##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-QSB



|x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------



For the quarterly period ended: December 31, 2004



 ̈TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from

to



Commission file number: 0-16749



CERBCO, Inc.

(Exact name of small business issuer as specified in its charter)



|                                |  |                    
|------------------------------- |  | -------------------
|Delaware                        |  | 54-1448835         
|(State or other jurisdiction of |  | (I.R.S. Employer   
|incorporation or organization)  |  | Identification No.)



1419 Forest Drive,
Suite 209, Annapolis, Maryland 21403

(Address of principal executive offices)



443-482-3374

(Issuers telephone number)



Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the last 12 months (or such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes x     No ̈



As of February 1, 2005, the following number of shares of each of the issuers classes
of common stock were outstanding:



|                     |  |          
|-------------------- |  | ---------
|Common Stock         |  | 1,217,867
|Class B Common Stock |  | 290,089  
|                     |  |          
|Total                |  | 1,507,956
|                     |  |          



Transitional Small Business Disclosure
Format: Yes ̈No x



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##### Table of Contents



TABLE OF CONTENTS



|                               |  |                                                                                                                                               |  |     
|------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                               |  |                                                                                                                                               |  | Page
|PART I - FINANCIAL INFORMATION |  |                                                                                                                                              
|                               |  |                                                                                                                                              
|Item 1.                        |  | Financial Statements                                                                                                                          |  | 3   
|                               |  |                                                                                                                                              
|                               |  | Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended December 31, 2004 and December 31, 2003 (unaudited) |  | 3   
|                               |  |                                                                                                                                              
|                               |  | Condensed Consolidated Balance Sheet as of December 31, 2004 (unaudited)                                                                      |  | 4   
|                               |  |                                                                                                                                              
|                               |  | Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2004 and December 31, 2003 (unaudited)                  |  | 5   
|                               |  |                                                                                                                                              
|                               |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                                              |  | 6   
|                               |  |                                                                                                                                              
|Item 2.                        |  | Managements Discussion and Analysis or Plan of Operation                                                                                     |  | 9   
|                               |  |                                                                                                                                              
|Item 3.                        |  | Controls and Procedures                                                                                                                       |  | 11  
|                               | 
|PART II - OTHER INFORMATION    |  |                                                                                                                                              
|                               |  |                                                                                                                                              
|Item 1.                        |  | Legal Proceedings                                                                                                                             |  | 12  
|                               |  |                                                                                                                                              
|Item 6.                        |  | Exhibits                                                                                                                                      |  | 12  



2



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##### Table of Contents



PART I - FINANCIAL
INFORMATION



|Item 1. | Financial Statements
|------- | --------------------



CERBCO, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



|                                                                                           |  |                             |          |   |                           |   |          |      |  |   |          |   |  |   |           |  
|------------------------------------------------------------------------------------------ |  | --------------------------- | -------- | - | ------------------------- | - | -------- | ---- |  | - | -------- | - |  | - | --------- | -
|                                                                                           |  | Three Months Ended Dec. 31, |          |   | Six Months Ended Dec. 31, |  
|                                                                                           |  | 2004                        |          |   | 2003                      |   |          | 2004 |  |   | 2003     |  
|Sales                                                                                      |  | $                           | 0        |   |                           | $ | 0        |      |  | $ | 0        |   |  | $ | 0         |  
|                                                                                           |  |                             |          |   |                           |   |          |      |  |   |          |   |  |   |           |  
|Costs and Expenses:                                                                        |  |                             |          |   |                           |   |          |      |  |   |          |   |  |   |           |  
|General and administrative expenses                                                        |  |                             | 229,359  |   |                           |   | 164,303  |      |  |   | 385,594  |   |  |   | 329,900   |  
|                                                                                           |  |                             |          |   |                           |   |          |      |  |   |          |   |  |   |           |  
|Total Costs and Expenses                                                                   |  |                             | 229,359  |   |                           |   | 164,303  |      |  |   | 385,594  |   |  |   | 329,900   |  
|                                                                                           |  |                             |          |   |                           |   |          |      |  |   |          |   |  |   |           |  
|Operating Loss                                                                             |  |                             | (229,359 | ) |                           |   | (164,303 | )    |  |   | (385,594 | ) |  |   | (329,900  | )
|                                                                                           |  |                             |          |  
|Investment Income                                                                          |  |                             | 75,793   |   |                           |   | 36,908   |      |  |   | 116,248  |   |  |   | 101,844   |  
|Other Income (Expense) - Net                                                               |  |                             | (10,494  | ) |                           |   | 169,330  |      |  |   | (17,756  | ) |  |   | (582,443  | )
|                                                                                           |  |                             |          |   |                           |   |          |      |  |   |          |   |  |   |           |  
|Earnings (Loss) Before Income Taxes                                                        |  |                             | (164,060 | ) |                           |   | 41,935   |      |  |   | (287,102 | ) |  |   | (810,499  | )
|Credit for Income Taxes                                                                    |  |                             | 0        |   |                           |   | 0        |      |  |   | (35,000  | ) |  |   | 0         |  
|                                                                                           |  |                             |          |   |                           |   |          |      |  |   |          |   |  |   |           |  
|Earnings (Loss) From Continuing Operations                                                 |  |                             | (164,060 | ) |                           |   | 41,935   |      |  |   | (252,102 | ) |  |   | (810,499  | )
|                                                                                           |  |                             |          |  
|(Loss) Earnings from Discontinued Operations  Net of Non-Owned Interests and Income Taxes |  |                             | 0        |   |                           |   | (90,899  | )    |  |   | 0        |   |  |   | 1,276,197 |  
|                                                                                           |  |                             |          |   |                           |   |          |      |  |   |          |   |  |   |           |  
|Net (Loss) Earnings                                                                        |  | $                           | (164,060 | ) |                           | $ | (48,964  | )    |  | $ | (252,102 | ) |  | $ | 465,698   |  
|                                                                                           |  |                             |          |   |                           |   |          |      |  |   |          |   |  |   |           |  
|Basic and Diluted (Loss) Earnings per Share:                                               |  |                             |          |   |                           |   |          |      |  |   |          |   |  |   |           |  
|(Loss) earnings from continuing operations                                                 |  | $                           | (0.11    | ) |                           | $ | 0.03     |      |  | $ | (0.17    | ) |  | $ | (0.55     | )
|(Loss) earnings from discontinued operations                                               |  |                             | 0.00     |   |                           |   | (0.06    | )    |  |   | 0.00     |   |  |   | 0.86      |  
|                                                                                           |  |                             |          |   |                           |   |          |      |  |   |          |   |  |   |           |  
|Net (loss) earnings per share                                                              |  | $                           | (0.11    | ) |                           | $ | (0.03    | )    |  | $ | (0.17    | ) |  | $ | 0.31      |  
|                                                                                           |  |                             |          |   |                           |   |          |      |  |   |          |   |  |   |           |  



See
notes to condensed consolidated financial statements.



3



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CERBCO, Inc.

CONDENSED CONSOLIDATED BALANCE SHEET

December 31, 2004

(unaudited)



|                                                                                                                      |  |   |           
|--------------------------------------------------------------------------------------------------------------------- |  | - | ----------
|ASSETS                                                                                                                |  |   |           
|Current Assets:                                                                                                       |  |   |           
|Cash and cash equivalents                                                                                             |  | $ | 8,409,774 
|Marketable securities                                                                                                 |  |   | 8,510,828 
|Interest receivable                                                                                                   |  |   | 52,343    
|Prepaid expenses and other                                                                                            |  |   | 18,732    
|                                                                                                                      |  |   |           
|Total Current Assets                                                                                                  |  |   | 16,991,677
|                                                                                                                      |  |   |           
|Property, Plant and Equipment - less accumulated depreciation                                                         |  |   | 4,450     
|                                                                                                                      |  |   |           
|Other Assets:                                                                                                         |  |   |           
|Cash surrender value of SERP life insurance                                                                           |  |   | 2,145,169 
|Marketable securities                                                                                                 |  |   | 993,906   
|Deposits and other                                                                                                    |  |   | 44,489    
|Total assets of discontinued operations                                                                               |  |   | 4,273,345 
|                                                                                                                      |  |   |           
|Total Other Assets                                                                                                    |  |   | 7,456,909 
|                                                                                                                      |  |   |           
|Total Assets                                                                                                          |  | $ | 24,453,036
|                                                                                                                      |  |   |           
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                  |  |   |           
|Current Liabilities:                                                                                                  |  |   |           
|Accounts payable and accrued liabilities                                                                              |  | $ | 22,089    
|                                                                                                                      |  |   |           
|Total Current Liabilities                                                                                             |  |   | 22,089    
|                                                                                                                      | 
|Other Liabilities                                                                                                     |  |   |           
|Accrued SERP liability                                                                                                |  |   | 3,050,334 
|Total liabilities of discontinued operations                                                                          |  |   | 1,479,361 
|                                                                                                                      |  |   |           
|Total Liabilities                                                                                                     |  |   | 4,551,784 
|                                                                                                                      |  |   |           
|Commitments and Contingencies                                                                                         |  |   |           
|                                                                                                                      | 
|Non-Owned Interests in Consolidated Subsidiaries                                                                      |  |   | 1,971,929 
|                                                                                                                      |  |   |           
|Stockholders Equity:                                                                                                 |  |   |           
|Common stock, $0.10 par value Authorized: 3,500,000 shares Issued and outstanding: 1,217,867 shares                   |  |   | 121,786   
|Class B Common stock (convertible), $0.10 par value Authorized: 700,000 shares Issued and outstanding: 290,089 shares |  |   | 29,009    
|Additional paid-in capital                                                                                            |  |   | 7,768,428 
|Retained earnings                                                                                                     |  |   | 10,010,100
|                                                                                                                      |  |   |           
|Total Stockholders Equity                                                                                            |  |   | 17,929,323
|                                                                                                                      |  |   |           
|Total Liabilities and Stockholders Equity                                                                            |  | $ | 24,453,036
|                                                                                                                      |  |   |           



See
notes to condensed consolidated financial statements.



4



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CERBCO, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                    |  |                                  |           |   |      |   |            |  
|----------------------------------------------------------------------------------- |  | -------------------------------- | --------- | - | ---- | - | ---------- | -
|                                                                                    |  | For the six months endedDec. 31, |          
|                                                                                    |  | 2004                             |           |   | 2003 |  
|Cash Flows from Operating Activities:                                               |  |                                  |           |   |      |   |            |  
|Net (loss) earnings                                                                 |  | $                                | (252,102  | ) |      | $ | 465,698    |  
|Adjustments to reconcile net (loss) earnings to net cash (used in) from operations: |  |                                  |           |   |      |   |            |  
|Net (earnings) from discontinued operations                                         |  |                                  | 0         |   |      |   | (1,276,197 | )
|Depreciation and amortization                                                       |  |                                  | 639       |   |      |   | 639        |  
|Increase in SERP liability                                                          |  |                                  | 0         |   |      |   | 796,071    |  
|Changes in operating assets and liabilities:                                        |  |                                  |           |   |      |   |            |  
|Increase in accounts receivable                                                     |  |                                  | (5,023    | ) |      |   | (11,948    | )
|Decrease in other current assets                                                    |  |                                  | 55,377    |   |      |   | 143,797    |  
|Decrease in accounts payable and accrued expenses                                   |  |                                  | (24,271   | ) |      |   | (12,002    | )
|                                                                                    |  |                                  |           |   |      |   |            |  
|Net Cash Flows (Used in) From Continuing Operations                                 |  |                                  | (225,380  | ) |      |   | 106,058    |  
|Net Cash Flows From Discontinued Operations                                         |  |                                  | 1,713,104 |   |      |   | 3,026,215  |  
|                                                                                    |  |                                  |           |   |      |   |            |  
|Net Cash From Operating Activities                                                  |  |                                  | 1,487,724 |   |      |   | 3,132,273  |  
|                                                                                    |  |                                  |           |   |      |   |            |  
|Cash Flows from Investing Activities:                                               |  |                                  |           |   |      |   |            |  
|Change in marketable securities - net                                               |  |                                  | 11,137    |   |      |   | 379,973    |  
|Increase in cash surrender value of SERP life insurance                             |  |                                  | (134,637  | ) |      |   | (286,323   | )
|                                                                                    |  |                                  |           |   |      |   |            |  
|Net Cash (Used in) From Investing Activities                                        |  |                                  | (123,500  | ) |      |   | 93,650     |  
|                                                                                    |  |                                  |           |   |      |   |            |  
|Cash Flows from Financing Activities:                                               |  |                                  |           |   |      |   |            |  
|Proceeds from exercise of stock options                                             |  |                                  | 192,400   |   |      |   | 51,250     |  
|Dividends paid                                                                      |  |                                  | (148,796  | ) |      |   | (148,296   | )
|                                                                                    |  |                                  |           |   |      |   |            |  
|Net Cash From (Used in) Financing Activities                                        |  |                                  | 43,604    |   |      |   | (97,046    | )
|                                                                                    |  |                                  |           |   |      |   |            |  
|Net Increase in Cash and Cash Equivalents                                           |  |                                  | 1,407,828 |   |      |   | 3,128,877  |  
|Cash and Cash Equivalents at Beginning of Period                                    |  |                                  | 7,001,946 |   |      |   | 4,592,155  |  
|                                                                                    |  |                                  |           |   |      |   |            |  
|Cash and Cash Equivalents at End of Period                                          |  | $                                | 8,409,774 |   |      | $ | 7,721,032  |  
|                                                                                    |  |                                  |           |   |      |   |            |  
|Supplemental disclosure of cash flow information:                                   |  |                                  |           |   |      |   |            |  
|Interest paid                                                                       |  | $                                | 0         |   |      | $ | 0          |  
|Income taxes refunded                                                               |  | $                                | 35,691    |   |      | $ | 79,384     |  



See
notes to condensed consolidated financial statements.



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CERBCO, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



|1. | Financial Information
|-- | ---------------------



The condensed consolidated financial statements include the accounts of the parent holding company, CERBCO, Inc. (CERBCO); its wholly-owned
subsidiary, CERBERONICS, Inc. (CERBERONICS), a Delaware holding company; and its majority-controlled subsidiary, INEI Corporation (INEI), formerly known as Insituform East, Incorporated (Insituform East)
(together, the Company). All significant intercompany balances and transactions have been eliminated in consolidation.



The Condensed Consolidated Balance Sheet as of December 31, 2004, the Condensed Consolidated Statements of Operations for the three months and six months
ended December 31, 2004 and 2003, and the Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2004 and 2003 have been prepared by the Company without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at December 31, 2004 and for all periods presented have been made.



These statements have been prepared in accordance with the instructions to
Form 10-QSB and therefore do not necessarily include all information and footnotes necessary to a presentation of the financial position, the results of operations and the cash flows in conformity with generally accepted accounting principles.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed financial statements be
read in conjunction with the audited financial statements and notes thereto included in the Companys annual report on Form 10-KSB for the fiscal year ended June 30, 2004. Operating results for interim periods are not necessarily indicative of
operating results for an entire fiscal year.



|2. | Earnings (Loss) Per Share
|-- | -------------------------



Basic earnings (loss) per share data are calculated by dividing the earnings or loss for the period by the weighted average number of shares of common
stock outstanding during each period. Diluted earnings (loss) per share data are calculated using the weighted average number of shares of common stock plus dilutive common stock equivalents outstanding during each period. Anti-dilutive common stock
equivalents are excluded. Common stock equivalents represent outstanding stock options. The following numbers of shares have been used in the per share computations:



|                                    |  |                                   |  |           |  |          
|----------------------------------- |  | --------------------------------- |  | --------- |  | ---------
|For the three months ended Dec. 31, |  | For the six months ended Dec. 31,
|2004                                |  | 2003                              |  | 2004      |  | 2003     
|1,493,608                           |  | 1,483,717                         |  | 1,493,608 |  | 1,490,782
|                                    |  |                                   |  |           |  |          



|3. | Discontinued Operations
|-- | -----------------------



In May 2003, INEI entered into discussions with several parties indicating an interest in a possible purchase of Try Tek Machine Works, Inc. (Try
Tek), a wholly-owned subsidiary of INEI, or some or all of its assets. These discussions are continuing. Try Teks operations have been significantly curtailed since that time.



In June 2003, INEI entered into an Asset Purchase Agreement (the Agreement) with Insituform Technologies, Inc.
(ITI) providing for the sale to ITI of substantially all of INEIs non-real estate assets and on-going business (the Asset Sale). The purchase price of $5.5 million was paid in cash at closing, subject to a 10% escrow.
The closing occurred on September 5, 2003.



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The Agreement provided, among other things, for the purchase by ITI of (i) certain of INEIs
operating vehicles, equipment and inventories, (ii) all of INEIs on-going contracts (other than those of Try Tek) and (iii) INEIs sublicenses and other intellectual property, including its supply agreements.



Under the terms of the Agreement, INEI agreed that, after closing of the
Asset Sale, it would, among other things, consider in good faith the dissolution of INEI. Accordingly, since June 30, 2003, all of INEIs activities were considered to be discontinued.



In December 2003, INEI completed the sale of all of its real property in
Landover, MD to Bohrers Nest, L.L.C., a subsidiary of Atlantic Transportation Equipment, Ltd. The purchase price of approximately $5.1 million was paid in cash, less $306,000 in expenses for INEIs portion of closing costs and an escrow
of $225,000 pending final clean-up of certain areas of the property.



INEIs stockholders approved a plan of dissolution and liquidation at INEIs annual meeting of stockholders on June 30, 2004, and INEI was dissolved as of June 30, 2004. INEIs directors and officers are executing the plan of
dissolution and liquidation.



The operating results of INEI for
the three months and six months ended December 31, 2004 and 2003 are shown separately in the accompanying Condensed Consolidated Statements of Operations as results from discontinued operations. Sales revenues of $156,736 and $109,281 for the three
months ended December 31, 2004 and 2003, respectively, and $274,006 and $1,892,501 for the six months ended December 31, 2004 and 2003, respectively, are included in the results from discontinued operations and are not shown as sales in the
accompanying Condensed Consolidated Statements of Operations.



At December 31, 2004, the assets and liabilities of discontinued operations were as follows:



|                                                               |  |   |          
|-------------------------------------------------------------- |  | - | ---------
|Discontinued Assets:                                           |  |   |          
|Cash and cash equivalents                                      |  | $ | 3,588,051
|Cash in escrow                                                 |  |   | 225,000  
|Accounts receivable, net of an allowance for doubtful accounts |  |   | 255,050  
|Inventories                                                    |  |   | 138,179  
|Prepaid expenses and other                                     |  |   | 7,168    
|Property, plant and equipment, net of accumulated depreciation |  |   | 59,897   
|                                                               |  |   |          
|Total assets of discontinued operations                        |  | $ | 4,273,345
|                                                               |  |   |          
|Discontinued Liabilities:                                      |  |   |          
|Accounts payable                                               |  | $ | 17,325   
|Accrued compensation and other expenses                        |  |   | 1,462,036
|                                                               |  |   |          
|Total liabilities of discontinued operations                   |  | $ | 1,479,361
|                                                               |  |   |          



|4. | Marketable Securities
|-- | ---------------------



Marketable securities consist of:



|                             |  |                   |           |            |   |          
|---------------------------- |  | ----------------- | --------- | ---------- | - | ---------
|                             |  | December 31, 2004
|                             |  | Amortized Cost    |           | Fair Value
|Current:                     |  |                   |           |            |   |          
|U.S. Government and agencies |  | $                 | 8,510,828 |            | $ | 8,494,140
|Long-term:                   |  |                   |           |            |   |          
|U.S. Government and agencies |  |                   | 993,906   |            |   | 990,390  
|                             |  |                   |           |            |   |          
|                             |  | $                 | 9,504,734 |            | $ | 9,484,530
|                             |  |                   |           |            |   |          



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|5. | Equity in INEI
|-- | --------------



At December 31, 2004, CERBCO beneficially held 1,414,850 shares of INEI Common Stock, par value $0.04 per share (the Common Stock), and
296,141 shares of convertible INEI Class B Common Stock, par value $0.04 per share (the Class B Common Stock), representing approximately 34.7% of the Common Stock, 99.5% of the Class B Common Stock, 39.1% of the total equity and 62.1%
of the total voting power of all outstanding classes of INEI stock. Holders of Class B Common Stock, voting separately as a class, have the right to elect the remaining members of INEIs Board of Directors after election of not less than 25% of
such members by holders of shares of Common Stock, voting separately as a class.



From time to time, INEI issues additional shares of stock as a result of stock dividends and exercised stock options. Changes in capital structure resulting from such additional stock issues decrease CERBCOs
equity ownership percentage. If all the options outstanding at December 31, 2004 were exercised, the resulting percentages of CERBCOs equity ownership and total voting power would be 36.9% and 59.8%, respectively.



|6. | Contingencies
|-- | -------------



The Company is involved in certain contingencies arising out of the ordinary course of business, the aggregate of which will not, in the opinion of
management, materially affect the Companys financial position or results of operations.



|7. | Supplemental Executive Retirement Plan (SERP)
|-- | -----------------------------------------------



CERBCO adopted unfunded SERP agreements (the Agreements) with its three executive officers, effective as of January 1, 1994. CERBCO
established a trust to facilitate the payment of benefits under the Agreements. Funds in the trust are invested in variable life insurance policies and are included in the accompanying Condensed Consolidated Balance Sheet as cash surrender value of
SERP life insurance. Assets of the trust are subject to the claims of CERBCOs creditors in the event of CERBCOs bankruptcy or insolvency.



On September 24, 2003, the CERBCO Board of Directors preliminarily determined by affirmative resolution that, in due course, CERBCO should be orderly
liquidated and dissolved. Such determination was made, among other reasons, in light of the September 5, 2003 consummation of the sale of the business, licenses and most operating assets of CERBCOs sole operating subsidiary, INEI, and such
subsidiarys disclosed intent to orderly liquidate and dissolve in due course. The change from an assumption that CERBCO will continue in perpetuity to an assumption of possible near-term liquidation and dissolution, similarly effects a change
in the accounting assumptions applicable to the Agreements. As it is now questionable whether the Companys executive officers will continue employment to the Agreements assumed normal retirement age of 65, accounting assumptions were
changed in fiscal year 2004 to accrue SERP liability on a present value basis for the SERP accounting year (i.e., calendar year) containing the reporting period with anticipated, lump-sum payouts currently assumed to be made under the Agreements in
January 2006. Based on such change of accounting assumptions, as of September 30, 2003, and effective for and through calendar year 2003, the Company readjusted the accrued SERP liability during the fiscal year ended June 30, 2004 in the amount of
$796,072. In December 2003, two of the Companys executive officers filed a claim with the Company indirectly calling into question whether the SERP liability in the accompanying Condensed Consolidated Balance Sheet adequately reflects the full
extent of the benefits believed by such officers to be due under the Agreements. Such officers estimate the additional liability could be as high as approximately $1,500,000. A Special Committee consisting of CERBCOs two independent directors
presently disputes the validity of such claim; however, negotiations between the Committee and the executives with respect to the claim are ongoing. Pending a final determination with respect to the claim, no provision for potential additional SERP
liability related to the claim has been accrued by the Company.



8



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis or Plan of Operation
|------- | ---------------------------------------------------------



Overview and Outlook



The Company reported a consolidated loss from continuing operations and a consolidated net loss of -$164,060 (-$0.11 per share) for the second quarter of
fiscal year 2005, which ended December 31, 2004. For the second quarter of the previous fiscal year, the Company recognized consolidated earnings from continuing operations of $41,935 ($0.03 per share) and a consolidated net loss of -$48,964 (-$0.03
per share).



The Company reported a consolidated loss from
continuing operations and a consolidated net loss of -$252,102 (-$0.17 per share) for the first six months of fiscal year 2005. For the first six months of the previous fiscal year, the Company recognized a consolidated loss from continuing
operations of -$810,499 (-$0.55 per share) and consolidated net earnings of $465,698 ($0.31 per share). Sales of $109,619 and $1,892,501 recognized by INEI Corporation, the Companys majority-controlled and then sole operating segment, for the
three months and six months ended December 31, 2003, respectively, are included in the results from discontinued operations.



The Company attributed its negative results for the three months and six months ended December 31, 2004, and the three months ended December 31, 2003, to
its ongoing expenses as it continues to wind up its previous operations. The Company attributed its positive results for the six months ended December 31, 2003 to the discontinued operations of INEI during that period. INEI recognized net earnings
of $3,260,894 for the six months, contributing earnings from discontinued operations of $1,276,197 (39.1%) to the Company. These earnings were primarily the result of a $5.5 million sale of substantially all of INEIs business under an Asset
Sale closed on September 5, 2003. INEI recognized a gain of approximately $5.0 million on the sale.



Until the Asset Sale, INEI and its subsidiaries were engaged in the trenchless rehabilitation of underground sewers and other pipelines primarily using
cured-in-place pipe (CIPP) rehabilitation processes. INEI and, consequently, the Company, have not had any ongoing operations subsequent to the Asset Sale, other than those of Try Tek Machine Works, Inc. (Try Tek), a
wholly-owned subsidiary of INEI, which custom designs and builds machinery, including machinery used to rehabilitate pipelines using CIPP processes. Try Teks operations have been significantly curtailed since May 2003.



On September 24, 2003, the INEI Board of Directors concluded that dissolution
of INEI, liquidation and distribution of its assets would be in the best interest of INEI and its stockholders. The INEI Board preliminarily adopted a plan of dissolution and liquidation and submitted a definitive plan and a final form of proposed
dissolution to a vote of stockholders at INEIs annual meeting on June 30, 2004. At that meeting, INEIs stockholders voted to approve the plan and, accordingly, INEI was dissolved as of 11:30 a.m. on June 30, 2004. INEI is proceeding with
its liquidation in accordance with the plan.



INEI held as of
December 31, 2004:



| |  |  | One parcel of improved real property located in Hanover, PA, used to house the business of Try Tek,;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | Cash and cash equivalents in the approximate amount of $3.8 million, substantially all of which represents residual net proceeds from the sales of INEIs property, equipment
and other assets;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Residual inventory, equipment and other assets not part of the Asset Sale in the approximate amount of $200,000; and
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | Accounts receivable in the approximate amount of $288,000.
| | - |  | ----------------------------------------------------------



INEI anticipates that additional transactions will take the form of the liquidation of its remaining assets, including the sale or disposition of the
assets of Try Tek, and the satisfaction of INEIs liabilities, including personnel termination and related costs, sale transaction expenses and final liquidation costs.



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On September 24, 2003, the Companys Board of Directors concluded that dissolution of CERBCO,
liquidation and distribution of its assets would be in the best interest of CERBCO and its stockholders. The CERBCO Board preliminarily adopted a plan of dissolution and liquidation and presently intends to submit a definitive plan and a final form
of proposed dissolution to a vote of its stockholders. The Company has not yet resolved a pending claim by two of the Companys executives concerning the appropriate SERP or other retirement liability of the Company Discussions with and
deliberations by a Special Committee of the CERBCO Board reviewing the pending SERP claim are continuing.



In connection with the contemplated dissolution proposal, while the Company at the present time is not able to predict with certainty the actual
realizable value of its remaining assets, the ultimate settlement amounts of its liabilities or the amounts it actually will expend during the liquidation process, it currently anticipates that the amount ultimately distributable to its stockholders
will be between $8.50 and $11.50 per share of Common Stock and Class B Common Stock. To the extent that the value of its assets is less, or the amount of its liabilities or the amounts that it expends during the liquidation are greater, than the
Company anticipates, it is possible that stockholders may receive substantially less than the Company presently anticipates.



Results of Operations



The results from continuing operations are the results of the parent company, CERBCO. CERBCOs interests in INEIs discontinued operations are
shown as results from discontinued operations  net of non-owned interests and income taxes.



Three Months Ended 12/31/04 Compared with Three Months Ended 12/31/03



CERBCOs general and administrative expenses increased approximately
40% in the second quarter of fiscal year 2005 as compared to the first quarter of fiscal year 2004, primarily due to additional compensation recognized in connection with the exercise of stock options by the Companys directors in the second
quarter of fiscal year 2005.



Investment income increased
approximately 105%, primarily as a result of an increase in invested cash from the receipt of a liquidating distribution from INEI on November 1, 2004. Other income (expense)-net decreased 106%, primarily due to increases in cash surrender values of
insurance policies funding the Companys supplemental retirement plan (SERP) in the three months ended December 31, 2003. Such cash surrender values decreased slightly in the three months ended December 31, 2004.



The loss from discontinued operations-net for the quarter ended December 31,
2003 of -$90,899 reflects the Companys share (39.1%) of INEIs net loss of -$232,261. INEI substantially ceased all operations on the sale of its business on September 5, 2003.



Six Months Ended 12/31/04 Compared with Six Months Ended 12/31/03



CERBCOs general and administrative expenses increased approximately
17% in the first six months of fiscal year 2005 as compared to the first six months of fiscal year 2004, primarily due to additional compensation recognized in connection with the exercise of stock options by the Companys directors in the
second quarter of fiscal year 2005.



Investment income
increased approximately 14%, primarily as a result of an increase in invested cash from the repayment by INEI of an intercompany loan of $3 million on September 5, 2003 and the receipt of a liquidating distribution from INEI on November 1, 2004.
Other expense-net decreased 97%, primarily due to the recognition of an adjustment on September 30, 2003 to the Companys accrued SERP liability to reflect a change in accounting assumptions to accrue such liability on a present value basis
with anticipated lump-sum beneficiary payouts in January 2006.



The earnings from discontinued operations-net for the six months ended December 31, 2003 of $1,276,197 reflects the Companys share (39.1%) of INEIs pretax earnings of $4,155,894 and provision of $895,000 for income taxes. INEI
recognized a gain of approximately $5.0 million on the sale of its business on September 5, 2003.



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Financial Condition



During the six months ended December 31, 2004, the Companys operating
activities used approximately $225,000 in cash. The Companys net loss was decreased by the net effect of changes in items that affected the Companys cash, including an approximately $55,000 decrease in prepaid insurance and other prepaid
expenses and an approximately $24,000 decrease in accounts payable. The Company received approximately $1.7 million in cash from the discontinued operations of INEI as the result of a liquidating distribution.



The Companys investing activities used approximately $124,000 during
the six months ended December 31, 2004, primarily due to increases in cash surrender values of insurance policies funding the Companys supplemental retirement plan (SERP). The Company used approximately $44,000 in its financing activities due
to the payment of approximately $149,000 in dividends and the receipt of approximately $192,000 from the exercise of stock options by the Companys directors.



The Companys liquidity remained strong with working capital of approximately $17.0 million. The Company has cash and
temporary investments in marketable securities of approximately $17.9 million which it believes is more than adequate to meet its cash flow requirements in the foreseeable future.



Forward-Looking Information



This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements that are based on certain assumptions and describe future plans, strategies, and expectations of the Company are generally identifiable by use of the
words believe, expect, intend, anticipate, estimate, project or similar expressions. The Companys ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors that could have a material adverse affect on the operations and future prospects of the Company include, but are not limited to, the ability of the Company to resolve issues relating to the SERP dispute
and achieving approval of a plan of liquidation and distribution, and, assuming a plan of distribution and liquidation can be adopted, approved and implemented, an unforeseen claim against the Company, a decline in value of the Companys
assets, or an unexpected increase in expenses during liquidation. These risks and uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements. Except as may be required
under federal law, the Company undertakes no obligation to update publicly any forward looking statements.



|Item 3. | Controls and Procedures
|------- | -----------------------



As of December 31, 2004, an evaluation was performed under the supervision and with the participation of the Companys management, including the
Companys Corporate Executive Committee (CEC), which performs as a functional equivalent of a CEO, and the Companys CFO, of the effectiveness of the design and operation of the Companys disclosure controls and procedures
[as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the Exchange Act)]. Based on that evaluation, the Companys management, including the CEC and the CFO, concluded that the Companys
disclosure controls and procedures were effective as of December 31, 2004. There have been no significant changes in the Companys internal controls or in other factors that could significantly affect internal controls subsequent to December
31, 2004.



Disclosure controls and procedures generally are the
Companys controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the Securities and Exchange Commissions rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the
Company in the reports that it files under the Exchange Act is accumulated and communicated to the Companys management, including its principal executive officers and principal financial officer, as appropriate to allow timely decisions
regarding required disclosure.



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In designing, implementing and evaluating the Companys disclosure controls and procedures, the
Companys management recognizes that any controls and procedures, no matter how well designed and implemented, may not be effective in all circumstances. However, management believes that the Companys disclosure controls and procedures
provide reasonable assurance of achieving the desired disclosure control objectives.



PART II - OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------



On September 14, 2004, Gary Rothrock, a stockholder of CERBCO, filed a complaint in the Court of Chancery of the State of Delaware in and for New Castle
County, pursuant to 8 Del. C. §211(c), requesting that the court issue an order scheduling a 2004 meeting of stockholders of CERBCO and the election of directors of CERBCO. Under that section of the Delaware General Corporation
Law, the Chancery Court may summarily order a meeting to be held upon application of a stockholder or a director if there has been a failure to hold the annual meeting or to take action by written consent in lieu of an annual meeting for a period of
30 days after the date designated for the annual meeting, or if no date has been designated, for a period of thirteen months after the last annual meeting. The last annual meeting of stockholders and election of directors of CERBCO was held on
December 12, 2002. CERBCOs Board of Directors, at a meeting on September 28, 2004, called an annual meeting to be held on February 16, 2005. The complaint was accordingly withdrawn and the action was dismissed voluntarily on October 6, 2004.



|Item 6. | Exhibits and Reports on Form 8-K
|------- | --------------------------------



|     |  |                                                                                                                                                                                                                                                     
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                             
|     | 
|31.2 |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                             
|     | 
|31.3 |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                             
|     | 
|32   |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                             
|     | 
|99   |  | CERBCO, Inc. Consolidating Schedules: Statement of Operations Information for the three months and six months ended December 31, 2004; Balance Sheet Information; and Consolidating
Reclassification and Elimination Entries as of December 31, 2004



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SIGNATURES



In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



Date: February 22, 2005



CERBCO, Inc.(Registrant)/s/ ROBERT W. ERIKSONRobert W. EriksonPresident/s/ ROBERT F. HARTMANRobert F. HartmanVice President, Secretary & Treasurer(Principal Financial and Accounting Officer)




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LOGO



CERBCO, Inc.

1419 Forest Drive, Suite 209  Annapolis  Maryland 21403

Tel: 443.482.3374

Fax: 410.263.2960