INSITUFORM EAST INC, 10-K, 1997-09-26

INSITUFORM EAST INC
10-K, 1997-09-26
CONSTRUCTION - SPECIAL TRADE CONTRACTORS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: June 30, 1997
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________________ to _____________________
Commission file number: 0-10800

INSITUFORM EAST, INCORPORATED
(Exact name of registrant as specified in its charter)

Delaware 52-0905854
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

3421 Pennsy Drive 20785
Landover, Maryland (Zip Code)
(Address of principal executive offices)

Registrant's telephone and fax numbers, including area code:
(301) 386-4100 (tel)
(301) 386-2444 (fax)
(301) 773-4560 (24-hour public information Fax Vault System)

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

Common Stock, par value $.04 per share Class B Common
Stock, par value $.04 per share
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes X No ___
-

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

Yes X No ___
-

The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant computed by reference to the last price at
which such stock was sold, as of September 2, 1997, was $7,017,157.

As of September 2, 1997, the following number of shares of each of the issuer's
classes of common stock were outstanding:
Common Stock 4,059,266
Class B Common Stock 297,596
---------
Total 4,356,862

Documents Incorporated by Reference:

None

Total number of pages of this report: 33 Index to Exhibits located at page: 29

<PAGE>

TABLE OF CONTENTS

PART I Page

Item 1. Business. . . . . . . .. . . .. . . . . . . . . . . . . . . . 3

Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . 8

Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 8

Item 4. Submission of Matters to a Vote of Security Holders. . . . . 8

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . . . . 9

Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . 10

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . 11

Item 8. Financial Statements and Supplementary Data. . . . . . . . . 13

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . . . . 13

PART III

Item 10. Directors and Executive Officers of the Registrant . . . . . 29

Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . 29

Item 12. Security Ownership of Certain Beneficial Owners and Management . 29

Item 13. Certain Relationships and Related Transactions. . . . . . . 29

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports of Form 8-K .29

--------------------------
CONSOLIDATED
STATEMENTS OF OPERATIONS
AND BALANCE SHEETS

Pages 15 through 16
--------------------------

<PAGE>

PART I

Item 1. Business

(a) General Development of Business

Insituform East, Incorporated (the "Company" or "Registrant") was
organized under the laws of the State of Delaware on February 26, 1970, under
the name Universal Construction and Supply Company. Its present name was adopted
on August 24, 1978. The Company was engaged in underground conduit construction
from inception until 1974 and construction equipment rental from 1974 to 1978.
The Company then phased out these lines of business and entered into
sublicensing agreements for the Insituform(R) process, a patented technology for
reconstructing pipelines with little or no excavation. Since July 1978, the
Company has been primarily engaged in the business of rehabilitating underground
sewers and other pipelines using the Insituform process.

Between 1982 and 1986, the Company added western Pennsylvania, Ohio,
three Kentucky counties and West Virginia to its original Insituform licensed
territory of Maryland, Virginia, the District of Columbia, Delaware and eastern
Pennsylvania.

In December 1985, MIDSOUTH Partners was organized as a Tennessee
General Partnership and became the exclusive licensee for the Insituform process
in Tennessee, the rest of Kentucky and northern Mississippi. The Company was
assigned three representatives to a seven-member Management Committee
established to manage the business activities of the Partnership and allocated a
42.5% interest in Partnership profits and losses.

In September 1987, the Company established a branch facility in
Cincinnati, Ohio, to support operating activities in the western region of its
licensed territory.

In May 1989, the Company acquired an 80% interest in TRY TEK Machine
Works, Inc. ("TRY TEK"). TRY TEK, located in Hanover, Pennsylvania, was founded
in September 1985 to custom design and build special machinery, including
machinery used in the Insituform process. The Company acquired an additional 10%
interest in TRY TEK in February 1993 and the remaining 10% interest in TRY TEK
in March 1995.

In December 1990, the Company acquired exclusive licenses for the sale
and installation of pre-formed PVC thermoplastic pipe under the NuPipe(R)
process and trademark for a sales region identical to the territories licensed
to the Company for the Insituform process.

In September 1991, the Company added cement mortar lining of potable
water lines to its service capability. A formal plan to discontinue providing
cement mortar lining services, adopted in June 1993, was substantially completed
in June 1994.

On June 12, 1996, as a result of a default by a partner under the
Partnership Agreement, the Company was issued an arbitration award granting it
the unilateral right to appoint a MIDSOUTH Partners Management Committee
representative in place of the defaulted partner's representative. Accordingly,
the Company obtained majority representation on the Management Committee
effective June 12, 1996.

For financial reporting purposes for the fiscal years ended June 30,
1997 and 1996, the Company has included its wholly-owned subsidiary corporations
(collectively, "East") and its majority-controlled subsidiary partnership,
MIDSOUTH Partners, in its consolidated financial statements. Prior to the fiscal
year ended June 30, 1996, the Company accounted for its minority investment in
MIDSOUTH Partners using the equity method.

(b) Financial Information about Industry Segments

Substantially all of the Company's revenue, operating profit and
identifiable assets through June 30, 1997 are attributable to the rehabilitation
and repair of underground sewers and other pipelines, the Company's only
business segment.

<PAGE>

The Company is primarily engaged in the business of rehabilitating
underground sewers and other conduits -- including waste water, storm water, and
industrial process pipelines -- using the Insituform process. The Insituform
process utilizes a polyester fiber-felt material, the Insitutube(R) material,
coated with polyethylene and impregnated with a liquid, thermosetting resin. The
Insitutube material is inserted in the pipe through an existing manhole or other
access point. By use of an inversion tube and cold water pressure, the
Insitutube material is forced through the pipeline, turned inside out and
pressed firmly against the inner wall of the damaged pipeline. When the
Insitutube material is fully extended, the cold water within the tube is
recirculated through a boiler in a truck. The heated water cures the
thermosetting resin to form a hard, jointless, impact and corrosion resistant
Insitupipe(R) product within the original pipe. Lateral or side connections are
then reopened by use of the Insitucutter(R) device, a remote-controlled cutting
machine.

RELATIONSHIP WITH INSITUFORM TECHNOLOGIES, INC.

On December 9, 1992, Insituform Technologies, Inc. (formerly Insituform
of North America, Inc.), through its acquisition of Insituform Group, Ltd.,
N.V., acquired the worldwide patent rights for the Insituform process. East and
MIDSOUTH Partners are sublicensees of Insituform Technologies, Inc. ("ITI"). The
Company has entered into seven sublicense agreements with ITI which grant the
Company rights to perform the Insituform process in Virginia, Maryland,
Delaware, Ohio, the District of Columbia, Pennsylvania, West Virginia,
Tennessee, Kentucky and Northern Mississippi. The Company can perform the
Insituform process in other locations subject to payment of additional
royalties.

The sublicense agreements require the Company to pay ITI a royalty of
8% of the revenue, excluding certain deductions, from all contracts using the
Insituform process, with a minimum annual royalty requirement for each licensed
territory. In the event the Company performs the Insituform process outside its
territory, the sublicense agreements require it to pay a royalty of from 8% to
12% of the gross contract price to the independent sublicensee of such other
territory, if any, in addition to all royalties due ITI.

The sublicense agreements extend for the life of the underlying patents
or patent rights, including any improvements or modifications extending such
life. The agreements may be terminated by the Company upon two calendar quarters
written notice to ITI. The agreements may only be canceled by ITI in certain
events. In addition, ITI has the right to approve the quality and specifications
of equipment and materials not purchased directly from ITI.

On May 1, 1987, the Company entered into supply agreements with ITI
whereby the Company committed to purchase 90% of its Insitutube material
requirements from ITI. The agreements automatically renew annually unless notice
of termination is provided by either party six months prior to the end of a
renewal period. As a result of certain terms not previously being fulfilled by
ITI, the Company believes it is no longer required to purchase 90% of its
Insitutube material requirements from ITI under the otherwise continuing
agreements. After providing six months advance notice, East terminated its
supply agreement with ITI effective May 1, 1997. However, East continues to
purchase its Insitutube material requirements from ITI.

The Company has also entered into license agreements with NuPipe, Inc.,
a wholly-owned subsidiary of ITI, for the sale and installation of pre-formed
PVC thermoplastic pipe under the NuPipe process and trademark. The Company has
committed to pay a royalty equal to 6.75% of gross contract revenues utilizing
the process and to purchase certain installation equipment and installation
materials from ITI.

TRY TEK manufactures Insitucutter devices for sale to ITI and East
under an agreement with ITI, the Insitucutter device patent holder. Unless
otherwise terminated, this agreement will continue until April 6, 1998, the date
of expiration of the Insitucutter device patent.

In 1981, the Company was assigned the rights to an agreement (the SAW
Agreement) regarding the introduction of potential Insituform process
sublicensees to ITI. In connection with the introduction of current Insituform
process sublicensees to ITI, the Company receives quarterly payments from ITI
equal to 0.5% of contract revenues from Insituform process installations in
East's licensed territory and the states of New York, New Jersey, North
Carolina, South Carolina, Georgia and Alabama.

<PAGE>

PATENTS

The Insituform process was developed in the United Kingdom in 1971. The
Company's rights to utilize the patents, trademarks and know-how related to the
Insituform process are derived from its licensor, ITI. There are presently 62
United States patents which cover various aspects of the Insituform process and
related installation techniques. The last patent to expire will remain in effect
until 2015. Two initial method patents relating to the Insituform process (one
of which covers material aspects of the inversion process) expired in 1994. A
patent relating to the Insitutube material will expire in May 2001 and a primary
method patent relating to the Insitutube saturation process expires in February
2001.

Although management of the Company believes these patents are important
to the business of the Company, there can be no assurance that the validity of
the patents will not be successfully challenged or that they are sufficient to
afford protection against another company utilizing a process similar to the
Insituform process. It is possible that the Company's business could be
adversely affected upon expiration of the patents, or by increased competition
in the event that one or more of the patents were adjudicated to be invalid or
inadequate in scope to protect the Company's operations. Management of the
Company believes, however, that while the Company has relied on the strength and
validity of these patents, the Company's significant installation experience
with the Insituform process and its degree of market penetration in its licensed
territory should enable the Company to compete effectively in the pipeline
rehabilitation market in the future as older patents expire or become obsolete.

CUSTOMERS

The Company performs services under contract with governmental
authorities, private industries and commercial entities. In each of the last
three fiscal years, more than 65% of the Company's revenues have come from state
and local government entities - cities, counties, state agencies and regional
authorities. During the year ended June 30, 1997, Federal government contracts
(collectively), a municipal government in central Ohio, a county government in
the Washington, D.C. metropolitan area and a combined city and county
metropolitan government in Tennessee accounted for 17%, 15%, 13% and 12%,
respectively, of the Company's revenues. During the year ended June 30, 1996,
Federal Government contracts (collectively), a county government in the
Washington, D.C. metropolitan area and a regional sanitary authority in
southwest Ohio accounted for 23%, 20% and 10%, respectively, of the Company's
revenues. During the fiscal year ended June 30, 1995, Federal Government
contracts (collectively) , a regional sanitary authority in southwest Ohio and
Washington Metropolitan Area Transit Authority ("WMATA") accounted for 21%, 15%
and 10%, respectively, of the Company's revenues..

SUPPLIERS

The Company's materials and equipment are generally available from
several suppliers. However, the Company believes that ITI is presently the sole
source of proprietary Insitutube material and, therefore, the Company is
presently dependent upon ITI for its supply of Insitutube material. During the
last three years the Company has not experienced any difficulty in obtaining
adequate supplies of Insitutube material from ITI and, subject to ITI's right to
approve the quality and specifications of material not purchased from ITI, the
Company has the right to substitute an alternate polyester fiber-felt or other
tube material available in the marketplace. REVENUE RECOGNITION, CONTRACT AWARDS
AND BACKLOG

The Company recognizes revenues using the units of completion method as
pipeline sections are rehabilitated using the Insituform process. An Insituform
process installation is generally performed between manholes or similar access
points within a twenty-four hour period. A rehabilitated pipeline section is
considered completed work and is generally billable to the customer. In most
cases, contracts consisting of individual line sections have a duration of less
than one year.

<PAGE>

The total value of all uncompleted and multi-year contract awards from
customers was approximately $24.4 million at June 30, 1997 as compared to $5.1
million at June 30, 1996. The twelve-month backlog at June 30, 1997 was
approximately $16.1 million as compared to $4.9 million at June 30, 1996. The
total value of all uncompleted and multi-year contracts at June 30, 1997 and
1996 includes work not estimated to be released and installed within twelve
months as well as potential work included in term contract awards which may or
may not be fully ordered by contract expiration. Backlog figures at specific
dates are not necessarily indicative of sales and earnings for future periods
due to the irregular timing and receipt of major project awards including large
multi-year menu-priced contracts with estimated but uncertain order quantities
subject additionally to the specifics of individual work releases.

COMPETITION

The general pipeline reconstruction, rehabilitation and repair business
is highly competitive. The Company faces conceptual and practical competition
both from a number of contractors employing traditional methods of pipeline
replacement and repair and from contractors offering alternative trenchless
products and technologies.

Traditional Methods. The Insituform process conceptually competes with
traditional methods of pipe rehabilitation including full replacement, point
repair and sliplining. The Company believes the Insituform process usually
offers a cost advantage over full replacement as well as the practical advantage
of avoiding excavation. In addition, the Insituform process also offers
qualitatively better rehabilitation than sliplining which may significantly
reduce the diameter of the pipe. Grouting is also undertaken in the United
States. The Company considers grouting a short-term repair technique and not a
long-term pipeline rehabilitation solution competitive with the Insituform
process. As a practical matter, competition for the Company typically begins at
the point an end user has conceptually determined to employ trenchless
technology over traditional rehabilitation methods involving substantial
excavation.

Trenchless Cured-in-Place Technologies. Over the years, the Company has
witnessed a continuing introduction of alternative cured-in-place technologies,
none of which the Company believes has been able to offer the quality or
technical and other merits inherent in the Insituform process. The Company
believes it remains the dominant provider of trenchless cured-in-place pipeline
rehabilitation in its licensed territory.

Modified Sliplining Techniques. Several modified sliplining techniques
have been introduced in the trenchless marketplace to include the use of "fold
and formed" thermoplastic pipe. The NuPipe product offered by the Company is a
folded thermoplastic product installed using modified sliplining techniques. The
Company believes that the majority of customers will select the cured-in-place
Insituform process over modified sliplining techniques due to the quality and
longevity of the Insitupipe product, the proven performance record of the
Company's Insituform process installations over the past nineteen years, and the
broader range of design alternatives available with the Insituform process. The
Company does offer its NuPipe product to customers in situations where, for
budget restraints or other reasons, customers or consulting engineers will
accept a technologically inferior modified sliplining technique to
cured-in-place technology.

Other Trenchless Technologies. The Company is aware of a number of
other trenchless technologies both under development and from time to time
introduced into the marketplace with mixed results. The Company believes that
the successful, in the ground, over twenty years proven performance of the
Insituform process continues to present a significant advantage over these
alternative trenchless products.

The principal areas of competition in general pipeline reconstruction,
rehabilitation and repair include the quality of the work performed, the ability
to provide a long-term solution to the pipeline problems rather than a
short-term repair, the amount of disruption to traffic and commercial activity
and the price. The Company believes that the Insituform process competes
favorably in each of these areas with traditional replacement or repair methods.
In particular, the ability to install an Insitupipe product with little or no
excavation at prices typically at or below traditional open trench replacement
methods is of substantial competitive advantage. Further, and despite a small
reduction in pipe diameter resulting from the installation of the Insitupipe
product against the walls of the original pipe, the smooth finished interior
reduces friction and generally increases flow capacity.

<PAGE>

The Company believes the trenchless pipeline reconstruction marketplace
is continuing to expand, thereby enticing, however, the entry of ever more
imitations and substitute products hoping that cheap price alone may permit them
to succeed in a market otherwise dominated by Insituform. In those limited
markets where the lowest priced product may be deemed technically "good enough,"
Insituform is at a disadvantage. Market share participation in this segment
strategically undertaken by the Company from time to time to preserve
competitive presence, typically at levels materially below normal margins,
necessarily dilutes the overall margin performance of the Company. However, a
majority of the Company's customers already use or are implementing improved
procurement specifications and contract award evaluation criteria emphasizing
technical value instead of simply low price. In a "best value" and quality based
market, Insituform remains at a distinct advantage. As customers and consulting
engineers increasingly rely on quality based purchasing criteria to help ensure
long term solutions to their infrastructure needs, they help clearly
differentiate proven products such as Insituform from cheaply priced trenchless
substitutes with technical, performance and installation risks not equally
tested by time or independent third parties.

SALES AND MARKETING

The Company's sales and marketing effort is directed by its Vice
President of Sales and Marketing. The Company's sales and marketing team
includes seven sales representatives assigned to serve the Company's municipal,
Federal Government and industrial market customers. Sales and marketing
personnel are full-time employees compensated through a combination of salary
and bonus. The Company also participates in seminars and trade shows, and
provides promotional materials to current and prospective users of the
Insituform process.

RESEARCH AND DEVELOPMENT

The Company is confident of its present capability to provide
rehabilitation services to its customers primarily using the Insituform process
and relies on its licensor, ITI, for major research and development projects. On
a continuing basis, however, the Company expends engineering efforts to improve
installation methods and design techniques for specific customer applications.

GOVERNMENTAL REGULATIONS

The Company does not anticipate any material impediments in the use of
the Insituform process arising from existing or future regulations or
requirements, including those regulating the discharge of materials into the
environment.

EMPLOYEES

At June 30, 1997, the Company employed 184 full-time personnel.

<PAGE>

Item 2. Properties

The Company owns four buildings totaling 76,700 square feet situated on
a 15.45 acre site in the Ardwick Industrial Park, Prince George's County,
Maryland. This facility houses the maintenance, operations, marketing,
administration and executive offices of the Company.

The Company also owns 13,885 square feet of land in Hanover,
Pennsylvania. TRY TEK's manufacturing, administration and storage facilities are
housed in three buildings totaling 6,139 square feet at this site.

The Company leases a 13,000 square foot branch facility in the
Cincinnati, Ohio metropolitan area to service operations in the western region
of its licensed territory.

The Company also leases a 15,000 square foot facility in Knoxville,
Tennessee to serve MIDSOUTH Partners customers in Tennessee, Kentucky and
northern Mississippi.

Item 3. Legal Proceedings

As previously reported, on October 23, 1996, Inliner U.S.A. and CAT
Contracting, Inc. (collectively, "Plaintiffs") filed an antitrust suit against
Insituform Technologies, Inc. ("ITI") and Insituform East, Inc. (collectively,
"Defendants") in United States District Court for the Southern District of
Texas, Houston Division, alleging violations by ITI (including all of its
subsidiary licensees) and the Company of Sections 1 and 2 of the Sherman Act,
Section 43(a) of the Lanham Act, Section 15 (a) and (b) of the Texas Business
and Commercial Code, tortious interference with contracts and business
disparagement. Plaintiffs are seeking from the Defendants an unspecified amount
of compensatory damages, treble damages and attorneys' fees, as well as punitive
damages of $50 million.

The Company believes it has strong defenses to, and is vigorously
contesting, the suit. The Company filed two motions to dismiss the action which
were pending at June 30, 1997. On August 25, 1997, the Court denied one of the
Company's motions to dismiss, granted in part and denied in part the Company's
second motion to dismiss and ordered Plaintiffs to file an amended complaint. As
a result, the Plaintiffs have until September 29, 1997 to amend certain claims
or face dismissal outright.

Although the ultimate outcome and consequences of the suit cannot be
ascertained at this time and the results of legal proceedings cannot be
predicted with certainty, it is the opinion of the management of the Company
that the suit is meritless and will not have a material adverse effect on the
financial condition or the results of operations of the Company.

The Company is a party, both as plaintiff and defendant, to other
claims arising out of the ordinary course of business. While it is not possible
at this time to establish the ultimate amount of liability, if any, associated
with pending claims, management of the Company is of the opinion that the
aggregate amount of any such liability will not have a material adverse effect
on the financial position of the Company.

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

Not applicable.

PART II

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

(a) Market Information

(i) Common Stock

The Company's Common Stock is traded in the over-the-counter market and
is included in the National Association of Securities Dealers ("NASD") National
Market System ("NMS"). Holders of Common Stock have one vote per share on all
matters on which stockholders are entitled to vote together. Quotations for such
shares are reported in the National Association of Securities Dealers Automated
Quotation ("NASDAQ") system under the trading symbol INEI.

The following table shows the range of bid quotations for each quarter
in the two year period ended June 30, 1997 as reported by NASDAQ:

Bid Prices* For Common Stock
---------------------------------------------------------

Quarter Ended High Low

1995
September 30 $5.50 $4.00
December 31 $5.13 $4.13

1996
March 31 $4.50 $3.75
June 30 $4.00 $3.13
September 30 $3.38 $2.75
December 31 $3.50 $2.50

1997
March 31 $3.63 $2.63
June 30 $3.25 $2.50

- ---------------------
* Bid prices reflect interdealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual
transactions.

(ii) Class B Common Stock

There is no public trading market for shares of the Company's Class B
Common Stock. Holders of shares of Class B Common Stock have ten votes per share
on all matters with the exception of voting power to elect directors. With
respect to election of directors, holders of Class B Common Stock, voting
separately as a class, are entitled to elect the remaining directors after
election of not less than 25% of the directors by the holders of shares of
Common Stock, voting separately as a class. Shares of Class B Common Stock are
convertible at any time to shares of Common Stock on a share-for-share basis.

(b) Holders

As of September 2, 1997, there were 740 shareholders of record of
Common Stock and 7 shareholders of record of Class B Common Stock.

<PAGE>

On June 19, 1997, June 10, 1996 and June 9, 1995, the Company declared
cash dividends of six cents per share on its shares of Common Stock and six
cents per share on its shares of Class B Common Stock to its shareholders of
record at the close of business on June 30, 1997, 1996 and 1995, payable July
15, 1997 and 1996 and July 14, 1995, respectively.

The declaration of any future dividends will be determined by the Board
of Directors based upon conditions then existing, including the Company's
operating results, financial condition, capital requirements and other factors.
While there can be no assurances as to the declaration of any future dividends,
it is presently contemplated that dividends will be declared annually with a
record date of June 30th and a payment date of July 15th.

Item 6. Selected Financial Data

The selected financial data set forth below should be read in
conjunction with the Company's financial statements and related notes included
elsewhere in this report.

(in thousands, except per share and return on equity amounts)
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
SUMMARY OF OPERATIONS:
<S> <C> <C> <C> <C> <C>
Sales $ 26,542 $ 30,471 $ 21,594 $ 14,804 $ 13,105
Gross Profit $ 4,119 $ 8,182 $ 6,578 $ 3,327 $ 2,199
Earnings (loss) before income taxes $ (888) $ 2,753 $ 3,496 $ 243 $ (1,398)
Net earnings (loss) from continuing
operations $ (544) $ 1,679 $ 2,120 $ 147 $ (849)
Net earnings (loss) $ (544) $ 1,679 $ 2,120 $ 147 $ (1,812)
Net earnings (loss) per share from $ (0.12) $ 0.38 $ 0.48 $ 0.03 $ (0.20)
continuing operations
Net earnings (loss) per share $ (0.12) $ 0.38 $ 0.48 $ 0.03 $ (0.42)
Weighted average number of shares 4,357 4,420 4,377 4,360 4,362
Dividends declared per share:
Common Stock $ 0.06 $ 0.06 $ 0.06 $ 0.05 $ 0.05
Class B Common Stock $ 0.06 $ 0.06 $ 0.06 $ 0.05 $ 0.05

FINANCIAL POSITION:
Working capital $ 7,641 $ 8,709 $ 5,412 $ 4,541 $ 4,255
Total assets $ 23,065 $ 23,189 $ 19,480 $ 16,796 $ 16,731
Long-term debt $ 139 $ 113 $ 0 $ 0 $ 0
Stockholders' equity $ 15,734 $ 16,539 $ 15,122 $ 13,263 $ 13,333
Book value per share $ 3.61 $ 3.79 $ 3.47 $ 3.05 $ 3.06

OTHER:
Average stockholders' equity
[(Weighted average equity during the $ 16,531 $ 15,107 $ 13,247 $ 13,322 $ 15,375
year exclusive of current earnings (loss)]
Return on equity
[Net earnings (loss) divided by average (3.3%) 11.1% 16.0% 1.1% (11.8%)
stockholders' equity as defined above]
</TABLE>

<PAGE>

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

Overview and Outlook

The Company reported a consolidated net loss of -$543,646 (-$0.12 per
share) on sales of $26.5 million for the fiscal year ended June 30, 1997. In the
previous fiscal year, the Company had net earnings of $1,678,557 ($0.38 per
share) on sales of $30.5 million. The Company attributed its negative results to
an unfavorable balance of negative factors coalescing in fiscal 1997 including a
13% decrease in period sales, delays in the start-up and execution of several
significant projects, and dilution to normal overall margin levels occasioned by
increases in subcontracted services, in modified sliplining installations and in
certain discounted work undertaken for strategic reasons.

With respect to forward-looking information, while there can be no
assurances regarding the Company's future operating performance, based on the
volume and mix of the Company's present and expected workable backlog of
customer orders, the Company presently anticipates favorable operating results
through the opening two quarters of fiscal 1998.

The principal factor affecting the Company's future performance remains
the volatility of earnings as a function of sales volume at normal margins.
Accordingly, because a substantial portion of the Company's costs are semi-fixed
in nature, earnings can, at times, be severely reduced or eliminated during
periods of either depressed sales at normal margins or material increases in
discounted sales, even where total revenues may experience an apparent buoyancy
or growth from the addition of discounted sales undertaken from time to time for
strategic reasons. Conversely, at normal margins, increases in period sales
typically leverage positive earnings significantly.

Results of Operations:

Key Statistics: 1997 1996 1995
---- ---- ----
Sales (100%) $26,541,542 $30,470,867 $21,594,313
Gross profit 16% 27% 30%
Selling, general and administrative
expenses 19% 17% 19%
Net earnings (loss) (2%) 6% 10%

The Company's primary source of revenue is from the rehabilitation and
reconstruction of sewers and other underground conduits using the patented
Insituform process. Although the Company does rehabilitate pipelines using the
NuPipe process, does custom design and build special machinery and does perform
manhole rehabilitation and pipeline cleaning and television inspection services
exclusive of the Insituform process, over 90% of the Company's revenues for the
years ended June 30, 1997, 1996 and 1995 came from contracts with customers to
rehabilitate existing pipelines using the Insituform process.

<PAGE>

The consolidated results of operations for the fiscal years ended June
30, 1997 and 1996 include the accounts of the Company and its wholly-owned
subsidiary corporations (collectively, "East") and its majority-controlled
subsidiary partnership, MIDSOUTH Partners. The Company accounted for its
minority investment in MIDSOUTH Partners using the equity method for the fiscal
year ended June 30, 1995.

Consolidated sales decreased $3.93 million (13%) from $30.47 million in
fiscal 1996 to $26.54 million in fiscal 1997 primarily as a result of periods of
reduced workable backlog levels experienced during fiscal 1997 and third quarter
fiscal 1997 delays in the start-up and execution of several significant
projects. East sales decreased 12% in fiscal 1997 as compared to fiscal 1996.
Comparable fiscal year sales for MIDSOUTH Partners decreased 14%. The Company
experienced a 25% decrease in comparable year Insituform installation revenues
which was offset to some extent by increased NuPipe installation revenues and
increased services subcontracted to others.

Sales increased $8.9 million (41%) from $21.6 million in fiscal 1995 to
$30.5 in fiscal 1996 primarily as a result of including MIDSOUTH Partners
contract revenues in the fiscal 1996 consolidated sales total. Comparable period
East sales increased 4% primarily as a result of expanded production capacity
and high levels of workable backlog during the first six months of fiscal 1996.

Although Insituform prices vary for Insitutube sizes and other contract
conditions, the Company has generally incorporated anticipated cost increases,
resulting from inflation ranging from 2% to 5% during the past three years, into
its contract prices. As a result, inflation has not had a significant impact on
the Company's revenues and operating results.

The Company's gross profit as a percentage of sales revenues was 16%,
27% and 30% for fiscal 1997, 1996, and 1995, respectively. The decrease in
fiscal 1997 gross profit margin as compared to fiscal 1996 is primarily a result
of both sales mix and absorption of semi-fixed operating costs over reduced
sales levels. With respect to sales mix, dilution to normal overall margin
levels in fiscal 1997 was occasioned by increases in subcontracted services, in
modified sliplining installations and in certain discounted work undertaken for
strategic reasons. The decrease in fiscal 1996 gross profit margin as compared
to fiscal 1995 is primarily a result of increased semi-fixed operating costs
associated with expanded East production capabilities in fiscal 1996 and reduced
margins on MIDSOUTH Partners Insituform contracts.

Selling, general and administrative expenses decreased $109,970 (2%) in
fiscal 1997 as compared to fiscal 1996. However, primarily as a result of
reduced comparable period sales levels, selling, general and administrative
expenses as a percentage of sales increased from 17% in fiscal 1996 to 19% in
fiscal 1997.

Selling, general and administrative expenses increased 26% in fiscal
1996 as compared to fiscal 1995 primarily as a result of the inclusion of
selling, general and administrative expenses of MIDSOUTH Partners in fiscal
1996.

The Company's equity in the unconsolidated earnings of MIDSOUTH Partners
fiscal 1995 operations was $738,798. During fiscal 1995, MIDSOUTH Partners
recognized a 31% gross profit margin on $8.9 million in sales. MIDSOUTH Partners
results of operations for fiscal 1997 and 1996 are included in the Company's
consolidated operating results.

Liquidity and Capital Resources
Key Statistics 1997 1996 1995
---- ---- ----
Working Capital $7,640,675 $8,708,601 $5,411,770
Current Ratio 3.1 to 1 3.6 to 1 2.6 to 1
Cash provided from Operations $ 726,322 $3,876,283 $3,587,813
Capital Expenditures $2,450,846 $2,056,459 $1,499,325

<PAGE>

During the fiscal year ended June 30, 1997, $726,322 in cash was
provided by the Company's operating activities, due primarily to $1.85 million
in depreciation and amortization expenses included in operating results that did
not require the outlay of cash which more than offset the Company's net loss for
the year and increases in Accounts Receivable, Inventory and Other Current Asset
balances. Despite a $2.1 million decrease in cash during the year, the Company's
working capital remained strong at $7.6 million with a current ratio of 3.1 to 1
at June 30, 1997.

Capital expenditures during fiscal 1997, 1996, and 1995 included
purchases of vehicles and production equipment to expand, upgrade and improve
the Company's production capabilities and purchases of vehicles and production
equipment to replace aging units.

During fiscal 1997, 1996, and 1995, the Company declared annual cash
dividends of $261,412, $0.06 per share, to its Common Stock and Class B Common
Stock shareholders. The Company also received a $123,250 cash distribution from
MIDSOUTH Partners in fiscal 1995.

The Company maintains a $3,000,000 unsecured bank line of credit to
meet the Company's short-term cash flow requirements. The Company anticipates
that expanding production capabilities and improving operational performance in
the future will require additional capital expenditures. Management believes
that cash flow from future operations, existing working capital, the available
line of credit and the unencumbered real and personal property owned by the
Company provide adequate resources to finance the cash requirements of future
capital expenditures.

Item 8. Financial Statements and Supplementary Data

See pages 14 through 28, infra.

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

Not applicable.

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
of Insituform East, Incorporated

We have audited the accompanying consolidated balance sheets of Insituform East,
Incorporated and subsidiaries as of June 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Insituform East, Incorporated and
subsidiaries as of June 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997, in conformity with generally accepted accounting principles.

/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
1900 M Street, NW
Washington, DC 20036

September 22, 1997

<TABLE>
INSITUFORM EAST, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS

<CAPTION>
Years Ended June 30,
--------------------------------------------
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
Sales .................................. $ 26,541,542 $ 30,470,867 $ 21,594,313
------------ ------------ ------------

Costs and Expenses:
Cost of sales ..................... 22,422,831 22,288,437 15,016,598
Selling, general and administrative 5,030,447 5,140,417 4,087,445
------------ ------------ ------------
Total Costs and Expenses ..... 27,453,278 27,428,854 19,104,043
------------ ------------ ------------

Earnings (Loss) from Operations ........ (911,736) 3,042,013 2,490,270

Investment Income ...................... 132,643 135,429 40,670
Interest Expense ....................... (39,871) (16,719) 0
Other Income ........................... 127,647 250,656 225,828
Equity in Earnings of MIDSOUTH Partners 0 0 738,798
------------ ------------ ------------

Earnings (Loss) Before Income Taxes
and Non-owned Interests ............. (691,317) 3,411,379 3,495,566

Non-owned Interests in Pretax
Earnings of MIDSOUTH Partners ....... (196,329) (658,822) 0
------------ ------------ ------------

Earnings (Loss) Before Income Taxes
and Non-owned Interest in Earnings
of TRY TEK Machine Works, Inc. ...... (887,646) 2,752,557 3,495,566

Credit (Provision) for Income Taxes .... 344,000 (1,074,000) (1,368,000)

Non-owned Interest in Earnings of
TRY TEK Machine Works, Inc. ......... 0 0 (7,458)
------------ ------------ ------------

Net Earnings (Loss) .................... $ (543,646) $ 1,678,557 $ 2,120,108
============ ============ ============

Net Earnings (Loss) Per Share .......... $ (0.12) $ 0.38 $ 0.48
============ ============ ============

</TABLE>

See notes to consolidated financial statements

<TABLE>
<CAPTION>
INSITUFORM EAST, INCORPORATED
CONSOLIDATED BALANCE SHEETS

June 30,
--------------------------
1997 1996
--------------------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents ...................................... $ 2,071,852 $ 4,183,084
Accounts receivable:
Due from customers .......................................... 6,479,230 6,079,658
Other ....................................................... 202,897 306,428
Inventories .................................................... 1,538,017 1,159,532
Prepaid and refundable income taxes ............................ 765,580 86,950
Prepaid expenses ............................................... 251,572 258,387
----------- -----------
Total Current Assets ........................................ 11,309,148 12,074,039
Property, Plant and Equipment, at cost less
accumulated depreciation ........................................ 11,670,061 11,009,316
Other Assets ........................................................ 86,000 106,000
----------- -----------
Total Assets ................................................... $23,065,209 $23,189,355
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................................... $ 1,486,841 $ 707,730
Accrued compensation and related expenses ...................... 1,876,988 2,019,977
Income taxes payable ........................................... 14,724 340,160
Dividends payable .............................................. 261,412 261,412
Current portion of capital lease obligations ................... 28,508 36,159
----------- -----------
Total Current Liabilities ................................... 3,668,473 3,365,438
Deferred Income Taxes ............................................... 1,074,000 818,000
Long Term Capital Lease Obligations ................................. 139,480 112,732
----------- -----------
Total Liabilities .............................................. 4,881,953 4,296,170
----------- -----------

Non-owned Interests in Consolidated Subsidiary ...................... 2,449,462 2,354,333
----------- -----------

Commitments and Contingencies

Stockholders' Equity:
Common stock - $.04 par value: 10,000,000 shares
authorized; 4,387,163 shares issued; 4,059,266
shares outstanding............................................. 175,486 175,486
Class B common stock - $.04 par value: 800,000
shares authorized; 297,596 shares issued and
outstanding.................................................... 11,904 11,904
Additional paid-in capital ....................................... 4,000,424 4,000,424
Retained earnings ................................................ 12,735,593 13,540,651
----------- -----------
16,923,407 17,728,465

Less cost of 327,897 shares of common stock in treasury........... 1,189,613 1,189,613
----------- -----------
Total Stockholders' Equity ..................................... 15,733,794 16,538,852
----------- -----------
Total Liabilities and Stockholders' Equity ..................... $23,065,209 $23,189,355
=========== ===========

See notes to consolidated financial statements.
</TABLE>

<TABLE>
<CAPTION>
INSITUFORM EAST, INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997, 1996 and 1995

$.04 Par Value $.04 Par Value Additional Retained Common Stock in Total
Common Stock Class B Common Paid-in Capital Earnings Treasury Stockholders'
Stock Equity
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - July 1, 1994 $ 175,482 $ 11,908 $ 4,000,424 $ 10,264,810 $ (1,189,613) $ 13,263,011
Conversion of Class B 0 0 0 0
common stock ....... 4 (4)
Dividends declared .. 0 0 0 (261,412) 0 (261,412)
Net earnings for the
year 0 0 0 2,120,108 0 2,120,108
-------------------------------------------------------------------------------------------------------

Balance - June 30, 1995 175,486 11,904 4,000,424 12,123,506 (1,189,613) 15,121,707
Dividends declared .. 0 0 0 (261,412) 0 (261,412)
Net earnings for the
year 0 0 0 1,678,557 0 1,678,557
-------------------------------------------------------------------------------------------------------

Balance - June 30, 1996 175,486 11,904 4,000,424 13,540,651 (1,189,613) 16,538,852
Dividends declared .. 0 0 0 (261,412) 0 (261,412)
Net earnings (loss)
for the year........ 0 0 0 (543,646) 0 (543,646)
-------------------------------------------------------------------------------------------------------

Balance - June 30, 1997 $ 175,486 $ 11,904 $ 4,000,424 $ 12,735,593 $ (1,189,613) $ 15,733,794
============ ============ ============ ============ ============ ============

</TABLE>

See notes to consolidated financial statements.

<PAGE>

<TABLE>
<CAPTION>
INSITUFORM EAST, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended June 30,
-----------------------------------------------
-----------------------------------------------
1997 1996 1995
-----------------------------------------------
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net earnings (loss) ................................................. $ (543,646) $ 1,678,557 $ 2,120,108
Adjustments for noncash items included in net earnings (loss):
Depreciation and amortization ..................................... 1,853,294 1,633,358 1,043,915
Equity in earnings of MIDSOUTH Partners ........................... 0 0 (738,798)
Deferred income taxes ............................................. 256,000 (167,000) 66,000
Non-owned interests in earnings of consolidated
subsidiaries .................................................. 196,329 658,822 7,458
Changes in assets and liabilities, net of effect of
consolidation of majority-controlled Partnership in 1996:
Receivables ....................................................... (296,041) 566,218 298,231
Inventories ....................................................... (378,485) 383,408 (346,264)
Other current assets .............................................. (671,815) (22,784) 410,106
Payables and accruals ............................................. 310,686 (854,296) 727,057
----------- ----------- -----------
Net cash provided by operating activities .............................. 726,322 3,876,283 3,587,813
----------- ----------- -----------

Cash Flows from Investing Activities:
Capital expenditures ................................................ (2,450,846) (2,056,459) (1,499,325)
Cash distribution from MIDSOUTH Partners ............................ 0 0 123,250
Cash distribution from MIDSOUTH Partners to non-owned
interests ......................................................... (101,200) (368,000) 0
Disposal of equipment, net .......................................... 15,350 28,387 28,277
Cash balance of majority-controlled Partnership prior to
consolidation...................................................... 0 241,094 0
Acquisition of non-owned interest in consolidated subsidiary ........ 0 0 (18,816)
Increase in other assets ............................................ 0 (13,000) 0

Net cash used in investing activities .................................. (2,536,696) (2,167,978) (1,366,614)
----------- ----------- -----------

Cash Flows from Financing Activities:
Dividends paid ...................................................... (261,412) (261,412) (217,843)
Proceeds from line of credit advances ............................... 800,000 0 0
Repayments of line of credit advances ............................... (800,000) 0 0
Principal payments under capital lease obligations .................. (39,446) (55,567) 0
----------- ----------- -----------

Net cash used in financing activities .................................. (300,858) (316,979) (217,843)
----------- ----------- -----------

Net increase (decrease) in cash and cash equivalents ................... (2,111,232) 1,391,326 2,003,356
Cash and cash equivalents at beginning of year ......................... 4,183,084 2,791,758 788,402
----------- ----------- -----------
Cash and cash equivalents at end of year ............................... $ 2,071,852 $ 4,183,084 $ 2,791,758
=========== =========== ===========

Supplemental disclosure of cash flow information:
Interest paid ..................................................... $ 39,871 $ 16,719 $ 0

Income taxes paid ................................................. $ 404,066 $ 1,443,162 $ 444,615

Supplemental schedule of noncash investing and financing activities:
Capital equipment acquired under capital lease obligations ........... $ 58,543 $ 133,088 $ 0

</TABLE>
See notes to consolidated financial statements

<PAGE>

INSITUFORM EAST, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996, AND 1995

1. Summary of Significant Accounting Policies

Business Operations

Insituform East, Incorporated (the "Company"), operating pursuant to
sublicense agreements as explained in Note 8, is primarily engaged in the
rehabilitation of underground sewers and other pipelines using the patented
Insituform(R) process. The process involves installing a cured-in-place
Insitupipe(R) product inside existing pipelines.

Principles of Consolidation

The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Insituform Ohio, Inc., Insitu, Inc.,
TRY TEK Machine Works, Inc. (majority-owned prior to March 31, 1995) and
Insituform of Pennsylvania, Inc. (collectively, "East"). The consolidated
financial statements as of June 30, 1997 and 1996, and for the years then ended
also include the accounts of MIDSOUTH Partners, the Company's
majority-controlled subsidiary Partnership. All significant intercompany
accounts and transactions have been eliminated. The Company's investment in
MIDSOUTH Partners for the year ended June 30, 1995 is accounted for using the
equity method.

Revenue Recognition

The Company recognizes revenue using the units of completion method as
pipeline sections are rehabilitated using the Insituform process. Installation
of the Insitutube(R) product is generally performed between manholes or similar
access points within a twenty-four hour period. A rehabilitated pipeline section
is considered completed work and is generally billable to the customer. In most
cases, contracts consisting of individual line sections have a duration of less
than one year.

Cash and Cash Equivalents

Cash and cash equivalents consist of checking accounts and temporary
investments in repurchase agreements, money market funds, certificates of
deposit and U.S. Treasury instruments. Cash equivalents are stated at cost plus
accrued interest which approximates market. For purposes of the consolidated
statements of cash flows, the Company considers only highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.

Inventories

Inventories are stated at the lower of cost (determined by the
first-in, first-out method) or market. Substantially all inventories consist of
raw materials utilized in the Insituform process.

Depreciation and Amortization

Property and equipment placed in service after December 31, 1981 is
depreciated using the straight-line method over the estimated useful lives.
Property and equipment placed in service before January 1, 1982, other than
office furniture and equipment, is depreciated using the double-declining
balance method. The useful lives for buildings and improvements range from
twenty to forty years. The useful lives for vehicles, production equipment and
office furniture and equipment range from three to ten years.

Ordinary maintenance and repairs are expensed as incurred while major
renewals and betterments are capitalized. Upon sale or retirement of property
and equipment, the cost and accumulated depreciation are removed from the
respective accounts and any gain or loss recognized.

<PAGE>

Income Taxes

The Company provides for federal and state income taxes at the
statutory rates in effect on taxable income. Deferred income taxes result
primarily from the temporary differences in recognizing depreciation, contract
revenues, compensated absences and the results of operations of MIDSOUTH
Partners for tax and financial reporting purposes.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.

2. Accounts Receivable

Accounts receivable due from customers consists of amounts due for
completed work, net of an allowance for doubtful accounts of $-0- and $12,856 at
June 30, 1997 and June 30, 1996, respectively. Other accounts receivable
includes expense advances to officers and employees of $13,607 and $10,498 at
June 30, 1997 and 1996, respectively.

3. Investment in MIDSOUTH Partners

MIDSOUTH Partners was organized as Insituform MIDSOUTH, a Tennessee
general partnership, in December 1985 with the Company as a general partner.
MIDSOUTH Partners is the exclusive licensee for the Insituform process and
NuPipe process in Tennessee, Kentucky (excluding Boone, Kenton and Campbell
counties) and northern Mississippi. The Partnership's general partners at June
30, 1997 are Insitu, Inc., a wholly-owned subsidiary of the Company; E-Midsouth,
Inc., an affiliate of Insituform Technologies, Inc. ("ITI"); and Insituform
Southwest, Inc., also an affiliate of ITI.

Management and conduct of the business of MIDSOUTH Partners is vested
in a Management Committee. The seven-member Partnership Management Committee
consists of four Insitu, Inc. representatives, two E-Midsouth, Inc.
representatives and one Insituform Southwest, Inc. representative at June 30,
1997. Insituform East did not have majority representation on the Partnership
Management Committee prior to a June 12, 1996 arbitration award, which, in
connection with a default of the Partnership Agreement by E-Midsouth, Inc.,
granted Insitu, Inc. the unilateral right to appoint an additional Management
Committee member in place of an E-Midsouth, Inc.
representative.

Partnership profits and losses are allocated to the partners as
follows:

Insitu, Inc. 42.5%
E-Midsouth, Inc. 42.5%
Insituform Southwest, Inc. 15.0%

<PAGE>

The following is condensed financial information of MIDSOUTH Partners
at June 30, 1997, 1996, and 1995, and for each of the three years in the period
ended June 30, 1997:

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

<S> <C> <C> <C>
Cash .................................... 817,144 $ 678,176 $ 241,094
Accounts receivable ..................... 2,143,197 2,193,636 2,249,690
Inventories ............................. 514,502 445,210 431,738
Property, plant and equipment, net ...... 1,435,193 1,298,593 1,319,303
Other assets ............................ 153,492 129,359 185,097
---------- ---------- ----------
Total Assets ....................... $5,063,528 $4,744,974 $4,426,922
========== ========== ==========

Current liabilities ..................... $ 707,593 $ 581,228 $ 859,489
Long-term obligations under capital lease 139,480 112,732 22,196
---------- ---------- ----------
Total Liabilities .................. $ 847,073 $ 693,960 $ 881,685
========== ========== ==========

Revenues ..................... $7,210,604 $8,395,698 $8,894,746
========== ========== ==========

Gross Profit ............................ $1,158,926 $2,074,144 $2,739,390
========== ========== ==========

Partnership Earnings .................... $ 341,441 $1,145,777 $1,738,347
========== ========== ==========
</TABLE>

During the three years ended June 30, 1997, the Company received
$46,800 annually for accounting and administrative services provided to MIDSOUTH
Partners.

The Company and Insituform Southeast Corp., both affiliates of general
partners, have each unconditionally committed to advance funds to MIDSOUTH
Partners, up to a maximum of $250,000 each, with interest payable at Chase
Manhattan Bank's Prime Lending Rate. These commitments currently extend through
December 31, 1997.

4. Property, Plant and Equipment

Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
June 30,
1997 1996
---- ----
<S> <C> <C>
Land and improvements ........................ $ 2,018,587 $ 2,018,587
Buildings and improvements ................... 5,566,697 5,565,252
Vehicles and production equipment ............ 11,406,621 9,867,451
Small tools, radios and machine shop equipment 4,658,431 4,119,870
Office furniture and equipment ............... 1,037,975 933,867
Leasehold improvements ....................... 147,032 147,032
----------- -----------
24,835,343 22,652,059
Less accumulated depreciation ................ 13,165,282 11,642,743
----------- -----------
Property, plant and equipment, at cost less
accumulated depreciation ................ $11,670,061 $11,009,316
=========== ===========
</TABLE>

The Company incurred repair and maintenance costs of $984,060,
$1,021,845, and $789,144 for the years ended June 30, 1997, 1996, and 1995,
respectively.

5. Notes Payable

The Company maintains a $3,000,000 Revolving Line of Credit facility
with a bank. This facility, currently available to the Company through December
31, 1998, is reviewed annually. Interest on borrowings against this facility is
payable monthly at the bank's prime rate. Loans against this facility are
unsecured; however, the Company is required to comply quarterly with financial
liquidity, net worth, tangible net worth and debt to equity leverage covenants.

<PAGE>

6. Leases

MIDSOUTH Partners leases mobile production equipment from an unrelated
party. These leases are classified as capital leases. The net book value of
equipment under capital lease at June 30, 1997 is $150,161. A schedule of
minimum lease payments and the present value of minimum lease payments for these
leases at June 30, 1997 is as follows:

Minimum lease payments:

Year Ending June 30,
1998 $ 61,080
1999 61,080
2000 61,080
2001 39,000
2002 34,125
2003 6,500
--------
Total minimum lease payments .......... 262,865
Less amount representing interest ..... 94,877
--------
Present value of minimum lease payments 167,988
Less current portion .................. 28,508
--------
Long-term capital lease obligations ... $139,480
========

The Company leases operations facilities in Knoxville, Tennessee and
Cincinnati, Ohio. The Company also leases equipment on a short-term basis for
specific contract requirements. Rental expense for leased equipment and
facilities charged to operations was $499,310, $361,184, and $377,555 for the
years ended June 30, 1997, 1996, and 1995, respectively. These leases are
classified as operating leases. The Company has committed to make minimum lease
payments of $81,292, $41,669, and $3,472 on noncancelable operating leases
during the years ending June 30, 1998, 1999, and 2000, respectively.

7. Income Taxes

A reconciliation of income tax computed at the statutory Federal rate
to the provision (credit) for income taxes included in the consolidated
statements of operations is as follows:
<TABLE>

<CAPTION>
Years Ended June 30,
------------------------------------------
1997 1996 1995
---- ---- ----

<S> <C> <C> <C>
Statutory Federal income tax rate: .......................... 34% 34% 34%
=========== =========== ===========

Income tax expense (benefit)
computed at the statutory Federal rate ................... $ (301,800) $ 935,869 $ 1,188,492
State income tax expense (benefit),
net of Federal tax benefit (expense) ..................... (59,398) 116,282 167,141
Non-taxable interest income ................................. 0 0 (517)
Non-deductible expenses ..................................... 17,198 21,849 12,884
----------- ----------- -----------

Provision (credit) for income taxes ......................... $ (344,000) $ 1,074,000 $ 1,368,000
=========== =========== ===========

Effective tax rate .......................................... 39% 39% 39%
=========== =========== ===========
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
The provision (credit) for income taxes consists of the following:

Years Ended June 30,
-----------------------------------------
1997 1996 1995
---- ---- ----
Current
<S> <C> <C> <C>
Federal ............................... $ (523,000) $ 1,082,000 $ 1,135,000
State ................................. ( 77,000) 159,000 167,000
----------- ----------- -----------
(600,000) 1,241,000 1,302,000
----------- ----------- -----------
Deferred
Federal ............................... 223,000 (146,000) 58,000
State ................................. 33,000 (21,000) 8,000
----------- ----------- -----------
256,000 (167,000) 66,000
----------- ----------- -----------

Total ...................................... $ (344,000) $ 1,074,000 $ 1,368,000
=========== =========== ===========
</TABLE>

The components of the deferred tax expense (benefit) resulting from net
temporary differences are as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------------
1997 1996 1995
---- ---- ----

<S> <C> <C> <C>
Depreciation ................................. $ 80,000 $ 52,000 $ 16,000
MIDSOUTH Partners operations ................. (10,000) (76,000) 126,000
Deferred revenue ............................. 201,000 (155,000) (107,000)
Deferred compensation ........................ (12,000) 8,000 33,000
Other ........................................ (3,000) 4,000 (2,000)
--------- --------- ---------

Total ........................................ $ 256,000 $(167,000) $ 66,000
========= ========= =========
</TABLE>

Deferred Income Taxes, provided for the tax effect of cumulative
temporary differences for income tax and financial reporting purposes, consists
of the following:
<TABLE>

<CAPTION>
Years Ended June 30,
--------------------------
1997 1996
---- ----

<S> <C> <C>
Depreciation ............... $ 1,101,000 $ 1,021,000
MIDSOUTH Partners operations 75,000 85,000
Deferred revenue ........... (61,000) (262,000)
Deferred compensation ...... (27,000) (15,000)
Other ...................... (14,000) (11,000)
----------- -----------

Total ...................... $ 1,074,000 $ 818,000
=========== ===========
</TABLE>

8. Commitments and Contingencies

License Agreements

The Company has entered into seven sublicense agreements with
Insituform Technologies, Inc.("ITI") which grant the Company rights to perform
the Insituform process in Maryland, Virginia, Delaware, the District of
Columbia, Pennsylvania, Ohio, West Virginia, Kentucky, Tennessee and Northern
Mississippi. The agreements are for the life of the patents or the patent rights
unless sooner terminated by a specified action of the Company or ITI. The
agreements specify that a royalty equal to 8% of the gross contract price of all
contracts performed by the Company utilizing the process, less certain fees, be
paid to ITI.

<PAGE>

The Company has also entered into license agreements for identical
territories with NuPipe, Inc., a wholly-owned subsidiary of ITI, for the sale
and installation of pre-formed PVC thermoplastic pipe under the NuPipe(R)
process and trademark. The Company has committed to pay royalty equal to 6.75%
of gross contract revenues utilizing the NuPipe process and to purchase certain
installation equipment and installation materials from NuPipe, Inc.

The agreements also obligate the Company to pay minimum annual
royalties during the terms of the agreements unless waived upon approval of the
Company's marketing and sales plans for licensed processes by ITI. Payments of
minimum annual royalties for East for the years ended June 30, 1998 and 1997
have been waived by ITI. Payments of minimum annual royalties for MIDSOUTH
Partners for the years ended December 31, 1997, and 1996 have been waived by
ITI. During the years ended June 30, 1997, 1996, and 1995, the Company incurred
royalty expense of $1,428,378, $1,846,932 and $1,354,163, respectively.

Supply Agreements

On May 1, 1987, the Company entered into supply agreements with ITI
committing East and MIDSOUTH Partners to purchase 90% of its Insitutube material
requirements from ITI. As a result of certain terms not previously fulfilled by
ITI, the Company believes it is no longer required to purchase 90% of its
Insitutube material requirements from ITI under the otherwise continuing
agreements. However, during the three years ended June 30, 1997, the Company
purchased substantially all of its Insitutube from ITI. These agreements are
renewable annually unless notice of termination is provided by either party six
months prior to the end of the current renewal period. The MIDSOUTH Partners
supply agreement presently extends through April 30, 1998. After providing six
months advance notice, East terminated its supply agreement with ITI effective
May 1, 1997.

Pending Litigation

On October 23, 1996, Inliner U.S.A. and CAT Contracting, Inc.
(collectively, "Plaintiffs") filed an antitrust suit against Insituform
Technologies, Inc. ("ITI") and Insituform East, Inc. (collectively,
"Defendants") in United States District Court for the Southern District of
Texas, Houston Division, alleging violations by ITI (including all of its
subsidiary licensees) and the Company of Sections 1 and 2 of the Sherman Act,
Section 43(a) of the Lanham Act, Section 15(a) and (b) of the Texas Business and
Commercial Code, tortious interference with contracts and business
disparagement. Plaintiffs are seeking from the Defendants an unspecified amount
of compensatory damages, treble damages and attorneys' fees, as well as punitive
damages of $50 million.

The Company believes it has strong defenses to, and is vigorously
contesting, the suit. The Company filed two motions to dismiss the action which
were pending at June 30, 1997. On August 25, 1997, the Court denied one of the
Company's motions to dismiss, granted in part and denied in part the second
motion to dismiss, and ordered Plaintiffs to file an amended complaint. As a
result, the Plaintiffs have until September 29, 1997 to amend certain claims or
face dismissal outright.

Other Contingent Liabilities

The Company performs services for the U.S. Government under contracts
which are subject to audit and potential adjustment. Contract revenues are
recorded in amounts which are expected to be realized at contract completion
upon final settlement with U.S. Government representatives.

The Company is a party, both as plaintiff and defendant, to claims
arising out of the ordinary course of business. While it is not possible at this
time to establish the ultimate amount of liability, if any, associated with
pending claims, management of the Company is of the opinion that the aggregate
amount of any such liability will not have a material adverse effect on the
financial position of the Company.

<PAGE>

9. Stockholder's Equity

The Company has two classes of Common Stock, which are designated as
Common Stock and Class B Common Stock. Shares of Class B Common Stock are
convertible at any time into shares of Common Stock on a share-for-share basis.
Shares of Class B Common Stock have ten votes per share on all matters with the
exception of voting power to elect directors. With respect to election of
directors, holders of shares of Class B Common Stock, voting separately as a
class, are entitled to elect the remaining directors after election of not less
than 25% of the directors by the holders of shares of Common Stock, voting
separately as a class.

On June 19, 1997, the Company declared cash dividends of six cents per
share on its shares of Common Stock and six cents per share on its shares of
Class B Common Stock to its shareholders of record at the close of business on
June 30, 1997, payable July 15, 1997.

On June 10, 1996, the Company declared cash dividends of six cents per
share on its shares of Common Stock and six cents per share on its shares of
Class B Common Stock to its shareholders of record at the close of business on
June 30, 1996, payable July 15, 1996.

On June 9, 1995, the Company declared cash dividends of six cents per
share on its shares of Common Stock and six cents per share on its shares of
Class B Common Stock to its shareholders of record at the close of business on
June 30, 1995, payable July 14, 1995.

At June 30, 1997, the Company held 327,897 shares of its Common Stock
in Treasury at an average price of $3.63 per share.

10. Profit Sharing Plans

East and MIDSOUTH Partners maintain separate profit sharing retirement
plans for all employees meeting certain minimum eligibility requirements who are
not covered by collective bargaining agreements. Contributions are determined
annually by the Company. During the years ended June 30, 1997, 1996, and 1995,
the Company recognized profit sharing expense of $276,359, $263,722 and
$183,489, respectively.

11. Net Earnings (Loss) Per Share

Net earnings (loss) per share is based on the weighted average number
of common shares outstanding including common stock equivalents from dilutive
stock options. Weighted average shares of 4,356,862, 4,419,636, and 4,376,993
were used in computing earnings (loss) per share for the years ended June 30,
1997, 1996, and 1995, respectively.

Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings
Per Share" was issued February, 1997 by the Financial Accounting Standards
Board. SFAS No. 128 is effective for periods ending after December 15, 1997 and
early adoption is not permitted. SFAS No. 128 will require the Company to
compute and present basic and diluted earnings per share. Had the Company
computed net earnings (loss) per share in accordance with SFAS No. 128, net
earnings (loss) per share would have been presented as follows:

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

Basic Earnings (Loss) Per Share $ (0.12) $ 0.39 $ 0.49
======== ====== ======
Diluted Earnings (Loss) Per Share $ (0.12) $ 0.38 $ 0.48
======== ====== ======

<PAGE>

12. Stock Options

The Company maintains two stock option plans. All grants of options are
made at the market price of the Company's Common Stock at the date of the grant
and are exercisable at the date of the grant.

On December 1, 1989, the shareholders of the Company adopted the
Insituform East, Incorporated 1989 Board of Directors Stock Option Plan. Under
the terms of this plan, up to 525,000 shares of Common Stock have been reserved
for the Directors of the Company. If not exercised, 60,000 option shares granted
December 11, 1992 at a per share exercise price of $5.19 will expire December
11, 1997 and the remaining 60,000 option shares granted December 10, 1993 at a
per share exercise price of $2.44 will expire December 10, 1998.

On December 9, 1994, the shareholders of the Company adopted the
Insituform East, Incorporated 1994 Board of Directors Stock Option Plan. Under
the terms of this plan, up to 525,000 shares of Common Stock have been reserved
for the Directors of the Company. If not exercised, option shares granted under
this plan will expire five years from the date of the grant.

The following summary sets forth the activity under the 1989 and 1994
Board of Directors Plans during the past three years: 1994 Board of Directors
1989 Board of Directors Stock Option Plan Stock Option Plan Average Price
Average Price Shares Per Share Shares Per Share
<TABLE>

<CAPTION>
1994 Board of Directors 1989 Board of Directors
Stock Option Plan Stock Option Plan
----------------------- -----------------------
Average Price Average Price
Shares Per Share Shares Per Share
----------- ---------- ----------- ----------

Outstanding

<S> <C> <C> <C> <C> <C>
July 1, 1994 0 0 285,000 $ 5.12
Granted ..... 105,000 $ 2.63 0 0
Exercised ... 0 0 0 0
Expired ..... 0 0 (45,000) 5.75
--------- --------- --------- ---------

Outstanding
June 30, 1995 105,000 2.63 240,000 5.00
Granted ..... 105,000 4.22 0 0
Exercised ... 0 0 0 0
Expired ..... 0 0 (60,000) 5.75
--------- --------- --------- ---------

Outstanding
June 30, 1996 210,000 3.43 180,000 4.75
Granted ..... 105,000 2.63 0 0
Exercised ... 0 0 0 0
Expired ..... 0 0 (60,000) 6.63
--------- --------- --------- ---------

Outstanding
June 30, 1997 315,000 $ 3.16 120,000 $ 3.81
========= ========= ========= =========
</TABLE>

The Company adopted the disclosure requirements of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
("SFAS No. 123") during the year ended June 30, 1997. As allowed under
provisions of SFAS 123, the Company will continue to measure compensation cost
for employee stock-based compensation plans using the intrinsic value based
method of accounting prescribed by the Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees. As such, the Company is required
to make pro forma disclosures of net earnings (loss) and net earnings (loss) per
share as if the fair value-based method of accounting had been applied.

Summary information for stock options granted during the years ended
June 30, 1997 and 1996 is as follows:

Years Ended June 30,
--------------------------
1997 1996
-------- --------

Date of grant 12/13/96 12/08/95
Option shares granted 105,000 105,000
Per share exercise price $2.63 $4.22
Fair value per option share $1.78 $2.84

The fair value of options granted during the years ended June 30, 1997
and 1996 was estimated on the dates of the grants using the binomial
option-pricing model using the following assumptions:

Years Ended June 30,
-------------------------
1997 1996
-------- --------

Risk-free interest rate 6.06% 5.56%
Expected option term 5 years 5 years
Expected stock price volatility 86% 86%
Expected dividend yield 1% 1%

If compensation costs for the Company's stock option grants had been
determined using the fair value-based method of accounting per SFAS 123, the
Company's pro forma net earnings (loss) and pro forma net earnings (loss) per
share for the years ended June 30, 1997 and 1996 would be as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------
1997 1996
-------- --------

Net earnings (loss):
<S> <C> <C>
As reported .......................... $ (543,646) $ 1,678,557
Pro forma ............................ $ (666,872) $ 1,481,458
Net earnings (loss) per share:
As reported .......................... $ (0.12) $ 0.38
Pro forma ............................ $ (0.15) $ 0.34
</TABLE>

13. Significant Customers

The Company performs services under contract with governmental
authorities, private industries and commercial entities. In each of the last
three fiscal years, more than 65% of the Company's revenues have come from state
and local government entities - cities, counties, state agencies and regional
authorities. During the year ended June 30, 1997, Federal government contracts
(collectively), a municipal government in central Ohio, a county government in
the Washington, D.C. metropolitan area and a combined city and county
metropolitan government in Tennessee accounted for 17%, 15%, 13% and 12%,
respectively, of the Company's revenues. During the year ended June 30, 1996,
Federal government contracts (collectively), a county government in the
Washington, D.C. metropolitan area and a regional sanitary authority in
southwest Ohio accounted for 23%, 20% and 10%, respectively, of the Company's
revenues. During the year ended June 30, 1995, Federal Government contracts
(collectively), a regional sanitary authority in southwest Ohio and Washington
Metropolitan Area Transit Authority ("WMATA") accounted for 21%, 15% and 10%,
respectively, of the Company's revenue.

<PAGE>

14. Selected Quarterly Financial Data (Unaudited)

Selected quarterly financial data for the years ended June 30, 1997
and 1996 are presented in the following table.
<TABLE>

<CAPTION>
Three Months Ended
-------------------------------------------------------------------
September 30, December 31, March 31, June 30,
1996 1996 1997 1997
------------- -------------- ------------- -----------
Year Ended June 30, 1997

<S> <C> <C> <C> <C>
Sales ............................................... $ 5,320,770 $ 6,637,618 $ 6,271,529 $ 8,311,625
Gross Profit ........................................ $ 610,083 $ 1,714,469 $ 458,086 $ 1,336,073
Net Earnings (Loss) ................................. $ (296,863) $ 210,239 $ (500,181) $ 43,159
Net Earnings (Loss) Per Share ....................... $ (0.07) $ 0.05 $ (0.11) $ 0.01

Three Months Ended
-------------------------------------------------------------------
September 30, December 31, March 31, June 30,
1995 1995 1996 1996
------------- -------------- ------------- -----------
Year Ended June 30, 1996

Sales ............................................... $ 8,470,336 $ 8,370,379 $ 6,898,327 $ 6,731,825
Gross Profit ........................................ $ 2,625,029 $ 2,555,522 $ 1,555,040 $ 1,446,839
Net Earnings ........................................ $ 661,302 $ 668,294 $ 124,413 $ 224,548
Net Earnings Per Share .............................. $ 0.15 $ 0.15 $ 0.03 $ 0.05

</TABLE>

<PAGE>

PART III

Pursuant to General Instruction G(3) of Form 10-K, the information
required by Part III (Items 10, 11, 12, and 13) is hereby incorporated by
reference to the Company's definitive proxy statement to be filed with the
Securities and Exchange Commission, pursuant to Regulation 14A promulgated under
the Securities Exchange Act of 1934, in connection with the Company's Annual
Meeting of Shareholders scheduled to be held on December 12, 1997.

PART IV

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

(a) 1. Financial Statements included under Part II, Item 8: Pages

Independent Auditors' Report on Financial Statements 14
Consolidated Statements of Operations 15
Consolidated Balance Sheets 16
Consolidated Statements of Stockholders' Equity 17
Consolidated Statements of Cash Flows 18
Notes to Consolidated Financial Statements 19-28

2. Financial Statement Schedules:

All schedules are omitted because they are not required,
inapplicable or the information is otherwise shown in the
financial statements or the notes thereto.

3. Exhibits:

Exhibit Number o Pages

11.0 Statement re computation of per share earnings 30

23.0 Independent Auditors' Consent 31

27.0 Financial Data Schedule 32

The Exhibit Number used refers to the appropriate subsection
in paragraph (b) of Item 601 of Regulation S-K.

(b) Reports on Form 8-K:

No reports on Form 8-K were filed during the last quarter of the fiscal
year ended June 30, 1997.

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.

INSITUFORM EAST, INCORPORATED

/s/ GEORGE Wm. ERIKSON
George Wm. Erikson
Chairman
September 22, 1997

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Signature & Title Capacity Date

/s/ GEORGE Wm. ERIKSON
George Wm. Erikson Director and September 22, 1997
Chairman Principal Executive Officer

/s/ ROBERT W. ERIKSON
Robert W. Erikson Director and September 22, 1997
President Principal Executive Officer

/s/ CALVIN G. FRANKLIN
Calvin G. Franklin Director September 22, 1997

/s/ WEBB C. HAYES, IV
Webb C. Hayes, IV Director September 22, 1997

/s/ PAUL C. KINCHELOE, JR.
Paul C. Kincheloe, Jr. Director September 22, 1997

/s/ JACK MASSAR
Jack Massar Director September 22, 1997

/s/ THOMAS J. SCHAEFER
Thomas J. Schaefer Director September 22, 1997

/s/ RAYMOND T. VERREY
Raymond T. Verrey Principal Accounting Officer, September 22, 1997
Vice President and Principal Financial Officer
Chief Financial Officer

INSITUFORM EAST, INCORPORATED

EXHIBIT 11.0 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS

Net earnings (loss) per share is based on the weighted average number
of common shares outstanding including common stock equivalents from dilutive
stock options. The weighted average number of shares outstanding for the years
ended June 30, 1997, 1996 and 1995 were computed as follows:

<TABLE>

<CAPTION>
Year Ended June 30,
--------------------------------------
1997 1996 1995
---- ---- ----
Issued shares of Common Stock and
<S> <C> <C> <C>
Class B Common Stock .................. 4,684,759 4,684,759 4,684,759
Add: Weighted average of net shares
(using treasury stock method) of
unexercised dilutive stock options 0 62,774 20,131
Less: Weighted average shares of treasury
stock ............................ (327,897) (327,897) (327,897)
---------- ---------- ----------

Weighted average number of common
shares and common stock equivalents ........ 4,356,862 4,419,636 4,376,993
========== ========== ==========
</TABLE>

EXHIBIT 23.0

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement No.
33-60165 of Insituform East, Incorporated on Form S-8 of our report dated
September 22, 1997, appearing in this Annual Report on Form 10-K of Insituform
East, Incorporated for the year ended June 30, 1997.

/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
1900 M Street, NW
Washington, DC 20036

September 22, 1997

<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED BALANCE SHEET AS OF JUNE 30, 1997, AND THE COMPANY'S AUDITED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. </LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,071,852
<SECURITIES> 0
<RECEIVABLES> 6,682,127
<ALLOWANCES> 0
<INVENTORY> 1,538,017
<CURRENT-ASSETS> 11,309,148
<PP&E> 24,835,343
<DEPRECIATION> 13,165,282
<TOTAL-ASSETS> 23,065,209
<CURRENT-LIABILITIES> 3,668,473
<BONDS> 0
<COMMON> 187,390
0
0
<OTHER-SE> 15,546,404
<TOTAL-LIABILITY-AND-EQUITY> 23,065,209
<SALES> 26,541,542
<TOTAL-REVENUES> 26,541,542
<CGS> 22,422,831
<TOTAL-COSTS> 22,422,831
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,871
<INCOME-PRETAX> (887,646)
<INCOME-TAX> (344,000)
<INCOME-CONTINUING> (543,646)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (543,646)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)

</TABLE>