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

                                   FORM 10-QSB

                QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended October 31, 1997

                        Gateway Data Sciences Corporation
        -----------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)


              Arizona                                 86-0527788
              -------                                 ----------
   (State or other jurisdiction of            (IRS Employer Identification)
   incorporation or organization)



                   3410 E. University Drive, Phoenix, AZ 85034
                   -------------------------------------------
                    (Address of principal executive offices)

                                 (602) 968-7000
                ------------------------------------------------
                (Issuer's telephone number, including area code)


Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15 (d) of the  Exchange Act during the past 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
    -----      -----

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity:  2,838,138  shares of common  stock,  $.01 par value (as of December 22,
1997)
<PAGE>
                GATEWAY DATA SCIENCES CORPORATION AND SUBSIDIARY
                                      INDEX


                                                                        Page

PART I.           FINANCIAL INFORMATION

Item 1.           Financial Statements

                  Consolidated Balance Sheets as of October 31, 1997
                  and January 31, 1997                                    3

                  Consolidated Statements of Operations for the
                  three months and nine months ended
                  October 31, 1997 and 1996                               4

                  Consolidated Statements of Cash Flows for the
                  nine months ended October 31, 1997 and 1996             5

                  Notes to Consolidated Financial Statements              6

Item 2.           Management's Discussion and Analysis of
                  Financial Condition and Results of Operations           9

PART II. OTHER INFORMATION                                               18

                  Signatures                                             19
                                      -2-
<PAGE>
PART I, ITEM 1.   FINANCIAL STATEMENTS

                GATEWAY DATA SCIENCES CORPORATION AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
            AS OF OCTOBER 31, 1997 ( UNAUDITED) AND JANUARY 31, 1997
<TABLE>
<CAPTION>
                                                                          October 31,    January 31,
                                                                              1997          1997
                                                                         -------------  -------------
<S>                                                                      <C>            <C>          
ASSETS
CURRENT ASSETS:
   Cash and cash equivalents                                             $       2,197  $     936,232
   Trade receivables  --  less allowance of 
     $577,000 and $112,300, respectively                                     1,121,159      7,684,086
   Inventories                                                                 670,947      2,420,393
   Prepaid expenses and other assets                                           521,838        432,140
                                                                         -------------  -------------

                  Total current assets                                       2,316,141     11,472,851

PROPERTY AND EQUIPMENT  --  Net                                              1,020,466      1,794,894
NET INVESTMENT IN LEASE RESIDUALS                                            1,223,627      1,663,870
ACCOUNTS RECEIVABLE - Long Term                                              3,803,055           --
OTHER ASSETS                                                                   952,836        666,884
                                                                         -------------  -------------

                                                                         $   9,316,124  $  15,598,498
                                                                         =============  =============

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
   Accounts payable                                                      $   3,596,435      1,452,775
   Accrued liabilities                                                         401,884      2,889,574
   Accrued payroll and benefits                                                972,789        346,319
   Line of Credit                                                            1,055,549             --
   Current portion of notes payable                                            637,153        161,438
   Current portion of capital lease obligations                                 25,313         74,375
   Deferred revenue                                                            952,870      1,058,759
                                                                         -------------  -------------

                  Total current liabilities                                  7,641,993      5,204,674

DEFERRED REVENUE, recognized after one year                                  1,305,491      1,785,266
NOTES PAYABLE, less current portion                                            140,388        280,600
CAPITAL LEASE OBLIGATIONS, less current portion                                 45,990         56,445
OTHER LONG TERM LIABILITIES                                                     56,792             --
                                                                         -------------  -------------

                  Total liabilities                                          9,190,654      8,105,552
                                                                         -------------  -------------

COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
   Preferred stock, $.01 par value, 5,000,000 shares authorized,
     no shares issued and outstanding                                             --             --
   Common stock, $.01 par value, 20,000,000 shares authorized,
     2,838,138 shares issued and outstanding at October 31, 1997 and
     2,813,312 shares issued and outstanding at January 31, 1997                28,381         28,133
   Additional paid-in capital                                                9,309,016      9,203,940
   Deferred compensation                                                        (8,139)          --
   Accumulated deficit                                                      (9,203,788)    (1,739,128)
                                                                         -------------- --------------

                  Total shareholders' equity                                   125,470      7,492,946
                                                                         -------------  -------------

                                                                         $   9,316,124  $  15,598,498
                                                                         =============  =============
</TABLE>
                 See notes to consolidated financial statements.
                                      -3-
<PAGE>
                GATEWAY DATA SCIENCES CORPORATION AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS

          FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
                                                 Three Months Ended                       Nine Months Ended
                                                     October 31,                              October 31,
                                                     (Unaudited)                              (Unaudited)
                                                 1997             1996                     1997           1996
                                                 ----             ----                     ----           ----
<S>                                         <C>               <C>                     <C>            <C>           
REVENUE
   Product                                  $    1,424,625    $   7,163,221           $   8,561,380  $   14,383,153
   Software license                                 67,659          667,587               1,780,079       2,931,028
   Maintenance and support services                214,087          123,076                 586,468         354,473
   Professional services                           216,351          709,884               1,820,775       1,751,371
                                            --------------    -------------           -------------  --------------
                  Total revenue                  1,922,722        8,663,768              12,748,702      19,420,025
                                            --------------    -------------           -------------  --------------

OPERATING EXPENSES:
   Products sold                                 4,065,166        4,909,630               8,873,991      10,064,921
   Software development                          1,071,410        1,016,712               3,371,696       2,825,201
   Maintenance and support services                152,904          153,194                 432,750         438,142
   Professional services                           495,424          641,523               1,467,020       1,553,840
   Sales and marketing                           1,278,393          492,950               2,935,396       1,365,073
   General and administrative                    1,544,273          625,113               2,788,303       1,442,635
   Restructuring charges                              --               --                   107,582            --
                                            --------------    -------------           -------------  ------------

                  Total expenses                 8,607,570        7,839,122              19,976,738      17,689,812
                                            --------------    -------------           -------------  --------------

INCOME (LOSS) FROM OPERATIONS                   (6,684,848)         824,646              (7,228,036)      1,730,213

OTHER (INCOME) EXPENSE:
   Interest expense                                109,432          101,469                 339,595         188,505
   Other, net                                      (31,277)            (294)               (102,971)         (1,890)
                                            ---------------   --------------          -------------- ---------------

                  Total other expense, net          78,155          101,763                 236,624         186,615
                                            --------------    -------------           -------------  --------------

INCOME (LOSS) BEFORE INCOME TAXES               (6,763,003)         722,883              (7,464,660)      1,543,598

PROVISION FOR INCOME TAXES                            --               --                      --              --
                                            --------------    -------------           -------------  ------------

NET INCOME (LOSS)                           $   (6,763,003)   $     722,883           $  (7,464,660) $    1,543,598
                                            ==============    =============           =============  ==============

NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT
    SHARE (Note 2)                          $        (2.38)   $         .26           $       (2.58) $          .57
                                            ==============    =============           =============  ==============

COMMON AND COMMON
  EQUIVALENT SHARES
    OUTSTANDING (Note 2)                         2,838,138        2,819,776               3,121,394       2,610,456
                                            ==============    =============           =============  ==============
</TABLE>
                 See notes to consolidated financial statements.
                                       -4-
<PAGE>
                GATEWAY DATA SCIENCES CORPORATION AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

               FOR THE NINE MONTHS ENDED OCTOBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
                                                                                         Nine Months Ended October 31,
                                                                                         -----------------------------
                                                                                             1997           1996
                                                                                             ----           ----
                                                                                                  (Unaudited)
<S>                                                                                     <C>             <C>          
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income......................................................................     $  (7,464,660)  $     820,716
   Adjustments to reconcile net income (loss) to net cash used in
       operating activities:
       Depreciation and amortization...............................................           438,456         266,017
       Amortization of deferred compensation.......................................            11,394           7,800
       Net loss on property dispositions and other.................................            30,112            --
   Effect of changes in assets and liabilities:
       Trade receivables...........................................................         2,759,872      (3,429,125)
       Inventories.................................................................         1,749,446      (1,078,645)
       Prepaid expenses and other assets...........................................          (375,651)        140,726
       Accounts payable............................................................         2,143,663         533,646
       Accrued liabilities.........................................................        (2,430,900)       (786,993)
       Accrued payroll and benefits................................................           626,470         209,627
       Deferred revenue............................................................          (585,665)         79,377
                                                                                        -------------   -------------

                  Net cash used in operating activities............................        (3,097,463)     (3,236,854)
                                                                                        -------------   -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment..............................................          (464,207)       (802,424)
   Proceeds from sale of property and equipment....................................           770,067            --
   Net investment in lease residuals...............................................           440,243         138,424
                                                                                        -------------   -------------

                  Net cash (used in) provided by  investing activities.............           746,103        (664,000)
                                                                                        -------------   -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net proceeds from initial public offering.......................................              --         6,531,809
   Proceeds from additional borrowings  on notes payable...........................           454,000            --
   Principal payments on notes payable.............................................          (118,498)       (875,350)
   Principal payments on capital lease obligations.................................           (59,517)        (28,543)
   Additional borrowings on capital lease obligations..............................              --            66,344
   Borrowings on line of credit....................................................         1,055,549         984,011
   Proceeds from issuance of common stock..........................................            85,791          51,057
   Net payments to officers and employees..........................................              --          (536,172)
                                                                                        -------------   -------------

                  Net cash provided by financing activities........................         1,417,325       6,193,156
                                                                                        -------------   -------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS...............................          (934,035)      2,292,302

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.....................................           936,232          93,402
                                                                                        -------------   -------------

CASH AND CASH EQUIVALENTS, END OF PERIOD...........................................     $       2,197   $   2,385,704
                                                                                        =============   =============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid during the period for interest........................................     $     339,595   $      87,036
                                                                                        =============   =============

   Cash paid during the period for income taxes....................................     $        --     $      39,500
                                                                                        =============   =============

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND
   FINANCING ACTIVITIES:
   Fair market value of stock issued to non-employee directors.....................     $      19,533   $      15,600
                                                                                        =============   =============
</TABLE>
                 See notes to consolidated financial statements
                                      -5-
<PAGE>
                GATEWAY DATA SCIENCES CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                OCTOBER 31, 1997



1.   INTERIM FINANCIAL REPORTING

         The accompanying  unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB. Accordingly,  they do
not include all the  information  and footnotes  required by generally  accepted
accounting  principles  for  complete  financial  statements.  In the opinion of
management,  all adjustments  (which include only normal recurring  adjustments)
necessary to present fairly the financial position,  results of operations,  and
cash flows for the periods  presented  have been made. The results of operations
for the three and nine-month  periods ended October 31, 1997 are not necessarily
indicative  of the  operating  results  that may be expected for the entire year
ending  January  31,  1998.  These  financial   statements  should  be  read  in
conjunction with the Company's Form 10-KSB for the fiscal year ended January 31,
1997.

2.   NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

         Net income per common and common equivalent share is computed using the
weighted  average  number of common and  common  equivalent  shares  outstanding
during  each  period.  Common  stock  equivalents  consist of stock  options and
warrants.

3.    OTHER

      The  Company  is party to  various  legal and  administrative  proceedings
arising  in the  ordinary  course of  business.  The  Company is  involved  in a
material  dispute  with  a  customer.  The  dispute  involves  a  receivable  of
$3,803,055 at October 31, 1997. On May 30, 1997, the customer filed suit against
the Company in the United  States  District  Court for the  Eastern  District of
Wisconsin (Case No. 97-C-0635).  The complaint alleges that the Company breached
its  contract  with the  customer by (i) failing to deliver and install  certain
software  products,  (ii) failing to use its best efforts to achieve  productive
use of the  Company's  software  products,  and (iii)  failing  to  provide  its
professional  consulting  services  in a  reasonable,  workmanlike  manner.  The
customer is seeking an unspecified amount of damages and a declaratory  judgment
with  respect  to the  parties'  respective  rights and legal  obligations.  The
complaint  also alleges that the Company acted in a fraudulent  manner by making
false  representations  to the  customer  in  connection  with  the  contractual
agreements between the Company and the customer.  On October 15, 1997, the court
dismissed the customer's fraud claim against the Company.  The Company has filed
a  counterclaim  for the amounts that the Company claims the customer owes under
the  contract  and has  filed an answer  denying  the  customer's  claims in the
complaint.  The Company  intends to vigorously  pursue its  counterclaim  and to
vigorously defend the lawsuit by the customer.  In the event that the Company is
unable to obtain a successful decision on its counterclaim or a decision adverse
to the  Company is  rendered  with  respect to the claims by the  customer,  the
resolution of this matter could have a material adverse effect on the Company.
                                      -6-
<PAGE>
4.   TRANSACTIONS WITH RELATED PARTIES

     Included  in Other  Assets is a  receivable  due from a  related  entity of
approximately  $852,000. The amounts due represent a receivable of approximately
$732,000 for management and consulting  services  provided by Company  personnel
during the year, and  approximately  $120,000 for certain expenses  incurred for
the affiliate.  Certain executives of the Company maintain a direct interest and
managerial  role  in the  related  entity.  The  receivable  is  recorded  as an
arms-length  transaction at the estimated fair value of services  performed.  In
addition,  management  believes the balance is fully collectible and a valuation
allowance has not been recorded.

     In January 1997, the Company entered into an equipment lease agreement with
Anderson & Wells Investment  Companies,  an affiliate of Gregory S. Anderson and
Larry J.  Wells,  who are  directors  of the  Company.  The lease  provides  for
payments  totaling   approximately  $675,700  to  Anderson  &  Wells  Investment
Companies during the period from January 1997 to November 1999.

     In July 1997,  Michael M.  Gordon,  the  Company's  Chairman  of the Board,
President  and Chief  Executive  Officer,  and Mr.  Gordon's  spouse  personally
guaranteed the Company's  indebtedness  under its line of credit.  The guarantee
includes the pledge of all of the Company's  common stock held by Mr. Gordon and
his spouse. Outstanding borrowings under the line of credit that were guaranteed
by Mr. Gordon and his spouse total  approximately $1.1 million as of October 31,
1997.

     In August  1997,the  Company entered into an equipment lease agreement with
Anderson & Wells Investment  Companies,  an affiliate of Gregory S. Anderson and
Larry J.  Wells,  who are  directors  of the  Company.  The lease  provides  for
payments  totaling   approximately  $770,100  to  Anderson  &  Wells  Investment
Companies during the period from August 1997 to November 1999.

     Included  in  Notes  Payable  are  amounts  due to  certain  directors  and
affiliates  of directors of the company.  In October 1997,  the Company  entered
into a unsecured note payable  transaction with Steven A. Rothstein,  a director
of the  Company.  The note  payable is in the amount of $100,000  and matures on
December 31, 1997,  together with interest  payable at 14% per annum, or 18% per
annum should the principal  payment  become  overdue.  The note provides for the
Company to issue  30,769  shares of common  stock of the Company in  conjunction
with the note; the Company to issue an additional  30,769 shares of Common Stock
of the  Company  should  the note not be paid  before  November  14,  1997;  and
warrants to purchase 61,538 shares of Common Stock of the Company at an exercise
price of $1.63 per share if the note is not paid before  November 28, 1997.  The
Company  issued  those shares of Common Stock of the Company and the warrants to
Mr. Rothstein in December 1997.

     In  October  1997,  the  Company  entered  into a  unsecured  note  payable
transaction  with  Sundance  VenturePartners,  L.P.,  an affiliate of Gregory S.
Anderson and Larry J. Wells, who are directors of the Company.  The note payable
is in the amount of $54,000 and  matures on December  29,  1997,  together  with
interest payable at 14% per annum, or 18% per annum should the principal payment
become  overdue.  The note  provides for the Company to issue  16,615  shares of
Common Stock of the Company in  conjunction  with the note; the Company to issue
an additional  16,616 shares of Common Stock of the Company  should the note not
be paid before  November 12, 1997;  and  warrants to purchase  33,231  shares of
Common Stock of the Company at an exercise  price of $1.63 per share if the note
is not paid before  November 26, 1997. The Company issued those shares of Common
Stock of the Company and the warrants to Mr. Anderson in December 1997.

     In  November  1997,  the Company  entered  into a  unsecured  note  payable
transaction  with  Gregory S.  Anderson,  a director  of the  Company.  The note
payable  is in the amount of $46,000  and  matures on January 3, 1998,  together
with  interest  payable at 14% per annum,  or 18% per annum should the principal
payment become overdue. The note provides for the Company to issue 14,154 
                                      -7-
<PAGE>
shares of Common Stock of the Company in conjunction  with the note; the Company
to issue an additional  14,153 shares of Common Stock of the Company  should the
note not be paid before  November  17,  1997;  and  warrants to purchase  28,307
shares of Common Stock of the Company at an exercise price of $1.63 per share if
the note is not paid before  November 28, 1997.  The Company issued those shares
of common  stock of the  Company and the  warrants  to Mr.  Anderson in December
1997.
                                      -8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS

Statement Regarding Forward-Looking Statements

         The statements  contained in this Report that are not purely historical
are  forward-looking  statements  within  the  meaning  of  Section  27A  of the
Securities Act of 1933 and Section 21E of the  Securities  Exchange Act of 1934,
including  statements  regarding the Company's  "expectations,"  "anticipation,"
"intentions,"  "beliefs," or "strategies" regarding the future.  Forward-looking
statements include statements regarding revenue, margins, expenses, and earnings
analysis for fiscal 1998 and thereafter; future products or product development;
future research and development  spending and the Company's product  development
strategy;  and  liquidity  and  anticipated  cash  needs and  availability.  All
forward-looking  statements  included  in this  Report are based on  information
available to the Company on the date of this Report,  and the Company assumes no
obligation to update any such forward-looking statement. It is important to note
that the Company's  actual  results could differ  materially  from those in such
forward-looking statements. Among the factors that could cause actual results to
differ  materially  are the factors  discussed in the  Company's  Report on Form
10-KSB, Item 1, "Special Considerations."

Operations

         Gateway Data Sciences  Corporation (the "Company") and its wholly owned
subsidiary,  Gateway Credit Corporation ("GCC"),  design,  develop,  market, and
implement  software  products and provide related  customer support services for
retail and warehouse management systems. The Company also provides  professional
services   including   product   installation,    training,   maintenance,   and
customization in conjunction with sales of its software products.

     Prior to August 1, 1997,  the Company  has  generated  the  majority of its
revenue  from the resale of hardware  and  software  products  produced by third
parties,  primarily  International  Business  Machines Corp.  ("IBM") AS/400 and
related  peripheral  equipment.  The Company also has  historically  generated a
portion  of its  revenue  from the sale of its  proprietary  software  products,
primarily the  Kinetics(TM)  warehouse  management  system,  which was developed
exclusively  for use on the AS/400  platform,  and from  providing  professional
services related to these products.  Sales of IBM products,  including hardware,
software,  and  maintenance,  accounted  for  approximately  66%  and 56% of the
Company's  total  revenue  for the  years  ended  January  31,  1996  and  1997,
respectively,  and  approximately  54% and 49% for the nine months ended October
31, 1996 and 1997,  respectively.  The  Company's  reseller  agreement  with IBM
expired  in July 1997.  During the year ended  January  31,  1996,  the  Company
changed its business  strategy to focus on the  development and marketing of its
proprietary software products. In conjunction with this change in strategy,  the
Company  has  since  dedicated  many of its  resources  to the  development  and
marketing  of new  software  products.  The Company  anticipates  that this will
result in a change in its revenue mix. The Company  believes that,  although the
change in revenue mix may  initially  result in lower total  revenue,  it should
also result in improved gross profit margins as software revenue  increases as a
percentage  of total  revenue.  There  can be no  assurance,  however,  that the
Company will be able to  successfully  complete this  transition in its business
focus.

     The Company has marketed the  Kinetics(TM)  warehouse  management  software
product for several years.  Kinetics  currently  operates only on the IBM AS/400
family of midrange computers. Prior to January 31, 1997, the Company had derived
substantially  all of its  software  revenue from  Kinetics and other  IBM-based
software  products.  Future revenue from sales of Kinetics and related  services
will depend upon continued widespread use of IBM midrange computers and upon the
continued  support of such  computers by IBM. In  addition,  the Company will be
required to adapt Kinetics to any changes made by IBM to the AS/400's  operating
system software.  A significant shift 
                                      -9-
<PAGE>
away from IBM  midrange  computer  systems  by the  Company's  customers  or the
failure by IBM to continue  its support of these  systems  could have a material
adverse effect on the Company.

     During  the  year  ended   January  31,   1997,   the  Company   introduced
Transact(TM), a point-of-sale software product developed in Java(TM) that can be
utilized on a wide variety of point-of-sale  hardware  platforms.  Subsequent to
January 31,  1997,  the Company  introduced  MarketBuilder(TM),  a  relationship
marketing  system for retailers,  and  Crossfire(TM),  an  Internet-based  store
communication  system,  both of which are also  developed  in Java.  The Company
intends  to  increase  the  resources  dedicated  to  software  development  and
marketing  in  support of its newly  introduced  retail  point-of-sale  software
products.  These products have been generally  available  since October 1997 and
although  the  Company  has  not  yet  generated  significant  sales  of its new
Java-based products, it expects that the functionality of its new products,  the
flexibility  of Java-based  software,  and the personnel  changes that have been
made to focus on  software  development  and  marketing  efforts  will result in
sufficient future revenue to fund its ongoing operations.

         Cost of products  sold  includes  costs of those  software and hardware
products not manufactured by the Company and maintenance  resold by the Company.
The Company does not capitalize any software  development  costs associated with
the  development  of its  proprietary  software  products  and has  expensed all
payroll  and  related  costs for  software  development  as  incurred.  Software
development  cost also  includes  all other  general  and  administrative  costs
associated with software development personnel. Maintenance and support services
includes  cost of personnel and related  administrative  costs  associated  with
telephone  support of the Company's  software  products.  Professional  services
expense  consists of salaries,  benefits,  and other general and  administrative
costs  attributable  to  professional  services  personnel.  Sales and marketing
expenses  consist  primarily  of  salaries,  commissions,   benefits,  marketing
materials,   travel  expenses,   and  other  general  and  administrative  costs
associated  with or allocated to the Company's  sales and  marketing  personnel.
General and administrative  expenses include the cost of finance and accounting,
human  resources,   corporate  information  systems,  and  other  administrative
functions of the Company.

Results of Operations of the Company for the Three Months Ended October 31, 1997
and 1996

         Revenue. Total revenue decreased by 78% from approximately $8.7 million
in the three months ended October 31, 1996 to approximately  $1.9 million in the
three  months  ended  October 31, 1997.  Product  revenue  decreased by 80% from
approximately  $7.1  million  to  approximately  $1.4  million  during  the same
periods.  As a percentage of total revenue,  product revenue  decreased from 83%
during the three  months  ended  October 31, 1996 to 74% during the three months
ended  October  31,  1997.  Software  license  revenue  decreased  by  90%  from
approximately   $668,000  in  the  three  months  ended   October  31,  1996  to
approximately  $68,000  in  the  three  months  ended  October  31,  1997.  As a
percentage of total revenue,  software  license revenue  decreased from 8% to 4%
during the same periods. Maintenance and support revenue increased approximately
74% from  approximately  $123,000 in the three months ended  October 31, 1996 to
approximately  $214,000  in the  three  months  ended  October  31,  1997.  As a
percentage of total revenue,  maintenance revenue increased from 1% in the three
months  ended  October 31, 1996 to  approximately  11% in the three months ended
October 31, 1997. Professional services revenue decreased 70% from approximately
$710,,000 to  approximately  $216,000  during the three months ended October 31,
1996 and 1997,  respectively.  As a percentage  of total  revenue,  professional
services revenue  increased from 8% to 11% during the three months ended October
31, 1996 and 1997, respectively.

         The overall  decrease in total  revenue is  attributed  to decreases in
third-party product revenue, software revenue and professional services revenue,
partially offset by increases in maintenance and support services  revenue.  The
decrease  in  third  party  product  revenue  is due to  the  expiration  of the
Company's IBM reseller  agreement in July 1997. The Company continues to believe
that revenue from  third-party  products  will decrease as a percentage of total
revenue and that the total dollar amounts of revenue from  third-party  products
may decrease in the future. The
                                      -10-
<PAGE>
decrease in software  revenue is attributed  to reduced  sales of Kinetics,  the
unavailability of the Company's new software products, delayed customer purchase
orders,  and the cash flow  difficulties  experienced  by the Company during the
quarter. See "Liquidity and Capital Resources".  The increase in maintenance and
support services revenue is attributed to ongoing support  contracts,  primarily
from sales during the prior fiscal year and prior periods in the current  fiscal
year. The decrease in professional  services revenue resulted from the Company's
reduced software sales during the three months ended October 31, 1997.

         Cost of  Products  Sold.  Cost of  products  sold  decreased  17%  from
approximately  $4.9 million  during the three  months ended  October 31, 1996 to
approximately  $4.0 million during the three months ended October 31, 1997. As a
percentage of product revenue,  cost of products sold was  approximately 69% and
286% during the three months ended October 31, 1996 and 1997, respectively.  Due
to the cash flow  difficulties  during the nine months ending  October 31, 1997,
and continued cash flow  difficulties  subsequent to October 31, 1997, and in an
effort to quickly raise capital,  the Company liquidated  equipment  inventories
and  recorded  substantial  losses on such sales  during the three  months ended
October 31, 1997.

         Software  Development  Expense.  Software development expense increased
from  approximately  $1.0 million to approximately $1.1 million during the three
months  ended  October  31,  1996 and 1997,  respectively.  The 5%  increase  is
attributed to increased  research and  development  efforts  associated with the
development of the Company's  proprietary software products.  As a percentage of
total revenue, software development costs increased from 12% in the three months
ended October 31, 1996 to 56% in the three months ended October 31, 1997.

         Maintenance  and  Support  Services  Expense.  Maintenance  and support
services  expense  remained even at  approximately  $153,000 in the three months
ended  October 31, 1996 and in the three  months ended  October 31,  1997.  As a
percentage of total revenue,  maintenance and support services increased from at
2% to 8% of total  revenue  during the three months  ended  October 31, 1996 and
1997, respectively.

         Professional Services Expense.  Professional services expense decreased
by 23% from  approximately  $641,000 to approximately  $495,000 during the three
months ended October 31, 1996 and 1997,  respectively.  A reduction in personnel
contributed to this decrease.  As a percentage of professional services revenue,
professional  services  expense  increased  from 91% in the three  months  ended
October 31,  1996 to 229% in the three  months  ended  October  31,  1997.  This
increase as a  percentage  is  attributed  to decreased  levels of  professional
services revenue during the three months ended October 31, 1997.

         Sales and Marketing Expense. Sales and marketing expense increased 159%
from  approximately  $493,000 to approximately  $1.3 million in the three months
ended October 31, 1996 and 1997, respectively. The increase can be attributed to
the retirement of a prepaid marketing agreement,  additional sales and marketing
personnel, and an increased marketing presence at industry trade shows.

         General and Administrative Expense.  General and administrative expense
increased from approximately $625,000 in the three months ended October 31, 1996
to  approximately  $1.5 million in the three months ended October 31, 1997. This
147%  increase  is  attributed  to  increased  reserves  in  bad  debt  expense,
additional  personnel and associated  costs,  additional  insurance  costs,  and
increased building rent costs.

         Other Income  (Expense).  Interest expense was  approximately  $101,000
during the three months ended October 31, 1996,  as compared with  approximately
$109,000 during the three months ended October 31, 1997.
                                      -11-
<PAGE>
         Net Income  (Loss).  Net income  decreased  1,036%  from  approximately
$723,000,  or $.26 per share,  in the three months  ended  October 31, 1996 to a
deficit of  approximately  $(6.8  million),  or $(2.38) per share,  in the three
months ended October 31, 1997. The expiration of the reseller agreement with IBM
in July 1997,  the  material  dispute  with a  customer,  and  delayed  customer
purchases  have caused  significant  cash flow  difficulties,  which  forced the
liquidation  of assets below market value and resulted in the  substantial  loss
subsequent to July 31, 1997.

Results of  Operations of the Company for the Nine Months Ended October 31, 1997
and 1996

         Revenue.  Total revenue decreased 40% from approximately  $19.4 million
in the nine months  ended  October 31, 1996 to  approximately  $12.7  million at
October 31, 1997.  Product  revenue  decreased by 39% from  approximately  $14.4
million to approximately  $8.6 million during the same periods.  As a percentage
of total  revenue,  product  revenue  decreased  from 74% during the nine months
ended  October 31, 1996 to 67% during the nine months  ended  October 31,  1997.
Software license revenue decreased by 39% from approximately $2.9 million in the
nine months  ended  October 31, 1996 to  approximately  $1.8 million in the nine
months  ended  October 31,  1997.  As a percentage  of total  revenue,  software
license revenue  decreased from 15% to 14% during the same periods.  Maintenance
and support  services revenue  increased  approximately  65% from  approximately
$354,000 in the nine months ended October 31, 1996 to approximately  $586,000 in
the nine months  ended  October 31,  1997.  As a  percentage  of total  revenue,
maintenance  revenue increased from 2% in the nine months ended October 31, 1996
to  approximately  5% in the nine months ended  October 31,  1997.  Professional
services revenue increased 4% from  approximately  $1.7 million to approximately
$1.8  million   during  the  nine  months  ended  October  31,  1996  and  1997,
respectively.  As a percentage of total revenue,  professional  services revenue
increased from 9% to 14% during the nine months ended October 31, 1996 and 1997,
respectively.

         The Company continues to believe that revenue from third-party products
will decrease as a percentage of total revenue and that the total dollar amounts
of revenue from third-party products may decrease in the future. The decrease in
software   revenue  is   attributed   to  reduced  sales  of  Kinetics  and  the
unavailability  of  the  Company's  new  software  products.   The  increase  in
maintenance  and  support  services  revenue is  attributed  to ongoing  support
contracts,  primarily  from sales during the prior fiscal year and prior periods
in the current  fiscal  year.  The  increase in  professional  services  revenue
resulted from the Company's continued focus on sales of its proprietary software
products,  as well as the Company's  continuing efforts to provide  professional
services to implement its software products.

         Cost of  Products  Sold.  Cost of  products  sold  decreased  12%  from
approximately  $10  million  during the nine  months  ended  October 31, 1996 to
approximately  $8.9 million  during the nine months ended October 31, 1997. As a
percentage of product revenue,  cost of products sold was  approximately 70% and
104% during the nine months ended October 31, 1996 and 1997,  respectively.  Due
to the cash flow  difficulties  during the nine months ending  October 31, 1997,
and continued cash flow  difficulties  subsequent to October 31, 1997, and in an
effort to quickly raise capital,  the Company liquidated  equipment  inventories
and  recorded  substantial  losses on such sales  during the three  months ended
October 31, 1997.

         Software  Development  Expense.  Software development expense increased
from  approximately  $2.8 million to approximately  $3.4 million during the nine
months  ended  October  31,  1996 and 1997,  respectively.  The 19%  increase is
attributed to increased  research and  development  efforts  associated with the
development of the Company's  proprietary software products.  As a percentage of
total revenue,  software development costs increased from 15% in the nine months
ended October 31, 1996 to 26% in the nine months ended October 31, 1997.

         Maintenance  and  Support  Services  Expense.  Maintenance  and support
services expense decreased by 1% from approximately  $438,000 in the nine months
ended  October 31,  1996,  to  
                                      -12-
<PAGE>
approximately  $432,000  in  the  nine  months  ended  October  31,  1997.  As a
percentage of total revenue,  maintenance and support services increased from 2%
to 3% of total  revenue  during the nine months ended October 31, 1996 and 1997,
respectively.

         Professional Services Expense.  Professional services expense decreased
by 6% from  approximately  $1.6 million to approximately $1.4 million during the
nine months ended  October 31, 1996 and 1997,  respectively.  As a percentage of
professional services revenue,  professional services expense decreased from 89%
in the nine  months  ended  October  31,  1996 to 81% in the nine  months  ended
October  31,  1997.  This  decrease  as a  percentage  is  attributed  to better
utilization of professional services personnel.

         Sales and Marketing Expense. Sales and marketing expense increased 115%
from approximately $1.4 million to approximately $2.9 million in the nine months
ended October 31, 1996 and 1997, respectively. The increase can be attributed to
the retirement of a prepaid  marketing  agreement,  costs incurred for marketing
literature, additional sales and marketing personnel, and an increased marketing
presence at industry trade shows.

         General and Administrative Expense.  General and administrative expense
increased from  approximately  $1.4 million in the nine months ended October 31,
1996 to  approximately  $2.8 million in the nine months ended  October 31, 1997.
This 93% increase is attributed to increased  reserves for bad debt,  additional
personnel  and  associated  costs,   additional   insurance  costs,   additional
professional fees, and increased building rent costs.

         Restructuring  Charge.  During the nine months ended  October 31, 1997,
the Company took a restructuring charge of approximately  $108,000.  This charge
was for costs  associated  with an  overall  decrease  of  approximately  27% of
personnel during August 1997.

         Other Income  (Expense).  Interest expense was  approximately  $189,000
during the nine months ended October 31, 1996,  as compared  with  approximately
$340,000  during the nine  months  ended  October  31,  1997.  Interest  expense
incurred on the  Company's  line of credit  contributed  to this  increase.  The
average outstanding balance on the line of credit was approximately $600,000 and
approximately  $2.1 million  during the nine months  ended  October 31, 1996 and
1997, respectively.

         Net Income (Loss).  Net income decreased 584% from  approximately  $1.5
million,  or $.57 per share,  in the nine  months  ended  October  31, 1996 to a
deficit of  approximately  $(7.4  million),  or $(2.58)  per share,  in the nine
months ended October 31, 1997. The expiration of the reseller agreement with IBM
in July 1997 and the material  dispute with a customer  have caused  significant
cash flow  difficulties,  which  forced the  liquidation  of assets below market
value and resulted in the substantial loss subsequent to July 31, 1997.

Liquidity and Capital Resources

         The Company's  working capital  position  decreased from  approximately
$2.6 million at January 31, 1997 to a deficit of approximately $(5.3 million) at
October 31, 1997.

         The Company used net cash of approximately  $3.1 million for operations
during the nine months ended October 31, 1997, primarily as a result of the loss
from  operations and the decrease in accrued  liabilities,  partially  offset by
decreases in accounts  receivable and  inventories,  and an increase in accounts
payable and accrued payroll and benefits.

         Capital expenditures for the nine months ended October 31, 1997 totaled
approximately  $464,000  for the  purchase of  computer  hardware  and  software
products  needed  for  the  continued  efficient  development  of the  Company's
proprietary software products. In August 1997, the
                                      -13
<PAGE>
Company  sold assets to a related  party which  resulted in the Company  leasing
those  assets from  Anderson  and Wells  Investment  Companies,  an affiliate of
Gregory S. Anderson and Larry J. Wells,  who are directors of the Company.  This
sale-leaseback  provided  approximately  $770,000 to the Company.  Subsequent to
October  1997,  the Company sold its  interest in the residual  value of certain
customer-owned leases to raise cash for operations that resulted in the decrease
of the value of those assets.

         Financing activities provided net cash of approximately $1.4 million in
the nine months ended  October 31,  1997.  This cash was provided by $454,000 of
notes payable with certain affiliated parties (see "Related Party Transactions")
and by  borrowings  on the  Company's  line of  credit  agreement  with  Norwest
Business  Credit,  Inc.  ("Norwest").  That line of  credit,  which  matures  on
February 21, 2000 provides borrowing capacity in the amount of the lower of $3.0
million or 80% of  accounts  receivable,  plus the lower of  $250,000  or 50% of
eligible  inventory,  as defined in the agreement.  Borrowings under the line of
credit are secured by substantially all of the Company's tangible and intangible
assets.  The  agreement,  as  subsequently  amended,  requires a $5,000  minimum
monthly fee that  includes  interest  calculated at the base lending rate (prime
rate) plus 2%, plus an unused  facility fee of .25%.  As of October 31, 1997 the
Company  was in  default  under  certain  covenants  on  this  line  of  credit.
Accordingly, Norwest has the right to demand payment of all amounts outstanding,
which amounted to  approximately  $1.1 million at October 31, 1997. In addition,
in October 1997,  Norwest  exercised its right not to provide  further  advances
under the line. In July 1997,  Michael M. Gordon,  the Company's Chairman of the
Board, President, and Chief Executive Officer and Mr. Gordon's spouse personally
guaranteed  the Company's  indebtedness  under this line of credit.  In November
1997,  Norwest amended its agreement in a Forbearance  Letter Agreement with the
following terms: (i) the Maximum Borrowing Base Loan Amount to be $275,000 until
December  31,  1997  and  $250,000  on or  after  December  31,  1997;  (ii)  an
Overadvance Loan (the  "Overadvance")  not to exceed $250,000 to be paid in full
on or before December 31, 1997 with 25% of proceeds from Ineligible Accounts (as
defined in the Security  Agreement) and 10% from the sale of lease  residuals to
be applied as a permanent  reduction of the Overadvance;  and (iii) on or before
December 31, 1997, borrowers and/or Guarantors shall cause the principal balance
to  be  permanently  reduced  to  not  more  than  $250,000.  Pursuant  to  this
arrangement,  Norwest  resumed making  advances to the Company in November 1997.
The Company  currently is seeking  additional  sources of  financing,  which may
include one or more private placements of debt or equity  securities.  There can
be no assurance that any  additional  financing will be available to the Company
or as to the terms of any such  financing  that is  available.  The inability to
obtain such  financing  could result in the inability of the Company to continue
as a going concern.  If such financing is not available in sufficient amounts or
on satisfactory  terms, the Company also may be unable to expand its business or
to develop new  customers at the rate desired and its  operating  results may be
adversely affected.

         The Company's  financial  statements  for the nine months ended October
31, 1997 have been  prepared  assuming that the Company will continue as a going
concern.  The Company had negative cash flow from  operations of $2,612,680  for
the year ended  January 31, 1997,  and  approximately  $3.1 million for the nine
months ended  October 31, 1997, is in default of the terms of its line of credit
agreement, does not have any readily available financing, is engaged in material
litigation  with a significant  customer,  recorded a net loss of  approximately
$6.7 million (unaudited) for the nine months ended October 31, 1997, and has not
yet generated  sufficient revenue from its software products to fund its ongoing
operations. Additionally, its IBM reseller agreement expired in July 1997. These
factors raise  substantial  doubt about the  Company's  ability to continue as a
going concern.  The Company's  plans with regards to these matters are described
in  "Business  Outlook and Risk  Factors,"  below.  The  consolidated  financial
statements do not include any  adjustments  relating to the  recoverability  and
classification  of asset carrying  amounts or the amount and  classification  of
liabilities  that might  result  should the  Company be unable to  continue as a
going concern.

         The  Company's  independent  public  accountants  have  reported to the
Company that, in the course of their audit of the Company's financial statements
for the fiscal year ended  January 31,  1997 
                                      -14-
<PAGE>
and their review of the unaudited financial  statements for the six months ended
July 31, 1997, they discovered  various  conditions that they believe constitute
material weaknesses in the Company's internal controls. These conditions consist
of (i) weaknesses in forecasting internal cash requirements;  (ii) weaknesses in
policies and  procedures  to ensure the  accurate  timing,  classification,  and
recording of  significant  transactions;  and (iii)  weaknesses  in  maintaining
formal  documentation  regarding  acquisitions and  dispositions of assets.  The
Company has been taking  various  steps  intended to  strengthen  its  financial
controls,  including engaging more experienced personnel in both operational and
financial positions.


Business Outlook and Risk Factors

         Although the trends  reflected by the operating  results of the Company
in the nine  months  ended  October  31, 1997  indicate  that total  revenue has
decreased,  the  Company  continues  to believe  that while  total  revenue  may
decrease in the near future,  software and services revenue should  contribute a
larger share of overall  revenue,  which  should  result in an increase in gross
profit  margins and net  margins.  The Company  continues  to invest  heavily in
research and development of new and enhanced software products in order to reach
a larger  segment of its targeted  market.  During the nine months ended October
31,  1997  the  Company  announced  new  software  products  that  are  platform
independent   and  contain  added  and  improved   functionality.   The  general
availability for two of the three announced  software  products  occurred during
the three months ended October 31, 1997.  The  transition  to hardware  platform
independence is designed to lead to a broader market for the Company's products.
The Company's  total  revenue and product mix could be materially  and adversely
affected by many  factors,  some of which are beyond the control of the Company.
Those factors include the Company's  ability to maintain the software design and
development   capabilities  necessary  to  design  and  produce  innovative  and
desirable products on a timely and  cost-effective  basis; the Company's ability
to penetrate new markets and attract new customers; the budgeting and purchasing
practices or  constraints of its  customers;  the length of the Company's  sales
cycles;  the  complicated  nature of the Company's  product  installations;  and
unanticipated postponement or cancellation of significant orders. There also can
be no  assurance  that the  Company's  software  products  will  achieve  market
acceptance or that the Company will be able to develop new products and services
in  a  timely  and  cost-effective   manner.  The  failure  of  the  Company  to
successfully  develop and market its own  software  products and to overcome the
loss of revenue  from the sale of hardware and  software  products  developed by
others could have a material adverse effect on the Company.

         As a  result  of  the  factors  discussed  in  "Liquidity  and  Capital
Resources" above, the Company has not yet generated  sufficient revenue from its
software  products to fund its ongoing  operations.  The  Company  currently  is
seeking additional  sources of financing,  which may include one or more private
placements  of debt or equity  securities.  There can be no assurance  that such
financing will be available.

         During July 1997, the Company's reseller agreement with IBM expired and
the  Company  entered  into an  agreement  with  Information  Systems  of  North
Carolina,  Inc. ("ISI") with respect to future sales of specified IBM AS/400 and
related products and services to certain of the Company's customers.  Under this
agreement,  the  Company  has ceased  selling,  and ISI has begun  selling,  the
specified  AS/400-related products and services to the designated customers. The
agreement provides that ISI will pay to the Company 50% of its operating profits
(as defined) from sales of the specified  products to the  designated  customers
during  the  four-year  term of the  agreement.  The  Company  has the  right to
terminate the agreement and resume direct sales of the specified  AS/400-related
products  and  services  to the  designated  customers  in the event  that ISI's
payments  to the  Company  are  less  than  $50,000  in each of two  consecutive
quarterly  periods.  In addition,  ISI has the right to terminate  the agreement
upon  written  notice to the  Company,  provided  that ISI  ceases  selling  the
specified AS/400-related products and services to the designated customers for a
period 
                                      -15-
<PAGE>
of two  years  after  such  termination.  As of the  date of this  Report,  this
arrangement has not provided the Company with any meaningful revenue,  and there
can be no assurance that the Company will derive  significant  revenue from this
arrangement in the future.

         The  Company   operates  in  an  industry  that  is   characterized  by
fast-changing  technology.  As a result,  the Company will be required to expend
substantial  funds  for  continuing  product  development,   including  expenses
associated with research and development  activities and additional  engineering
and other technical personnel. There can be no assurance that such funds will be
available to the Company  given its current  financial  condition and results of
operations.  Any failure by the Company to anticipate  or respond  adequately to
technological developments,  customer requirements, or new design and production
techniques,  or any significant  delays in product  development or introduction,
could have a material adverse effect on the operating results of the Company.

         The  Company  continues  to invest in sales and  marketing  in order to
enhance its image and brand  awareness.  The Company  has  continued  to add new
marketing and sales personnel  during the last nine months,  and has invested in
updating  its  industry  trade-show  presence  and image.  Although  the Company
believes that its increased  sales and marketing  efforts will  contribute to an
increased number of customers and increased revenue associated with the sales of
software products, certain risk factors exist that could have a material adverse
effect on the Company's  operating  results.  Those risk factors include lack of
assurance  that its products  will achieve or maintain  market  acceptance;  the
complexity of the Company's software programs, which may cause delays in product
development and could result in loss of market  acceptance,  loss of sales,  and
reduction of market  share;  and the fact that the Company's  software  products
compete with those of many major domestic and international  companies,  many of
which have greater  market  recognition  and  substantially  greater  financial,
technical, and marketing resources than the Company possesses.

         The  Company  has  hired a new Vice  President  -  Marketing  and Chief
Operating  Officer  who has  considerable  experience  in the  sale of  software
products to retail  enterprises  and in the  management of software  development
companies.  The  Company  believes  that  this  individual's  expertise  in  the
development  of  retail  software  applications,  his  contacts  in  the  retail
industry,  and his expertise in the management of software development companies
will  enhance  the  Company's  ability  to  generate  significant  sales  of its
proprietary software products.

         The  Company  plans  to  continue  to  increase  the   utilization   of
professional  services  personnel.  An increase in utilization  of  professional
services  personnel can have a direct impact on revenue  without any  additional
associated  costs.  Risk  factors  that could,  however,  materially  affect the
ability of the Company to increase  utilization rates and professional  services
revenue include factors such as fluctuating demand for professional services and
lack of  assurance  that there will  continue  to be a demand for the  Company's
services.  The  Company  may not be able to react to a  significant  decrease in
demand  for its  services  during  any  given  quarter,  which  could  result in
continued expenses for professional personnel without offsetting revenue.

         Although the Company has focused on controlling  administrative  costs,
it  recognizes  the added costs  associated  with  attracting  and retaining key
personnel.  Because it operates in an industry that is  characterized  by a high
cost of  recruiting  and a current  lack of  qualified  personnel,  the  Company
constantly evaluates employee benefits and the work environment that it provides
for its employees. The high cost associated with industry hiring practices could
have a material adverse effect on the Company's quarterly operating results. The
Company intends to continue to moderate general and administrative costs so that
revenue  growth will  continue  to exceed  operating  expenses.  There can be no
assurance,  however,  that the  Company  will be able to predict or respond to a
shortfall in sales during any given quarter in order to reduce its fixed general
and administrative expenses on a timely basis.
                                      -16-
<PAGE>
         The Company believes that the industry in which it markets its products
and services has a strong outlook,  with expanding  markets  characterized  by a
highly  fragmented  group of competitors.  As competition for consumer  products
rises,  retailers that represent a significant  portion of the Company's current
and  potential  customers  increasingly  are  aware  of the  need  for  business
information  systems that allow them to focus on efficiently  managing inventory
and of finding  new ways to bring  customers  into  their  stores.  The  Company
strives  to provide  market-leading  solutions  that  address  those  real-world
problems. Due to the risk factors discussed above and in the Company's Report on
Form 10-KSB,  Item 1,  "Special  Considerations,"  as well as other factors that
generally affect high technology  companies,  there can be no assurance that the
Company will be able to successfully penetrate these markets in the future.
                                      -17-
<PAGE>
PART II  OTHER INFORMATION

Item 1.           Legal Proceedings

                  Reference is made to the  disclosure  included under this Item
                  in the  Company's  Quarterly  Report  on Form  10-QSB  for the
                  quarter ended July 31, 1997.

Item 2.           Changes in Securities

                  Not applicable

Item 3.           Defaults Upon Securities

                  Not Applicable

Item 4.           Submissions of Matter to a Vote of Security Holders

                  Not Applicable

Item 5.           Other Information

                  Not Applicable

Item 6.           Exhibits and Reports on Form 8-K

                  (a)  Exhibits


                           11.      Computation of Net Income Per Share

                           27.      Financial Data Schedule

                  (b)   Reports on Form 8-K

                           Not applicable
                                      -18-
<PAGE>
SIGNATURES

         In accordance with the  requirements of the Securities  Exchange Act of
1934,  the  registrant  has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Signature:
----------

GATEWAY DATA SCIENCES CORPORATION

/s/ Michael M. Gordon         Chairman of the Board,        December 22, 1997
----------------------------  President, and Chief
Michael M. Gordon             Executive Officer
                              (Principal Executive
                              Officer)

/s/ Vickie B. Jarvis          Vice President, Finance and   December 22, 1997
----------------------------  Chief Financial Officer
Vickie B. Jarvis              (Principal Financial and
                              Accounting Officer)
                                      -19-