnel employed the regulatory agencies in order
to fulfill legal requirements of the relevant laws and statutes promulgated
thereunder.  ETS staff consists of technically trained people who maintain a
current knowledge of these environmental regulations and are also familiar
with clients' plant operations.  Thus, ETS can provide clients specific
interpretations of regulations and assist in establishing the most effective
route to demonstrate or achieve compliance with specific requirements.  The
CAAA, particularly Title V regulating permitting, has had a positive effect
on demand for ETS's regulatory assistance services.  ETS does not employ an
attorney on a regular basis in rendering its regulatory assistance services;
but has available specialized counsel on an as-needed basis.  ETS recommends
that its clients seek independent legal counsel to address legal issues,
including but not limited to past noncompliance with environmental
regulations.  In addition, ETS often works with the clients' legal counsel in
resolving issues of noncompliance with federal and state environmental
regulations.
<PAGE>
Monitoring. 

Federal and state environmental protection agencies are increasingly
requiring self-monitoring by industry. Monitoring activities involve either
direct measurement of pollutants emitted in the stack gases or measurement of
pollutant concentrations in ambient air at or beyond the plant's fence line.
Both measurements involve the collection of large quantities of data using
sensitive continuous monitoring systems.  ETS assists in designing,
calibrating and auditing the monitoring systems and in preparing periodic
reports and summaries of the data obtained. 

Consulting. 

The consulting aspect of ETS's business is diverse.  Included are expert
testimony, pollution control equipment operational problem solving, review of
plant specifications, market analysis recommendations, license evaluation and
acquisition analysis.

Technical Services. 

ETS has performed technical and economical evaluations of existing and
proposed air pollution control systems.  It provides air pollution control
system design and on-site services during system erection and startup.  ETS
also provides advice on emission control system design, specifications and
bid evaluation.

Training and Education. 

ETS regularly offers several in-depth seminars in the fields of air pollution
control design and regulatory assistance, incinerator emissions control,
fabric filtration and electrostatic precipitation.  It also has produced a
cassette tape seminar.  Although training and education constitute only a
minor portion of ETS's business, ETSI believes that its involvement in this
area allows industry participants to become familiar with its products and
services.  In total, in excess of 1,000 industry representatives have
attended ETS seminars since their inception.  The seminars resulted in
numerous clients for other services offered by ETSI.  ETS has a continuous
and comprehensive seminar program servicing industry and government.  Recent
seminars have been conducted in Canada, Mexico and Taiwan in addition to
those held in the United States.  

Between February and April, 1996, ETSI provided an Air Pollution Control
Technologies Course sponsored by the United States Agency for International
Development Office of Energy and Infrastructure and administrated for the
Institute of International Education.  Participants included representatives
of industry and regulatory agencies from Bolivia, Brazil, Chile, Columbia,
Cyprus, Ecuador, Egypt, Ghana, India, Indonesia, Jamaica, Jordan, The
Philippines, Taiwan and Tanzania.  ETSI conducted a similar course under
USAID sponsorship in 1991.
<PAGE>
Technical Writing. 

ETS's technical writing staff is experienced in all areas of air and water
pollution control and is proficient at the art of relating technical data in
a readily understandable manner.  Other capabilities include research,
graphics layout and design and proofreading.  

Literature Searches. 

Under contract with both government and industry, ETS has successfully
conducted extensive literature searches in the area of particulate and sulfur
dioxide control.  ETS maintains an extensive and well-cataloged in-house
library and, when required, employs outside library services.  

It is anticipated that the service business will continue with additional
expansion of revenues from areas such as field testing and regulatory
assistance.  ETSI intends to continue to explore foreign market opportunities
for ETS's products, particularly in Taiwan, Canada, Mexico, Korea, Japan and
China to focus on marketing the BPM system and more actively to pursue
licensing of the Dry Reactor and Limestone Emission Control System.  In
addition, the CAAA is anticipated to result in increased activities in both
laboratory analysis, field testing, baghouse monitoring and other aspects of
ETS and ETSAS' business.

Patents, Licenses And Trademarks

ETS currently holds various U. S. patents and licenses covering certain
aspects of its proprietary products that it considers material to present
sales and further development and marketing of such products.

Features of the Dry Reactor involve a process subject to U. S. Patent No.
4,273,750, expiring in 1998, the rights to which were acquired by ETS in
1982.

ETS is the assignee of U.S. Patent No. 4,663,136, issued to Dale A. Furlong
on May 5, 1987, for an invention which is the process basis of the LEC.  ETS
was also assigned another patent on another apparatus utilized in the sulfur
dioxide and particulate removal process (U.S. Patent No. 4,764,348) which was
issued to Dale A. Furlong on August 10, 1988.  That patent is the basis of
European patents issued to ETS.

ETS owns two additional patents relating to the LEC. Aspects of the LEC are
also covered by U.S. Patent 4,663,136 and European patents based on it.
Management of ETS believes that the patents relating to the LEC will protect
it from infringing use.  ETS is preparing an application for an additional
patent covering equipment design aspects of the LEC.  There is no guarantee
that such application will result in a patent.

ETS holds U.S. Patent No. 4,481,017, issued to Dale A. Furlong and assigned
upon issuance to ETS, covering the combination of the electrostatic
precipitator and fabric filtration technologies used in the REP.  This patent
was issued on November 6, 1984.
<PAGE>
ETS holds U.S. Patent No. 4,719,791 which relates to the BPM system and
claims protection for several unique aspects of the system.  This patent was
issued on January 17, 1988 and assigned to ETS. 

ETS has acquired the non-exclusive license to utilize U. S. Patent No.
4,297,113, which provides a method for eliminating the effect of bag failure
on baghouse operations.  ETSI has no specific plans for the use of such
patent.  The license is nonassignable and will lapse upon termination of John
D. McKenna's employment with ETSI.

ETS Analytical Services, Inc.

ETSAS maintains extensive laboratory facilities and modern mostly automated
and computerized equipment to detect other types of environmental
contamination.  It has established a stringent Quality Assurance/Quality
Control ("QA/QC") Program to insure data reliability.  Although at the end of
the 1995 fiscal year, ETSW was a Superfund Contract Laboratory, its status as
a Superfund Laboratory had not been renewed due to lack of funding for the
program.  It continues, however, to receive contracts from the United States
Environmental Protection Agency ("USEPA") and other governmental agencies. 
ETSAS is also a certified laboratory in the states of Virginia and in North
Carolina for water, waste water, soil and hazardous waste analysis.  In
addition to its laboratory operations, ETSAS offers a wide range of field
services including sampling of water and soil, infield testing and on-site
monitoring, environmental assessment and monitoring program.  ETSAS owns a
mobile laboratory which provide on-site analysis for trace organics
compounds.  In January, 1995, Environmental Laboratories, Inc., a Richmond
Virginia - based company, founded in 1980, engaged in water, wastewater, soil
and materials analysis, was merged into ETSAS.  This additional operation is
located in the same city as ETSW.  The merger expands the geographic range of
ETSAS, enables the Richmond operation to bid on larger and more complex
contracts than it could support prior to the merger and facilitates a closer
working relationship with ETSW.  The acquisition of environmental laboratory
assets located in Fairfax, Virginia enhances the ability of ETSAS to bid on
projects in Northern Virginia.
<PAGE>
ETSAS's analytical services include obtaining and isolating samples of
industrial and other waste materials including potentially hazardous wastes,
analyzing samples by identifying and quantifying their toxic components,
electronically archiving data and the delivery of analytical data in a
legally defensible manner.  ETSAS's analyses are used by regulatory
authorities, such as the United States Environmental Protection Agency and
the City of Roanoke, Virginia, and site owners, such as Exxon, Union Carbide
and Columbia Gas Transmission, to report the risks posed by the potential or
actual presence or release of hazardous substances.

ETSAS performs analyses of waste materials to determine the chemical
compounds present, organizes the data obtained and presents a comprehensive
report of this data.  There may be myriad potentially harmful chemical
compounds present in wastes and multiple tests may be required to determine
the levels of contaminants at even a single site.  Results obtained indicate
only the amount of contaminant at the time of the test.  To assess the
probability of future hazards or the degree of correction of the pollutants
also requires several tests at relatively constant intervals.  There is also
the possibility that the hazardous waste may have migrated from its initial
site.  Additional analysis and remedial action away from the original test
site may be required where the migration of hazardous waste is a possibility.

Samples of the material to be tested are taken by either ETSAS's clients or
its own personnel and forwarded to the laboratory for analysis.  ETSAS is
required to establish the authenticity of the test samples and therefore each
container supplied by clients is accompanied by its chain of custody form.  
ETSAS's technical staff utilizes mobile sampling equipment for the sampling
and testing of hazardous waste sites, monitoring wells or industrial
discharges.
<PAGE>
Sample Management. 

All incoming samples, whether they are shipped via courier service or dropped
off by local customers, are received by this section and logged into the
ETSAS Laboratory Information Management System ("LIMS") which tracks analyses
and reports laboratory data.  The ETSAS LIMS is an internally developed
software system that has received wide recognition from industry and
government.  The Sample Custodian is responsible for all receiving, storage,
and tracking functions.  All samples must be signed out by laboratory
analysts for processing, thus maintaining a complete chain of custody within
ETSAS.

Atomic Spectroscopy ("AS").  The Atomic Spectroscopy section analyzes all
samples requiring elemental analysis by atomic spectroscopy.  Among the
techniques the AS section employs are the following:

Graphite Furnace AAS determines low levels of toxic elements such as arsenic,
selenium, and thallium.  It can detect and quantify levels less than 1 part
per billion.

Cold Vapor Mercury AAS tests for low level mercury analysis (0.2 parts per
billion in water) in a variety of sample types.

Air Analysis of multi-metal air trains by Microwave Digestion and AS
techniques.  Analysis of metals and elements by Inductively Coupled Plasma
Emission ("ICP").

Organics. The Organics section provides laboratory services relating to the
detection and measurement of various organic substances in a variety of
sample types, such as groundwater, RCRA sludges, tissue, oils/waste oils, and
others.  Examples of these include pesticide, herbicide, and fungicide
residues such as chlordane, endrin, toxaphene, silvex, and Ethylene Dibromide
("EDB").  ETSI can detect PCBs (polychlorinated biphenyls) in dielectric
fluids, oils, waste oils, wastewater, and soils, performs high pressure
liquid chromatography for the analysis of explosives and other high molecular
compounds, detects total organic halide ("TOX") and purgable organic halide
("POX") in groundwater and other liquid media; total organic carbon ("TOC")
and purgable organic carbon ("POC") in aqueous samples.  It "fingerprints" by
gas chromatography to identify unknowns and finds benzene, toluene,
ethylbenzene, xylenes ("BTEX") in groundwater by gas chromatography and
photoionization detector ("PID").  Finally it performs analyses of trace
organics by gas chromatography and mass spectrometer ("GC/MS") for volatile
organic compounds ("VOA" or "VOC") and semi-volatile organic compounds in
accounts with certain ETA methods.
<PAGE>
Inductively Coupled Plasma Laboratory.  ICP is used for rapid analysis of
metals/elements.  The ICP is fully automated and computerized and is capable
of analyzing up to 69 elements per sample in approximately 5 minutes.  Much
of the analysis on the USEPA Superfund and Office of Water contracts is
performed on this instrument.  Raw data is transferred into the ETSAS LIMS
for processing and reporting.  The ICP laboratory uses "SuperScan," a low
cost qualitative scan developed by ETSI for 69 elements per sample.

Gas Chromatograph/Mass Spectrometry ("GC/MS") involves a three-step process. 
First, a test sample is introduced into the gas chromatograph portion of the
system which separates the individual chemical compounds.  The separated
compound then elutes into the mass spectrometer are often subject to multiple
regulatory requirements.

Quality Assurance/Quality Control.  ETSAS maintains an ongoing QA/QC Program
that is designed to give data of the highest documented quality.  The QA/QC
Program is a continuing system of internal and external checks of data
validity.  The entire program is contained in a 150 page manual which is
available to clients upon request.

ETSAS maintains strict quality control in all facets of testing and analysis
to insure accuracy of results.  Internal quality assurance procedures,
formulated within USEPA guidelines, govern how samples and controls are
handled and are monitored daily.  Standards are used to calibrate the
equipment on a daily basis.  Samples are periodically issued by both the
quality control manager and various federal, state and local certifying
licensing agencies, to determine whether test results from samples furnished
by the agencies fall within acceptable limits.

ETS and ETSAS maintain a network of more than 30 computers for sample log-in,
sample tracking, data handling, data reporting and accounting activities. 
The computers are linked together through a Novell Netware System, and many
of the analytical instruments are on-line to this system which allows for
computerized raw data transfer.  Data reporting can therefore be customized
to a clients individual needs, including the reporting of quality assurance. 
The total hard disk data storage capacity of the Novell system exceeds one
gigabyte.
<PAGE>
Significant ETS and ETSAS Contracts

Examples of some significant environmental contracts executed by ETS and
ETSAS are:

Successfully Completed:

USEPA award for the analysis of multimedia, multi-concentration samples for
selected metals for a one year base period and three additional one year
options (total contract value, $770,000), completed 1995;

USEPA award for source testing and method evaluation for stationary source
emissions for a one year base period with a contract value of $637,629 and
two additional one year options (total base contract value in the event the
options are exercised, $2,300,000), completed 1992; USEPA award for chemical
analytical services for multimedia multi- concentration inorganic (maximum
contract value, $663,000), completed 1995;

U.S. Navy project to conduct emission inventories at various naval bases
(contract value estimated at $400,000), completed 1994;

DOE project to determine toxic emission levels from utility coal fired
boilers (contract value, $60,000), completed 1993;

KVB/Analect - CEMS certification at major power utilities for equipment
vendor; (contract value, $940,000), completed in fiscal 1996;

Inland Steel Company - designing emissions control system for pulverized coal
facility; (contract value, $291,000), completed May, 1996; and

USEPA Office of Water - analysis of industrial discharges across the United
States, (contract value, $160,000), completed September, 1995.

Ongoing:

Westinghouse certification and compliance testing of facilities; multi-year
continuous contract started in 1987 (estimated contract value,
$450,000/year);

Pine Bluff Arsenal field services to test control equipment, five year task
order contract, 13 test schedules in a year; started March 1994, one year
with five option years (maximum contract value, $ 150,000 per year);
<PAGE>
Title V permit contracts for various industrial clients; 60% completed as of
the end of fiscal 1996; scheduled completion December, 1997 (estimated value,
$500,000);

Vector Group, Inc. - on-site analysis of trace organic substances; ongoing
(estimated contract value, $120,000).

Gas Compressor Stations - analysis of PCB's from several stations; ongoing
continuous series of analyses without a determined completion date (estimated
contract value, $150,000).

Ironton Iron, subsidiary of Intermet Corporation - various environmental
engineering and emission control system design projects; 75% completed at end
of fiscal 1996 (estimated contract value, $750,000).

USEPA Engineering and Analysis Division - analysis of trace metals and
elements in wastewater, sludges and hazardous wastes; one year with four one
year option period; contract value $1.770,000 if fully exercised.

USEPA Engineering and Analysis Division - wet chemistry analysis of
wasterwaters and sludges from the same sites for cyanides, phenols, fluorides
and other substances; one year with four one year option period; contract
value $1.140,000 if fully exercised.

Special Projects

Special Projects are those tests or contract requirements that need special
attention or do not fit into the responsibilities of the other sections. 
Each project is assigned a Project Manager who directs the work efforts
needed, monitors the progress of the work tasks, and reports all the required
data and findings to the client.  In recent years, ETSAS has received very
few special projects and was not in negotiations for any as of the end of
fiscal 1996.
<PAGE>
Sales And Marketing

ETS and ETSAS presently market their services through their sales personnel,
and utilize direct mail, trade exhibitions and promotional literature. 
75-90% of their revenues are realized from commercial clients and 10-25% from
the USEPA and other government agencies.  However, this ratio is anticipated
to change as a result of the receipt by ETS and ETSAS of awards of U.S.
Government contracts under the CAAA.  ETS's extensive sponsorship of seminars
and training programs has resulted in recognition and has secured clients. 
ETS is negotiating with major industry partners for the development,
licensing and sale of its products.  ETS has entered into license agreements
for several of its products.  ETS has begun receiving license fees, but there
is no assurance that substantial license fees will be received in the future.

Representative Clients

Clients of ETS and ETSAS represent the following industries: power generation
(utilities), petrochemical, chemical, tobacco, iron and steel, non-ferrous
metals, gas utilities, heavy manufacturing, engineering, government agent
contractors, municipalities and regional and federal government agencies. 
Representative clients are those in the industrial segments to which ETS and
ETSAS supplies services.  Such clients of ETS and ETSAS include: Kentucky
Power Company and Pennsylvania Power & Light (power generation), EXXON
(petrochemical), Dupont and National Paint and Coating (chemical), Philip
Morris (tobacco), Inland Steel (iron and steel), Reynolds Metals (non-ferrous
metals), Columbia Gas (gas utilities), Westinghouse (heavy manufacturing),
Dames & Moore (engineering), KVB (government agency contractors), County of
Roanoke, City of Richmond (municipalities) and USEPA (regional and federal
government agencies).

Competition

Although the pollution control industry in general is growing rapidly,
competition is intense.  Marketing resources and expertise are increasingly
important to success.  In addition, the pollution control markets are subject
to rapid change.  Unforeseen technological, legislative or business
developments relating to pollution control outside the scope of ETS and
ETSAS' business may have significant adverse effects upon ETS and ETSAS'
business.  Many of ETS and ETSAS' competitors have substantially greater
resources than ETSI and the size and reputation of many of these companies
may give them a competitive advantage over ETSI.  However, ETSI has
successfully competed for USEPA contracts against large firms such as General
Electric Company and Bechtel Power Corporation.  Likewise, ETSI has won
utility contracts in competition with firms as Research Cottrell, Inc. and
Gilbert Commonwealth Engineering.
<PAGE>
Major competition for the LEC and Dry Reactor markets come from the U.S.,
Japan and Europe.  From the U.S. they include Babcock and Wilcox, General
Electric Environmental Service and Research Cottrell.  Chiyoda, Hitachi,
Mitsui and Fugi Kasui from Japan and Lurgi, Flakt/ABB, Steinmuller, FLS
Miljo, Snamprozette and Tampella from Europe.  Most of these companies offer
both semi-dry and wet systems.  However, it is management's opinion that the
LEC is the lowest cost, most efficient acid gas removal system.

ETSI is aware of at least two companies which are developing smokestack
chemical removal products which reduce nitrous, as well as sulfur, oxides
which are removed by ETS's LEC process.  In management's opinion, the
Company's LEC device is smaller, less complex, simpler to operate and easier
to retrofit than one of the competing products and has a lower waste disposal
cost and its waste is nonhazardous compared to the second competing process. 

In the event the REP technology is developed so that a commercial product
results, the REP's competition is expected to come from the major suppliers
of precipitators and baghouses.  The REP, as proposed, has no present direct
competition as no other firm presently offers a combination of electrostatic
and filtration technologies.  However, it may be possible for competitors to
develop technologies to achieve the same end.  

ETS is presently not aware of any competitors offering products directly
competitive with the BPM.

ETS also has competition in every area of its service market.  The stack
testing service market is sensitive to location.  Over one hundred companies
offer such services in the United States.  The top four companies are
believed to be Entropy (North Carolina), Clean Air Engineering (Chicago,
Pittsburgh, St. Louis), Mullins (Texas) and Engineering Science (North
Carolina).  

Fabric testing presents a smaller market, in which location is
less important.  ETS has a well - equipped independent testing laboratory. 
The majority of customers of the fabric testing market is shared by fewer
than six firms, including Filter Lab Services, Environmental Consulting
Company and Grubb Filtration.

Competition for analytical laboratory services comes from local concerns for
regional business.   National and government services require more
sophisticated analytical techniques for which many laboratories lack
equipment and personnel.  The USEPA has stated that it will institute a
national certification program.  If and when it does, many competing firms
may leave this aspect of the business.
<PAGE>
ETS competes with universities, equipment manufacturers and other consultants
in the area of contract research and development.  ETSI believes that the key
criteria considered by potential purchasers of its services and products are
service and product quality, the quality of support, the consistency of
marketing and promotion programs, the financial stability of ETSI and
pricing. 

Government Regulation

The United States Environmental Protection Agency is the principal federal
agency responsible for environmental matters, including the disposal and
discharge of hazardous substances.  State and local governments are involved
in implementing environmental programs on a state and local level.  USEPA,
state and local policies can adversely affect the demand for ETS and ETSAS'
services by relaxing regulations requiring tests, by delaying the effective
date of regulations which require tests and by relaxing its enforcement
efforts.  Furthermore, to the extent that the budgets of administrating
agencies are reduced, or funds not made available to them, the demand for ETS
and ETSAS' services can also be adversely affected.  Applicable federal
legislation includes the Resource Conservation Recovery Act ("RCRA", the
Clean Water Act, the Safe Drinking Water Act, the Clean Air Act and
amendments, Toxic Substances Control Act, the Comprehensive Environmental
Response Compensation and Liability Act ("CERCLA"), and the Superfund
Amendments and Reauthorization Act of 1986 ("SARA"), which authorized the
appropriation of $8.5 billion for Superfund for the five-year period
beginning October 17, 1986 and was refunded in 1990 for an additional five
years for $5.1 billion.  Funding for SARA was not renewed at the termination
of the extension of the act.  ETSAS suffered some loss of revenue as a
result.  However, the laboratory has diversified into serving industrial and
commercial clients and receives Federal contracts which were not funded
through SARA.

ETSAS generates small quantities of hazardous waste in processing, certain
samples.  Such hazardous waste is segregated in special containers and
disposed of by licensed waste transporters.  ETSAS reserves the right to
return the unused portions of samples received.  ETSAS is also licensed with
the USEPA and the State of Virginia to generate and properly store small
quantities of hazardous waste.  Such waste may not be stored longer than six
months and must be disposed of through a licensed hazardous waste transporter
to an approved treatment/disposal site.  ETSI believes that its operations
have at all times been in compliance with all federal, state and local
environmental laws and regulations.  Lyttle, in its remediation projects,
often removes hazardous waste.
<PAGE>
ETS and ETSAS' activities and its facilities are subject to regulation under
federal, state and local laws, ordinances and rules and regulations relating
to the environment, environmental quality and occupational health and safety
including RCRA, the federal Occupational Safety and Health Act ("OSHA") and
similar state laws and regulations promulgated thereunder.  In connection
with ETSAS's business of waste analysis and management, ETSAS believes it is
acting in compliance with applicable environmental laws.

ETSI has obtained certifications from all jurisdictions in which it does
business as required to conduct its laboratory testing.  ETSAS is required to
pass proficiency tests and evaluations which are given on a periodic basis to
retain its certification and to participate in contracts under the Superfund
Program.  ETSAS has never failed a proficiency test and believes, but there
can be no assurances, that it will be able to obtain the required
certifications and approvals in all jurisdictions where it plans to do
business in the future.  The inability of ETSI to retain present, or obtain
new, certifications or approvals where required would adversely affect its
business.

Markets

ETSI has targeted utilities, industrial boilers and incinerators as the most
likely users of its air pollution control equipment.  Customers for air
pollution control services and equipment include any organizations which
operate a process that emits pollutants.  Examples of potential customers
include industries that utilize burning processes such as coal-fired utility
and industrial boilers, incinerators for hazardous and municipal wastes,
chemical processes such as printing, paint manufacturing, petrochemical
refining and production, pulp and paper making and dust creating processes
such as cement manufacture, mining and grain handling.  In addition,
governmental agencies are purchasers of the products and services of ETSI. 
The utility industry and users of municipal and hazardous waste incinerators
and resource recovery facilities comprise ETS's principal potential
customers.

Customers for analytical laboratory services include local concerns,
government agencies, resource recovery facilities and national companies. 
ETSAS contacts potential clients through advertising, direct mail and
telephone and competitive bid. 
<PAGE>
Fiscal 1996

A combination of adverse weather conditions and lax enforcement of
environmental regulations caused both ETS and ETSAS significant losses in
fiscal 1996.  Many particulate and chemical pollution testing programs were
delayed because of the impossibility of collecting samples.  In addition, lax
enforcement cause delays in the fulfillment of long term testing programs. 
During this period, numerous competiting laboratories were forced out of
business.  ETS and ETSAS have increased the efficiency of their operations
through automation and decreased employment.  However, its cost savings
activities followed the downward trend in both volume and price and the
laboratories could not afford to cut to the extent that they could not
fulfill the quality and quantity of testing required by their client base. 
In the opinion of management, the adverse economic consequences of weather
and legislative and enforcement hiatus have bottomed out and the laboratories
have, once again, returned to profitability.

Employees

ETS and ETSAS have a total of 16 management and supervisory, 64 field and
technical and 21 administrative employees.  Employees are not represented by
labor unions and relations are considered excellent.

Insurance

ETSI, for itself and its subsidiaries, ETS and ETSAS, currently carries
general and automobile liability insurance with an aggregate limit of
$2,000,000 with $1,000,000 for each occurrence and professional liability
insurance of $1,000,000.  It also carries excess liability insurance of
$1,000,000, as well as workers' compensation and liability insurance in
statutory amounts.  
<PAGE>
ETS Water & Waste Management, Inc.

History and Overview

Stamie E. Lyttle Co., Inc. was established by Stamie Lyttle in 1947 as a
partnership originally known as Lyttle & Barnes.  With two employees, it
installed septic systems for new homes.  In succeeding years, it expanded
into other related environmental and construction areas and upon the
reorganization into a subsidiary of ETSI had grown to 140 employees and was
generating annual revenues in excess of $12,000,000.  Lyttle Utilities, Inc.
was formed in 1982.  Until the reorganization, Lyttle Utilities, Inc.
contracted water and sewer installations for municipalities while Stamie E.
Lyttle Co., Inc. concentrated on residential construction.  In 1985, LPS
Corp. was formed as a leasing company for the affiliated companies.  Stamie
E. Lyttle Co. Inc., Lyttle Utilities, Inc. and LPS Corp. were merged in June,
1994 into ETSW, a subsidiary of ETSI.  Business previously conducted
individually by the three companies is now conducted by ETSW under the name
"Stamie E. Lyttle Company."  Lyttle provides infrastructure services to
municipalities throughout the State of Virginia, including the state
government, encompassing installation of water, sewer and storm sewer mains,
installation of gas lines and environmental clean-up.  For the private
sector, Lyttle provides services to industrial, commercial and residential
developers.  Industrial and commercial services include installation of
septic, sprinkler and plumbing systems and disposal of nonhazardous waste. 
Residential services include plumbing, septic systems, installation and
cleaning, installation of water sprinkler systems.  Landscaping, and hookup
of development projects to municipal water and waste disposal systems.  

ETSW also operates ETSL under the name "Pipe-Liner Installers."  Pipe-Liner
Installers is primarily involved in the trenchless rehabilitation of sewer
and water lines under a license from Ultraliner, Inc. ("Ultraliner") covering
most of the State of Florida.  ETSW also has a license from Ultraliner
covering Northern Virginia.

Municipal Activities

Municipalities, particularly in the regional area surrounding Richmond,
Virginia traditionally serviced by Lyttle, have been growing at an annualized
rate of approximately 5%.  This growth has strained the ability of towns and
counties to deliver water to its industrial and residential base and to
handle waste.  In addition, these same municipalities have had to upgrade
their decaying and inefficient water and waste handling systems though
construction, remediation and clean-up.  The process of installing and
upgrading water and waste disposal facilities is a never-ending one because
of continued population and industrial growth, aging infrastructure and
compliance with federal and state environmental regulations.
<PAGE>
In 1956, Lyttle expanded to solve the needs of municipalities to provide
construction services in the area of water, sewer and storm sewer mains.  In
order to bid for such services, Lyttle must "prequalify" for each job (as in
the City of Richmond) or annually prequalify for each community which it
serves.  Prequalification requirements include a proven track record of
successfully completing similar projects, necessary manpower and equipment to
commence and complete the project and bonding capacity to support the
technical and manpower needs.  The bond required is a "performance and
payment bond" issued by a surety company based on contractor competence and
financial backing.  Lyttle has successfully prequalified for every job for
which it has bid and is prequalified by all the municipalities in which it
works.

Municipalities and the state government must, by law, advertise in local
newspapers and public bulletin boards and through the Dodge Report The Dodge
Report is distributed weekly to subscribers and contains all material
information on municipal construction projects including description, scope
of work, requirements for the contractor, estimated amount of bid and
availability of plans and specifications, thus enabling contractors to decide
which projects to pursue and to formulate bids.  Lyttle not only bids on the
basis of the specifications contained in the Dodge Report, but is also often
invited by the municipalities themselves to bid on specific projects.  Lyttle
selects the projects that it desires to bid based on its computer analyses of
present and future work requirements and its anticipation of profitability of
the project based on the cost of past similar projects.  It then prepares and
submits bids on appropriate projects.  Bidding is generally closed.  Bids are
opened in a public place and the low qualified bidder is awarded the
contract.  In some instances, specifically projects for the City of Richmond,
Virginia and the State of Virginia, minority participation is required to
complete the project and is set forth in the requirements and in the bid. 
Because of its size and experience, Lyttle has developed an excellent
relationship with qualified minority contractors who ably perform their tasks
as part of the contracting team.  

The municipality notifies the low bidder contract awards in writing, stating
the time frame in which the project must be completed.  If Lyttle is the low
bidder, Lyttle must submit a profile called the "Critical Path Method" or
"CPM" setting forth the time frame in which it intends to complete the
project so that the designated representative of the municipality can follow
the project as outlined in the CPM.  Projects generally run in phases with
progress billing on a monthly basis until completion.
<PAGE>
Typical Recent Municipal Projects:

County of Chesterfield, completed in 1992, was a 4 mile long 24 inch diameter
water line along the James River.  The total award was $2,400,000. 
Completion was accomplished before the contract deadline.  Construction
intersected an historic preserved neighborhood and ecological concerns were
paramount in this project.  Lyttle received an award from the County for
maintenance of the ecology.

Fairfax County Parkway, completed in 1994, was a 5 mile long, 36 inch
diameter water line for the State of Virginia.  The total award was
$2,300,000.

County of Henrico, completed in 1994, was a 1 1/2 mile long 24 inch diameter
sewer line.  The total award was $1,700,000.

County of Chesterfield, completed in 1994, was the rehabilitation of a water
line involving the removal of decaying water line and installing a new water
line in its place.  Total award was $850,000.

City of Richmond, awarded in June, 1994, completed in March, 1995, was a 36
inch diameter transmission.  Total award was $2,600,000

Fairfax County Water Authority, awarded April, 1994, completed in June, 1995,
was a 36 inch diameter water line.  Total award was $2,442,000.

City of Richmond, awarded September, 1995, estimated completion in March,
1997 represents construction of a concrete drainage channel and the
reconstruction of a storm drain system and related work.  Total award is
$1,353,252.

York County, awarded June, 1995, involved installation of 16" water;
completed in February, 1996.  Total award was $625,000.

County of Henrico, awarded in August, 1996 is a contract valued at $268,696
to furnish two water lines.  Completion is expected in October, 1996
<PAGE>
Commercial Construction

Lyttle performs services for developers, corporations and homeowners.  For
residential and commercial developers, Lyttle provides the interface between
the developer and the local zoning authorities for site development plan,
sewer and water main hookup and soil conditions.  For commercial and
industrial customers, Lyttle provides the technical expertise required to
maintain the plant conditions in an environmentally safe fashion.  For
example, a factory or office building owner often will establish its own
sewer system but will later discover that the installation does not meet the
needs for adequate holding tank capacity.  Lyttle, in such a situation, will
design and modify the equipment to meet legal and environment requirements. 
It also maintains such equipment.   

For homeowners, it provides plumbing, cleaning, sprinkler system maintenance,
fencing and landscaping on an individual basis.  This business representing
approximately 20% of revenues, has been successful because Lyttle can
allocate manpower on an "as needed" basis from other jobs.  Thus, it can
uniquely provide reliable and timely service without the problems of job
overload which afflict smaller competitive firms.  Lyttle was often the
original installer of the equipment for the developer and maintains records
of each facility indefinitely and thus knows which equipment was installed
and when so that it can often assess problems before arrival of its employees
on site.

Typical Lyttle Commercial Projects

The following are representative commercial projects undertaken by Lyttle:

Port of Richmond, as a subcontractor to the prime contractor, to be completed
in December, 1994, involved water and sanitary sewer construction.  Total
contract is $220,000

Delmar Properties, a subsidiary of Chesapeake Corporation, two contracts,
completion, October, 1994, involved water, sanitary and storm sewer
construction.  Total aggregate contract amount is $550,000.

Salisbury Corporation, completed in October, 1994, involved construction of
water and sewer systems.  Total contract amount of the two contracts is
$400,000.
<PAGE>
Dawkins Branch, completed 1991, involved a sanitary sewer.  Total contract
price was $860,000.  Ethyl Corporation, as a subcontractor, completed in
1993, involved a water and sewer system for a research facility.  Total
contract amount was $450,000.

Stonehouse, Inc., a wholly-owned subsidiary of Chesapeake Corporation,
involved the installation of 36" water line; this contract was the first
phase of a 20-year development project.  The first phase was successfully
completed in March, 1996.  Total contract amount was $770,000.

Ultraliner

In February, 1996, ETSI acquired certain assets of Olympic Industries, Inc.,
Pompano Beach, Florida, for 539,130 Shares of Common Stock.  The assets were
placed in a newly-formed corporation, ETSL, which became a wholly-owned
subsidiary of ETSW.

Through the purchase of these assets, the Company entered the trenchless
rehabilitation business throughout Florida and in Northern Virginia.  The
Company believes that the trenchless rehabilitation market will be a major
growth area as the sewer and water lines in most urban areas throughout the
world are wearing out.  Over time, pipes get old and brittle causing breaks
which lead inevitably to water leaks and the seepage of ground water into the
pipes.  In many cases, roots grow into pipes and entire sections of pipe are
frequently missing.  

The traditional method of repairing such pipe is by digging a trench above
the pipe, removing the old pipe and replacing it with new pipe.  The cost and
time spent in avoiding environmental damage is great; and the disruption
caused by digging up the old damaged lines and replacing them can be major. 
Since most older pipe is found in downtown areas, the adverse effects on
traffic, air quality and the creation of ear splitting noise from jack
hammers and earth moving equipment are exacerbated by the surrounding foot
and vehicular traffic.
<PAGE>
The "Ultraliner" technology used by ETSW and its subsidiary, ETSL, permits
rehabilitation of such lines on a faster, cheaper and cleaner basis without
the necessity of digging trenches.  First a robotic vehicle with lights and
video cameras traverses the damaged lines to detect blockage, offset joints
or other impediments.  Then, any remedial work is performed within the
existing lines either through a point repair from the surface or through a
remote device.  Installation of Ultraliner requires only one insertion point. 
At the job site, liner which is constructed specifically for the job and
which is folded to fit within the existing sewer or water line is inserted so
that it extends through the damaged length.  The length of each pipe is at
least the distance from manhole to manhole.  Insertion is made with a power
winch and steel cable connected to the end of the liner.  Then, through
application of heat and pressure, the liner expands to form a perfect fit
within the existing line.  The fit is so tight that it leaves no annular
space for unwanted water migration between the Ultraliner and the old pipe. 
The new smooth interior maintains peak flow and inhibits buildup of foreign
material.  The life of the replacement liner is the same as new pipe.  

The Company estimates that trenchless rehabilitation has a current annual
market of $250,000,000 and predicts growth to $500,000,000 by the year 2000. 
In addition, there is associated diagnostic engineering work.  The Company
estimates that the worldwide market, including engineering, is in excess of
$1 billion.

ETSL has been awarded a contract with an estimated value of $650,000 with the
City of Fort Lauderdale to install 8" Ultraliner for rehabilitation of old
sewer lines.  Installation under the contract commenced in March, 1996;
estimated completion in September, 1996.  The City of Orlando has awarded ETS
Liner, Inc. a one-year maintenance contract with a value up to $500,000.

ETSW has successfully completed two demonstration projects.  The first one
was in Fairfax County, Virginia, in November, 1995 of lining 1,438 linear
feet of existing eight inch concrete sewer pipe, including reinstatement of
22 sewer services for existing homes, which was witnessed by personnel from
the engineering community and municipalities from the Richmond and Northern
Virginia areas.  The other project is located in Stafford County, Virginia
involving the lining of 390 linear feet of eight inch sewer pipe and the
reinstatement of five sewer laterals which was completed in June, 1996. 
Although both of these projects were small, they demonstrated both the
effectiveness of the Ultraliner technology and of the ability of Lyttle to
implement the technology.  
<PAGE>
Fiscal 1996

At the beginning of the fiscal year, ETSW aggressively bid on three major
commercial projects involving the laying of waterlines for new residential
housing and commercial office parks.  The bids were accepted.  During
construction, which took place in late fall and in the winter of 1995-1996,
ETSW experienced approximately 60 days of snowfall and rain and approximately
30 additional days of wet and muddy conditions which prevented or slowed
completion of the projects.  Projection completion was not only rendered
over-budget but delayed; and much overtime was required to complete the
projects once the weather improved in the Spring.  In addition, ETSW bid on
landscaping projects in housing developments which, because of weather
conditions, proved to be unprofitable. 

Present market conditions for commercial construction of water, sewer and
irrigation are strong, aided by the planned construction of several major
semi-conductor factories in the Richmond, Virginia area.

Lyttle Future Plans

Lyttle began in the Spring of 1995 and has continued in fiscal 1996 to expand
the services it offers into Northern and Western Virginia in the areas of
plumbing, sprinkler irrigation and fencing with the intention of making
Lyttle a household name in these areas as it is in the Richmond area.  Lyttle
also has begun to bid for projects through Virginia and into Maryland and New
Jersey.  It plans to increase its geographical reach through steady and
organized growth.

Lyttle has begun to tap the growth of Northern Virginia by providing similar
municipal services there as it does in the Richmond area.  In April, 1994, it
opened an office in Fairfax, Virginia from which it is bidding on municipal
construction projects.  It was awarded a major contract with the Fairfax
County Water Authority as a subcontractor to Branch Highways which is
presently under construction.  It desires to acquire companies in similar
businesses, although no such acquisition candidates have been located and
there is no assurance that any will be found.  Lyttle intends to focus on
commercial construction projects and on projects involving the Ultraliner
technology.  

Lyttle is working with ETS and ETSAS, to provide turnkey construction
projects utilizing its construction expertise and ETS's LEC and Dry Reactor
technologies and ETSAS's chemical and water analyses of pollutants.  The
advantage of proposed joint ventures with the other ETSI subsidiaries is that
previously ETS could only offer its technologies on a royalty only basis,
whereas with ETSW it can now offer both the technology and the construction
of devices employing a given technology or clean up of environmental
problems.  Thus, ETS need not market its technologies through contractors,
but directly to end-users, specifically, hospitals for Dry Reactor and
utilities and manufacturing companies for the LEC system.
<PAGE>
Lyttle Personnel

Lyttle has 160 employees, 30 in residential service, 100 in construction and
30 in supervisory and administration service.  Lyttle employees are not
represented by any union.  Management considers its relationship with its
employees to be good.  Some of its personnel are third generation employees. 

Lyttle Insurance

Lyttle carries $2,000,000 of general liability, $1,000,000 of product
liability, $1,000,000 per occurrence of bodily injury and automobile and a
$5,000,000 umbrella insurance policy.  Lyttle also is covered by a surety
bond.

Lyttle Government Regulation

Lyttle's activities are regulated by Federal and state statutes.  In general,
Federal statutes are enforced on the state level by the Virginia Department
of Labor and Safety for OSHA safety standards and by the Department of Health
or Department of Public Works for sewer, septic and water systems.  Lyttle
has never been cited for a safety violation.

Lyttle Competition

Lyttle's competition comes from many smaller and narrowly focused companies
in its geographical region.  Lyttle's market share of each of its business
activities exceeds 50% in the Richmond, Virginia area.  In the trenchless
sewer and water main rehabilitation business, its major competitor is
Insituform, Inc.  ETSE believes that its technology is superior and that it
can underbid Instituform on projects and still provide adequate margins. 
However, Insituform has been completing projects for municipalities for over
a decade and Ultraliner must first prove itself to municipalities through
successful completion of small contracts before it could be chosen on larger
programs. 
<PAGE>
Completion of Material Contracts by Subsidiaries of ETSI

Most of ETSI's subsidiaries' contracts are of a short-term duration and are
completed within a few months of the order or award.  Certain contracts, such
as those from utilities, are annual and are completed in stages against task
orders.  Government agencies often issue open orders for which task orders
are issued.  There are no conditions precedent to the issuance of task orders
and they are issued pursuant to the specific orders of the client for the
services.  The Company's backlog consists of contracts and task orders,
already given but not yet completed and does not include open orders which
may or may not result in task orders.  In general, it has been ETSI's
experience over the past three fiscal years that substantially all open
orders ultimately result in task orders.Task orders have, from time to time,
exceeded the amount of open orders due to needs of the client which developed
subsequent to the contract date.  However, the dates when open orders result
in task orders, subject to the length of the contract, and the possibility
that certain open orders will not result in task orders depends on both the
needs of the client throughout the contract period and, in the case of
federal agencies, the availability of funding.  There can be no assurance
that existing contracts or future contracts containing open orders will
result in task orders covering the entire contractual amounts.  In addition,
ETSI is not aware of any significant unrecognized cost to complete any open
contract.

Item 2.     Properties

ETSI occupies approximately 45,000 square feet of office and laboratory space
in a modern commercial building in Roanoke, Virginia, under lease agreements
of its subsidiaries, ETS and ETSAS, effective as of February 1, 1991, which
expire on December 31, 2000, from PDJ Associates, a partnership in which John
D. McKenna, President and Roberta Greiner, widow of Gary P. Greiner, formerly
an officer and director, are partners.  ETSI believes that the leases with
PDJ Associates are on terms as favorable as those which would have been
available from a non-affiliated third party.

The analytical capabilities of ETS and ETSAS consist of three entities: a) a
fixed-location state of the art automated and computerized comprehensive
analytical laboratory for the analysis of contaminated air, water and solid
waste samples; b) mobile laboratories which provide the capability for field
analysis of toxic air emissions; and c) a fixed location fabric testing
laboratory which provides specialized filter bag (fabric) testing and
evaluations.  The laboratory and office premises are adequate for ETS and
ETSAS' present and anticipated needs.
<PAGE>
On June 1, 1994, ETSW entered into a lease of its premises which are owned by
the estate of Stamie E. Lyttle at $10,500 per month for two years.  On June
1, 1996, the lease was renewed for a one year term with three one year
renewal options.  11,500 square feet is allocated for office space; 20,000
square feet for warehouse and 10,000 for service and maintenance.  Outside
storage exists for materials storage and for parking of vehicles.  The
premises are located on 13 acres on the south side of Richmond, two miles
from Interstate 95.  ETSW maintains its own fleet of vehicles and equipment. 
The premises and equipment are considered adequate for the needs of ETSW.  In
addition, subsidiaries of ETSI lease regional office and/or laboratory space
in Pompano Beach, Florida, Fairfax, Virginia and Huntington Valley,
Pennsylvania.

Item 3.     Legal Proceedings.

No material legal proceedings are pending to which the Company or any of its
property is subject, nor to the knowledge of the Company are any such legal
proceedings threatened.

Item 4.     Submission of Matters to a Vote of Security Holders. 
None.
<PAGE>
PART II

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

ETSI's common stock trades on the American Stock Exchange - Emerging Company
Marketplace ("AMEX-ECM") under the symbol "ETS.EC."  The following table
summarizes the market price information for ETSI's Shares on the AMEC-ECM
during fiscal 1995 and 1996.

<TABLE>
<CAPTION>
                                                High        Low
      <S>                                    <C>         <C>

            Year Ended May 31, 1996
      First Quarter                            $2.06       $1.50
      Second Quarter                           $1.81       $1.25
      Third Quarter                            $1.56       $1.31
      Fourth Quarter                           $1.38       $0.94


            Year Ended May 31, 1995         
      First Quarter                            $2.31       $1.38
      Second Quarter                           $2.13       $1.75
      Third Quarter                            $2.19       $1.75
      Fourth Quarter                           $2.13       $1.63

</TABLE>

As of May 31, 1996 there were approximately 1,600 stockholders.  No dividends
have been declared or paid by ETSI and it is anticipated that, for the
foreseeable future, all profits will be reinvested in the business of ETSI.
<PAGE>
In addition to the registrant's shares of common stock, there were issued and
outstanding as of May 31, 1996 warrants and options to purchase shares of
common stock as follows:
<TABLE> 
<CAPTION>

      Number           Type       Exercise         Termination
                                   Price              Date
   <S>             <C>           <C>           <C>
      14,999         Warrants      $1.76       September 1, 1996
      32,680         Warrants      $1.92       September 22, 1996
       5,000         Warrants      $2.20       December 28, 1999
      10,000         Warrants      $2.20       December 31, 1999
       1,000         Warrants      $2.20       January 3, 2000
      25,000         Warrants      $2.20       January 17, 2000
      10,000         Warrants      $2.20       March 31, 2000
     123,173         Options       $1.05*      February 7, 1997
     100,000         Options       $1.58*      February 28, 1997
      50,000         Options       $2.14*      April 23,  1997
     274,000         Options       $2.35*      November 4, 1997
     350,000         Options       $1.50       July 13, 1998
     100,000         Options       $1.37       July 19, 1998 
      23,200         Options       $1.38       August 20, 1998
      15,000         Options       $1.75       October 28,  1998
       2,000         Options       $1.63       November  5, 1998
     157,200         Options       $1.06       April 11, 1999
     476,000         Options       $1.69       June, 17, 1999
      75,000         Options       $1.81       September 29, 1999
      14,000         Options       $1.88       January 12, 2000
       4,000         Options       $1.88       January 16, 2000
      90,000         Options       $1.75       January 31, 2000
       8,000         Options       $2.06       March 1, 2000
     160,000         Options       $1.75       May 8, 2000
     200,000         Options       $1.06       May 24, 2001
</TABLE>

*Canadian dollars
<PAGE>
Item 6.     Selected Financial Data

Selected Financial Data as of and for the Years Ended May 31
<TABLE>
<CAPTION>
                    1996          1995         1994           1993         1992
<S>            <C>          <C>          <C>           <C>           <C>
Total Revenue   $20,539,261   $19,911,906  $17,090,109   $17,408,201   $17,090,492
Gross Profit      1,983,500     3,535,181    2,383,846     2,550,313     2,812,551
Operating
 Income (Loss)   (1,638,564)      496,616     (588,525)     (767,711)        1,891
Net Income
 (Loss)          (1,998,791)      502,666     (701,392)     (865,419)        5,701
Total Assets      9,835,016     9,658,611    7,672,962     6,987,982     7,637,083
Long-term Debt    1,638,912     2,475,967    1,641,741     1,482,871     2,018,103
Total Stock-
 holders' Equity  1,488,306     3,329,664    2,436,151      2,974,101    3,686,734

Earnings (Loss) Per Share:

Primary              $(0.16)        $0.04       $(0.06)       $(0.07)        $0.00
Fully Diluted        $(0.16)        $0.04       $(0.06)       $(0.07)        $0.00
</TABLE>

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

Results of operations

Introduction

A few relatively large contracts in any one business segment in any fiscal
year can make any segment generate relatively large revenues in that year.  
Because disproportionate generation of income has occurred periodically
throughout the existence of ETSI, the Company's strategy has been to offer a
variety of services and maintain a flexible staff capable of executing
different tasks.  Services are tied to different markets, such as new
pollution control equipment expenditures by industry, government funding or
legislative enforcement.  In addition, ETSI continually markets its services
through brochures, seminars and attendance at trade shows and conferences and
by telemarketing.  ETSI attempts to increase its business in the aggregate. 
As the United States experiences economic and legislative cycles, the demand
for each of the Company's services fluctuates accordingly.

On June 1, 1994, ETSI merged with three related Richmond, Virginia firms,
Stamie E. Lyttle Company, Inc., Lyttle Utilities, Inc. and LPS Corporation,
and consolidated them into ETSW, a wholly owned subsidiary of ETSI.  The
combination was effected through the issuance of 2,730,000 shares of ETSI
common stock and has been accounted for as a pooling of interests.  On
January 19, 1995, ETSI merged a Richmond, Virginia firm, Environmental
Laboratories, Inc., with its subsidiary, ETSAS, which increases ETSAS size by
about 50% and makes ETSAS the largest environmental contract laboratory in
the state of Virginia.  This combination was effected through the issuance of
183,600 shares of ETSI common stock and has also been accounted for as a
pooling of interests.  On April 3, 1995, ETSI purchased, with the issuance of
113,000 shares of ETSI common stock, the assets of Air Compliance, Inc., a
Pennsylvania Corporation, and incorporated these assets into the business of
ETS.  On February 5, 1996, ETSI acquired certain assets of Olympic
Industries, Inc. in exchange for 539,130 shares of ETSI's common stock and
incorporated these assets into a new wholly owned subsidiary of ETSW, ETS
Liner, Inc.  On April 18, 1996, ETSI acquired certain laboratory assets of
Dewberry and Davis, Inc. in exchange of 65,617 shares of ETSI's common stock
and incorporated these assets into ETSAS.  These transactions are discussed
further in Note 2 to the audited consolidated financial statements for the
year ended May 31, 1996 ("fiscal 1996").  The transactions are anticipated to
broaden the revenues and asset base of ETSI in coming years.  The results of
operations for the fiscal years presented include the poolings of interests
transactions as if as if they had been consummated at the beginning of the
earliest period presented while purchase transactions are reflected since the
date of acquisition.
<PAGE>
ETSI has divided its revenues into four meaningful categories; (a) services -
encompassing field and analytical testing, regulatory assistance and
monitoring; (b) consulting/engineering - encompassing consulting and
engineering services and educational areas; (c) products; and (d)
construction.

Fiscal Year 1996 Compared to Fiscal Year 1995

Revenues for fiscal 1996 were $20,539,261 compared to $19,911,906 for the year
ended May 31, 1995 ("fiscal 1995") for a 3% increase.

Total testing service revenues were $5,957,008 for the current year compared
to $6,122,207 for fiscal 1995 for a 3% decrease.  This decrease was due to
several factors.  The unfavorable weather conditions caused postponements and
delays in executing contracts.  There was also a decline in bidding
opportunities for the testing service area as a number of customers had
budget constraints and the state and federal government still at odds in the
pollution control area led to the delay of awarding and start-up of
government contracts for the analytical laboratory.

Field testing service revenues were $2,356,553 compared to $2,778,032 for
fiscal 1995 for a 15% decrease.  This decrease was due in part to the
decrease in services for a pollution control monitoring system supplier for
stack testing particularly related to continuous emission monitors for
electric utilities which was a major part of the fiscal 1995 field testing
services.  Although the number of contracts serviced in fiscal 1996 were
about the same as the previous year, the dollar amount of the contracts were
somewhat lower.  Major customers for fiscal 1996 included two electric power
utility plants, an air pollution control product manufacturer and two
municipal waste incinerator plants representing 31% of field testing
services.  

Revenues for analytical laboratory services which also include in-house
projects and products were $2,904,652 for the year compared to $2,769,169 for
fiscal 1995 for an increase of 5%.  Commercial revenues were up 10% and
included increases in groundwater monitoring and CERCLA soil remediation
activities.  Government revenues were down 56% for the current year due to
the U.S. Congressional budget impasse.  This not only caused delays in the
incremental funding of existing contracts but produced delays in awarding
several new contracts for which the laboratory had negotiated a best and
final status.  Because of the severe winter weather the commercial and
government projects scheduled during the third quarter were delayed and
re-scheduled up to three months later.  

Regulatory Assistance revenues were $534,889 compared to $490,531 for an
increase of 9% over the fiscal 1995 revenues.  Major customers comprising 59%
of the total included a paper manufacturer, a chemical manufacturer, an iron
foundry and a railroad company.  Revenues for monitoring services were
$160,914 for fiscal 1996 compared to $84,475 for fiscal 1995 for an increase
of 91%.  Two customers, a printing company and a chemical plant, accounted
for 93% of the total monitoring service revenues.
<PAGE>
Revenues for consulting/engineering services for fiscal 1996 were $354,484
compared to $492,490 for fiscal 1995 for a 28% decrease.  Consulting service
revenues were $112,033 which was an increase of 58% over the prior years'
revenues of $70,761 with major customers being a government contractor
consultant and research firm for 54% and an electric utility plant for 27% of
the total consulting revenues.  The increase was due largely to the increased
services for the same government contractor over fiscal 1995.  Revenues for
engineering were $116,278 for fiscal 1996 compared to $349,395 for fiscal
1995 for a 67% decrease.  Major customers for the current year consisted of
two steel manufacturers for 89% of the total engineering.  The decrease in
revenues was due to a decrease in services from fiscal 1995 for one of these
steel manufacturers.  

Revenues for in-house projects which consist of sale of books were $38,213
compared to $17,916 for fiscal 1995 for an increase of 113%.  Additional
tutorials have been added to the line of books.  To educate the public on the
availability of our books, promotional material is being included with the
seminar materials and some promotional mailings are being made.  Seminar
revenues were $87,960 compared to $54,418 a year ago for a 62% increase.  The
current year included revenues from a seminar sponsored by the United States
Agency for International Development (USAID) for an Air Pollution Control
Technologies Course which commenced in the third quarter and provided 76% of
fiscal 1996 seminar revenues and the increase for the year.

Product revenues were $8,430 for fiscal 1996 compared to $17,737 for a
decrease of 52% and included both the Baghouse Performance Monitoring (BPM)
hardware and software products.  A new clean air regulation includes a
section that will require baghouse operators to provide more exact monitoring
with a record of the problems and the corrective actions taken.  ETS has
proposed to the Environmental Protection Agency (EPA) that the BPM be
considered as an acceptable protocol for logging and monitoring this
information.
<PAGE>
Construction revenues for fiscal 1996 were $14,219,339 compared to
$13,279,472 for fiscal 1995 for a 7% increase.  The current year experienced
growth in some areas of business while some areas showed a decline in the
sales.  Construction activities in general were slow due to higher interest
rate and a severe winter.  Irrigation showed a significant growth and this
growth pattern is expected to continue in fiscal 1997.  However, the utility
and septic construction experienced a decline in overall activities in terms
of sales and bidding.  Fortunately, toward the end of year, both of these
areas showed improvements in bidding inquiries which will result in sales
growth for the future.  Even with the increase in sales for fiscal 1996, the
construction business had a large loss for the year.  The nature and cost of
projects during fiscal 1996 were heavily weighted toward materials rather
than labor and equipment thereby reducing the gross profit margins as higher
gross profits are generated from labor and equipment components than from
materials.  The local area economy was slow and market competitive pressures
kept prices of projects at lower levels thereby further reducing gross profit
margins.  Adverse weather conditions brought construction to a standstill
during the third quarter and first part of fourth quarter, thereby delaying
work until late fourth quarter or the first quarter of fiscal 1997.

Cost of goods and services for fiscal 1996 were $18,555,761 or 90% of
revenues compared to $16,376,725 or 82% of revenues during fiscal 1995.  This
increase was attributed to price erosions due to competitive pricing
resulting in higher cost in executing the work, the delays experienced with
the unfavorable weather conditions and the nature and cost of projects
heavily weighted toward materials rather than labor and equipment.  

With a 3% increase in revenues and an increase of 13% in the cost of goods
and services, the gross profit for the year ended at $1,983,500 or 10% of
revenues for the current year compared to a gross profit of $3,535,181 or 18%
of revenues for fiscal 1995.   

Selling, general and administrative expenses for the current year were
$3,622,064 or 18% of revenues compared to $3,038,565 or 15% of revenues for
fiscal 1995.  The increase is the result of additional legal expense and
added facilities relating to acquisitions and an overall general increase in
office operations.  
<PAGE>
Interest income from savings on deposit for fiscal 1996 was $21,107 compared
to $28,610 for fiscal 1995.  Interest expense representing the interest for
utilization of the credit line and interest paid in financing of capital
equipment was $392,131 for the current year compared to $348,870 for fiscal
1995.  Other income representing the sale of miscellaneous scrap materials
was $10,797 compared to $22,266 for fiscal 1995.

Net Loss for fiscal 1996 was $1,998,791 compared to net income of $502,666
for fiscal 1995.  The current year loss was a result of several factors.  All
the subsidiaries were affected by the unfavorable weather conditions causing
delays, a decline in bidding opportunities due to budget constraints of
customers, competition pressure keeping margins low, and the state and
federal government still at odds delaying awarding of contracts.

Fiscal Year 1995 Compared to Fiscal Year 1994

Revenues for the year ended May 31, 1995 ("fiscal 1995") were $19,911,906
compared to $17,090,109 for the year ended May 31, 1994 ("fiscal 1994") for a
17% increase.  Total testing service revenues were $6,122,207 for fiscal 1995
which was an increase of 21% over revenues for fiscal 1994 of $5,066,353. 
Field testing services generated revenues of $2,778,032 compared to
$1,681,471 for the preceding year for a 65% increase.  There was a
significant increase in the stack testing business particularly related to
continuous emission monitors for electric utilities.  There were five major
customers which contributed 50% of the total field testing revenues.  These
customers consisted of a pollution control monitoring system supplier, an
iron foundry, an electric power utility plant and two municipal waste
incinerator plants.  The enforcement of Title IV 1990 Clean Air Act
Amendments provided the opportunity during fiscal 1995 to obtain substantial
electric utility testing contracts.  The acquisition of Air Compliance, Inc.,
as previously mentioned, accounted for 5% of the field service revenues.  
<PAGE>
Analytical laboratory revenues in fiscal 1995 were $2,769,169 compared to
$2,920,767 for fiscal 1994 for a 5% decrease.  Much of this decrease is
attributable to a nationwide over-capacity in the environmental laboratory
business which has depressed pricing.  In fiscal 1995, the ETSAS Roanoke
laboratory, received 12% more samples than in fiscal 1994 but the higher
discounts were responsible for a reduction of revenues compared to fiscal
1994.  The merger of Environmental Laboratories, Inc., Richmond, Virginia,
contributed 36% of the total laboratory revenues for the 1995 fiscal year and
36% for the 1994 fiscal year.  The total laboratory services included 17%
government services and 83% commercial services.

Revenues for regulatory assistance for fiscal 1995 were $490,531 compared to
$312,433 for fiscal 1994 for a 57% increase.  Three major customers, a
chemical plant, an iron foundry and a steel manufacturer, accounted for 53%
of the regulatory assistance revenues for fiscal 1995.  

Monitoring services decreased in fiscal 1995 to $84,475 from $151,682 for
fiscal 1994 mainly due to a decrease in services for a chemical plant.  The
total for fiscal 1995 consisted of revenues from a chemical plant and an
electric utility plant.

Consulting/engineering service revenues for fiscal 1995 were $492,490
compared to $471,190 for the 1994 fiscal year.  The consulting activity
generated revenues of $70,761 compared to $368,525 for fiscal 1994.  This
drastic reduction in revenues were mainly due to the completion of an
Environmental Protection Agency contract.  Engineering services were up
sharply to $349,395 from $5,960 for fiscal 1994.  These services included
services for a steel manufacturer, an iron foundry and a Taiwan steel
fabricator and boiler maker for design of a baghouse.  The sale of books
amounted to $17,916 for the 1995 fiscal year compared to $30,396 for fiscal
1994 and seminars were also down at $54,418 revenues compared to $66,309 for
the 1994 fiscal year.

Revenues from the sale of products were $17,737 compared to $11,383 for
fiscal 1994 and consisted of an order for a Baghouse Performance Monitor
(BPM) from a steel supplier.  

Construction service revenues for fiscal 1995 were $13,279,472 compared to
$11,541,183 for a 15% increase.  60% of these revenues were from underground
water, gas and sewer utility work, 15% from irrigation and land services and
25% for septic system installation, fencing and other related services. 
Major customers included the City of Richmond representing 18% of the total
construction revenues for fiscal 1995, the municipalities of the local,
county and city governments, the State of Virginia and major developers in
the Richmond, Virginia area.  Growth areas include the fencing service and
the Fortune 500 customers.
<PAGE>
ETSI's gross profit for fiscal 1995 was $3,535,181 or 18% of revenues
compared to $2,383,846 or 14% of revenues for fiscal 1994.  This increase was
due to an increase in revenues and a decrease in cost of goods sold of 4% as
a percent of total revenues.  

Selling, general and administrative expenses were $3,038,565 for fiscal 1995
compared to $2,972,371 for fiscal 1994.  This increase was due in part to
extra expenses relating to the mergers and acquisitions during the year
amounting to 2.2%.   

Interest income for the current year was $28,610 compared to $16,099 for
fiscal 1994 as a result of earned interest from savings on deposit.  Interest
expense for the year was $348,870 compared to $212,861 for the prior fiscal
year.  This expense represents the interest expense for utilization of the
credit line and interest paid in financing of capital equipment.  Insurance
proceeds represents $304,044 of life insurance proceeds received as a result
of the death of an officer of ETSI. 

Net income for fiscal 1995 was $502,666 compared to a loss of $701,392 for
fiscal 1994.  The transition from a loss to a profit was the direct result of
higher revenues as ETS benefitted from the implementation of parts of the
1990 Clean Air Act Amendments and ETSW improvement in revenues by taking
advantage of the somewhat improved construction markets and a turnaround on
the bottom line as a result of the reorganized and streamlined organization.
ETSAS was the only subsidiary not to have an improved year as its markets
remained flat and pricing very competitive.

Liquidity And Capital Resources As Of The End of Fiscal Year 1996

During fiscal 1996, ETSI received $82,433 from the exercise of employee stock
options.  As of May 31, 1996, there were 2,469,573 stock options outstanding
to employees with expiration dates of February 7, 1997 through May 24, 2001
and 98,679 outstanding warrants to various people with expiration dates of
September 1, 1996 through March 31, 2000.  

On February 5, 1996, ETSI purchased, with the issuance of 539,130 shares of
ETSI stock, the assets of Olympic Industries, Inc. of Pompano Beach, Florida,
and incorporated these assets into a new corporation, ETS Liner, Inc., a
wholly owned subsidiary of ETSW.  ETSI entered into a repurchase agreement
with Olympic Industries whereby the Company agreed to repurchase these shares
of stock.  See Note 7 to the audited consolidated financial statements for
further details.  ETSI acquired certain laboratory assets of Dewberry and
Davis, Inc. in Fairfax, Virginia on April 18, 1996 in exchange for 65,617
shares of ETSI common stock and incorporated these assets into the assets of
ETSAS.
<PAGE>
ETSI has an aggregate line of credit of $1,590,000 to accommodate the need
for temporary working capital.  As of May 31, 1996, $1,071,427 of the total
line of credit was being utilized.  Major components of cash flow used in
operating activities included the net loss for fiscal 1996 of $1,998,791 and
an increase in accounts receivable of $310,839 which was offset by
depreciation and amortization, a decrease in cost and estimated earnings in
excess of billings on uncompleted contracts and an increase in accounts
payable which resulted in net cash used in operating activities of $351,453. 
Cash flow provided by investing activities of $1,347,358 included proceeds
from a sale/leaseback of equipment of $1,660,900 and sale of equipment of
$36,940 less purchases of property, plant and equipment of $334,065 and
patent costs incurred of $16,417.  Major components of cash flow used in
financing activities of $939,367 include the principal payments on long-term
debt of $1,869,789 and reduction in credit line of $179,237, proceeds from
notes payable to stockholder of $600,000 and proceeds from long-term debt of
$344,465.  The net cash and cash equivalents at May 31, 1996 was $121,713
compared to $65,175 at May 31, 1995.  

Backlog at May 31, 1996 was $6,844,851 compared to $4,414,772 at May 31,
1995.  ETS and ETSAS held open orders from various clients, including
commercial clients as well as federal and state government agencies.  If all
the work under these open orders is authorized, the Company estimates that
its backlog would increase by $1,181,866 to a total of $8,026,717 compared to
open orders at May 31, 1995 of $4,234,275 to a total backlog of $8,649,047. 
This decrease in total backlog reflects the decrease in government activity. 
Most of ETSI's contracts are of short-term duration and are completed within
a few months of the order or award.  Certain contracts such as those from
utilities are annual and are completed in stages against task orders. 
Government agencies often issue open orders for which subsequent task orders
are issued.  There are no conditions precedent to the issuance of task orders
and they are issued pursuant to the specific orders of the client for the
services.  Experience shows that substantially all open orders ultimately
result in task orders and at times have exceeded the amount of the open
order.  There can be no assurance that existing contracts or future contracts
containing open orders will result in task orders covering the entire
contractual amounts.  ETSI is not aware of any significant unrecognized cost
to complete any open contract.

Recently, ETS received a letter of intent to license the LEC technology from
a subsidiary of Taiwan's largest and most prominent engineering firm.  This
firm provides a full range of architectural/engineering and construction
services to utility and industrial power producers throughout Asia. 
Negotiations are in process which would involve a $50,000 technology transfer
fee and a 4-6% royalty on a sales guarantee of $6,000,000.  Initially the
license will cover power projects in Taiwan.  The firm has expressed interest
in expanding the coverage to other Asian countries including China.  In
January 1996, ETSI entered into a collaborative agreement with Korea
Cottrell, a firm for the manufacture and sale of the LEC to the Korean
market.  This firm is Korea's premier supplier of air pollution control
systems.  Marketing efforts have been initiated in eastern Europe where
countries such as Poland, Hungary and the Czech Republic must address their
air emissions to be considered for membership in the European Community.
<PAGE>
Recent Accounting Developments

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to Be Disposed of," which is
required to be adopted by the Company for the year ending May 31, 1997.  
Statement 121 requires companies to review long-lived assets and certain
identifiable intangibles to be held, used or disposed of, for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable.  The Company believes the adoption of
this statement will not have a significant effect on its consolidated
financial statements.

In October 1995, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123), which is effective for transactions entered into in
fiscal years beginning after December 15, 1995.  The Company believes the
adoption of SFAS 123 will not have a significant effect on its consolidated
financial statements.

Item 8.     Financial Statements and Supplementary Data.

See Financial Statements starting on page F-l for this information.

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

No disagreements exist with respect to accounting and financial disclosure.
<PAGE>
Part III

Item 10.    Directors and Executive Officers of the Registrant. 

The following sets forth certain information concerning the directors and
executive officers of ETSI.  At the Annual Meeting of Shareholders held in
October, 1995, the following individuals, were elected to serve as directors
of ETSI.  Billy H. Branch, who was appointed to fill the vacancy created by
the death of Gary P. Greiner, resigned.  All Directors hold office for a one
year term or until their successors are elected and have qualified.  The
Officers serve at the discretion of the Boards of Directors.

<TABLE>
<CAPTION>
    Name                              Position
<S>                         <C>
John D. McKenna               President and a Director
John C. Mycock                Secretary, Treasurer and a Director
Coleman S. Lyttle             Director
Navin D. Sheth                Director
Lee A. Raver                  Director
Thomas W. Marmon              Director
David F. Tompkins             Director
</TABLE>

John D. McKenna (56 years old) has been President of ETSI since 1988, and
serves as Chief Executive Officer of ETS and ETSAS.  He was President of ETS
from 1978 to 1991 and has been a Director of ETS since its incorporation in
1973.  Dr. McKenna received his B.S. in Chemical Engineering from Manhattan
College in 1961 and undertook graduate studies in mechanical engineering at
the University of Bridgeport in 1962 and 1963.  He received his M.S. in
Chemical Engineering from Newark College of Engineering in 1968 and his
M.B.A. from Rider College in 1974.  In 1991, Dr. McKenna received his Ph.D.
from Walden University, Minneapolis, MN.  Dr. McKenna's expertise in air and
water pollution control applications includes economic evaluation
applications, pilot plant and fall scale studies of alternative pollution
control techniques.  He has written a textbook on air pollution technology
and has authored or co-authored 31 publications on the subject of air
pollution control.  On May 1, 1992, Dr. McKenna was chosen by the Centennial
Committee to Select Outstanding Engineering Graduates of Manhattan College
School of Engineering as one of Manhattan College's Outstanding Engineering
Graduates.  He is a member of Tau Beta Pi, the National Honor Society of
Engineering; the National Association of Environmental Professionals; and is
listed in Who's Who in Engineering, Environmental Registry, Finance and
Industry, the World and Science and Engineering.  He is Past Chairman of the
State of Virginia Advisory Board on air Pollution.
<PAGE>
John C. Mycock (57 years old) has been an Officer and Director of ETSI since
1988 and serves as Secretary/Treasurer of ETS and Secretary of ETSAS.  He has
been an Officer and Director of ETS since 1979.  He has had over twenty years
experience in the field of air pollution control.  Mr. Mycock currently is
responsible for all preorder sales and marketing activities of ETS.  He has
been involved in start-up and testing of scrubbers, precipitators and fabric
filters.  His experience has been heavily oriented to utility boiler control
systems for both particulate and sulfur oxide emissions.  He is the author of
a handbook of air pollution control, engineering and technology and the
author or co-author of fifteen publications, primarily on the subject of
fabric filters and baghouses.  Mr. Mycock attended Mercer County Junior
College and Trenton State College.  

Coleman S. Lyttle (43 years old) has served as President of Lyttle since
June, 1994. From 1982 to 1994, he was President of Stamie E. Lyttle Company,
Inc. and Lyttle Utilities, Inc.  From 1975 to 1982, he was Senior Estimator
and Project Manager of Stamie E. Lyttle Company, Inc.  Mr. Lyttle received
his B.S. in Business Administration from Virginia Polytechnic and State
University in 1975.

Navin D. Sheth (50 years old) has served as Executive Vice-President of
Lyttle since June, 1994 and, since May, 1996, also served as Chief Operating
Officer.  From 1972 to May, 1994, he was associated with Stamie E. Lyttle
Company, Inc. in the following capacities from 1982 to 1994 - Vice
President-Finance; from 1979 to 1982 - Controller; from 1972 to 1979 -
Operations Analyst.  Mr. Sheth was Assistant Professor, Virginia College,
Lynchburg, Virginia from 1971 to 1972.  He received his B.S. in chemistry in
1967 from Bombay University and his MBA in 1971 from Atlanta University,
Atlanta, Georgia.

Lee A. Raver (54 years old) has served as a Director of ETSI since its
incorporation in 1987.  His educational background includes a B.S. degree in
Business Administration from University of Tennessee in 1966.  For the past
fifteen years, Mr. Raver has acted principally as a venture capitalist and
private investor in multi-family real estate and emerging growth companies. 
He presently is president of Raver Realty, Inc., a real estate brokerage firm
located in Richmond, VA, and a director of Claycomb Press, Inc., a private
publishing company located in Chevy Chase, Maryland.

Thomas W. Marmon (64 years old), a retired businessman, became a director of
ETSI in 1992.  He has, since 1990, served as a Director of Ceres, Inc., an
incentive motivation company.  From 1989 to 1991, he was a Director of
Western Canada Water, Vancouver, B.C., a bottled water company.  From 1971 to
1987, he was a partner in Darinon, and from 1973 to 1984, he was President
and a principal stockholder of Forest View Psychiatric Hospital, a provider
of inpatient and outpatient psychiatric services.  From 1981 to 1987, he was
President and a principal stockholder of Comus, Inc., a consumer electronic
manufacturer and distributor.  The assets of these four Grand Rapids,
Michigan-based businesses were sold upon the retirement of the principals
from active participation.
<PAGE>
David F. Tompkins (48 years old) has been President of ETSAS since its
formation in 1990.  From 1978 to 1990, he was employed by Centec for which he
served as President from 1985.  In his positions with ETSAS and, previously
with Centec since 1985, he has been responsible for technical administration
of the Inorganic Analytical section as well as strategy, policy and financial
planning and control of business operations.  From 1978 to 1985, his
responsibilities included technical and administration of the laboratory
operations as well as strategy, policy and financial operations.  Mr.
Tompkins received his B.S. in Geology from Kent State University in 1971, his
B.A. in Chemistry from Kent State University in 1973 and his M.Ad. from
Lynchburg College in 1985.  He holds a patent and was the recipient of an IR
100 Award for 1984 on the PCB Field Test Kit of which he was a co-inventor.

Significant Employees

Arthur B. Nunn (44 years old), President of ETS, Inc., served as President of
Air Compliance, Inc. until the acquisition of its assets by ETS in April,
1995.  From 1981 to 1991, he was Vice-President of Scott Environmental
Technology, Inc.; from 1978 to 1981, Department Manager, Environmental
Engineering Division of TRW, Inc.; from 1977 to 1978, Monitoring Engineer for
the Fairfax County Air Pollution Control Board; and from 1976 to 1977,
Regional Chemist, Northern Virginia for the Virginia State Air Pollution
Control Board.  Mr. Nunn served in the Air Force from 1975 to 1976.  His
experience in the fields of air pollution control include consulting,
modeling, engineering, permitting, regulatory development, sampling, analysis
and impact evaluation.  He is the author of numerous articles in the field of
air toxics management and monitoring.  Mr. Nunn received his B.S. in
Chemistry from the Virginia Military Institute in 1975 and his M.S. in
Environmental Science from George Washington University in 1978.  

Edward D. Handel Ph.D. (46 years old) has, since 1990, served as Manager,
Regulatory Assistance.  He received his B.A. in Chemistry from Youngstown
(Ohio) State University in 1972 and his Ph.D. in Chemistry from North Dakota
State University in 1977.  From 1981 to 1990, he was employed by Centec where
he was responsible for the technical administration of the Organic Analytical
and research and development section.  From 1979 to 1981, he was an Assistant
Professor at Virginia Polytechnic Institute on the Faculty of Chemistry.  Dr.
Handel directs activities related to environmental permitting, including
performing air dispersion modeling using both measurement and computer
techniques and the establishment of meteorological stations on plant sites
required to collect data for modeling purposes.  Dr. Handel also directs
environmental audits and risk assessments.
<PAGE>
Richard H. Snyder (60 years old) was owner and General Manager of Olympic
Industries, Inc. from 1971 to 1966 until it sold certain assets relating to
the Ultraliner technology to the Company.  He continues as manager of the
Florida-based operation.  From 1970 to 1971, he was Director of Dadson, Inc. 
From 1967 to 1970, Mr. Snyder was Assistant to the Vice-President of
Mississippi River Transmission Corporation.  From 1965 to 1967, he was
Assistant to the General Superintendent for the Standard Oil Company (Ohio). 
From 1958 to 1965, he was Project Engineer for Marathon Pipeline Company. 
Mr. Snyder earned his BSCE from Case Institute of Technology in 1958.  

Item 11.    Executive Compensation.

The following table sets forth certain information concerning the
compensation paid or accrued by the Company for services rendered during the
Company's fiscal year ended May 31, 1996 to the President of the Company and
to other Officers and Directors receiving greater than $100,000 in salary and
bonus.

<TABLE>
<CAPTION>
                                              SUMMARY COMPENSATION TABLE
                        Annual Compensation                                     Long Term Compensation 
                                                                                     Awards Payouts

<S>                      <C>    <C>         <C>       <C>            <C>       <C>       <C>          <C>
(a)                      (b)    (c)         (d)       (e)            (f)       (g)       (h)          (i)
                                                           Other       Restricted                           All
Name and Principal                                         Annual        Stock   Options     LTIP          Other
  Position                Year   Salary ($)  Bonus ($) Compensation ($)  Awards   SARs #  Payouts ($)  Compensation($)

John D. Mckenna           1996     $93,783
President and Chairman
  of the Board                

Coleman Lyttle            1996    $150,943
President of a
  subsidiary and
  a Director                  
</TABLE>
<PAGE>
Aggregated Options Granted and Exercised in Last Fiscal Year and Fiscal Year
End Option/SAR Values The following table sets forth certain information
concerning the number of stock options held by the named Officers as of
May 31, 1996.

<TABLE>
<CAPTION>
                                                               Number of
                                                                 Shares                    Dollar value
                                                               underlying                 of unexercised
                                                               unexercised                (in-the-money)
                                                            options/warrants             options/warrants
                                                               on 05/31/96                  on 5/31/96
                          Number   Number of
                            of      Options
                          Options  Warrants  Exercise
Name               Title  Granted  Exercised   Price    Exercisable  Nonexercisable  Exercisable  Nonexercisable
<S>                <C>    <C>      <C>       <C>        <C>          <C>             <C>          <C>     
John D. McKenna    Pres.                                  120,000                       $-0-

John C. Mycock     Sec/Treas.                              80,000                       $-0-

David F. Tompkins  Dir.                                    66,604                       $-0-

Lee A. Raver       Dir.                                   470,000                       $-0-

Thomas W. Marmon   Dir.                                   120,000                       $-0-

Coleman S. Lyttle  Dir                                     20,000                       $-0-

Navin D. Sheth                                             20,000                       $-0-

</TABLE>

In addition, Coleman Lyttle will receive a bonus of $30,000 in the event, in
any fiscal year, ETSW generates net pre-tax income of $100,000 or 1% of sales
(whichever is lower); Navin Sheth will receive a $25,000 bonus in the event,
in any fiscal year, ETSW generates net pre-tax income of 3% of sales.

Directors receive no fees or other compensation for acting as such.  They are
reimbursed for travel and other expenses related to their attendance at
meetings of the directors.  In June, 1996, each director received 20,000
nonstatutory stock options exercisable at the closing market price at the
date of issue of $1.00 and expiring five years thereafter.
<PAGE>
Item 12.    Security Ownership of Certain Beneficial Owners and Management.

(a)   Securities Ownership of Certain Beneficial Owners. 

As of July 31, 1996 the following persons were known by ETSI to own of record
or beneficially more than five (5%) percent of the voting interests of ETSI.

<TABLE>
<CAPTION>
Title of           Name and Address            Amount and Nature       Percent of 
  Class           of Beneficial Owner       of Beneficial Ownership      Class
<S>              <C>                              <C>                  <C>   
Common Stock      John D. McKenna                   1,228,100             9.8%
                  1401 Municipal Road, NW 
                  Roanoke, VA 24012

Common Stock      Roberta Greiner                   1,276,000            10.2%
                  5408 Setter Road
                  Roanoke, VA 24012

Common Stock      Coleman S. Lyttle                 1,091,334             8.7%
                  2210 Belt Boulevard
                  Richmond, VA 23224

Common Stock      Thomas W. Marmon                  1,084,288             8.6%
                  4390 Airwest Drive, SE
                  Grand Rapids, MI 49512        

Common Stock      Dr. Allen Kahn                      971,834             7.7%
                  2125 Evans Road 
                  Flossmore, IL 6042

</TABLE>


1.    Coleman S. Lyttle is the executor of the Estate of Stamie E. Lyttle and
trustee of certain trusts created thereby.  He is not a beneficiary of the
estate or the beneficial owner of Shares owned by the estate or by any such
trust.
<PAGE>
(b)   Security Ownership of Management. 

John D. McKenna is an Officer and Director; Coleman S. Lyttle and Thomas W.
Marmon are Directors of ETSI.  Their ownership of ETSI's voting interests is
stated above.  In addition, as of July 31, 1996, the following Officers
and/or  Directors of ETSI own the number of Shares set forth after their
names:

<TABLE>
<CAPTION>
Title of           Name and Address            Amount and Nature       Percent of 
  Class           of Beneficial Owner       of Beneficial Ownership      Class
<S>              <C>                              <C>                  <C>   
Common Stock      John C. Mycock                      336,450             2.7%
                  1401 Municipal Road, NW
                  Roanoke, VA 24012-1309

Common Stock      Lee A. Raver                        341,800             2.7%
                  1788 Hungary Road
                  Richmond, VA 

Common Stock      David F. Tompkins                     6,106             0.0%
                  1401 Municipal Road, NW
                  Roanoke, VA 24012-1309
      
Common Stock      Navin D. Sheth                      532,208             4.2%
                  2210 Belt Boulevard
                  Richmond, VA 23224
      
Common Stock      All Officers and                  4,620,286            36.7%
                  Directors as a group
</TABLE>

*Calculation is based upon 12,580,733 Shares of Common Stock outstanding and
does not include 267,934 Treasury Shares of ETSI, 539,130 Shares subject to a
repurchase agreement related to the acquisition of certain assets of Olympic
Industries, Inc. or Shares underlying the exercise of outstanding Options or
Warrants (see Note 2 to Audited Consolidated Financial Statements).
<PAGE>
Item 13.    Certain Relationships and Related Transactions.

ETSI, through its subsidiaries, rents office and laboratory space from PDJ
Associates, a partnership whose partners are Roberta Greiner, widow of Gary
Greiner, formerly an officer and director of ETSI, and John D. McKenna,
President, under a lease which terminates on December 31, 2000 and is subject
to one renewal option for an additional period of five years.  Pursuant to
this lease, aggregate rent was $14,500 per month for the first year which
commenced February 1, 1991 with annual increases of 5%.

On June 1, 1996, ETSW entered into a lease of its premises which are owned by
the Estate of Stamie E. Lyttle at $10,500 per month for a period of one year
with three one-year renewal options.  

In February, 1996, the Company acquired the assets of Pipe-Liner Installer
Company for 226,087 Shares of Common stock to Olympic Industries and 313,043
Shares to Richard Snyder, its president.  The assets were placed in a
subsidiary, ETSW, called ETS Liner, Inc. 

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

(a)   Documents filed as part of this Annual Report on Form 10-K:

      (1)   Financial Statements.

See "Index to Consolidated Financial Statements" on page F-Index herein.

      (2)   Financial Statement Schedules Required to be Filed by Item 8 on
this Form.
            None.

      (3)   Exhibits
            See list on following page.
<PAGE>
Exhibit                                Incorporated by Reference 
No.         Description                or Filed Herewith

3 (a)       Certificate of             Incorporated by reference to
            Incorporation              Exhibit 3(a) to the Registration
            as amended                 Statement on Form S-18 filed 9-18-87
                                       File No. 33-17326 (the "Registration
                                       Statement")

3 (b)       By-Laws                    Incorporated by reference to Exhibit
                                       3(b) to the  Registration Statement

3 (c)       By-Laws as amended         Incorporated by reference to Exhibit
                                       3(c) to the Registration Statement

3 (d)       Restated By-Laws           Incorporated by reference to Exhibit
                                       3(d) to the Registration Statement on
                                       Form 10, filed 11-22-91, File Number
                                       0-19678 ("Form 10")

4 (a)       Stock Certificate          Incorporated by reference to Exhibit
                                       4(b) to the Registration Statement

10 (e)      Lease between ETS, Inc.    Incorporated by reference
            and PDJ Associates re:     to Exhibit 28(y) to the Form 10
            1401 Municipal Road, NW,
            Roanoke, VA 24012       


10 (f)      Lease between ETS          Incorporated by reference
            Analytical Services,       to Exhibit 28(z) to the Form 10
            Inc. and PDJ Associates
            re: 1401 Municipal Road,
            NW, Roanoke, VA 24012   


10 (g)      Lease between ETS Water    Filed herewith
            and Waste Management, 
            Inc. and the Estate of 
            Stamie E. Lyttle 


23 (e)      KPMG Peat Marwick LLP      Filed herewith
            Opinion to Financial 
            Statements 

(b)         Reports on Form 8-K
            None.

(c)         Exhibits
            See (a) 3. above.

(d)         Financial Statement Schedules
            None.
<PAGE>
                                 SIGNATURES
   
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to
its Annual Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto authorized.
    
                        ETS INTERNATIONAL, INC.
                              (Registrant)

                        By:   s/John D. McKenna
                              John D. McKenna
                              President and Principal
                              Executive Officer
                                                                       
            
                        By:   s/John C. Mycock
                              John C. Mycock
                              Secretary/Treasurer and
                              Principal Financial Officer
   
Dated:  January 10, 1997

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Amendment to its Annual Report on Form 10-K has been signed below by the 
following persons on behalf of the Registrant and in the capacities and 
on the dates indicated.
    
s/John D. McKenna 
------------------------
  John D. McKenna             Director         

s/John C. Mycock
------------------------
  John C. Mycock              Director         

s/David F. Tompkins
-----------------------
  David F. Tompkins           Director         

s/Coleman S. Lyttle
-----------------------
  Coleman S. Lyttle           Director         

s/Navin D. Sheth
-----------------------
  Navin D. Sheth              Director         

s/Lee A. Raver
-----------------------
Lee A. Raver                  Director         

s/Thomas W. Marmon
-----------------------
Thomas W. Marmon              Director         

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
ETS Water and Waste Management, Inc.
Richmond, Virginia:

We have audited the consolidated statements of income and retained earnings
and cash flows of ETS Water and Waste Management, Inc., formerly Stamie E.
Lyttle Co., Inc., Lyttle Utilities, Inc. and LPS Corp. for the year ended May
31, 1994.  These consolidated financial statements are the responsibility of
the Company's management.  Our responsibility is to express an opinion on
these consolidated 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 consolidated financial
statements are free of material misstatement.  An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 consolidated financial statements of ETS Water and Waste
Management, Inc., formerly Stamie E. Lyttle Co., Inc., Lyttle Utilities, Inc.
and LPS Corp. referred to above presents fairly, in all material respects,
the results of their operations and their cash flows for the year ended May
31, 1994, in conformity with generally accepted accounting principles.



                              Keiter, Stephens, Hurst, Gary & Shreaves, P.C.



Richmond, Virginia
June 9, 1995

<PAGE>

SUPPLEMENTAL INFORMATION AND EXHIBITS

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 BY REGISTRANTS WHICH
HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.  The
registrant's fiscal year ended May 31, 1996.  The registrant has set a date
for its Annual Meeting of Stockholders of October 25, 1996.  Four copies of
all material to be mailed to stockholders with respect to such meeting will
be furnished to the Securities and Exchange Commission but such documents,
when furnished, will not be deemed to be filed with the Securities and
Exchange Commission or otherwise subject to liabilities of Section 18 of the
Act (except to the extent that the registrant specifically incorporates such
material by reference in any subsequent Form 10-K); it is expected that such
documents will consist of a Form of Proxy, Notice of Annual Meeting,
Information Statement with Schedules and/or Exhibits annexed thereto.
<PAGE>

ETS INTERNATIONAL, INC. AND SUBSIDIARIES

Index to Consolidated Financial Statements

May 31, 1996


                                                                        Page

Independent Auditors' Report                                             F-1

Consolidated Balance Sheets as of May 31, 1996 and 1995          F-2 and F-3

Consolidated Statements of Income (Loss) - 
  Years Ended May 31, 1996, 1995 and 1994                                F-4

Consolidated Statements of Stockholders' Equity - 
  Years Ended May 31, 1996, 1995 and 1994                                F-5

Consolidated Statements of Cash Flows - 
  Years Ended May 31, 1996, 1995 and 1994                        F-6 and F-7

Notes to Consolidated Financial Statements - 
  May 31, 1996, 1995 and 1994                                    F-8 to F-22

<PAGE>



Independent Auditors' Report 



The Board of Directors and Stockholders
ETS International, Inc. and Subsidiaries:


We have audited the accompanying consolidated balance sheets of ETS
International, Inc. and Subsidiaries as of May 31, 1996 and 1995, and the
related consolidated statements of income (loss), stockholders' equity and
cash flows for the years then ended.  These consolidated financial statements
are the responsibility of the Company's management.  Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.  

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audits 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ETS
International, Inc. and Subsidiaries as of May 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.

We previously audited and reported on the consolidated statements of loss,
stockholders' equity and cash flows of ETS International, Inc. and
Subsidiaries for the year ended May 31, 1994, prior to their restatement for
the 1995 poolings-of-interests.  Separate financial statements of other
companies included in the 1994 restated consolidated statements of loss,
stockholders' equity and cash flows were audited and reported on separately
by other auditors.  These other companies total contract revenues and net
loss represented 68 percent and 62 percent of the respective restated totals
for 1994.  We also audited the combination of the accompanying consolidated
statements of loss, stockholders' equity and cash flows for the year ended
May 31, 1994, after restatement for the 1995 poolings-of-interests; in our
opinion, such consolidated statements have been properly combined on the
basis described in note 1 of the notes to the consolidated financial
statements.

   
                                                     KPMG Peat Marwick LLP
    

July 26, 1996
<PAGE>
<TABLE><CAPTION>   
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
May 31, 1996 and 1995

Assets                                         1996        1995
                                               ----        ----
<S>                                       <C>          <C>
Current assets:
  Cash and cash equivalents                 $ 121,713      65,175
  Accounts receivable:
    Trade (net of allowance of $95,100
      in 1996 and $99,500 in 1995)          3,749,040   3,430,536
    U.S. Government agencies                   48,299      71,740
    Other                                     116,222     154,796
                                          -----------  ----------         
                                            3,913,561   3,657,072
  Costs and estimated earnings in 
    excess of billings on uncompleted 
    contracts                                 878,348   1,017,889
  Notes receivable from officers               65,222     441,956
  Inventories                                 550,728     527,823
  Prepaid expenses                            225,943     214,349
                                          -----------  ----------
Total current assets                        5,755,515   5,924,264

Property, plant and equipment:
  Furniture and fixtures                      943,685     890,744
  Laboratory equipment                      2,651,970   2,512,487
  Tools and equipment                       2,773,615   3,567,280
  Vehicles                                  1,539,868   1,216,407
  Leasehold improvements                      757,555     751,739
                                          -----------  ----------
                                            8,666,693   8,938,657
  Less accumulated depreciation 
    and amortization                        5,753,152   5,738,508
                                          -----------  ----------
Property, plant and equipment, net          2,913,541   3,200,149

Other assets:
  Goodwill (net of accumulated 
    amortization of $11,048 in 1996
    and $911 in 1995)                         244,198     108,351
  Notes receivable from officers              292,919           -
  Prepublication costs (net of 
    accumulated amortization of $296,008
    in 1996 and $195,203 in 1995)             129,615     230,420
  Cash surrender value of life 
    insurance, net                            116,283      95,687
  Patents granted (net of accumulated
    amortization of $26,319 in 1996
    and $20,227 in 1995)                       74,107      72,580
  Patents pending                              21,870      13,073
  Other                                       286,968      14,087
                                          -----------  ----------
                                            1,165,960     534,198
                                          -----------  ----------
                                          $ 9,835,016   9,658,611
                                          ===========  ==========
</TABLE>    
See accompanying notes to consolidated financial statements.<PAGE>
<TABLE>
<CAPTION>
   
Liabilities and Stockholders' Equity           1996        1995
                                               ----        ----
<S>                                       <C>          <C>
Current liabilities:
    Bank overdraft                           $ 8,746       57,266
    Notes payable to banks                 1,071,427    1,250,664
    Notes payable to affiliates              348,625      301,159
    Current portion of long-term debt        378,779    1,608,150
    Accounts payable                       2,837,386    1,758,787
    Accrued expenses and other liabilities   626,894      485,104
                                           ---------    ---------
Total current liabilities                  5,271,857    5,461,130

Long-term debt                               660,133      867,817
Note payable to stockholder                  600,000            -
Deferred gain on sale/leaseback            1,039,720            -
Common stock subject to repurchase
  agreement, 539,130 shares                  775,000            -

Stockholders' equity:
  Common stock, no par value;
    authorized 20,000,000 shares;
    issued and outstanding 12,580,733
    and 12,437,416 at May 31,1996 
    and 1995, respectively                 3,476,235    3,318,802
  Retained earnings
    (accumulated deficit)                 (1,987,929)      10,862
                                          ----------    ---------
Total stockholders' equity                 1,488,306    3,329,664





Commitments and contingencies
                                          ----------   ----------
                                         $ 9,835,016    9,658,611
                                          ==========   ==========
</TABLE>
    
<PAGE>
<TABLE>
<CAPTION>
   
ETS INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated States of Income (Loss)
Years Ended May 31, 1996, 1995 and 1994


                                          1996         1995        1994
                                          ----         ----        ----
<S>                                  <C>          <C>          <C>
Contract revenues:
  U.S. Government agencies              $ 487,257      520,037     825,035 
  Commercial                           20,052,004   19,391,869  16,265,074 
                                       ----------   ----------  ---------- 
                                       20,539,261   19,911,906  17,090,109 

Cost of goods and services             18,555,761   16,376,725  14,706,263 
Selling, general and
  administrative expenses               3,622,064    3,038,565   2,972,371 
                                        ---------    ---------   --------- 
                                       (1,638,564)     496,616    (588,525)

Interest income                            21,107       28,610      16,099 
Interest expense                         (392,131)    (348,870)   (212,861)
Insurance proceeds                              -      304,044           - 
Other, net                                 10,797       22,266      83,895 
                                       ----------    ---------   ----------
Income (loss) before income taxes      (1,998,791)     502,666    (701,392)

Income tax expense                              -            -           - 
                                       ----------   ----------  ---------- 

Net income (loss)                    $ (1,998,791)     502,666    (701,392)
                                       ==========   ==========  ========== 

Net income (loss) per common share:
  Primary                                  $ (.16)         .04        (.06)
  Fully diluted                              (.16)         .04        (.06)

Average shares of common stock used
  for above computation:
    Primary                            12,479,167   12,841,256  11,881,281 
    Fully diluted                      12,479,167   12,841,256  11,881,281 

</TABLE>
    
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
   
ETS INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity
Years Ended May 31, 1996, 1995 and 1994




                                                                   Retained
                                                                   Earnings
                                            Common Stock       (Accumulated
                                    ---------------------------
                                         Shares       Amount       Deficit)
                                         ------       ------    -----------
<S>                                  <C>          <C>            <C>
Balances at May 31,1993                11,814,650  $ 2,764,513     209,588 

Proceeds from issuance of
  common stock                             42,428       55,000           - 
Proceeds from exercise of
  employee stock options                   11,000        6,155           - 
Proceeds from exercise of
  stock warrants                          121,045      102,287           - 
Net loss                                        -            -    (701,392)
                                       ----------    ---------   --------- 
Balances at May 31, 1994               11,989,123    2,927,955    (491,804)

Proceeds from issuance of
  common stock                             98,679      167,390           - 
Repurchase of common stock               (216,809)    (437,000)          - 
Issuance of common stock in
  connection with asset
  acquisition                             113,000      219,220           - 
Proceeds from exercise of
  employee stock options                  185,629      219,650           - 
Proceeds from exercise of
  stock warrants                          267,794      221,587           - 
Net income                                      -            -     502,666 
                                       ----------    ---------   --------- 
Balances at May 31, 1995               12,437,416    3,318,802      10,862 

Issuance of common stock in
  connection with asset
  acquisition                              65,617       75,000           - 
Proceeds from exercise of employee 
  stock options                            77,700       82,433           - 
Net loss                                        -            -  (1,998,791)
                                       ----------    ---------   --------- 
Balances at May 31, 1996               12,580,733  $ 3,476,235  (1,987,929)
                                       ==========    =========   ========= 
</TABLE>
    
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
Years Ended May 31, 1996, 1995 and 1995

                                             1996          1995        1994
                                             ----          ----        ----
<S>                                    <C>             <C>          <C>
Cash flows from operating activities:
  Net income (loss)                     $ (1,998,791)     502,666    (701,392)
  Adjustments to reconcile net income
    (loss) to net cash used in 
    operating activities:
      Depreciation and amortization          873,214      892,960     779,867 
      Provision for bad debts                 56,350        8,000      37,861 
      Amortization of deferred gain on
        sale leaseback                      (177,512)           -           - 
      (Gain) loss on sale of equipment        13,474            -     (17,028)

  Increase or decrease in operating
    assets and liabilities:
      Accounts receivable                   (310,839)    (714,591)   (544,960)
      Costs and estimated earnings
        in excess of billings on
        uncompleted contracts                153,528     (546,400)   (181,289)
      Inventories                              2,095     (155,871)    (15,322)
      Prepaid expenses                         2,235      (97,862)    (42,606)
      Cash surrender value of
        life insurance, net                  (20,596)     (14,139)    (11,084)
      Other                                  (65,000)      20,926      (5,553)
      Accounts payable                     1,078,599     (117,020)    307,237 
      Accrued expenses and
        other liabilities                     41,790      (17,178)     58,988 
                                            --------     --------    -------- 
Net cash used in operating activities       (351,453)    (238,509)   (335,281)

Cash flows from investing activities:
  Purchases of property,
    plant and equipment                     (334,065)    (940,898)   (418,704)
  Prepublication costs                             -       (7,490)     (5,508)
  Patent costs incurred                      (16,417)     (15,649)     (6,956)
  Cash received in acquisitions                    -          915           - 
  Proceeds from sale/leaseback
    of equipment                           1,660,900            -           - 
  Proceeds from sale of equipment             36,940            -      21,487 
  Other                                            -            -      (8,000)
                                            --------     --------    -------- 
Net cash provided by (used in)
  investing activities                     1,347,358     (963,122)   (417,681)

</TABLE>
                                                       (Continued)
<PAGE>
<TABLE>
<CAPTION>
   
ETS INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
Years Ended May 31, 1996, 1995 and 1995
                                             1996          1995        1994
                                             ----          ----        ----
<S>                                    <C>             <C>          <C>
Cash flows from financing activities:
  Bank overdraft increase (decrease)       $ (48,520)      57,266           - 
  Notes receivable from officers
    (increase) decrease                       83,815       (1,188)    (56,198)
  Notes payable to banks increase
    (decrease)                              (179,237)     197,901     544,763 
  Notes payable to affiliates increase        47,466      101,347     199,812 
  Proceeds from note payable
    to stockholder                           600,000            -           - 
  Proceeds from long-term debt               344,465    1,731,291     450,171 
  Principal payments on long-term debt    (1,869,789)  (1,301,056)   (793,226)
  Proceeds from issuance of common stock      82,433      608,627     163,442 
  Repurchase of common stock                       -     (437,000)          - 
					   ---------	---------    --------
Net cash provided by (used in)
  financing activities                      (939,367)     957,188     508,764 
					   ---------	---------    --------
Increase (decrease) in cash and
  cash equivalents                            56,538     (244,443)   (244,198)

Cash and cash equivalents at
  beginning of year                           65,175      309,618     553,816 
					   ---------	---------    --------
Cash and cash equivalents at
  end of year                              $ 121,713       65,175     309,618 
					   =========	=========    ========
</TABLE>
    
Supplemental disclosures of cash flow information and noncash investing
activities:

      Interest paid on notes payable and long-term debt was $382,233,
      $361,794 and $193,537 for the years 1996, 1995 and 1994, respectively. 
      Capital lease obligations of $88,269, $399,572 and $157,028 were
      incurred during 1996, 1995 and 1994, respectively, under leases entered
      into for vehicles, furniture and fixtures, and laboratory equipment. 
      During 1996, the Company acquired certain assets of two entities (see
      note 2) in exchange for 604,747 shares of its common stock.  During
      1995, the Company acquired the net assets of Air Compliance, Inc. (see
      note 2) in exchange for 113,000 shares of its common stock.

See accompanying notes to consolidated financial statements.
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

May 31, 1996, 1995 and 1994

(1)   Significant Accounting Policies

      Currency

      All references to dollars ($) are United States dollars unless
      otherwise denoted as Canadian (CDN).

      Principles of Consolidation

      The consolidated financial statements include the accounts of ETS
      International, Inc. and its wholly-owned subsidiaries, ETS, Inc., ETS
      Analytical Services, Inc. and ETS Water and Waste Management, Inc.
      ("the Company").  Significant intercompany accounts and transactions
      have been eliminated in consolidation.

      Cash Equivalents

      The Company considers all highly liquid investments with a maturity of
      three months or less when purchased to be cash equivalents.

      Inventories

      Inventories, consisting of raw materials and components used in testing
      equipment, are stated at the lower of cost (first-in, first-out method)
      or market.

      Long-term Contracts

      Revenues on uncompleted long-term contracts are recorded using the
      percentage-of-completion method.  Provisions are made for estimated
      losses at the time the losses are determinable.  Revenues related to
      certain government contracts are subject to adjustments upon audit of
      costs by the government, with any such adjustments reflected in the
      accounting period in which determined.  Billings are prepared according
      to specific terms of individual contracts.  Contracts will generally
      provide for periodic payments as work is completed with final amounts
      due upon completion and acceptance of the project by the customer.

      Property, Plant and Equipment

      Property, plant and equipment are stated on the basis of cost. 
      Property and equipment under capital leases are stated at the present
      value of minimum lease payments at the inception of the lease. 

                                                     (Continued)
<PAGE>

ETS INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements


(1)   (Continued)

      Provisions for depreciation and amortization have been calculated under
      accelerated and straight-line methods over the following estimated
      useful lives of the assets:

            Furniture and fixtures        5 - 10 years
            Laboratory equipment          5 - 10 years
            Tools and equipment           5 - 10 years
            Vehicles                      3 -  5 years
            Leasehold improvements        5 - 10 years

      Property and equipment under capital leases are amortized on the
      straight-line basis over the shorter of the lease term or the estimated
      useful life of the asset.  Leasehold improvements are amortized on the
      straight-line basis over the shorter of the lease term or the estimated
      useful life of the improvement.

      Patents

      The Company has incurred costs related to patent applications which
      have been or will be made.  Costs related to patents granted are being
      amortized over a period of 17 years using the straight-line method. 
      Costs relating to patents pending are deferred until the patent is
      granted.

      Prepublication Costs

      Prepublication costs related to the Company's production of textbooks
      and other training materials are stated at the lower of cost or market.
      These deferred costs are amortized over a period of 5 years from
      publication date using the straight-line method.

      Goodwill

      Goodwill, which represents the excess of purchase price over fair value
      of net assets acquired, is amortized on a straight-line basis over
      periods not exceeding 15 years.  The Company assesses the
      recoverability of this intangible asset by determining whether the
      amortization of the goodwill balance over its remaining life can be
      recovered through undiscounted future operating cash flows of the
      acquired operations.  The amount of goodwill impairment, if any, is
      measured based on projected discounted future operating cash flows
      using a discount rate reflecting the Company's average cost of funds.

      Research and Development

      Research and development costs are charged to operations as incurred.

                                                     (Continued)
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements


(1)   (Continued)

      Income Taxes

      Income taxes are accounted for under the asset and liability method. 
      Deferred tax assets and liabilities are recognized for the future tax
      consequences attributable to differences between the financial
      statement carrying amounts of existing assets and liabilities and their
      respective tax bases.  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.

      Earnings Per Share

      Earnings per share have been computed on the basis of weighted average
      number of shares outstanding.  Stock options and warrants have been
      included as common stock equivalents for the year ended May 31, 1995
      and have been excluded for the years ended May 31, 1996 and 1994, due
      to their antidilutive effect on earnings per share.

      Licensing Agreements

      The Company has licensing agreements with certain customers to sell
      proprietary products developed by the Company, including the Limestone
      Emission Control (LEC) System and the Dry Reactor.  The Company is to
      receive amounts ranging from five percent to eight percent of gross
      sales as royalties for the sale of these proprietary products.  Minimum
      royalty fees are recognized when due from the licensee based on product
      sales, training completion and terms of the license agreements.  These
      agreements contain certain restrictive clauses requiring the licensees
      to meet minimum sales targets or the license agreement may be revoked
      at the Company's option.  The LEC system incorporates some claims of a
      patent issued to the U.S. Department of Energy (DOE).  Under terms of
      an agreement with the DOE, the Company is required to pay the DOE a
      royalty fee of one percent.  No royalty fees or expenses were
      recognized by the Company for the years ended May 31, 1996, 1995 and
      1994.

      Use of Estimates

      The preparation of financial statements in conformity with generally
      accepted accounting principles requires management to make estimates
      and assumptions that affect the reported amounts of assets and
      liabilities and the disclosure of contingent assets and liabilities at
      the date of the financial statements and the reported amounts of
      revenues and expenses during the reporting period.  Actual results
      could differ from these estimates.
                                                     (Continued)
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(2)   Business Combinations

      On June 1, 1994, ETS International, Inc. acquired the common stock of 
      Stamie E. Lyttle, Inc., Lyttle Utilities, Inc. and LPS, Inc. (the
      "Lyttle Companies") in exchange for 2,730,000 shares of ETS
      International, Inc.'s common stock.  On January 19, 1995, ETS
      International, Inc. acquired the common stock of Environmental
      Laboratories Incorporated (ELI) in exchange for 183,600 shares of ETS
      International, Inc.'s common stock.  These acquisitions were accounted 
      for by the pooling-of-interests method and, accordingly, the
      consolidated financial statements include the operations of the Lyttle
      Companies and ELI for all periods presented.  There were no material
      adjustments of the net assets of the Lyttle Companies or ELI as a
      result of adopting the same accounting practices as ETS International,
      Inc. and its subsidiaries.

      The effects of the poolings-of-interests on previously reported
      operations is as follows:

<TABLE>
<CAPTION>
                                               May 31, 1994
                                    ------------------------------------
                                     Originally
                                      Reported    Mergers     Restated
                                      --------    -------     --------
      <S>                         <C>          <C>          <C>
      Total contract revenue        $ 4,497,343  12,592,766   17,090,109 
                                      =========  ==========   ========== 
      Net income (loss)             $   102,158    (803,550)    (701,392)
                                      =========  ==========   ========== 
</TABLE>

      On April 3, 1995, ETS International, Inc. acquired the net assets of
      Air Compliance, Inc. in exchange for 113,000 shares of ETS
      International, Inc.'s common stock.  On February 5, 1996, ETS
      International, Inc. acquired certain assets of Olympic Industries, Inc.
      in exchange for 539,130 shares of ETS International, Inc.'s common
      stock (see note 7).  On April 18, 1996, ETS International, Inc.
      acquired certain laboratory assets of Dewberry and Davis, Inc. in
      exchange for 65,617 shares of ETS International, Inc. common stock. 
      These acquisitions were accounted for as purchases; accordingly, the
      results of operations of the acquired entities are included in the
      consolidated financial statements only from the date of acquisition. 
      Proforma results of operations are not presented because the effect is
      not material to the consolidated financial statements.  The goodwill
      arising as a result of the excess of the purchase price over the fair
      value of net assets acquired is being amortized on a straightline basis
      over periods not exceeding 15 years.
                                                     (Continued)
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(2)   (Continued)

      The following table summarizes these acquisitions:
<TABLE>
<CAPTION>
                                                1996         1995
                                                ----         ----
<S>                                       <C>            <C>
Purchase price (604,747 and 113,000 shares
   of stock issued in 1996 and 1995, 
   respectively)                             $ 850,000      219,220 
                                              ========     ======== 
Accounts receivable                              2,000      130,230 
Equipment                                      529,200       16,397 
Franchise fee                                  200,000            - 
Other assets                                    72,816        3,344 
Accounts payable and other liabilities        (100,000)     (40,013)
                                              --------     -------- 
Net assets acquired (estimated fair value)   $ 704,016      109,958 
                                              ========     ======== 
Excess of purchase price over fair value
   of net assets acquired (goodwill)         $ 145,984      109,262 
                                              ========     ======== 
</TABLE>

(3)   Accounts Receivable

      A summary of the changes in the allowance for doubtful accounts
      follows:
<TABLE>
<CAPTION>
                                          Years Ended May 31
                                          ------------------
                                    1996        1995       1994
                                    ----        ----       ----
<S>                             <C>          <C>        <C>
Balances, beginning of year        99,500      91,500     53,994 
Provision for bad debts            56,350       8,000     37,861 
Accounts written off              (60,750)          -       (355)
                                  -------      ------     ------ 
Balances, end of year            $ 95,100      99,500     91,500 
                                  =======      ======     ====== 
</TABLE>

      The Company currently derives its primary contract revenues from
      domestic customers.  During 1996, 1995 and 1994, there were a limited
      number of customers in Mexico, Canada and Taiwan.  The Company is
      currently expanding its international sales efforts.
                                                     (Continued)
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(3)   (Continued)

      No single customer accounted for more than 5 percent of contract
      revenues for the year ended May 31, 1996.  At May 31, 1996, one
      customer had an accounts receivable balance which exceeded 5 percent of
      total stockholders' equity.  The accounts receivable balance of this
      customer was $273,562.

      For the year ended May 31, 1995, the Company had contract revenues from
      two customers, each of which accounted for more than 5 percent of
      contract revenues, aggregating approximately $3,479,000 or 17 percent
      of contract revenues.  These two customers had accounts receivable
      balances which exceeded 5 percent of total stockholders' equity.  The
      accounts receivable balances for these customers totaled $755,004.

      For the year ended May 31, 1994, the Company had contract revenues from
      two customers, each of which accounted for more than 5 percent of
      contract revenues, aggregating approximately $3,317,000 or 19 percent
      of contract revenues.

(4)   Notes Payable and Long-term Debt

      Notes payable to banks consists of the following:

<TABLE>
<CAPTION>
                                                            May 31,
                                                            -------
                                                       1996        1995
                                                       ----        ----
<S>                                              <C>          <C>
$1,500,000 revolving line of credit, due on 
  demand, bearing interest at the bank's
  prime rate plus 1/4%, which approximated
  8.5% at May 31, 1996, secured by accounts
  receivable, inventory, machinery, 
  furniture and fixtures, intangibles and
  all other assets of the Company with a 
  maximum of $100,000 not subject to 
  borrowing base                                    $ 981,590     663,839

$500,000 line of credit, due on demand, bearing
  interest at prime plus 1/2%, secured by
  all assets of the Company                                 -     496,988

$90,000 line of credit, due on demand, bearing
  interest at prime plus 2%, which 
  approximated 11% at May 31, 1996, secured by
  certain equipment                                    89,837      89,837
                                                   ----------   ---------
                                                  $ 1,071,427   1,250,664
                                                   ==========   =========
</TABLE>
                                                     (Continued)
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(4)   (Continued)

Long-term debt consists of the following:

<TABLE>
<CAPTION>   
                                                            May 31,
                                                            -------
                                                       1996        1995
                                                       ----        ----
<S>                                              <C>          <C>
$1,300,000 term note payable to bank, due 
  August 1999, bearing interest at prime 
  plus 1%, paid in full during 1996               $         -   1,105,000

Term note payable to finance company, due
  September 1997, bearing interest at 7.70%,
  paid in full during 1996                                  -     357,100

$250,000 term note payable to bank, due
  February 1998, bearing interest at prime
  plus 1%, which approximated 10% at May 
  31, 1996, payable in monthly installments
  of $8,062, secured by certain equipment             154,889     225,783

$185,806 term note payable to finance company,
  due December 1999, bearing interest at 
  19.47%, payable in monthly installments of
  $6,350, secured by certain vehicles and 
  equipment                                           153,761           -

$100,000 term note payable to finance company,
  due February 2001, bearing interest at 12.5%,
  payable in monthly installments of $2,658,
  secured by certain vehicles                          95,100           -

Installment loans with maturities to 1999, 
  bearing interest at varying interest rates
  from 6.65% to 9.25%, payable in varying
  monthly installments of $402 to $3,397 
  including interest, secured by vehicles 
  and equipment                                       175,175     186,849

Capital lease obligations, with maturities to
  2001 (see note 5)                                   459,987     601,235
                                                    ---------   ---------
                                                    1,038,912   2,475,967
Less current maturities                               378,779   1,608,150
                                                    ---------   ---------
                                                    $ 660,133     867,817
                                                    =========   =========
</TABLE>    
      Aggregate debt maturities for each of the next five years ending on May
      31 is as follows:  1997, $378,779; 1998, $349,229; 1999, $221,439;
      2000, $83,864 and 2001, $5,601, respectively.
                                                     (Continued)
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(5)   Leases

      Property, plant and equipment included the following amounts of assets
      under capital lease obligations:

<TABLE>
<CAPTION>
                                                            May 31,
                                                            -------
                                                       1996        1995
                                                       ----        ----
<S>                                              <C>          <C>
Furniture and fixtures                             $ 221,057     221,057 
Laboratory equipment                                 987,960     899,691 
Vehicles                                              68,727      68,727 
Leasehold improvements                                30,437      30,437 
                                                   ---------   --------- 
                                                   1,308,181   1,219,912 
Less accumulated amortization                       (640,925)   (469,800)
                                                   ---------   --------- 
                                                   $ 667,256     750,112 
                                                   =========   ========= 
</TABLE>

      The capital lease payments were $246,527 in 1996, $219,418 in 1995 and
      $164,604 in 1994.  Lease amortization is included in depreciation
      expense ($171,125 in 1996, $129,146 in 1995 and $100,727 in 1994).

Future minimum payments under capital and operating leases are as follows:

<TABLE>
<CAPTION>
                                                     Capital    Operating
                                                     Leases     Leases
                                                     -------    ---------
<S>                                              <C>          <C>
1997                                                $ 190,653   1,298,142
1998                                                  149,021   1,034,801
1999                                                  118,212     917,196
2000                                                   57,292     622,259
2001                                                    6,321     338,514
                                                    ---------  ----------
                                                      521,499  $4,210,912
                                                               ==========
Less amounts representing interest (9.6% - 
  16.5%)                                             (61,512)
                                                    ---------
Present value of lease payments (including
  $182,491 classified as current)                   $ 459,987
                                                    =========
</TABLE>

      Rent expense for operating leases of approximately $1,407,000, $682,000
      and $625,000 was recognized for the years ended May 31, 1996, 1995 and
      1994, respectively.
                                                     (Continued)
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(5)   (Continued)

      On October 25, 1995, the Company entered into a sale/leaseback
      agreement which provided for the sale and leaseback of certain
      equipment.  This equipment, with a net book value of $443,668, was sold
      for $1,660,900 and was leased back to the Company for a 48-month period
      at $39,015 per month.  The resulting gain of $1,217,232 on the sale of
      equipment is being amortized over the life of the operating lease and
      has a remaining balance of $1,039,720 at May 31, 1996.

(6)   Income Taxes

      The Company is in a net operating loss position, accordingly, no income
      tax expense has been recognized for the years ended May 31, 1996, 1995
      and 1994.

      Income tax expense differs from the amount computed by applying the
      statutory corporate tax rate of 34 percent to income (loss) before
      income taxes as follows:
<TABLE>
<CAPTION>
                                                       1996        1995
                                                       ----        ----
<S>                                              <C>          <C>
Expected federal income tax expense benefit)       $(679,588)    170,906 
Increase (decrease) resulting from:
  State income tax, net of federal income
    tax impact                                       (75,939)     12,112 
  Life insurance proceeds                                  -    (103,375)
  Travel and entertainment                            22,075      30,104 
  Utilization of net operating loss
    carryforwards                                          -    (105,085)
  Change in the beginning of the year 
    balance of the valuation allowance
    for deferred tax assets                          727,936     (11,021)
  Other                                                5,516       6,359 
                                                    --------    -------- 
Income tax expense                                 $       -           - 
                                                    ========    ======== 
</TABLE>
<PAGE>
      The significant components of deferred income tax expense (benefit) for
      the years ended May 31, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
                                                       1996        1995
                                                       ----        ----
<S>                                              <C>          <C>
Deferred tax expense (benefit) exclusive of
  the decrease in the beginning of the year
  balance of the valuation allowance for
  deferred tax assets                             $ (727,936)     11,021 
Utilization of net operating loss carryforwards            -     105,085 
Expiration of investment tax credit
 carryforwards                                        (8,760)    (26,956)
Increase (decrease) in beginning of the year
  balance of the valuation allowance for 
  deferred tax assets                                736,696     (89,150)
                                                    --------    -------- 
                                                   $       -           - 
                                                    ========    ======== 
</TABLE>
                                                     (Continued)
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

(6)   (Continued)

      The tax effects of temporary differences that give rise to significant
      portions of the deferred tax assets and deferred tax liabilities at May
      31, 1996 and 1995 are presented below:

<TABLE>
<CAPTION>
                                                       1996        1995
                                                       ----        ----
<S>                                              <C>          <C>
Deferred tax assets:
  Net operating loss and tax credit 
    carryforwards                                $   887,260     696,444 
  Deferred gain on sale/leaseback transaction
    due to accrual versus cash basis of 
    accounting for financial reporting and
    tax purposes                                     394,678           - 
  Other                                              164,478      59,238 
                                                 -----------    -------- 
Total gross deferred tax assets                    1,446,416     755,682 
  Less valuation allowance                        (1,123,746)   (387,050)
                                                 -----------    -------- 
Net deferred tax asset                               322,670     368,632 
                                                 -----------    -------- 
Deferred tax liabilities:
  Accounts receivable and accounts payable,
    principally due to accrual versus cash
    basis of accounting for financial
    reporting and tax purposes                       209,480     220,400 
  Property, plant and equipment, principally
    due to difference in depreciation for 
    financial reporting and tax purposes              94,800     124,930 
  Other                                               18,390      23,302 
                                                 -----------    -------- 

Total gross deferred tax liabilities                 322,670     368,632 
                                                 -----------    -------- 
Net deferred tax liability                       $         -           - 
                                                 ===========    ======== 
</TABLE>

      In assessing the realizability of deferred tax assets, management
      considers whether it is more likely than not that some portion or all
      of the deferred tax assets will not be realized.  The ultimate
      realization of deferred tax assets is dependent upon the generation of
      future taxable income during the periods in which those temporary
      differences become deductible.  Management considers the scheduled
      reversal of deferred tax liabilities, projected future taxable income
      and tax planning strategies in making this assessment.  Based upon the
      level of historical taxable losses and projections for future taxable
      income over the periods which the deferred tax assets are deductible,
      management believes it is more likely than not the Company will not
      realize the benefits of these deductible differences and loss
      carryforwards in excess of the amount which can be offset by the
      reversal of future taxable items.
                                                     (Continued)
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(6)   (Continued)

      At May 31, 1996, the Company has loss carryforwards for income tax
      purposes of approximately $2,104,457 available to offset future taxable
      income.  If not utilized, these loss carryforwards will expire as
      follows:

<TABLE>
<CAPTION>
                                                 Expiration
                                                       Date
                                                 ----------
                 <S>                           <C>
                   $   555,174                         2003
                     1,000,451                         2008
                       548,832                         2010
                   -----------                    ---------
                   $ 2,104,457
                   ===========
</TABLE>

      In addition, the Company has various tax credit carryforwards of
      approximately $88,000 which will expire between the years 1997 and
      2000.


(7)   Common Stock Subject to Repurchase Agreement

      In connection with the Olympic Industries, Inc. asset acquisition (see
      note 2), the Company entered into a common stock repurchase agreement
      (the "repurchase agreement").  Under the repurchase agreement, the
      Company is obligated to repurchase at the stock price set forth in the
      Asset Purchase Agreement ($1.43 per share) up to one-half of the issued
      shares on the first anniversary of the acquisition and up to one-half of
      the issued shares on the second anniversary of the acquisition. 
      Accordingly, the 539,130 shares issued in connection with the asset
      acquisition have been classified as common stock subject to repurchase
      at their aggregate repurchase price of $775,000.  The Company may
      satisfy its obligation related to the shares subject to repurchase on
      the second anniversary upon the successful registration of the issued
      shares with the Securities and Exchange Commission (SEC).  It is the
      Company's intention to complete this registration; however, upon
      completion it will be subject to final SEC approval.  

(8)   Stock Options and Warrants

      Pursuant to various stock option and stock warrant agreements, the
      Company has granted nontransferable options and warrants to acquire the
      Company's common stock to certain officers, directors, investors and
      employees of the Company and its subsidiaries.  Options and warrants
      are granted at approximate fair market value based on the higher of the
      most recent ten-day average price of the stock or the last day's closing
      price of the stock on the date of the grant.
                                                     (Continued)
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(8)   (Continued)

      The aggregate amount of shares under option pursuant to these
      agreements were as follows:
<TABLE>
<CAPTION>                                        
                                        Number 
                                       of Shares     Option Price Per Share
                                       ---------     ----------------------
<S>                                  <C>            <C>
Options outstanding at May 31, 1993      611,568      $ 0.74 CDN to 2.35 CDN

Granted                                  908,500      $ 1.06 US to 1.75 US

Exercised                                (11,000)     $  .74 CDN

Expired                                  (14,000)     $ 2.35 CDN and 1.06 US
-------------------------------------------------
Options outstanding at May 31, 1994    1,495,068      $ 1.05 CDN to 2.35 CDN
                                                      and 1.06 US to 1.75 US

Granted                                  972,000      $ 1.69 US to 2.06 US

Exercised                               (185,629)     $ 1.05 CDN and 1.06 US
                                                      to 1.37 US

Expired                                   (3,350)     $ 2.35 CDN and 1.37 US
-------------------------------------------------
Options outstanding at May 31, 1995    2,278,089      $ 1.05 CDN to 2.35 CDN
                                                      and 1.06 US to 2.06 US

Granted                                  448,000      $ 1.00 US to 1.68 US

Exercised                                (77,700)     $ 1.05 CDN to 2.35 CDN
                                                      and 1.06 US to 1.38 US

Expired                                 (178,816)     $ 1.05 CDN to 2.35 CDN
                                                      and 1.06 US to 1.88 US
-------------------------------------------------
Options outstanding at May 31, 1996    2,469,573      $ 1.05 CDN to 2.35 CDN
=================================================     and 1.00 US to 2.06 US
</TABLE>

      Options exercisable at May 31, 1996 and 1995 approximated 1,800,000 and
      1,700,000, respectively.  Options generally become exercisable over a
      period not exceeding five years from the date of grant and warrants are
      exercisable upon issuance.
                                                     (Continued)
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(8)   (Continued)

      The aggregate amount of shares under warrant pursuant to these
      agreements were as follows:

<TABLE>
<CAPTION>
                                           
                                        Number 
                                       of Shares     Option Price Per Share
                                       ---------     ----------------------
<S>                                  <C>            <C>
Warrants outstanding at May 31, 1993     459,090      $ 1.06 CDN to 1.50 CDN

Granted                                   42,428      $ 1.60 US to 1.63 US

Exercised                               (121,045)     $ 1.06 CDN to 1.50 CDN

Expired                                  (70,250)     $ 1.50 CDN
-------------------------------------------------
Warrants outstanding at May 31, 1994     310,223      $ 1.60 US to 1.63 US and
                                                      1.07 CDN to 1.23 CDN

Granted                                   98,679      $ 1.60 US to 2.20 US

Exercised                               (267,794)     $ 1.07 CDN to 1.23 CDN
-------------------------------------------------
Warrants outstanding at May 31, 1995     141,108      $ 1.60 US to 12.20
                                         
Granted                                        - 

Exercised                                      - 

Expired                                  (42,429)     $ 1.60 US to 1.63 US
-------------------------------------------------
Warrants outstanding at May 31, 1996      98,679      $ 1.76 US to 2.20 US
=================================================
</TABLE>
    

      In October 1995, the Financial Accounting Standards Board issued
      Statement of Financial Accounting Standards No. 123, Accounting for
      Stock-Based Compensation (SFAS 123), which is effective for
      transactions entered into in fiscal years beginning after December 15,
      1995.  The Company believes the adoption of SFAS 123 will not have a
      significant effect on its consolidated financial statements.

(9)   Related Party Transactions

      The Company and its subsidiaries lease various office space and
      laboratories from entities whose members include certain officers and
      directors of the Company.  Rent expense under these operating leases
      approximated $405,000, $399,000 and $366,000 for 1996, 1995 and 1994,
      respectively.
                                                     (Continued)
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(9)   (Continued)

      Other accounts receivable consists primarily of advances to officers,
      directors and other employees.  At May 31, 1996 and 1995, $76,265 and
      $120,676, respectively, were the result of these advances.

      The Company has notes receivable from officers of $358,141 and $441,956
      as of May 31, 1996 and 1995, respectively.  The notes bear interest at
      six percent.  As of May 31, 1996, $65,222 is due on demand and $292,919
      is due May 31, 1998.

      The Company has notes payable to affiliates of $348,625 and $301,159 as
      of May 31, 1996 and 1995, respectively.  These affiliates include
      certain partnerships and individuals whose members are officers and
      directors of the Company.  The notes are due on demand and bear
      interest at six percent.

      The Company has a note payable to a stockholder of $600,000 as of May
      31, 1996, which is due November 1, 1997.  The note bears interest at
      eleven percent, which is payable monthly.

      During 1995, the Company received $304,044 of life insurance proceeds
      as a result of the death of one of its officers.  Subsequent to the
      officer's death, the Company repurchased 216,809 shares from the estate
      of the officer.  The shares repurchased included 100,000 shares
      exercisable under available options.  The shares were repurchased at
      their approximate fair market value at the date of the officer's death.

(10)  Other Matters

      The Company does not receive hazardous waste during the normal course
      of business.  The Company does receive environmental samples for
      analysis; and, occasionally, in the process of analysis, small
      quantities of hazardous waste are generated.  Such waste is stored in
      designated areas, lab packed for disposal, picked up by licensed
      hazardous waste contractors and transported to licensed disposal
      facilities.  In addition to its laboratory activities, the Company is
      engaged in field testing.  It is the Company's intention to conduct its
      operations in an effective, safe and prudent manner, and to ensure
      against potential risks.  The Company carries workers' compensation
      insurance for its employees and insurance for any personal liability
      and injury which could occur to nonemployees and/or the property of
      others.

      The Company is involved from time to time in litigation and
      environmental matters; however, it is the opinion of management that
      there are no matters currently existing which would have a material
      impact on the financial position or results of operations of the
      Company.
                                                     (Continued)
<PAGE>
ETS INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(11)  Fair Value of Financial Instruments

      Statement of Financial Accounting Standards No. 107, Disclosures about
      Fair Value of Financial Instruments (SFAS 107), requires the Company to
      disclose estimated fair values of its financial instruments.  SFAS 107
      defines the fair value of a financial instrument as the amount at which
      the instrument could be exchanged in a current transaction between
      willing parties.

      The following methods and assumptions were used to estimate the fair
      value of each class of financial instruments:  The carrying amounts
      reported in the consolidated balance sheets for cash and cash
      equivalents, notes receivable, notes payable and long-term debt
      approximate fair value.  The fair value of notes receivable is
      estimated by discounting the future cash flows at rates the Company
      would currently receive for similar notes receivable.  The fair values
      of notes payable and long-term debt is estimated by discounting the
      future cash flows of each instrument at rates currently offered to the
      Company for similar debt instruments of comparable maturities by the
      Company's bank.

(12)  Fourth Quarter Adjustments

      Significant adjustments to the fourth quarter for the year ended May
      31, 1996 included a charge of approximately $120,000 to adjust
      inventory to actual physical counts, $56,000 as a provision for bad
      debts based on specific reviews of customer accounts and a $52,000
      charge to reduce prepublication costs to their estimated net realizable
      value in consideration of slower than anticipated textbook sales.

(13)  New Accounting Standard

      In March 1995, the Financial Accounting Standards Board issued
      Statement of Financial Accounting Standards No. 121, Accounting for the
      Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
      of (SFAS 121).  SFAS 121 requires companies to review long-lived assets
      and certain identifiable intangibles to be held, used or disposed of,
      for impairment whenever events or changes in circumstances indicate
      that the carrying amount of an asset may not be recoverable.  The
      Company is required to adopt this statement in fiscal 1997.  The
      Company believes the adoption of this statement will not have a
      significant effect on its consolidated financial statements.   
<PAGE>