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


                       U.S. SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C. 20549

                                     FORM 10-QSB

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

                        FOR THE QUARTER ENDED AUGUST 31, 1997

                                          OR

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

                            COMMISSION FILE NUMBER 0-22720

                                CYCLO3PSS CORPORATION
             (Name of Small Business Issuer as specified in its charter)

                 Delaware                                    87-0455642
    (State or other jurisdiction of                         (I.R.S. Employer
    Incorporation or organization)                          Identification No.)

         3646 West 2100 South
        Salt Lake City, UTAH                                 84120-1202
 (Address of principal executive offices)                    (Zip Code)

            Issuer's telephone number, including area code: (801) 972-9090

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

     Securities  registered pursuant to Section 12(g) of the Exchange Act: $.001
Par Value Common Stock

       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  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 ___.



Common Stock  outstanding  at October 14, 1997 - 13,930,437  shares of $.001 par
value Common Stock.


                      DOCUMENTS INCORPORATED BY REFERENCE: NONE

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



<PAGE>




                                       FORM 10-QSB

                             Financial Statements and Schedules
                                    Cyclo3PSS Corporation

                       For Three and Six Months Ended August 31, 1997

       The following financial statements of the registrant and its consolidated
   subsidiaries are submitted herewith:

                               PART I - FINANCIAL INFORMATION

                                                                    Page of
                                                                   Form 10-Q
   Item 1. Condensed Financial  Statements

           Condensed Consolidated Balance Sheets -
             August 31, 1997 and February 28, 1997.....................3
           Consolidated Statements of Operations --
             for the three months and six months ended August 31, 1997 
             and 1996................................................. 5
           Consolidated Statements of Cash Flows --
             for the six months ended August 31, 1997 and 1996 ........7
           Notes to Consolidated Financial Statements..................8

   Item 2. Management's Discussion and Analysis of
           Financial Condition and Results of Operations...............11

                            PART II - OTHER INFORMATION

      Item 1. Legal Proceedings .......................................15

      Item 2. Changes in Securities....................................15

      Item 3. Defaults Upon Senior Securities..........................15

      Item 4. Submission of Matters to a Vote of Security Holders......15

      Item 5. Other Information........................................15

      Item 6. Exhibits.................................................15




                                      - 2 -

<PAGE>


CYCLO3PSS CORPORATION
Condensed Consolidated Balance Sheets
------------------------------------------------------------------------------




                                                     August 31     February 28
                                                        1997          1997
                                                   ------------ --------------
  Assets                                            (Unaudited)

   Current assets:

      Cash and cash equivalents                       $554,015     $1,275,636
      Accounts receivable, less allowance for 
       doubtful accounts of $2,000 at 
       August 31, 1997 and  February 28, 1997           83,387         97,605
      Inventories                                      129,253        100,584
      Prepaid expenses                                  64,750        102,815
                                                    ____________  ____________
   Total current assets                                831,405      1,576,640

   Property and equipment, net                          299,352       370,994

   Other assets:
      Goodwill, net                                     426,131       540,375
      Acquired patents, net                             390,065       411,187
      Developed patents and other, net                  124,780       125,650

                                                      $2,071,733   $3,024,846
                                                     ============ =============











   See accompanying notes to consolidated financial statements


                                      - 3 -

<PAGE>




CYCLO3PSS CORPORATION
Condensed Consolidated Balance Sheets (continued)
-------------------------------------------------------------------------


                                                  August 31,   February 28
                                                     1997          1997
                                                ------------ --------------
                                                 (Unaudited)
Liabilities and stockholders' equity

  Current liabilities:
      Accounts payable                               $93,154       $108,619
      Accrued liabilities                             84,883        135,190
      Current portion of capital lease obligations    26,986         26,120
  Total current liabilities                          205,023        269,929

   Long-term debt obligations                        240,000      1,156,000
   Interest payable on long-term debt obligations     46,660        151,730
   Long-term portion of capital lease obligations     25,055         37,356


  Commitments and contingencies

   Stockholders' equity:
    Preferred stock:
      Preferred stock issuable in series: par
        value $.01, 4,500,000 authorized:
          Series "A" convertible preferred stock;
           356,638 shares authorized; 356,638 
           shares issued and outstanding                 356            356
          Series "B" convertible preferred stock;
           30,000 shares authorized; 1,932 shares
           issued and outstanding                         19             19
      Class "A" preferred stock, par value $.01; 
        500,000 shares authorized; none issued or 
        outstanding                                       --             --
      Common stock, par value $.001; 55,000,000 shares
          authorized; 13,888,770 issued at August 31,
          1997, 12,793,340 shares issued at 
          February 28, 1997                           13,889         12,793
      Additional paid-in capital                  14,662,909     13,546,195
      Accumulated deficit                        (12,620,633)   (11,479,987)
      Deferred compensation                               --       (168,000)
      Less treasury stock, 264,000 common shares 
       atcost                                       (501,545)      (501,545)
                                                  ____________________________
      Total stockholders' equity                   1,554,995      1,409,831
                                                  ____________________________
                                                   $2,071,733    $3,024,846
                                                  ============================

   See accompanying notes to consolidated financial statements


                                      - 4 -

<PAGE>



CYCLO3PSS CORPORATION
Consolidated Statements of Operations
-----------------------------------------------------------------------------
(UNAUDITED)


                                                   For the three months ended
                                                           August 31, 
                                                        1997         1996
                                                 -------------- --------------

   Net Revenues                                     $249,228       $122,925

   Costs and expenses:
      Cost of sales                                  178,184         51,311
      Research and development                        74,159        166,676
      Selling and marketing                          116,822         33,384
      General and administrative                     386,760        257,028
      Depreciation and amortization                  108,328        116,883
                                                 -----------------------------
                Total expenses                       864,253        625,282

  Loss from operations                              (615,025)      (502,357)

  Interest income                                      9,279          9,520
  Interest expense                                   (42,852)       (39,449)

  Net loss                                          (648,598)      (532,286)
   Preferred stock dividends                                           
   Net loss applicable to common stock               (38,958)          -
                                                  ____________________________
                                                   $(687,556)     $(532,286)
                                                  ============================

  Net loss per common share                             (.05)          (.05)
                                                  ============================
    Weighted average number of common shares
     issued and outstanding                        13,192,193     10,961,666
                                                  ============================






   See accompanying notes to consolidated financial statements






                                      - 5 -

<PAGE>




   CYCLO3PSS CORPORATION
   Consolidated Statements of Operations
   (UNAUDITED)

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

                                                     For the six months ended
                                                          August 31, nded
                                                        1997           1996
              6                                  -------------- --------------

   Net Revenues                                        $551,619       $215,980

   Costs and expenses:
      Cost of sales                                     423,374        165,587
      Research and development                          152,023        400,947
      Selling and marketing                             164,274         84,621
      General and administrative                        657,867        571,191
      Depreciation and amortization                     217,159        234,377
                Total expenses                        1,614,697      1,456,723

  Loss from operations                               (1,063,078)    (1,240,743)

  Interest income                                        23,490         11,623
  Interest expense                                     (101,059)       (93,292)

  Net loss                                           (1,140,647)    (1,322,412)
   Preferred stock dividends                                                - 
   Net loss applicable to common stock                  (77,916)   $(1,322,412)
                                                    $(1,218,563)


   Net loss per common share                              (.09)          (.12)
                                                                             

    Weighted average number of common shares
      issued and outstanding                         13,027,136     10,727,593
                                                  -----------------------------




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








   See accompanying notes to consolidated financial statements


                                      - 6 -

<PAGE>




   CYCLO3PSS CORPORATION
   Consolidated Statements of Cash Flow
   (UNAUDITED)
------------------------------------------------------------------------------



                                                     For the six months ended
                                                            August 31,
                                                        1997           1996
                                                -------------------------------
  Cash flows from operating activities
      Net loss                                    $(1,140,646)    $(1,322,412)
      Adjustments to reconcile net loss to net cash
        used in operating activities:
     Depreciation and amortization                    217,159         234,377
     Accrued interest on convertible debt issuance     69,360          71,487
     Accretion of convertible debt warrant             27,380          16,400
             Common stock issued for services         168,000             -
     Changes in assets and liabilities:
       (Increase) decrease in accounts receivable      14,218         (31,320)
       (Increase) decrease in inventories             (28,669)        112,916
       Decrease in prepaid expense                     38,065          24,417
       Decrease in accounts payable and accrued 
        liabilities                                   (65,772)        (82,602)
       Increase in deferred revenue                       -            87,500
                                                    --------------------------
  Net cash used in operating activities              (700,905)       (889,237)
                                                    --------------------------
  Cash flows from investing activities
      Purchase of property and equipment and other 
        assets                                         (9,281)        (12,028)
                                                    --------------------------
    Net cash used in investing activities              (9,281)        (12,028)
                                                    --------------------------

  Cash flows from financing activities
      Proceeds from issuance of common stock               -              354
       Proceeds from issuance of preferred stock           -        2,755,000
      Proceeds from issuance of convertible debt 
       Obligations                                         -          351,000
       Principal payments under capital lease 
        obligations                                   (11,435)         (4,039)
                                                    --------------------------
  Net cash used in (provided by) financing 
     activities                                       (11,435)       3,102,315
                                                    --------------------------
  Net increase in cash                               (721,621)       2,201,050

  Cash and cash equivalents at beginning of period  1,275,636          252,113
                                                    --------------------------
  Cash and cash equivalents at end of period         $554,015       $2,453,163
                                                    ===========================
   Supplemental schedule of non-cash financing
    activities
      Conversion of long term debt obligations
       to common stock                               $916,000             -
      Conversion of interest payable on long term
       obligations to common stock                   $174,430             -

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







   See accompanying notes to consolidated financial statements




                                             - 7 -

<PAGE>




                  CYCLO3PSS CORPORATION
   Notes to Consolidated Financial Statements (Unaudited)
------------------------------------------------------------------------------



   1.  Summary of Significant Accounting Policies


   Financial Statements

   The  accompanying   unaudited  condensed  consolidated  financial  statements
   include  the  accounts  of   CyclO3PSS   Corporation   ("Company")   and  its
   subsidiaries,  and, in the  opinion of  management,  reflect all  adjustments
   (consisting only of normal recurring  adjustments)  necessary to fairly state
   the Company's consolidated financial position, results of operations and cash
   flows for the periods stated. The condensed  consolidated balance sheet as of
   February 28, 1997 has been prepared from the audited  consolidated  financial
   statements of the Company.

   This report on Form 10-QSB should be read in  conjunction  with the Company's
   audited  consolidated  financial  statements  for the year ended February 28,
   1997 and notes  included  therein.  The results of operations for the quarter
   and six  months  ended  August 31,  1997 are not  necessarily  indicative  of
   results for the entire fiscal year ending February 28, 1998.

   Organization

   The  Corporation was formed in Delaware in 1927. In 1990, the Corporation was
   reorganized as CyclO3PSS  Medical Systems,  Inc. In 1995, the Company changed
   its name to CyclO3PSS  Corporation  (the Company).  The Company is engaged in
   the  manufacture,  sale and installation of ozone washing and laundry sorting
   and  counting  systems  for  commercial  and  institutional   laundries,  the
   manufacture and sale of specialty  compounds and chemicals,  and research and
   development of  technologies  for the  sterilization  and/or  disinfection of
   surgical and medical instruments.



   New Accounting Pronouncements

   In  1997,  the  Financial  Accounting  Standards  Board  issued  three  new
   Statements,  Statement  No. 128,  Earnings  per Share,  Statement  No. 130,
   Reporting  Comprehensive  income and Statement No. 131,  Disclosures  about
   segments of an Enterprise and Related  Information.  As of August 31, 1997,
   these  standards  were  either  not  effective  or not yet  adopted  by the
   Company. Upon adoption of these standards, the impact is not expected to be
   material.









                                    - 8 -

<PAGE>




   CYCLO3PSS CORPORATION
   Notes to Consolidated Financial Statements (Unaudited)
------------------------------------------------------------------------------



   2.  Basis of Presentation

   The accompanying  financial  statements have been prepared  assuming that the
   Company will continue as a going concern,  which contemplates the realization
   of assets and  satisfaction  of liabilities in the normal course of business.
   The Company has  sustained  significant  net losses which have resulted in an
   accumulated  deficit at February 28, 1997 and August 31, 1997 of  $11,479,987
   and  $12,620,633  and  periodic  cash flow  difficulties,  all of which raise
   substantial doubt of the Company's ability to continue as a going concern.

   The net loss for the year  ended  February  28,  1997 and for the six  months
   ended August 31, 1997 was $2,957,744 and  $1,140,647  respectively.  To date,
   the Company has funded its  operations  through the  issuances  of common and
   preferred  stock. The Company's  ability to accomplish its business  strategy
   and to ultimately achieve profitable operations is dependent upon its ability
   to raise additional financing.

   The Company  believes that these  conditions  have resulted from the inherent
   risks associated with small technology companies. Such risks include, but are
   not limited to, the  ability to (a)  generate  sales of its product at levels
   sufficient to cover its costs and provide a return for investors, (b) attract
   additional  capital in order to  finance  growth,  (c)  further  develop  and
   successfully  market  commercial  products and (d) successfully  compete with
   other  technology  companies  having  financial,   production  and  marketing
   resources significantly greater than those of the Company.

   The Company is  attempting  to improve  these  conditions by way of financial
   assistance  through  collaborative   partnering   agreements,   issuances  of
   additional  equity,  debt  arrangements,  and product  sales.  Management  is
   confident that appropriate funding will be generated and future product sales
   will  result from these  opportunities  and that the  Company  will  continue
   operations through the next fiscal year.

   3. Long-Term Debt

   During the year ended  February 29, 1996,  the  Company's  Board of Directors
   authorized  the issuance of  $3,000,000  in  convertible  debt to  individual
   investors.  Principal  and  interest are payable in full three years from the
   date of  execution  of each  note.  Interest  accrues  at 12% per year on the
   principal balance.  The debt is secured by all the assets of the Company. The
   lender can convert all or a portion of its outstanding principal and interest
   into shares of common  stock at $3.50 per share.  Under the terms of the loan
   agreements,  the Company  will issue each lender a warrant to purchase  1,000
   shares of the  Company's  common stock at a price of $4.00 per share for each
   $3,500  principal  amount loaned to the Company.  Each warrant is exercisable
   for a period  of 5 years  from  the date of the  closing  of each  loan.  The
   Company  issued  $1,226,000  in  convertible  debt  (described  above) to the
   Company's directors or major  stockholders,  with maturities between December
   1998 and February 1999.





                                    - 9 -

<PAGE>




    CYCLO3PSS CORPORATION
   Notes to Consolidated Financial Statements (Unaudited)
------------------------------------------------------------------------------


   3. Long-Term Debt (continued)

   On August 29, 1997 the Company gave all holders of the Company's  Convertible
   Promisory Notes an option to convert their current outstanding  principal and
   interest into the  Company's  restricted  common stock at a conversion  price
   which is the higher of a) $1.00 per share or b) the average closing price for
   the ten days prior to date of  conversion.  Note holders  continue to own the
   options  which  were  received  as part  of the  original  purchase,  but the
   exercise  price was  reduced  to $2.00 per  share for the Note  Holders  that
   converted.  As of August 31, 1997, $916,000 of the long term debt obligations
   and $174,430 of the interest  payable on long term debt obligations have been
   converted  to  1,090,430 of the  Company's  restricted  common stock which is
   restricted from sale for a period of 120 days from the date of conversion.


   4. Stockholders' Equity

   Preferred Stock

   During  the six  months  ended  August  31,  1997,  3 shares  of  Series  "B"
   convertible  preferred  stock were  converted to  approximately  4,900 common
   shares.  Deferred  compensation  of $168,000 for the year ended  February 28,
   1997 was recorded to general and  administrative  expense in the statement of
   operations for the six months ended August 31, 1997 for consulting fees.

   5. Contingencies

   The Company is involved in certain  legal  actions and claims  arising in the
   ordinary course of business.  Management  believes,  based on advice of legal
   counsel,  that such litigation and claims will be resolved  without  material
   effect  on  the  Company's  consolidated   financial  position,   results  of
   operations or cash flows.  These matters are described in the Company's  Form
   10-KSB for the year ended February 28, 1997.

   6. Subsequent Events

   Effective September 1, 1997 the Company entered into an Agreement and Plan of
   Merger with Textile  Strategies,  Inc. (TSI), a Florida  Corporation and with
   its sole  shareholder  James  A.  Gross  wherein  TSI  became a  wholly-owned
   subsidiary  of the  Company.  Pursuant to the  Agreement  the Company  issued
   41,667 of its newly issued and  restricted  common stock to Gross in exchange
   for 100% of the issued and outstanding shares of TSI.

   On  October  2,  1997  the  Company's  wholly  owned  subsidiary,   Cyclo3pss
   Biochemical Corporation and Foster Miller, Inc. a technology development firm
   based in Waltham,  Massachusetts  entered  into an  operating  agreement  and
   formed a Massachusetts Limited Liability Corporation ("LLC"), named Pyrogonn,
   Inc. to commercialize a proprietary high performance polymer system, which is
   a new,  lightweight  material  that  can  be  economically  processed  and is
   extremely  strong and heat resistant.  The partners believe the material will
   have applications in the aerospace industry.


                                    - 10 -

<PAGE>




                                 PART I - ITEM 2

                       MANAGEMENTS DISCUSSION AND ANALYSIS
                 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   General

   The Company  has been  involved in research  and  development  and  marketing
   several  products since 1987,  including the  Ozo3-CleanTM  System 2000 ozone
   washing system,  VAC Soil Counting System,  specialty  organic  chemicals and
   custom  synthesis.  From the  period  since  reactivation  (March 2, 1987) to
   August  31,  1997,  the  Company  had  incurred  a  cumulative  net  loss  of
   $12,620,633.  The Company  expects to continue to incur  losses into the next
   fiscal year. The Company's  current cash assets may not be sufficient to fund
   its long term  operations  accordingly  and the  Company  will need to either
   generate  positive  cash flow from  operations  or raise  additional  debt or
   equity  capital  in order to fund its  operation  in  future  and to meet the
   requirements to maintain its listing on NASAQ Small Cap market.  There can be
   no assurance  that the Company will be able to obtain  additional  capital to
   fund  operations or maintain its NASDAQ listing in the future.  The Company's
   financial position is discussed further below.

   The Company's future operating results will depend on many factors, including
   acceptance  of the Company's  laundry  technologies,  systems,  equipment and
   attendant  products in the various markets for the Company's products and the
   timing of FDA marketing  clearance,  if received,  for the Company's  medical
   sterilization and disinfection  products,  which require such clearance,  and
   the demand for such  products at that time.  Additional  factors  include the
   Company's  ability to manufacture and market its products on a cost-effective
   basis,  the  level  of  competition   which  it  encounters  in  its  various
   marketplaces,  the ability of the Company to develop product enhancements and
   new products in order to achieve and maintain  market share,  and its ability
   to obtain adequate financing.

   Results of Operations

   The  Company's  revenues  were  $551,619  for the six months ended August 31,
   1997, and $215,980 for the six months ended August 31, 1996. The revenues for
   the three months ended August 31, 1997 were $249,228 compared to $122,925 for
   the three months ended August 31,  1996.  Two of the  Company's  wholly owned
   subsidiaries are currently contributing to the Company's revenues,  CyclO3PSS
   Textile Systems,  Inc. ("CTS") and CyclO3PSS  Biochemical  Corporation (CBC).
   The  Company's  gross  margin for the six months  ended  August 31,  1997 was
   $128,245  compared to $50,393 for the six months ended August 31, 1996.  This
   significant  increase in gross margin is  attributable  to increased sales of
   CTS due to increasing  acceptance of its  technologies by its customers,  and
   increased sales of CBC due to increasing  interest in and use of its products
   and  services  by  medical  researchers  and  chemical  suppliers  and  CBC's
   reputation for quality. .

   Research and development  expenditures were $152,023 for the six months ended
   August 31,  1997,  and  $400,947  for the six months  ended  August 31, 1996.
   Research and development expenditures were $74,159 for the three months ended
   August 31,  1997,  and  $166,676  for the three months ended August 31, 1996.
   Although research and development expenses have been reduced, management




                                    - 11 -

<PAGE>




   sees no continued  overall  reduction of these  expenses over the next fiscal
   year.  Research  and  development  costs  are  expected  to  increase  due to
   anticipated  redesign  efforts on the Company's  laundry products and medical
   sterilization and disinfection products.

   The Company incurred general and administrative  expenses of $657,867 for the
   six months  ended  August 31,  1997,  compared to $571,191 for the six months
   ended  August 31,  1996.  General and  administrative  expenses for the three
   months ended August 31, 1997 were  $386,760 and $257,028 for the three months
   ended August 31, 1996.  This increase is due primarily to the  recognition of
   $168,000 in deferred  compensation  expense for  consulting  fees for the six
   months ended August 31, 1997. At quarter end August 31, 1997, the Company had
   24 full time  employees,  compared to 19 full time  employees  at quarter end
   August 31, 1996. As the Company completes development on certain products and
   prepares  for  commercialization,  the  human  resource  requirements  of the
   Company will increase.

   The Company incurred  selling and marketing  expenses of $164,274 for the six
   months ended  August 31,  1997,  compared to $84,621 for the six months ended
   August 31,  1996.  The selling and  marketing  expenses  for the three months
   ended August 31, 1997 were $116,822  compared to $33,384 for the three months
   ended August 31, 1996. This increased expense is due to additional  marketing
   and sales efforts for the textiles  operations  (CTS) and the attendant costs
   related to trade shows such as the Clean Show 97 for the textile industry and
   AAMI for medical and healthcare industries.

   For the six months ended August 31, 1997, the Company had interest  income of
   $23,490 compared to interest income for the six months ended August 31, 1996,
   of $11,623.  The  interest  income for the three months ended August 31, 1997
   was $9,279  compared to $9,520 for the three  months  ended  August 31, 1996.
   This  increase  was due to an  increase in the amount of cash on hand for the
   six months  ended  August 31,  1997  compared to 1996.  The Company  incurred
   $101,059  in  interest  expense  for the six months  ended  August  31,  1997
   including $4,319 attributable to equipment leasing  arrangements,  $69,360 in
   interest  accrued on  long-term  debt,  and  $27,380 in  interest on warrants
   accrued,  in conjunction  with the convertible  debt offering (see discussion
   below  under  Liquidity  and  Capital  Resources  in  regards  to  this  debt
   offering). The Company anticipates that interest expense will decrease due to
   the conversion of most of the  convertible  debt to common stock as of August
   31, 1997.

   The  Company's  net  loss  for the six  months  ended  August  31,  1997  was
   $1,140,647,  as compared to  $1,322,412  for the six months  ended August 31,
   1996.  The  Company's net loss for the three months ended August 31, 1997 was
   $648,598 as compared to $532,286  for the three months ended August 31, 1996.
   The  Company  anticipates  that it will  operate at a loss for the year ended
   February 28, 1998.  However,  it is anticipated that the losses will continue
   to decrease as the revenues of CTS and CBC continue to increase.

   Liquidity and Capital Resources

   Management is  aggressively  exploring  additional  financing for the ongoing
   operations of the Company and has entered into an engagement  agreement  with
   First Financial Investment Securities,  Inc., a registered broker dealer firm
   with  headquarters  in Austin,  Texas and an affiliate and  correspondent  to
   Southwest  Securities  Group.  There are no  assurances  that the  efforts to
   locate


                                    - 12 -

<PAGE>




   and secure additional financing will be successful, and the failure to secure
   this financing  would  substantially  alter the  management's  assumptions as
   presented heretofore and in the remainder of this section.

   Cash used in  operating  activities  was  $700,905  for the six months  ended
   August 31,  1997,  compared to $889,237  for the six months  ended August 31,
   1996.  Cash used for the six months  ended  August 31, 1997 was  comprised of
   cash on hand and  collections of accounts  receivable,  which is comprised of
   VAC soil counting  sales,  healthcare  washing systems sales and service from
   CyclO3PSS  Textile  Systems,  Inc.  and  contract  development  and  chemical
   compound sales from CyclO3PSS Biochemical Corporation.

   No cash was  provided  from  issuance  of common  stock,  preferred  stock or
   convertible  debt for the six months ended August 31, 1997,  compared to $354
   from issuance of common stock,  $2,755,000  from issuance of preferred  stock
   and  $351,000  from  issuance of  convertible  debt for the six months  ended
   August 31, 1996.

   Total assets  decreased to $2,071,733  at August 31, 1997 from  $3,024,846 at
   February 28, 1997, primarily due to the decrease in the Company's cash, which
   was the result of continued losses from operations.


   Plan of Operation

   The plan of  operation  during  the next  twelve  (12)  months  includes  the
following:

      1.    Aggressively  market  the  Company's  Ozone  Laundry  Systems to the
            Health  care  market  and  the  commercial  and  Industrial  Laundry
            marketplaces.

      2.    Continue  research and development,  testing and  implementation  of
            ozone systems for the food processing industries. Ozone was recently
            given the status of "generally regarded as safe" or "GRAS" by FDA.

      3.    Continue  testing and validation and initiate sales and installation
            of the Company's  Health care Ozone Laundry Systems with Health care
            providers in the United States and Internationally.

      4.    Complete  design and  development  and embark upon  marketing of the
            Company's  Ozone  Laundry  Systems for  institutional  users such as
            hotels, resorts, prisons, etc.

      5.    Continue  to  increase  marketing,  sales  and  installation  of the
            Company's VAC laundry  counting and sorting  systems to  commercial,
            industrial, institutional and Health care customers.

      6.    Complete   validation  testing  of  the  Company's  liquid  chemical
            sterilant,  SterOxTM,  preparatory  to  completion  of  a  licensing
            agreement with an




                                    - 13 -

<PAGE>




            established medical product  manufacturing/marketing  company and/or
            preparation and submission of a 510(k) Premarket Notification to the
            FDA.

      7.    Produce  data and design  elements  in  support of desired  labeling
            claims for FDA officials  reviewing the Company's  510(k)  Premarket
            Notification for the STER- O3-ZONE 100TM.

      8.    Continued development of products and enhancements for the Company's
            textile operations.

      9.    Increased  marketing and continued  growth of contract  research and
            development within the BioChemical group and the ongoing manufacture
            and sales of their current and future products.

      10.   Engage  brokerage  firms to assist the  Company in more  effectively
            marketing  its  shares  to  the  investing  public,   including  the
            preparation   of  an  analyst   report  on  the   Company   and  its
            technologies.

      11    Seek additional capital.  With additional  financing in place, there
            may  be  additional   diversification   of  the  Company's  business
            activities  through  future  acquisitions  or  product  development.
            Company  has  entered  into  an  engagement   agreement  with  First
            Financial  Investment  Securities,  Inc., a registered broker dealer
            firm with headquarters in Austin, Texas.

      Although the Company will be primarily engaged in the aggressive sales and
   support  of  its  completed  products,   it  anticipates  that  research  and
   development  expenses  will be  ongoing,  and could  range from  $800,000  to
   $1,000,000  during the next twelve  months in support and  completion  of key
   future products.

      The Company currently  anticipates that its expenditures on equipment will
   range from  $200,000 - $400,000  during  the next  twelve  months  based upon
   current  manufacturing  assumptions,  assuming that the required financing is
   obtained and available.

      The Company had 24 full time and 2  part-time  employees  as of August 31,
   1997. The Company anticipates that no more than six additional employees will
   be  hired  during  the next  twelve  months,  and  then,  only as the  market
   acceptance of the Company's  textile systems  accelerates.  It is anticipated
   that  general and  administrative  expenses  would not  increase by more than
   $200,000  on an  annualized  basis  as a  result  of  any  such  increase  in
   employees.

      The  information   set  forth  herein  as  to  anticipated   research  and
   development  costs,   equipment  purchases  and  increase  in  employees  are
   management's best estimate based upon current plans.  Actual expenditures may
   be greater or less than such estimates  depending on many factors  including,
   but not limited to the  availability of new  technologies,  the completion or
   lack of  completion  of  certain  strategic  alliances,  and the  timing  and
   successful   completion  of  the  Company's  stated  requirement  to  acquire
   additional operating and growth capital.




                                    - 14 -

<PAGE>




      From time to time,  the  Company may  publish  forward-looking  statements
   relating  to such  matters as  anticipated  financial  performance,  business
   prospects, technological developments, new products, research and development
   activities and similar matters. The private Securities  litigation Reform Act
   of 1995 provides a safe harbor for forward  looking  statements.  In order to
   comply with the terms of the safe harbor, the Company notes that a variety of
   factors could cause the  Company's  actual  results and  experience to differ
   materially from the anticipated  results or other  expectations  expressed in
   the Company's forward looking  statements.  The risks and uncertainties  that
   may  affect  the  operations,  performance,  development  and  results of the
   Company's business include, but are not limited to, the following:

1.   Market acceptance of the Company's products;

2.   Obtaining additional operating capital in the form of debt or equity;

3.   The ability to achieve and maintain the requirements  necessary to continue
     listing  of its  shares on the  NASDAQ  Small Cap  market,  where  they are
     currently  listed.  A loss of such  listing  would  negatively  impact  the
     existence of an orderly market in the Company's securities; and

4.   Increased sales of the various products of the Company.


   PART II - OTHER INFORMATION

      Item 1.     Legal Proceedings.None.

      Item 2.     Changes in Securities.
                  On  August  29,  1997  the  Company  gave all  holders  of the
                  Company's  Convertible  Promisory  Notes an option to  convert
                  their  current  outstanding  principal  and interest  into the
                  Company's  restricted common stock at a conversion price which
                  is the higher of a) $1.00 per share or b) the average  closing
                  price  for the ten  days  prior  to date of  conversion.  Note
                  holders  continue  to own the options  which were  received as
                  part of the  original  purchase,  but the  exercise  price was
                  reduced  to  $2.00  per  share  for  the  Note   Holders  that
                  converted.  As of August 31,  1997,  $916,000 of the long term
                  debt  obligations and $174,430 of the interest payable on long
                  term debt  obligations have been converted to 1,090,430 of the
                  Company's  restricted  common stock which is  restricted  from
                  sale for a period of 120 days from the date of conversion.

      Item 3.     Defaults Upon Senior SecuritieNone.

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

      Item 5.     Other Information.None

      Item 6.     Exhibits.   None.






                                    - 15 -

<PAGE>






                                   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.



                                          CYCLO3PSS CORPORATION


   Date: October 15, 1997                 By/s/ William R. Stoddard
                                          --------------------------
                                          William R. Stoddard
                                          Chief Executive Officer
                                          President
                                          Principal Executive Officer



   Date: October 15, 1997                 By/s/ Mondis Nkoy
                                          ----------------------------
                                          Mondis Nkoy
                                          Controller, Corporate Secretary
                                          Principal Financial Officer



                                    - 16 -