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


                     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, 1996

                                       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, 1996 - 12,683,949  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, 1996

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

                         PART I - FINANCIAL INFORMATION
                                                                        Page of
                                                                      Form 10-Q
     Item 1.   Financial  Statements
               Consolidated Balance Sheets - August 31, 1996 and 
                   February 29, 1996..........................................3
               Consolidated Statements of Operations --
                   for the three months and six months ended August 31, 1996 
                   and 1995...................................................5
               Consolidated Statements of Cash Flow --
                   for the six months ended August 31, 1996 and 1995..........7
               Notes to Consolidated Financial Statements.....................8

     Item 2.    Management's Discussion and Analysis of
                Financial Condition and Results of Operations................12

                           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(a) Exhibits......................................................15
 
     Item 6(b) Reports on Form 8-K...........................................15

     Item 6(c) Reports on Form S-8...........................................15


 
                                                         - 2 -
<PAGE>

     CYCLO3PSS CORPORATION
     Consolidated Balance Sheets
     (UNAUDITED)
------------------------------------------------------------------------------



                                                  August 31,       February 29,
                                                     1996               1996
                                                -------------------------------







     Assets

     Current assets:

       Cash                                       $2,453,163          $252,113
       Accounts receivable, less allowance for
       doubtful accounts of $40,000 at
       August 31, 1996 and February 29, 1996         108,450            77,130
       Inventory                                     295,973           408,889
       Prepaid expenses                              13,057             37,474
          Total current assets                       2,870,643         775,606

     Property and equipment, net                     493,579           570,237

     Other assets:

       Goodwill, net                                 654,618           768,862
       Acquired patents, net                         432,311           453,456
       Developed patents and other, net              108,505           110,457
                                                  $4,559,656        $2,678,618













                                                         - 3 -
<PAGE>


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



                                                     August 31,    February 29,
                                                        1996            1996   

     Liabilities and Stockholders' Equity

     Current liabilities:
        Accounts payable                              103,168          162,414
        Accrued liabilities                            96,785          120,122
        Deferred revenue                              230,249          142,749
        Current portion of capital lease obligations   12,312           16,351
               Total current liabilities              442,514          441,636

        Long-term debt obligations                  1,312,150          889,663
        Long-term portion of capital lease
        obligations                                    62,976           54,626
                                                    1,375,126          944,289

     Commitments and contingencies

     Stockholders' equity:
       Series "A" preferred stock, par value $.01; 
         4,500,000 shares authorized; 35,638 shares 
         issued and outstanding                           356              356
      Series "B" preferred stock, par value $.01;
         30,000 shares authorized; 3,170 issued and 
         outstanding                                       24             ----
       Class "A" preferred stock, par value $.01; 500,000
         shares authorized; none issued and outstanding   ----            ----
       Common stock, par value $.001; 55,000,000 shares   
         authorized; 11,954,710 shares issued at
         August 31, 1996, 10,169,932 shares issued at
         February 29, 1996                              11,775          10,170
     Additional paid-in capital                     13,076,061      10,305,955
     Accumulated deficit                           (9,844,655)      (8,522,243)
     Less treasury stock, 264,000 common shares 
         at cost                                     (501,545)        (501,545)
     Total stockholders' equity                     2,742,016        1,292,693
                                                   $4,559,656        2,678,618


     See accompanying notes to consolidated financial statements


 
                                                         - 4 -
<PAGE>

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


                                                For the three months ended

                                               August 31, 1996  August 31, 1995 

     Net revenues                                   $122,925        $174,185


     Costs and expenses:
        Cost of sales                                 51,311          72,889
        Research and development                     166,676         165,664
        Selling and marketing                         33,384         212,492
        General and administrative                   257,028         437,189
        Depreciation and amortization                116,883         102,377
         Total expenses                              625,282         990,611


     Loss from operations                           (502,357)       (816,426)



     Interest income                                   9,520          14,910
     Interest expense                                (39,449)           ----


     Net loss                                      $(532,286)      $(801,516)

     Net loss per common share                         $(.05)          $(.08)

     Weighted average number of common shares
        outstanding                               10,961,666       9,942,983






     See accompanying notes to consolidated financial statements




                                                         - 5 -
<PAGE>



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


                                                  For the six months ended

                                              August 31, 1996  August 31, 1995


     Net revenues                                  $215,980        $272,649


     Costs and expenses:
        Cost of sales                               165,587          110,766
        Research and development                    400,947          375,594
        Selling and marketing                        84,621          310,735
        General and administrative                  571,191          975,533
        Depreciation and amortization               234,377          198,164
         Total expenses                           1,456,723        1,970,792


     Loss from operations                         (1,240,743)    (1,698,143)



     Interest income                                  11,623         19,022
     Interest expense                                (93,292)         ---- 


     Net loss                                    $(1,322,412)    $(1,679,121)

     Net loss per common share                         $(.12)          $(.17)

     Weighted average number of common shares
        outstanding                               10,727,593       9,823,669






     See accompanying notes to consolidated financial statement

 
                                                         - 6 -
<PAGE>


     CYCLO3PSS CORPORATION
     Consolidated Statements of Cash Flow
     (UNAUDITED)                                                   
                                                  For  the six months ended
                                              August 31, 1996   August 31, 1995
     Cash flows from operating activities:
       Net loss                                $(1,322,412)      $(1,679,121)
       Adjustments to reconcile net loss to net
       cash used in operating activities:
         Depreciation and amortization             234,377           198,164
         Accrued interest on convertible debt
         issuance                                   71,487              --
         Issuance of warrant with convertible debt  16,400              --
         Changes in assets and liabilities:
           (Increase) decrease in accounts
            receivable                             (31,320)           32,752
           (Increase) decrease in inventories      112,916          (122,771)
           (Increase) decrease in prepaid expense,
           developed patents, other                 24,417           (29,629)
           Decrease in accounts payable and 
           accrued liabilities                     (82,602)          (71,251)
           Increase in deferred revenue             87,500            10,181 
       Net cash used in operating activities      (889,237)       (1,661,675)
 
       Cash flows from investing activities:
         Purchase of property and equipment        (12,028)         (184,972)
         Proceeds from sale of marketable 
           securities                                 --           1,018,473 
          Net cash provided by (used in) financing
           activities                              (12,028)          833,501 


     Cash flows from financing activities:
       Proceeds from issuance of common stock          354          1,336,059
       Proceeds from issuance of preferred stock 2,755,000              --
       Proceeds from issuance of convertible 
         debt obligation                           351,000              --
       Increase in obligations under capital 
         leases                                       --               54,130
       Principal payments under capital lease 
         obligations                                (4,039)             -- 
     Net cash provided by financing activities   3,102,315          1,390,189

     Net increase in cash                        2,201,050            562,015

     Cash at beginning of period                    252,11            123,086
                                                                             
     Cash at end of period                      $2,453,163           $685,101
                                                                          
     Supplemental schedule of non-cash 
     financing activities:
       Capital lease obligations incurred for 
       acquisition of property and equipment        $8,350            $54,130

     Acquisitions
         Fair value of assets acquired                ----           $175,000
         Issuance of common stock                     ----           (175,000)
     Liabilities assumed                             $----              $----

     See accompanying notes to consolidated financial statements
     





                                                               - 7 -
<PAGE>


CYCLO3PSS CORPORATION
Notes to Consolidated Financial Statements


1. Summary of Significant Accounting Policies

Financial Statements

The accompanying interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB of
Regulation SB. The balance sheet at February 29, 1996 represents the Company's
audited consolidated financial statements at that date.

     In the  opinion of  management,  the  accompanying  consolidated  financial
statements contain all normal recurring  adjustments necessary to present fairly
the financial position of CyclO3PSS Corporation ("Company") as of August 31,
1996 and the results of its  operations  and cash flows for the interim  periods
ended August 31, 1996 and August 31, 1995. The operating results for the interim
periods are not  necessarily  indicative  of the results for a full year.  These
financial   statements   should  be  read  in  conjunction  with  the  Company's
consolidated  financial  statements and notes  included in the Company's  Annual
Report to  Shareholders  and  Annual  Report or Form  10-KSB  for the year ended
February 29, 1996.

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
research  and  development  of  technologies   for  the   sterilization   and/or
disinfection  of surgical and medical  instruments,  the  manufacture,  sale and
installation  of ozone  washing and laundry  sorting  and  counting  systems for
commercial  and  institutional  laundries,  and  the  manufacture  and  sale  of
specialty chemicals.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned  subsidiaries.  All intercompany  balances and transactions
have been eliminated.

Revenue Recognition

Revenue is recognized upon shipment, or in the case of washing and laundry
systems,  upon  installation  and customer  acceptance.  Payments  received from
customers prior to installation and customer acceptance are recorded as deferred
revenue.

Short-term Investments

The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain  Investments in Debt and Equity  Securities"  (SFAS 115)
which requires investment securities to be classified as



 
                                                               - 8 -
<PAGE>



CYCLO3PSS CORPORATION
Notes to Consolidated Financial Statements


either held to maturity, trading or available for sale. The Company
classifies its short-term investments as available-for-sale.  Available-for-sale
securities are carried at fair value,  with unrealized gains and losses,  net of
tax, reported in a separate component of stockholders' equity. Realized gains or
losses   and   declines   in  value   judged  to  be   other-than-temporary   on
available-for-sale  securities are included in the statement of operations.  The
cost of securities sold is based on the specific identification method. Interest
on securities classified as available-for-sale are included in interest income.

Inventories

Inventories consist of raw materials and work-in-process and are stated at
the lower of cost or market, cost being determined using the first-in, first-out
method.  Inventories of the following:

                                              August 31,          February 29,
                                                 1996                  1996

         Raw materials                         $205,034             $288,450
         Work-in-process                         90,939              120,439
                                              --------------------------------
                                               $295,973              $408,889
                                              --------------------------------

Other Assets

Other assets consist primarily of goodwill and acquired patents which are
recorded  at the  lower of cost or  their  net  realizable  value.  Goodwill  is
amortized  over five years.  Acquired and  developed  patents are amortized on a
straight-line  basis over the  shorter of their  estimated  useful  lives or the
remaining   life  of  the   patent.   The  Company   periodically   reviews  the
recoverability  of these intangible  assets in order to record them at their net
realizable value.

Net Loss per Common Share

Net loss per common share is calculated based on the weighted average
number of shares of common  stock  outstanding  during the period.  Common stock
equivalents  are not  included  in the  computation  as  their  effect  would be
anti-dilutive.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of contingent 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.




                                                               - 9 -
<PAGE>



     CYCLO3PSS CORPORATION
     Notes to Consolidated Financial Statements
------------------------------------------------------------------------------



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 net
loss for the quarter ended August 31, 1996 was $532,286. In the past the Company
has been able to  receive  funding  necessary  for its  operations  through  the
issuance of common stock. The Company  anticipates a net loss for the year ended
February 28, 1997.

The Company believes that its current conditions are a result of 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 trying to improve these conditions by way of financial
assistance  through  collaborative  partnering  agreements,  closely held common
stock issuances,  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 over the
next fiscal year.

During the three months ended August 31, 1996, the Company engaged in an
offering of Series "B"  Preferred  Stock.  This Series "B"  Preferred  Stock was
designated by the Board of Directors on May 30, 1996. As of August 31, 1996, net
proceeds  of  $2,755,000  had  been  received  in cash by the  Company,  and the
offering was closed.

3. Long-Term Debt

During the year ended February 29, 1996, the Company's Board of Directors
approved 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 Board of  Directors  has
reserved  2,022,714  shares of the Company's  common stock for the conversion of
debt and exercise of warrants  offered with the  convertible  debt. As of August
31, 1996,  the Company had 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.  Interest  expense of $71,487 was recorded for
the six months ended August 31, 1996.



 
                                                               - 10 -
<PAGE>



CYCLO3PSS CORPORATION
Notes to Consolidated Financial Statements
-----------------------------------------------------------------------------



The carrying amount of long-term debt approximates fair value. The fair
value of the Company's  long-term debt was estimated using  discounted cash flow
analysis, based on the Company's current incremental borrowing rates for similar
types of debt arrangements.

4. Stockholders' Equity

On May 30, 1996 the Board of Directors designated series "B" preferred
stock which  consists of 30,000 shares of  non-voting  stock with a par value of
$.01. The stated value is $1,000 per share. As of August 31, 1996,  3,170 shares
of series "B"  preferred  stock had been issued with net proceeds of  $2,755,000
and net issuance cost of $415,000.  As of August 31, 1996,  800 shares of series
"B" preferred  stock has been converted  into 1,248,566  shares of common stock.
These conversions were made at 70% of the "Average Stock Price" as designated by
the Board of  Directors  and further  defined as the average  daily  closing bid
prices  of  common  shares  for the  period  of five  consecutive  trading  days
immediately  proceeding  the date of  conversion  of the series B shares.  As of
August 31, 1996, 19,498 shares of common stock are to be issued for dividends on
all series "B" preferred stocks issued and outstanding. Dividends are accrued at
the rate of 8% percent per annum, commencing on the date of issuance thereof.
 
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, 1996.





                                                               - 11 -
<PAGE>




                                 PART I - ITEM 2

                       MANAGEMENTS DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The Company was an inactive corporation from the 1930's to 1987. From the
commencement  of operations  in 1987 until July of 1994,  the Company was in the
development  stage  engaged  primarily in the research  and  development  of its
products. From the period since reactivation (March 2, 1987) to August 31, 1996,
the Company has incurred cumulative net losses of approximately $9,844,655.  The
Company expects to continue to incur losses into next year.

The Company's future operating results will depend on many factors,
including  the  timing  of the  FDA  marketing  clearance,  the  demand  for the
Company's medical  sterilization  products at that time, and industry acceptance
of the Company's laundry technologies,  system equipment and attendant products.
Additional  factors include the Company's  ability to manufacture and market its
products on a cost-effective  basis, the level of competition and the ability of
the Company to develop product  enhancements  and new products and to obtain the
required financing.

Results of Operations

The Company's revenues were $215,980 for the six months ended August 31,
1996, and $272,649 for the six months ended August 31, 1995. The revenue for the
three months ended August 31, 1996,  were $122,925  compared to $174,185 for the
three  months  ended August 31,  1995.  Only 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,  1996 was $50,393
compared to $161,883 for the six months ended August 31, 1995. The gross margin
for the three months ended  August 31, 1996,  was $134,103  compared to $263,004
for the three months ended  August 31,  1995.  This  decrease in gross margin is
primarily  attributable  to the  reduction  of CTS  sales as the  result  of the
Company's  decision to interrupt  the direct sale of systems  until the redesign
effort was completed and dependable systems could be reintroduced to the market.
 
The Company incurred research and development expenses of $400,947 for the
six months  ended  August 31, 1996 and  $375,594 for the six months ended August
31, 1995.  Research and  development  expenditures  were  $166,676 for the three
months ended August 31, 1996, and $165,664 for the three months ended August 31,
1995. Management sees no continued overall reduction of research and development
expenses.  These costs will continue to be expended as certain products complete
the development process and are commercialized.
 
The Company incurred general and administrative expenses of $571,191 for
the six months ended  August 31,  1996,  compared to $975,533 for the six months
ended August 31, 1995. General and administrative  expenses for the three months
ended  August 31, 1996 were  $257,028  and  $437,189  for the three months ended
August 31, 1995.  This decrease is due generally to decrease in staffing.  Also,
Management has taken aggressive steps to reduce current monthly expenses. As the
Company   completes   development   on  certain   products   and   prepares  for
commercialization, the human resource requirements of the Company will change.

 
                                                               - 12 -
<PAGE>

 
 

     The Company incurred selling and marketing  expenses of $84,621 for the six
months  ended  August 31,  1996,  compared to $310,735  for the six months ended
August 31, 1995.  The selling and marketing  expenses for the three months ended
August 31, 1996 were  $33,384 and $212,492 for the three months ended August 31,
1995. This decrease is mainly attributed to the Clean Show '95 expenses incurred
by the Company in June of 1995. The Company  anticipates  marketing  expenses to
increase  slightly  in the fiscal  year 1997 due to the hiring and  training  of
additional  marketing  personnel  and  the  attendant  costs  related  to  their
endeavors.   The  Company  will  also  increase  marketing  activity  and  incur
additional  expenses should it receive  positive  indications from the FDA as to
marketing clearance for its medical sterilization systems during the year 1997.
 
     For the six months ended August 31, 1996,  the Company had interest  income
of $11,623 as compared to interest  income for the six months  ended  August 31,
1995, of $19,022. The interest income for the three months ended August 31, 1996
was $9,520  compared to interest  income of $14,910 for the three  months  ended
August 31,  1995.  The Company  anticipates  that this  amount will  continue to
increase  due to the  increase  in the  company's  cash  resources  which  earns
interest.  New funds  received by the Company  will be  allocated  to short term
investments.

     The  Company's  net loss  for the six  months  ended  August  31,  1996 was
$1,322,412,  as compared to the six months ended August 31, 1995 of  $1,679,121.
The  Company's  net loss for three  months ended August 31, 1996 was $532,286 as
compared to the three  months  ended  August 31, 1995 of  $801,516.  The Company
anticipates that it will operate at a loss for the year ended February 28, 1997.
However,  it is anticipated that the losses should begin to diminish if and when
the revenues of CyclO3PSS Textile Systems, Inc. begin to accelerate.

Liquidity and Capital Resources
 
During the three months ended August 31, 1996, the Company offered its
series "B" preferred  stock,  as designated by the Board of Directors on May 30,
1996. As a result,  $2,755,000 has been received in cash by the Company,  net of
issuance cost of $415,000. The offering was closed on August 16, 1996. There are
no assurances that future efforts to locate and secure additional financing will
be successful.  The failure to secure additional  financing could  substantially
alter  the  management's  assumptions  as  presented  in the  remainder  of this
section.

No investment activities were recorded for the six months ended August 31,
1996  compared to  $1,018,473  for the six months ended  August 31,  1995.  This
decrease is due to the sell of all the Company's short term investments.

Cash used in operating activities was $889,237 for the six months ended
August 31,  1996,  compared to  $1,661,675  for the six months  ended August 31,
1995.  Cash used for the six months ended August 31, 1996 was  comprised of cash
on hand and  collections of accounts  receivable,  which is comprised of service
and part sales from CyclO3PSS Textile Systems, Inc. and contract development and
chemical compound sales from CyclO3PSS Biochemical Corporation.

Total assets increased to $4,559,656 for six months ended August 31, 1996
from  $3,374,425 for the six months ended August 31, 1995,  primarily due to the
increase in the Company's  cash as a result of net proceeds of  $2,755,000  from
the issuance of series B preferred stock.






                                                               - 13 -
<PAGE>


Total current liabilities increased slightly to $442,514 for the six months
ended  August 31, 1996 from  $417,300  for the six months ended August 31, 1995.
All of the Company's  current  liabilities at August 31, 1996 were attributed to
accounts  payable,  accruals and deferred  revenues,  and the current portion of
certain capital equipment leases. Long term liabilities  increased to $1,375,126
for the six  months  ended  August  31,  1996 from  $944,289  for the year ended
February 29, 1996. Of the total,  $1,312,150  represents  principal and interest
debt  generated  on one of the  Company's  financing  which was an  offering of
convertible debt instruments.  The additional  $62,976  represents the long term
portion of leases payable for certain leased equipment,  compared to $54,626 for
the years ended February 29, 1996.

     On   October 17, 1995 the Board of Directors  approved the issuance of a up
          to $3,000,000 of Convertible  Secured  Promissory  Notes to investors.
          The Convertible Notes which include warrants to purchase shares of the
          Company's  restricted  common  stock at $4.00  per  share,  also  bear
          interest at a rate of 12% per annum.  Both the interest and  principal
          are convertible to shares of the Company's  restricted common stock at
          $3.50 per share.  The  conversion  shares and warrants  carry  certain
          registration  rights and requirements.  These notes are secured by all
          assets of the  Company.  As of August 31,  1996,  $1,226,000  had been
          received from this offering.

 
Plan of Operation

The anticipated plan of operation during the next twelve (12) months is to
complete the following:

          1.   The continued  review of the  engineering  and design elements of
               the  STER-O3-ZONETM  100 in order to determine  an efficient  and
               cost  effective  manner  in  which  to  correct  certain  process
               controls of the system.  2.  Evaluate and determine the time line
               required  to execute  the design  changes to the STER-  O3-ZONETM
               100. Determine what action to take with the FDA in respect to the
               current  pending  application of the Company's  510(k)  Premarket
               Notification  for the  STER-O3-ZONETM  100.  The Company will not
               engage in any pre-approval sales under the Investigational Device
               Exemption  (IDE)  of the  STER-O3-ZONETM  100  until  the  design
               changes have been fully resolved.

          3.   Continuation  of  validation  testing  of  the  Company's  liquid
               chemical  sterilant,  SterOxTM,  preparatory to submission of the
               510(k)  Premarket  Notification  to the FDA. To be  determined is
               whether this will be completed by the Company or with an existing
               market  leader of liquid  disinfectants  resulting  in a possible
               licensing  agreement  to complete  the testing on this product as
               well as  formalization  of the  application  and  presentation of
               SterOxTM to the FDA.

          4.   Continued  development  of  products  and  enhancements  for  the
               Company's textiles subsidiary which include:

               (1) Completion of validation testing for the application for cold
               water  ozone   disinfection   of  health  care   textiles,   both
               domestically and abroad.
 
               (2)  Reintroduction  and  sales  of  the  Company's  revised  and
               modified  Vacuum Soils  Counting  System (VAC) and ozone  washing
               systems.
 
               (3)  Aggressive  marketing  of the revised and  modified  textile
               products. Additional plans to market

 
                                                               - 14 -
<PAGE>

               through proposed  strategic  alliances with parties  currently in
               negotiation.

          5.   Continuation  of contract  research  and  development  within the
               Biochemical  subsidiary and the ongoing  manufacture and sales of
               its existing and future specialty chemicals product line.
 
          6.   With  appropriate  financing  in place,  there may be  additional
               diversification  of the  Company's  business  activities  through
               future acquisitions.

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 of the 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.  Management  has  taken  aggressive  steps to reduce
current monthly expenses by reducing  personnel and other expenses.  The Company
anticipates that no more than six additional  employees will be hired during the
next twelve months, unless: (1). the market acceptance of the textile systems is
accelerated;  (2).  the  sterilizer  products  are approved by the FDA in a more
timely  manner than  management  predicts.  It is  anticipated  that general and
administrative  expenses  would  not  increase  by  more  than  $600,000  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 FDA review process,
the availability of new  technologies,  and the success of the marketing efforts
for existing products.

PART II - OTHER INFORMATION

          Item 1. Legal Proceedings. None.

          Item 2. Changes in Securities. None.

          Item 3. Defaults Upon Senior Securities. None.

          Item 4. Submission of Matters to a Vote of Security Holders. None.

          Item 5. Other  Information.  On May 30,  1996,  the Board of Directors
                  designated a Series "B" Preferred  Stock for an offering to
                  raise capital for ongoing cash  requirements.  As of the
                  quarter  ended August 31, 1996  $2,755,000  (net) has been
                  received  pursuant to this offering and it has been closed.

       Item 6(a). Exhibits.  None.
       Item 6(b). Reports on Forms 8 - K. A Form 8-K was filed on August 16,
                  1996, to report $1,400,000 capital raised from sale of
                  Company's equity  securities, accompanied by consolidated
                  financial statements as of June 30, 1996

       Item 6(c). Reports on Form S 8. A registration of 300,000 shares of
                  common stock was filed on form S-8 on August 20, 1996, to
                  register shares which were authorized to Mr. John Sloan in 
                  consideration of a consulting contract and the related
                  services to be provided.




                                                               - 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 14, 1996               By/s/ John M. Williams         
                                     John M. Williams
                                     Chief Executive Officer
                                     Chairman
                                     Principal Executive Officer



Date: October 14, 1996               By/s/ William R. Stoddard      
                                     William R. Stoddard
                                     President
                                     Principal Financial Officer