================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549

                                   FORM 10-QSB

(MARK ONE)

   [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
            AND EXCHANGE ACT OF 1934

            FOR THE QUARTERLY PERIOD ENDED: OCTOBER 31, 1996

                                       OR

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

                         COMMISSION FILE NUMBER: 0-22736

                      ENVIRONMENTAL TECHNOLOGIES USA, INC.

               (NAME OF THE SMALL BUSINESS ISSUER IN ITS CHARTER)

         MINNESOTA                                               41-1704709
(STATE OR OTHER JURISDICTION OF                               (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)                               IDENTIFICATION NO.)

                          8441 WAYZATA BLVD. SUITE 105
                          MINNEAPOLIS, MINNESOTA 55426
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                         THE ISSUER'S TELEPHONE NUMBER,
                       INCLUDING AREA CODE: (612) 540-9933

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:  NONE

NAME OF EACH EXCHANGE ON WHICH IS REGISTERED:  N/A

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:  
                                          COMMON STOCK, PAR VALUE $.01 PER SHARE


         INDICATE BY CHECK MARK WHETHER THE COMPANY (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 COMPANY
WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES[ X ] NO [ ].

         AS OF DECEMBER 11, 1996, 4,045,915 SHARES OF COMMON STOCK OF THE
COMPANY WERE OUTSTANDING, AND THE AGGREGATE MARKET VALUE OF THE COMMON STOCK OF
THE COMPANY AS OF THAT DATE (BASED UPON THE LAST REPORTED SALE PRICE OF THE
COMMON STOCK AT THAT DATE BY THE NASDAQ SYSTEM), EXCLUDING OUTSTANDING SHARES
BENEFICIALLY OWNED BY THE DIRECTORS AND OFFICERS, WAS APPROXIMATELY $445,051.
THE COMPANY EFFECTED A 1 FOR 10 REVERSE STOCK SPLIT EFFECTIVE AUGUST 5, 1996.

         TRANSITIONAL SMALL BUSINESS FORMAT (CHECK ONE): YES _____ NO   __X__

================================================================================


                                      INDEX

                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS                                        PAGE NUMBER

         CONSOLIDATED BALANCE SHEET (UNAUDITED)
         AS OF OCTOBER 31, 1996 AND OCTOBER 31, 1995                      3

         CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
         FOR THE THREE MONTHS ENDED OCTOBER 31, 1996 AND 1995
         FOR THE SIX MONTHS ENDED OCTOBER 31, 1996 AND 1995               4


         CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
         FOR THE SIX MONTHS ENDED OCTOBER 31, 1996 AND OCTOBER 31, 1995   5


         CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS             6


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS
         OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                15


ITEM 6.  EXHIBITS AND REPORTS

         a. SEE EXHIBIT INDEX ON PAGE                                    17







                          PART I. FINANCIAL INFORMATION
                          Item 1. Financial Statements

<TABLE>
<CAPTION>

              ENVIRONMENTAL TECHNOLOGIES USA, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheets
                      October 31, 1996 and October 31, 1995
                                   (UNAUDITED)

                                                                                     October 31,       October 31,
                                      ASSETS                                            1996              1995
                                                                                     ------------      ------------
<S>                                                                                  <C>               <C>         
Current Assets
      Cash and cash equivalents                                                      $     47,223      $  1,291,091
      Accounts receivable less allowance for Doubtful Accounts                            439,273           203,397
      Notes receivable--Employee                                                           21,555             3,466
      Inventories                                                                          91,049           101,518
      Prepaid expenses and other assets                                                    47,792           148,259
                                                                                     ------------      ------------
        Total current assets                                                              646,891         1,747,731

Property
      Leasehold improvements                                                               84,504           116,182
      Equipment                                                                         2,336,619         2,171,519
      Furniture and fixtures                                                              151,988           107,880
                                                                                     ------------      ------------
                                                                                        2,573,111         2,395,581
      Less accumulated depreciation and amortization                                   (1,082,451)         (912,296)
                                                                                     ------------      ------------
        Net property and equipment                                                      1,490,660         1,483,284

      Restricted Cash                                                                        --              15,000
      Patent Rights                                                                        33,976            47,267
      Goodwill and technology rights, net of amortization                                 312,203           414,532
      Investments in Clean Green Polymers                                                    --                --
      Other assets                                                                         43,324            27,411

                                                                                     ------------      ------------
        Total other assets                                                                389,504           504,210
                                                                                     ------------      ------------

TOTAL ASSETS                                                                         $  2,527,055      $  3,735,226
                                                                                     ============      ============

                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
      Notes payable                                                                  $    156,689      $    205,247
      Accounts payable                                                                    480,864           353,386
      Accrued expenses                                                                    752,832           563,552
      Dividends Payable                                                                    86,180              --
      Deferred Revenue                                                                       --                --
      Current portion of long-term liabilities                                            130,674           100,455
                                                                                     ------------      ------------
          Total current liabilities                                                     1,607,239         1,222,640

Long-term liabilities
      Capitalized lease obligations                                                        43,247             7,987
      Long-term debt less current portion                                                 364,043           444,819
      Less Current Portion                                                               (130,674)         (100,455)
                                                                                     ------------      ------------
                                                                                          276,615           352,351


Deferred Revenue, Sale of Clean Green Polymers, Inc.                                      102,780              --


Stockholders' equity:
      Common Stock, par value $.01 per share; Authorized 5,000,000 shares;
        issued and outstanding 4,001,789 shares at
        Oct 31, 1996 and 15,576,869 at Oct 31, 1995                                        40,018           155,769
      Preferred Stock U-Stock, par value $.01 per share; Authorized 1,400,000
        shares;  issued and outstanding 1,075,516 shares at Oct 31, 1996                   10,755            10,755
      Preferred Stock--ETI Convertible par value $.01 per share; Authorized 6538
        shares;  issued and outstanding 592 shares at Oct 31, 1996                              6             6,015
      URI Preferred Stock, No Par Value                                                   500,000              --
      Additional paid-in capital                                                       22,048,706        19,424,877
      Retained Earnings (Deficit)                                                     (21,627,672)      (17,184,057)
                                                                                     ------------      ------------
                                                                                          971,813         2,413,359

      Notes receivable from sale of stock One Capital                                        --            (253,125)
      Notes receivable from sale of stock Fluor Daniel                                   (161,892)             --
      Notes receivable from sale of stock Starch Tech                                    (269,500)             --
        Inc. for Clean Green Polymers, Inc. Common Stock
                                                                                     ------------      ------------
        Total stockholders' equity                                                        540,421         2,160,235
                                                                                     ------------      ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                           $  2,527,055      $  3,735,226
                                                                                     ============      ============

</TABLE>





<TABLE>
<CAPTION>

              ENVIRONMENTAL TECHNOLOGIES USA, INC. AND SUBSIDIARIES

                      Consolidated Statements of Operations
                                   (UNAUDITED)

                                                             Three months ended                   Six months ended
                                                                 October 31,                        October 31,
                                                       ==============================      ==============================
                                                          1996               1995             1996               1995
                                                       ------------      ------------      ------------      ------------
<S>                                                    <C>               <C>               <C>               <C>         
Revenue ..........................................     $    483,455      $    544,948      $    906,402      $  1,049,794
Cost of Goods Sold ...............................          431,265           505,502           784,235           963,318
                                                       ------------      ------------      ------------      ------------

      Gross Profit ...............................           52,189            39,446           122,167            86,476

Selling, general and administrative expenses:
      General and administrative .................          531,654           620,043         1,188,312         1,065,161
      Research and development ...................             --              18,506               406            77,959
      Goodwill and technology rights amoritization           32,808            81,739            65,615           203,546
                                                       ------------      ------------      ------------      ------------

        Total expenses ...........................          564,462           720,288         1,254,333         1,346,666
                                                       ------------      ------------      ------------      ------------
        Loss from operations .....................         (512,273)         (680,842)       (1,132,167)       (1,260,190)

Other Income (expense)
      Interest income ............................            5,072               159            10,849               466
      Interest expense ...........................           (7,347)          (27,655)          (12,758)          (49,767)
      Other ......................................           22,140                84           (29,731)               61
                                                       ------------      ------------      ------------      ------------

        Total other income (expense) .............           19,866           (27,412)          (31,641)          (49,239)
                                                       ------------      ------------      ------------      ------------

        Net loss .................................     $   (492,407)     $   (708,254)     $ (1,163,807)     $ (1,309,429)
                                                       ============      ============      ============      ============

Net loss per share ...............................     $      (0.10)     $      (0.05)     $      (0.07)     $      (0.09)
                                                       ============      ============      ============      ============

Weighted average common shares and
  common share equivalents outstanding ...........        4,864,316        15,419,015        17,228,841        14,763,624
                                                       ============      ============      ============      ============

</TABLE>


<TABLE>
<CAPTION>
              ENVIRONMENTAL TECHNOLOGIES USA, INC. AND SUBSIDIARIES

                       Consolidated Statement of Cash Flow
                                   (UNAUDITED)

                                                                                Six months ended
                                                                                   October 31,
                                                                            ============================
                                                                               1996             1995
                                                                            -----------      -----------
<S>                                                                         <C>              <C>         
Cash flows from operating activities:
    Net loss                                                                $(1,163,807)     $(1,309,429)
    Adjustment to Reconcile Net (Loss) to Net Cash (Used In)
      Operating Activities:
        Fluor Daniel, Inc. Consulting Services Incurred Against
          Note Receivable                                                        21,838
        Common Stock Issued for Employee Compensation or Services                  --             36,042
        Depreciation and amortization                                           150,036          326,955
        Loss (Gain) on Disposal of Leasehold Improvements and Equipment         (29,031)
        Changes in operating assets and liabilities,
          Accounts Receivable & Notes Receivable                               (265,567)         (18,960)
          Inventories                                                           (36,942)         (22,784)
          Prepaid expenses                                                        9,745         (109,351)
          Accounts payable                                                      276,987          (22,440)
          Accrued expenses                                                       70,277          (22,593)
          Deferred revenue                                                      (15,600)            --
                                                                            -----------      -----------

    Net Cash Provided by (Used In) Operating Activities                        (982,064)      (1,142,562)

Cash flows from investing activities:
    Additions to Leasehold Improvements and Equipment                            (5,968)        (133,310)
    Purchase of intangible assets                                                  --
    Proceeds from equipment sold                                                 87,617
    Decrease (increase) in other assets                                          10,407            3,986
                                                                            -----------      -----------

    Net cash (used in) investing activities                                      92,056         (129,324)

Cash flows from financing activities:
    Payments of Short-Term Debt                                                 (23,962)         (26,708)
    Net proceeds from Issuance of Common Stock and Preferred Stock              268,749        2,609,682
    Collection on Starchtech, Inc. Notes Receivable                              20,666             --
    Cancellation of Starchtech Note                                             175,998
    Reclassification of One Capital Note                                        218,125
    Contributions to Capital of Clean Green Polymers                               --               --
    Preferred Stock Dividends Paid                                              (16,588)            --
    Proceeds from Downpayment Clean Green Packing                               100,000
    Proceeds from Issuance of Secured Note                                      100,000
    Proceeds from Issuance of Long-Term Liabilities                                --               --
    Repayments on long-term liabilities                                         (40,322)         (20,245)

    Net cash provided by financing activities                                   802,667        2,562,729

Increase (decrease) in cash and cash equivalents                                (87,341)       1,290,844

Cash and cash equivalents at the beginning of period                            134,564              247
                                                                            -----------      -----------

Cash and cash equivalents at the end of period                              $    47,223      $ 1,291,091
                                                                            ===========      ===========
</TABLE>




              ENVIRONMENTAL TECHNOLOGIES USA, INC. AND SUBSIDIARIES
                                     PART I

        CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(1)      Nature of Business and Basis of Presentation

These consolidated financial statements include the parent company,
Environmental Technologies USA, Inc. (ETI--"The Company") and subsidiaries,
United Recycling, Inc. (URI) and Clean Green Packing Company of Minnesota, Inc.
(CGP). All intercompany accounts and transactions have been eliminated in the
consolidated financial statements.

URI has developed a recycling process for the conversion of post-consumer
carpeting into industrial materials.

CGP manufactures and markets directly a biodegradable starch-based foam
loose-fill packing material which degrades on direct contact with water and is a
substitute for expanded polystyrene loose-fill packing peanuts and other
cushioning materials. CGP has a manufacturing facility in Minneapolis, Minnesota
and sells within the upper Midwest-area.

The Company was incorporated in Minnesota on September 5, 1991. The Company's
executive offices are located at 8441 Wayzata Blvd Suite 105, Minneapolis,
Minnesota 55426 and its telephone number is (612) 540-9933.

The consolidated financial statements included in this Form 10-QSB have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed, or omitted,
pursuant to such rules and regulations, although management believes the
disclosures are adequate to make the information presented not misleading. These
statements should be read in conjunction with the Company's 10-K as filed with
the Securities and Exchange Commission on August 12, 1996.

The consolidated financial statements presented herein as of October 31, 1996
reflect, in the opinion of management, all material adjustments consisting only
of normal recurring adjustments necessary for a fair presentation of the
consolidated financial position, results of operations and cash flows for the
interim period.

(2)      Significant Accounting Policies

Business Segment Information: The Company considers itself to be engaged in
principally one business segment which is the recycling of used carpeting into
industrial materials and the production of recyclable loose-fill packing
material.

Inventories: Inventories consist of CGP raw materials and CGP and URI finished
goods which are valued at the lower of cost (first in, first out basis) or
market.

Intangibles: Intangibles consist of patent costs, technology rights and
goodwill; these assets are being amortized ratably over the following economic
lives:

                  Patent rights     10 years
                  Technology rights  5 years
                  Goodwill           3 years

Leasehold Improvements and Equipment: These assets are recorded at cost.
Expenditures for repairs, maintenance and minor renewals which neither
materially add to the value of the asset nor appreciably prolong its life are
charged to expense as incurred.

When equipment is retired or otherwise disposed of, the related cost and
accumulated depreciation and amortization are removed from the respective
accounts and any gain or loss on disposition is included in operations.

Depreciation and amortization are provided using the straight-line method over
the following estimated useful lives:

                                                      Years
                  Leasehold improvements             2.5 - 7
                  Equipment                            2 - 10
                  Furniture and fixtures               3 - 7

Concentrations of Credit Risk: Financial instruments which potentially subject
the Company to concentration of credit risk consist principally of accounts
receivable. Such receivables are generally unsecured; however this credit risk
is limited due to the large number of customers at CGP and the nature of the
customers at URI. The larger receivables at URI are usually large national or
international established companies.

Revenue Recognition: Both URI and CGP recognize revenue for sales in the normal
course of business at the time of shipment. URI also recognizes revenue from
carpet collection services upon providing such services.

Deferred Revenue: This revenue resulted from the Polymers sale and is recognized
as collections on the note receivable occur. The amount was reduced in October
(See Note 4 & 5).

Income Taxes: Income taxes are provided for the tax effects of transactions
reported in the consolidated financial statements and consist of taxes currently
due plus deferred taxes. Deferred taxes are recognized for differences between
the basis of assets and liabilities for consolidated financial statement and
income tax purposes. The differences relate primarily to depreciable assets (use
of different depreciation methods and lives for consolidated financial statement
and income tax purposes), allowance for doubtful receivables (deductible for
consolidated financial statement purposes but not for income tax purposes) and
net operating loss carryforwards. Deferred tax assets and liabilities represent
the future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.

Fair Value: The carrying amounts reflected in the balance sheet for cash,
restricted cash, accounts receivable, and accounts payable approximate the
respective fair values due to the short maturities of those instruments. The
carrying values for notes payable approximate the fair value since interest
rates are generally at competitive market rates.

Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period.

Loss Per Share: Loss per share is computed based upon the weighted average
number of common shares outstanding during the respective periods.

(3)      Going Concern Uncertainties

The Company's consolidated financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business. The company has
incurred net losses of $1,163,807 for the six months ended October 31, 1996. The
Company has an accumulated retained earnings deficit of $21,627,672 and a
working capital deficit of $1960.348 at October 31, 1996. The Company ultimately
is dependent upon additional equity, debt financing, and/or sale of assets, as
well as positive cash flows from operating activities to continue operations.
Management is continuing its efforts to obtain additional equity and/or debt
financing and sell appropriate assets while restructuring operations at URI to
reduce costs and achieve positive cash flows from operations and prepare for
national expansion of URI.

The Company was delisted from NASDAQ on August 23, 1996 due to the Company's
inability to meet minimum NASDAQ requirements.

(4)      Potential Sale of Clean Green Packing Company of Minnesota, Inc.

In June 1996, ETI negotiated an agreement in principle subject to due diligence
with International Absorbents, Inc. to sell substantially all of the assets and
liabilities of CGP. On August 27, 1996 International Absorbents withdrew their
offer to purchase CGP.

ETI has negotiated an agreement with Minnesota Starch Polymers, Inc. (MSPI),
formerly known as Starchtech, Inc. or Clean Green Polymers, to sell all of the
stock and associated assets of CGP and has signed a letter of intent to do so
subject to final negotiations and lender and other approvals. On October 15,
1996, the buyer paid to ETI the initial sum of $100,000 in cash and assumed the
ETI obligation to the University of Minnesota ("University") of approximately
$134,332 due to the University for research performed. This released the buyer
from the $200,000 promissory note issued by ETI to MSPI on February 1, 1996,
transferred the technology rights from the Company to MSPI, and eliminated ETI's
investment in Starchtech. In the event the assets are not acquired by the
Purchaser, the second promissary note issued to ETI by MSPI on February 1, 1996,
in the original principal sum of $269,500 shall be replaced by a note with a
principal balance of $134,750. A cash payment of $200,000, subject to
adjustment, will be made at the closing date of the sale scheduled for the
middle of December. If the sale is not closed on or before January 2, 1997,
either party may terminate negotiations and their obligations under this letter
of intent.

(5)      Investment in Minnesota Starch Polymers, Inc. (Clean Green Polymers, 
         Inc.)

The Company sold it's 20% ownership of Minnesota Starch Polymers, Inc. (formerly
known as Clean Green Polymers, Inc.--See Note 4) as part of the letter of intent
to buy Clean Green Packing. The Company received $100,000 cash and assigned the
liability owed to the University of Minnesota ("University") of $134,332 in
exchange for the note and the University technology rights.

Polymers was an inactive subsidiary with no assets or operations. As part of the
transactions the U.S. Department of Agriculture, Alternative Agricultural
Research and Commercialization Center (AARC) and the State of Minnesota
Agricultural Research Institute (AURI) purchased 350,000 units of ETI for
$350,000. Each unit consisted of one share of Common Stock and a warrant for the
purchase of an additional share of Common Stock at approximately market price.
ETI was required to contribute this $350,000 to Polymers as a capital
contribution before the sale consummated.

The $269,500 note receivable at April 30,1996 have been recorded as a reduction
of stockholders' equity. The gain on sale of this Common Stock interest has been
recognized on an installment basis as collections on the note receivable occurs.
The recorded deferred revenue amounts represent the gain to be recorded over the
five year loan terms.

Polymers has had no operations through October 31, 1996.

(6)      Notes Payable

Notes payable consist of the following:
                                                            Oct 31,    April 30,
                                                             1996        1996 
                                                           --------    ---------
Note payable to Riverside Bank secured
 with a first position on all CGP
 Company assets; note is payable in
 monthly installments of $4,609
 including interest at prime plus 2%                       $ 56,689    $  80,651

Note payable to investor secured by
 equipment at URI; note is payable
 within 120 days of October 11, 1996.
 Interest of 3% per month accrues on the
 note.                                                     $100,000            0
                                                           --------    ---------
                                      Total Notes Payable  $156,689    $  80,651
                                                           ========    =========

The Riverside note contains several financial and other covenants. The Company
is not in compliance with these covenants and the entire note balance has been
classified as a current liability. The bank has not demanded payment of the note
balance.


(7)      Long-Term Debt

Long-term debt consists of the following:

                                                         Oct 31,      April 30, 
                                                           1996        1996 
                                                        ---------    ---------
Note payable to Small Business
 Administration secured by all CGP
 Company assets; due in monthly
 installments of $3,263 including
 interest and fees at 7% through January
 2020; guaranteed by major stockholder
 to be assumed by the purchaser of CGP                  $ 163,139    $ 176,103

Obligation under Partnership Agreement
 with Agricultural Utilization Research
 Institute (AURI); due in monthly
 installments $1,305 including interest
 at 6% through March 2005. To be assumed
 by the purchaser of CGP                                  103,102      107,749

Note payable to Minnesota Office of
 Waste Management in quarterly payments
 of $3,513 including interest at 4%
 through January 2001; secured by
 specific equipment                                        52,168       60,513

Note payable to Riverside Bank secured
 by various computer and office
 equipment; payable in monthly
 installments of $1,277 including
 interest at 2% through April 1998                         22,615       30,000

Note payable to Riverside Bank secured
 by various computer and office
 equipment; payable in monthly
 installments of $1,376 including
 interest at 9.25% through April 1998                      23,020       30,000
                                                        ---------    ---------
                                                        $ 364,043    $ 404,365
Less current portion                                     (130,674)    (125,485)
                                                        ---------    ---------
                        Total Long Term Debt            $ 233,368    $ 278,880
                                                        =========    =========

Late payments had occurred on the Office of Environmental Assistance (OEA) note 
The entire note has been classified as a current liability. The OEA had brought
a suit against the Company seeking payment of the note balance. In October, the
OEA and URI/ETI reached agreement on the repayment of the loan. Based on meeting
certain terms the OEA withdrew the calling of the loan.

(8)      Leases

The Company has several operating leases for office equipment and various
operating equipment. The Company is responsible for maintenance, insurance and
taxes under these leases.

(9)      Income Taxes

There is no provision for federal or state income taxes due to the operating
losses incurred. There are no deferred income tax liability items. Deferred
income tax assets are recorded for temporary differences, net operating loss
carryforwards and tax credit carryforwards. The Company's deferred tax assets
primarily result from net operating loss carryforwards. These assets may be
utilized to offset future taxable income. These assets have been reduced by a
valuation account equal to the asset due to the uncertainty of utilization.

(10)     Stockholder's Equity, Stock Options and Warrants

The Company's capital structure includes 5 million of $.01 par value Capital
Stock. URI has 250,000 shares of Preferred Stock authorized of which 125,000
shares are outstanding (all owned by Fluor Daniel, Inc.).

Effective August 2, 1996 the Company effected a 1 for 10 reverse stock split of
the Company's Common Stock. The Common Stock or per share amounts have been
adjusted in these October 31, 1996 consolidated financial statements to reflect
this reverse split.

The Company has an incentive stock option plan which allows for the granting of
up to 120,000 shares of Common Stock to key employees of the Company. Options
may be granted at prices not less than fair market value of the Common Stock at
date of grant (not less than 110% of fair market value for more than 10% owners)
and are generally exercisable up to 10 years (5 years for more than 10% owners)
from the grant date.

The Company has also granted 62,188 non-qualified options to various
individuals. These options are exercisable at $7.50 to $50.00 per share and
expire at various dates through June 2000.

In addition, the Company has a total of 121,628 warrants outstanding as of
October 31, 1996. These warrants expire at various dates through July 2000 at
prices ranging from $5.00 to $50.00 per share.

The Common Stock issued in private placements from May 1996 to October 1996 is
restricted stock issued pursuant to Regulation S as exempt from the registration
provisions under the 1933 Securities Act.

There was 137,500 shares of Common Stock issued for services rendered or
investment services from May 1996 to October 1996.

Preferred Stock Holders of Series II, III and V Preferred Stock converted 2,046
shares to 6,879,121 shares of Common Stock from May 1996 to October 1996. The
remaining 592 shares are convertible into Common Stock based upon the market
price of the Common Stock. Each share of Preferred Stock is valued at $1,000 and
is convertible to the number of Common Shares computed, using 100% of market
price.

The Preferred Stock has certain preferential voting and liquidation features. In
addition cash dividends of approximately 9% are to be paid quarterly. Dividends
of $21,587 were declared payable during the period ending October 31, 1996.
Dividends payable for the period May 1 to October 31, 1996 total $86,180.

URI issued 125,000 shares of Preferred Stock in October 1995 to Fluor Daniel,
Inc. for an approximate 11% interest in URI; this stock is convertible into an
equal number of shares of URI Common Stock. The Preferred Stock was valued at $4
per share and exchanged for a note receivable of $500,000. Fluor Daniel, Inc. is
providing development assistance to URI in carpet recycling technology
implementation, construction, and consulting services; such services upon
billing to URI are reflected as a reduction of the note receivable. The note
receivable of $161,892 at October 31, 1996 represents services not yet provided
and is recorded as a reduction of Stockholders' Equity.

In January 1996 the Company sold 80% (800 shares) of an inactive subsidiary,
Clean Green Polymers, Inc. for $469,500. The buyer, Starch Tech, Inc. is a
private company in which the President is a former employee of ETI. The buyer
issued notes aggregating $469,500 in exchange for the Common Stock. In October
1996, the Company sold its remaining 20% of Clean Green Polymers, Inc. (See
Notes 4 & 5). Because of the related nature of these transactions, the note
receivable from Starch Tech, Inc. of $269,500 have been recorded as a reduction
of Stockholders' Equity.

The note receivable from the sale of stock to One Capital has been reclassified
to an accounts receivable because One Capital is in default of the note.
Management has called the note.

(11)     Litigation

Late payments had occurred on the Office of Environmental Assistance (OEA) note.
The OEA had brought a suit against the Company seeking payment of the note
balance. In October, the OEA and URI/ETI reached agreement on the repayment of
the loan. Based on meeting certain terms the OEA withdrew the calling of the
loan.

In October 1995, Uni-Star Industries, Ltd., an Iowa corporation ("Uni-Star"),
filed suit against ETI, CGP, Evergreen Solutions, Inc., and certain former
officers of ETI and CGP in Iowa's state district court under claims of breach of
contract, misappropriation of trade secrets, conversion of trade secrets,
equitable fraud, unfair competition, and other claims related to said
defendants' alleged unauthorized use of Uni-Stars' proprietary information and
trade secrets concerning a starch-based plastic technology. The defendants
removed the actions of federal district court in the Southern district of Iowa,
and Uni-Star subsequently brought a motion to remand the action to Iowa state
district courts. Defendants resisted the motions and the federal district court
summarily denied Uni-Star's motions. ETI and its wholly owned subsidiaries find
Uni-Star's claims against them to be wholly without merit and consequently,
intend to deny all allegations of wrongdoing and aggressively pursue a dismissal
of the action.

In August of 1996, the Company canceled a transaction in progress associated
with an $825,000 Reg. S transaction and associated contract with Corporate
Relations Group (CRG). The Company is currently in discussions with counsel for
the investors and believes that this matter will be settled at no significant
cost to the Company.

(12)     Other Commitments and Contingencies

The Company has entered into employment agreements with certain officers and
employees of the Company. The agreements, among other things, provide for
initial base salaries, benefits, and termination conditions and payments. These
agreements expire at various time through 1997.

(13)     Subsequent Events

Shares were not received by an investor for funds invested in May of 1996. There
is some question whether the investor will accept the shares as completion of
the transaction. Additional demands for stock or cash may be made.

URI has two claims in conciliation court totaling $1,515 that have risen out of
payables due to vendors.


ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(1) LIQUIDITY

Cash and cash equivalents decreased from $134,564 to $47,223 from April 30, 1996
to October 31, 1996. For the same period a year ago cash and cash equivalents
increased from $241 to $1,291,091. Decreases in cash are primarily losses from
operations.

Net receivables increased from $178,206 to $439,273 from April 30, 1996 to
October 31, 1996. For the same period a year ago net receivables decreased from
$225,937 to $203,397. $218,125 represents a reclassification of a note
receivable from sale of stock to an accounts receivable due to default on the
note.

Working capital (as defined as Current Assets minus Current Liabilities) totaled
($960,348) and 525,091 at October 31, 1996 and October 31, 1995 respectively.
The change from October 31, 1995 to October 31, 1996 is largely due to a
decrease in cash and an increase in accrued expenses and accounts payable.
Accounts payable reached $480,864 for the quarter, greater than the prior year
level of $353,386 and the $203,877 levels reached at year end - April 30, 1996.

Cash flow from operations was ($982,064) for the six months ended October 31,
1996. Cash flow from operations for the six months ended October 31, 1995 was
($1,142,562).

(2) CAPITAL RESOURCES

Expenditures and other additions to property and equipment totaled approximately
$5,968 for the six months ended October 31, 1996. For the same period a year ago
expenditures and other additions to property and equipment totaled $133,310.
Several pieces of equipment were sold at URI as new equipment has been
purchased. For the balance of the current fiscal year the Company expects to
purchase additional production equipment for United Recycling.

For the balance of fiscal 1997, cash flow from operations is not expected to be
sufficient enough to fund operations and planned capital expenditures at both
United Recycling and Clean Green Packing. Management is seeking additional
capital including, but not limited to, sales of new equity and incurring
additional Long-Term debt.

(3) RESULTS OF OPERATIONS

Sales for the three months ended October 31, 1996 were $483,455, down 11% from
$544,948 for the same period a year earlier. Clean Green Packing accounted for
$315,611 or 65% of total sales for the quarter. United Recycling represented the
remaining $167,845 or 35% of the total.

Gross profit for the three months ended October 31, 1996 was $52,189 up 32% from
$39,446 for the same period a year earlier. Clean Green Packing accounted for
$101,032 of the total gross profit for the quarter. United Recycling accounted
for ($48,843) of the quarter's gross profit. During the quarter, gross profit as
a percent of sales was 11%. During the quarter, Clean Green Packing reported
that gross profit reached 32% of sales. Gross profit at URI is up 51% from the
same period a year earlier.

General and administrative expenses were $531,654 for the three months ended
October 31, 1996, down from $620,043 for the same period a year earlier. The
decrease is primarily attributable to fewer personnel at URI and ETI.

Research and development expenses were $0 for the three months ended October 31,
1996, down from $18,506 for the same period a year earlier.

Goodwill and technology rights amortization were $32,808 for the three months
ended October 31, 1996, down from $81,739 for the same period a year earlier.
The decrease is attributable to the full amortization of goodwill in fiscal year
1996.

Net loss was $492,407 for the three months ended October 31, 1996, down from
$708,254 for the same period a year earlier.


                      ENVIRONMENTAL TECHNOLOGIES USA, INC.

                         EXHIBIT INDEX TO ANNUAL REPORT
                                 ON FORM 10-QSB
                       For Quarter Ended October 31, 1996

<TABLE>
<CAPTION>

Item No.       Item                                                    Method of Filing
--------       ----                                                    ----------------
<S>            <C>                                                     <C> 
3.1            Articles of Incorporation, as amended to date.          Incorporated  by reference to Exhibit 3.1 
                                                                       to the  Company's  Annual  Report on Form
                                                                       10-KSB  for the fiscal  year ended  April
                                                                       30, 1996 (File No. 0-22736).
                                                                       
3.2            Bylaws, as amended to date.                             Incorporated  by reference to Exhibit 3.2
                                                                       to the  Company's  Annual  Report on Form
                                                                       10-KSB  for the fiscal  year ended  April
                                                                       30, 1996 (File No. 0-22736).
                                                                       
4.1            Specimen  Form  of  the  Company's   Common  Stock      Incorporated  by reference to Exhibit 4.1
               Certificate.                                            to the  Company's  Annual  Report on Form
                                                                       10-KSB  for the fiscal  year ended  April
                                                                       30, 1996 (File No. 0-22736).
                                                                       
4.2            Certificate   of   Designation  of  the  Company's      Incorporated  by reference to Exhibit 4.2
               Series II Preferred Stock                               to the  Company's  Annual  Report on Form
                                                                       10-KSB  for the fiscal  year ended  April
                                                                       30, 1996 (File No. 0-22736).
                                                                       
4.3            Certificate   of   Designation  of  the  Company's      Incorporated  by reference to Exhibit 4.3
               Series III Preferred Stock                              to the  Company's  Annual  Report on Form
                                                                       10-KSB  for the fiscal  year ended  April
                                                                       30, 1996 (File No. 0-22736).
                                                                       
4.4            Certificate   of   Designation  of  the  Company's      Incorporated  by reference to Exhibit 4.4
               Series V Preferred Stock                                to the  Company's  Annual  Report on Form
                                                                       10-KSB  for the fiscal  year ended  April
                                                                       30, 1996 (File No. 0-22736).
                                                                       
4.5            Certificate   of   Designation  of  the  Company's      Incorporated  by reference to Exhibit 4.5
               Series U Preferred Stock                                to the  Company's  Annual  Report on Form
                                                                       10-KSB  for the fiscal  year ended  April
                                                                       30, 1996 (File No. 0-22736).
                                                                       
10.1           Lease  Agreement  dated October 30, 1991,  between      Incorporated   by  reference  to  Exhibit
               URI and St. Louis Park Investment Company.              10.2   to  the   Company's   Registration
                                                                       Statement   on   Form   S-1   (File   No.
                                                                       33-50562).
                                                                       
10.2           Lease  Agreement  dated June 3, 1991,  between CGP      Incorporated   by  reference  to  Exhibit
               and Second MBT Trust.                                   10.3   to  the   Company's   Registration
                                                                       Statement   on   Form   S-1   (File   No.
                                                                       33-50562).
                                                                       
10.3           License  Agreement  dated March 25, 1992,  between      Incorporated   by  reference  to  Exhibit
               the Company and the University of Minnesota.            10.4   to  the   Company's   Registration
                                                                       Statement   on   Form   S-1   (File   No.
                                                                       33-50562).
                                                                       
10.4           Research  Agreement  dated June 1,  1992,  between      Incorporated   by  reference  to  Exhibit
               the Company and the University of Minnesota.            10.5   to  the   Company's   Registration
                                                                       Statement   on   Form   S-1   (File   No.
                                                                       33-50562).
                                                                       
10.5           1991 Incentive Stock Option Plan of the Company.        Incorporated   by  reference  to  Exhibit
                                                                       10.6   to  the   Company's   Registration
                                                                       Statement   on   Form   S-1   (File   No.
                                                                       33-50562).
                                                                       
10.6           Form of Incentive Stock Option Agreement                Incorporated   by  reference  to  Exhibit
                                                                       10.7   to  the   Company's   Registration
                                                                       Statement   on   Form   S-1   (File   No.
                                                                       33-50562).
                                                                       
10.7           1994 Stock Plan.                                        Incorporated   by  reference  to  Exhibit
                                                                       10.7 to the  Company's  Annual  Report on
                                                                       Form  10-KSB  for the  fiscal  year ended   
                                                                       April 30, 1994 (File No. 0-22736).
                                                                       
10.8           Form of Non-Statutory Stock Option Agreement            Incorporated  by  reference  to  Exhibit
                                                                       10.8 to the  Company's  Annual Report on
                                                                       Form  10-KSB for the  fiscal  year ended
                                                                       April 30, 1994 (File No. 0-22736).

10.9           Form of Restricted Stock Award Agreement                Incorporated  by  reference  to  Exhibit
                                                                       10.9  to  the   Company's   Registration
                                                                       Statement   on  Form   S-1   (File   No.
                                                                       33-50562).

10.10          Loan  Agreement  (and  Note  and  Debenture)  dated     Incorporated  by  reference  to  Exhibit
               December  3, 1991,  between CGP and the CGP and the     10.17  to  the  Company's   Registration
               Coon Rapids Development Company.                        Statement   on  Form   S-1   (File   No.
                                                                       33-50562).

10.11          License  Agreement  dated  as  of  April  19,  1993     Incorporated  by  reference  to  Exhibit
               between   CGP,   the  Company  and   Warner-Lambert     10.14 to the Company's  Annual Report on
               Company.                                                Form  10-KSB for the  fiscal  year ended
                                                                       April 30, 1993 (File No. 0-22736).

10.12          Settlement  Agreement and Release dated October 11,     Incorporated  by  reference  to  Exhibit
               1993 between Clean Green Packing and  International     10.15 to the Company's  Annual Report on
               Grain and Milling Company.                              Form  10-KSB for the  fiscal  year ended
                                                                       April 30, 1993 (File No. 0-22736).

10.13          Merger,  Acquisition and Financing  Agreement dated     Incorporated  by  reference  to  Exhibit
               October  7,  1993   between  the  Company  and  One     10.16 to the Company's  Annual Report on
               Capital Corporation.                                    Form  10-KSB for the  fiscal  year ended
                                                                       April 30, 1993 (File No. 0-22736).

10.14          Financial   Advisory   Services   Agreement   dated     Incorporated   by   reference  to  Exhibit
               October  7,  1993   between  the  Company  and  One     10.17 to the  Company's  Annual  Report on
               Capital Corporation.                                    Form  10-KSB  for the  fiscal  year  ended
                                                                       April 30, 1993 (File No. 0-22736).

10.15          Technology  Transfer  Agreement,  dated January 31,     Incorporated   by   reference  to  Exhibit
               1994  between  the  Company  and   FoamLite   Texas     10.15 to the  Company's  Annual  Report on
               Corporation.                                            Form  10-KSB  for the  fiscal  year  ended
                                                                       April 30, 1994 (File No. 0-22736).

10.16          Lease  Agreement,  dated  March  12,  1996  between     Incorporated   by   reference  to  Exhibit
               Kokette Properties Inc. and URI                         10.16 to the  Company's  Annual  Report on
                                                                       Form  10-KSB  for the  fiscal  year  ended
                                                                       April 30, 1996 (File No. 0-22736).

10.17          Sublease,  dated  March 20,  1996  between  Berkley     Incorporated   by   reference  to  Exhibit
               Administrators and URI                                  10.17 to the  Company's  Annual  Report on
                                                                       Form  10-KSB  for the  fiscal  year  ended
                                                                       April 30, 1996 (File No. 0-22736).

10.18          License  Agreement,  dated  March 1, 1995,  between     Incorporated   by   reference  to  Exhibit
               the Company and KSU Research Foundation.                10.18 to the  Company's  Annual  Report on
                                                                       Form  10-KSB  for the  fiscal  year  ended
                                                                       April 30, 1996 (File No. 0-22736).

10.19          Office/Warehouse  Lease, dated October 21, 1994, by     Incorporated   by   reference  to  Exhibit
               and between Crown Packaging Corp. and CGP.              10.19 to the  Company's  Annual  Report on
                                                                       Form  10-KSB  for the  fiscal  year  ended
                                                                       April 30, 1996 (File No. 0-22736).

21.1           Subsidiaries of the Company.                            Incorporated  by reference to Exhibit 21.1
                                                                       to the  Company's  Annual  Report  on Form
                                                                       10-KSB  for the fiscal  year  ended  April
                                                                       30, 1996 (File No. 0-22736).

27.1           Financial Data Schedule                                 Filed Herewith

</TABLE>



                                   SIGNATURES


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



                                          ENVIRONMENTAL TECHNOLOGIES USA, INC.
Date:  December 13, 1996



                                     By  /s/ Jeffrey F. Lee
                                         Jeffrey F. Lee, Chief Executive Officer