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

                                   FORM 10-QSB

[X]   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997

                                       OR

[ ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _________



                           Commission File No. 0-19844


                                PARACELSIAN, INC.
        (Exact name of small business issuer as specified in its charter)


           DELAWARE                                         16-1399565
           --------                                         ----------
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                           Identification No.)



LANGMUIR LABORATORIES, CORNELL TECHNOLOGY PARK, ITHACA, NEW YORK       14850
----------------------------------------------------------------       -----
             (Address of principal executive offices)                 Zip Code



                    Issuer's telephone number: (607) 257-4224
                                               --------------


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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 [  ]

There were 14,871,296 shares of Common Stock outstanding at February 17, 1998.

<PAGE>

                        Paracelsian, Inc. and Subsidiary


                                      Index





                                                                            PAGE
PART I. - FINANCIAL INFORMATION

Item 1. - Financial Statements

Consolidated  Balance Sheets as of December 31, 1997  (Unaudited)  and
September 30, 1997 (Audited). ...............................................  3


Consolidated  Statements  of  Operation  for the  three  months  ended
December  31, 1997 and 1996 and the period from  inception  (April 15,
1991) to December 31, 1997 (Unaudited) ......................................  4


Consolidated  Statements of  Stockholders'  Equity for the period from
inception (April 15, 1991) to December 31, 1997 (Unaudited) .................  5


Consolidated  Statements  of Cash  Flows  for the three  months  ended
December  31, 1997 and 1996 and the period from  inception  (April 15,
1991) to December 31, 1997 (Unaudited) ......................................  8


Notes to Consolidated Financial Statements (Unaudited) ...................... 10


Item 2 - Management's  Discussion and Analysis of Financial  Condition
         and Results of Operations. ......................................... 14


PART II  - OTHER INFORMATION

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

Item 6 - Exhibits and Reports on 8-K ........................................ 16

Signatures .................................................................. 16


                                       2

<PAGE>
<TABLE>
<CAPTION>

                        PARACELSIAN, INC. AND SUBSIDIARY
                          (A Development Stage Company)
                           Consolidated Balance Sheets

                                                                    December 31,    September 30,
                                                                        1997            1997
                                                                    ------------    ------------    
                                                                     (Unaudited)     (Audited)
Assets
Current Assets:
<S>                                                                 <C>             <C>         
      Cash and cash equivalents                                     $    441,025    $    886,249
      Inventory                                                          171,689         156,323
      Prepaid expenses and other current assets                           55,437          61,437
      Loan to East West Herbs, Ltd., - current portion                   170,000         170,000
                                                                    ------------    ------------    
           Total current assets                                          838,151       1,274,009
                                                                    ------------    ------------    

Equipment, net                                                           289,149         305,079

Other Assets:
      TCM extracts on-hand                                               427,944         466,839
      Licensing agreement, net                                           319,258         367,258
      Patents and trademarks, net                                        121,086         125,586
      Loan to East West Herbs, Ltd., - noncurrent portion                127,500         170,000
                                                                    ------------    ------------    
                                                                         995,788       1,129,683
                                                                    ------------    ------------    
                                                                    $  2,123,088    $  2,708,771    
                                                                    ------------    ------------    

Liabilities and Stockholders' Equity
Current Liabilities:
      Accounts payable                                              $    115,459    $    268,702    
      Accrued expenses                                                   159,500         180,664
      Due to related party                                                 7,002          18,557
                                                                    ------------    ------------    
           Total current liabilities                                     281,961         467,923
                                                                    ------------    ------------    

Commitments and Contingency

Stockholders' Equity:
      Common stock, $.01 par value; 20,000,000 shares authorized;
            12,004,867 shares outstanding at December 1997
            and September 1997                                           120,045         120,045
      Additional paid-in capital                                      22,084,315      22,084,315
      Deficit accumulated during the development stage               (19,020,718)    (18,620,997)
      Treasury stock, at cost; 265,478 shares                         (1,342,515)     (1,342,515)
                                                                    ------------    ------------
           Total stockholders' equity                                  1,841,127       2,240,848
                                                                    ------------    ------------
                                                                    $  2,123,088    $  2,708,771
                                                                    ============    ============
</TABLE>


          See accompanying notes to consolidated financial statements.

                                        3
<PAGE>
<TABLE>
<CAPTION>

                        Paracelsian, Inc. and Subsidiary
                          (A Development Stage Company)
                      Consolidated Statements of Operations
             For the three months ended December 31, 1997 and 1996 ,
               And the period from inception to December 31, 1997



                                                                                Cumulative
                                                                                Period from
                                                     Three Months Ended        Inception to
                                                         December 31,          December 31,
                                               ---------------------------------------------
   Revenues:                                        1997           1996            1997
                                               ------------    ------------    ------------
<S>                                                  <C>                <C>         <C>    
    Marketing rights                           $         --    $         --    $    254,995
    Products                                             --              --         162,713
    Product testing                                  21,920              --          21,920
    Product royalties                                    --             930           1,246
    Subscription revenue                                 --              --          31,625
                                               ------------    ------------    ------------
                                                     21,920             930         472,499

Operating expenses:
    Research and product engineering                182,482         347,066       6,850,102
    Newsletter expenses                                  --              --         955,586
    General and administrative                      258,240         418,883       8,461,143
    Product launch costs                                 --              --         300,544
    Cost of products sold                                --              --          95,023
    Officer stock compensation                           --              --       1,228,275
                                               ------------    ------------    ------------
                                                    440,722         765,949      17,890,673
                                               ------------    ------------    ------------
       Loss from operations during
       the development stage                       (418,802)       (765,019)    (17,418,174)

Interest income, net                                 13,813          43,265         488,668
Gain on sale of assets                                5,268              --          36,788

                                               ------------    ------------    ------------
       Net loss during the development stage   $   (399,721)   $   (721,754)   $(16,892,718)
                                               ============    ============    ============

          Basic net loss per share             $      (0.03)   $      (0.06)
                                               ============    ============

    Weighted average number of
       common stock outstanding                   12,004,867     11,669,604
                                               =============   ============
</TABLE>


          See accompanying notes to consolidated financial statements.

                                        4
<PAGE>
<TABLE>
<CAPTION>

                                                  PARACELSIAN, INC. AND SUBSIDIARY
                                                    (A Development Stage Company)
                                           Consolidated Statements of Stockholders' Equity
                                         For the period from inception to December 31, 1997

                                                                                                                              
                                                                                                                              
                                                                                                                  Additional  
                                                             Preferred Stock             Common Stock               Paid-in   
                                                          Shares        Amount        Shares         Amount         Capital   
                                                        ----------  --------------  ------------  ------------  --------------

<S>                                                    <C>          <C>               <C>         <C>           <C>           
   Issuance of Common Stock April - July 1991                       $                   806,250   $     8,063   $             
   Issuance of Common Stock for licensing,
     technology and consulting services - July 1991                                     333,850         3,338                 
   Private placement of Common Stock - August -
     September 1991, net of costs                                                       267,288         2,673         369,017 
   Net loss (April 15, 1991 to September 30, 1991)                                                                            
                                                        ----------  --------------  ------------  ------------  --------------

   BALANCE, September 30, 1991                                  -               -     1,407,388        14,074         369,017 

   Redemption of Common Stock - November 1991                                          (245,000)       (2,450)                
   Initial Public Offering of Common Stock -
      February 1992, net of costs                                                     1,150,000        11,500       5,103,451 
   Issuance of Warrants - February 1992                                                                                 1,000 
   Net loss (for the year ended September 30, 1992)                                                                           
                                                        ----------  --------------  ------------  ------------  --------------

   BALANCE, September 30, 1992                                  -               -     2,312,388        23,124       5,473,468 

   Warrant dividend - September 1993                                                                                  436,898 
   Net loss (for the year ended September 30, 1993)                                                                           
                                                        ----------  --------------  ------------  ------------  --------------

   BALANCE, September 30, 1993                                  -               -     2,312,388        23,124       5,910,366 

   Net loss (for the year ended September 30, 1994)                                                                           
                                                        ----------  --------------  ------------  ------------  --------------

   BALANCE, September 30, 1994                                  -               -     2,312,388        23,124       5,910,366 

   Issuance of Common Stock for acquisition of
     Pacific Liaisons - October 1994                                                  1,116,666        11,167       1,632,833 
   Exercise of Warrants                                                                 221,200         2,212         716,644 
   Common Stock purchased by Officer -
        January 1995                                                                    705,000         7,050       1,311,075 
</TABLE>


<TABLE>
<CAPTION>
                                                            Deficit
                                                          Accumulated
                                                          During the
                                                          Development       Treasury
                                                             Stage           Stock           Total
                                                       ---------------- --------------- --------------
<S>                                                         <C>                            <C>        

   Issuance of Common Stock April - July 1991          $                $               $       8,063
   Issuance of Common Stock for licensing,
     technology and consulting services - July 1991                                             3,338
   Private placement of Common Stock - August -
     September 1991, net of costs                                                             371,690
   Net loss (April 15, 1991 to September 30, 1991)            (133,469)                      (133,469)
                                                       ---------------- --------------- --------------

   BALANCE, September 30, 1991                                (133,469)              -        249,622

   Redemption of Common Stock - November 1991                                                  (2,450)
   Initial Public Offering of Common Stock -
      February 1992, net of costs                                                           5,114,951
   Issuance of Warrants - February 1992                                                         1,000
   Net loss (for the year ended September 30, 1992)         (1,221,943)                    (1,221,943)
                                                       ---------------- --------------- --------------

   BALANCE, September 30, 1992                              (1,355,412)              -      4,141,180

   Warrant dividend - September 1993                          (500,000)                       (63,102)
   Net loss (for the year ended September 30, 1993)         (2,022,614)                    (2,022,614)
                                                       ---------------- --------------- --------------

   BALANCE, September 30, 1993                              (3,878,026)              -      2,055,464

   Net loss (for the year ended September 30, 1994)         (1,940,262)                    (1,940,262)
                                                       ---------------- --------------- --------------

   BALANCE, September 30, 1994                              (5,818,288)              -        115,202

   Issuance of Common Stock for acquisition of
     Pacific Liaisons - October 1994                                                        1,644,000
   Exercise of Warrants                                                                       718,856
   Common Stock purchased by Officer -
        January 1995                                                                        1,318,125

          See accompanying notes to consolidated financial statements.

                                        5
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                                  PARACELSIAN, INC. AND SUBSIDIARY
                                                    (A Development Stage Company)
                                           Consolidated Statements of Stockholders' Equity
                                         For the period from inception to December 31, 1997
                                                                                                                               
                                                                                                                               
                                                                                                                  Additional   
                                                             Preferred Stock             Common Stock               Paid-in    
                                                          Shares         Amount        Shares         Amount         Capital   
                                                        ----------  --------------  ------------  ------------  -------------- 
<S>                                                        <C>                <C>     <C>              <C>         <C>         

   Continued from the previous page

   Issuance of Common Stock for services rendered -
        January 1995                                                $                    33,330    $      333    $     21,167  
          April 1995                                                                    200,000         2,000         373,000  
   Issuance of Common Stock for conversion
     of short-term liabilities - June 1995                                               13,000           130          48,849  
   Issuance of Common Stock - August 1995                                               300,000         3,000         749,625  
   Issuance of Preferred Stock - September 1995
     Series A, net of costs                                10,700             107                                     361,018  
     Series B, net of costs                                10,000             100                                     399,900  
     Series C, net of costs                                 5,000              50                                     218,422  
   Net loss (for the year ended September 30, 1995)                                                                            
                                                        ----------  --------------  ------------  ------------  -------------- 

   BALANCE, September 30, 1995                             25,700             257     4,901,584        49,016      11,742,899  

   Issuance of Series B Preferred Stock, net of costs      76,651             767                                   3,999,233  
   Exercise of Warrants                                                                  73,318           733         154,676  
   Issuance of Common Stock for services rendered -
        October 1995                                                                     33,336           331          42,669  
   Purchase of Treasury Stock - November 1995                                                                                  
   Conversion of Preferred Stock                         (102,351)         (1,024)    5,371,010        53,710         (52,686)
   Preferred dividends and beneficial
     conversion feature                                                                                             1,628,000  
   Issuance of Common Stock for conversion
     of short-term liabilities - January 1996                                             2,500            25           9,975  
   Issuance of Common Stock for services rendered -
       February 1996                                                                     25,000           250          27,875  
   Issuance of Warrants and Options for services
     rendered  - February 1996                                                                                        132,500  
   Issuance of Common Stock - June 1996                                                 733,334         7,333       1,965,663  
</TABLE>

<TABLE>
<CAPTION>
                                                              Deficit
                                                            Accumulated
                                                            During the
                                                            Development       Treasury
                                                                Stage           Stock           Total
                                                         ---------------- --------------- --------------

<S>                                                      <C>               <C>              <C>    
   Continued from the previous page

   Issuance of Common Stock for services rendered -
        January 1995                                      $                  $              $    21,500
          April 1995                                                                            375,000
   Issuance of Common Stock for conversion
     of short-term liabilities - June 1995                                                       48,979
   Issuance of Common Stock - August 1995                                                       752,625
   Issuance of Preferred Stock - September 1995
     Series A, net of costs                                                                     361,125
     Series B, net of costs                                                                     400,000
     Series C, net of costs                                                                     218,472
   Net loss (for the year ended September 30, 1995)           (3,031,196)                    (3,031,196)
                                                         ---------------- --------------- --------------

   BALANCE, September 30, 1995                                (8,849,484)              -      2,942,688

   Issuance of Series B Preferred Stock, net of costs                                         4,000,000
   Exercise of Warrants                                                                         155,409
   Issuance of Common Stock for services rendered -
        October 1995                                                                             43,000
   Purchase of Treasury Stock - November 1995                                 (1,342,515)    (1,342,515)
   Conversion of Preferred Stock                       
   Preferred dividends and beneficial
     conversion feature                                       (1,628,000)
   Issuance of Common Stock for conversion
     of short-term liabilities - January 1996                                                    10,000
   Issuance of Common Stock for services rendered -
       February 1996                                                                             28,125
   Issuance of Warrants and Options for services
     rendered  - February 1996                                                                  132,500
   Issuance of Common Stock - June 1996                                                       1,972,996


          See accompanying notes to consolidated financial statements.

                                        6
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                                  PARACELSIAN, INC. AND SUBSIDIARY
                                                    (A Development Stage Company)
                                           Consolidated Statements of Stockholders' Equity
                                         For the period from inception to December 31, 1997
                                                                                                                               

                                                                                                                               
                                                                                                                               
                                                                                                                  Additional   
                                                             Preferred Stock             Common Stock               Paid-in    
                                                          Shares         Amount        Shares         Amount         Capital   
                                                        ----------  --------------  ------------  ------------  -------------- 
<S>                                                     <C>          <C>             <C>              <C>          <C>         
   Continued from the previous page

   Sale of Warrants - June 1996                                                                                        35,000  
   Issuance of Common Stock - July 1996                             $                    91,667   $       917    $    250,075  
   Issuance of Common Stock for services rendered -
           July 1996                                                                      5,000            50           4,950  
   Exercise of Options - September 1996                                                  15,000           150          37,350  
   Issuance of Common Stock - September 1996                                            683,333         6,833       1,997,826  
   Net loss (for the year ended September 30, 1996)                                                                            
                                                        ----------  --------------  ------------  ------------  -------------- 

   BALANCE, September 30, 1996                                  -               -    11,935,082       119,348      21,976,005  

   Issuance of Common Stock for services rendered -
        January 1997                                                                      7,285            72          22,835  
   Termination of warrants - February 1997                                                                            (35,000) 
   Repayment of officer stock subscription receivable                                                                  89,850  
   Issuance of Common Stock for services rendered -
           July 1997                                                                     62,500           625          30,625  
   Net loss (for the year ended September 30, 1997)                                                                            
                                                        ----------  --------------  ------------  ------------  -------------- 

   BALANCE, September 30, 1997                                  -               -    12,004,867       120,045      22,084,315  
                                                        ----------  --------------  ------------  ------------  -------------- 

   Net loss (for the three months ended
        December 31, 1997)                                      -               -             -             -               -  
                                                        ----------  --------------  ------------  ------------  -------------- 

   BALANCE, December 31, 1997                                   -   $           -    12,004,867   $   120,045   $  22,084,315  
                                                        ==========  ==============  ============  ============  ============== 
</TABLE>


<TABLE>
<CAPTION>

                                                             Deficit
                                                           Accumulated
                                                           During the
                                                           Development       Treasury
                                                               Stage           Stock           Total
                                                        ---------------- --------------- --------------
<S>                                                         <C>              <C>             <C>      
   Continued from the previous page

   Sale of Warrants - June 1996                         $                $               $      35,000
   Issuance of Common Stock - July 1996                                                        250,992
   Issuance of Common Stock for services rendered -
           July 1996                                                                             5,000
   Exercise of Options - September 1996                                                         37,500
   Issuance of Common Stock - September 1996                                                 2,004,659
   Net loss (for the year ended September 30, 1996)          (4,201,764)                    (4,201,764)
                                                        ---------------- --------------- --------------

   BALANCE, September 30, 1996                              (14,679,248)     (1,342,515)     6,073,590

   Issuance of Common Stock for services rendered -
        January 1997                                                                            22,907
   Termination of warrants - February 1997                                                     (35,000)
   Repayment of officer stock subscription receivable                                           89,850
   Issuance of Common Stock for services rendered -
           July 1997                                                                            31,250
   Net loss (for the year ended September 30, 1997)          (3,941,749)                    (3,941,749)
                                                        ---------------- --------------- --------------

   BALANCE, September 30, 1997                              (18,620,997)     (1,342,515)     2,240,848
                                                        ---------------- --------------- --------------

   Net loss (for the three months ended
        December 31, 1997)                                     (399,721)              -       (399,721)
                                                        ---------------- --------------- --------------

   BALANCE, December 31, 1997                           $   (19,020,718) $   (1,342,515) $   1,841,127 
                                                        ================ =============== ==============


          See accompanying notes to consolidated financial statements.

                                        7
</TABLE>
<PAGE>

<TABLE>
<CAPTION>

                                                  Paracelsian, Inc. and Subsidiary
                                                    (A Development Stage Company)
                                                Consolidated Statements of Cash Flows
                                       For the three months ended December 31, 1997 and 1996 ,
                                         And the period from inception to December 31, 1997


                                                                                                              Cumulative
                                                                            Three Months Ended                Period from
                                                                                December 31,                  Inception to
                                                                      ---------------------------------       December 31,
                                                                           1997              1996                1997
                                                                      -------------      -------------       -------------
   Cash flows from operating activities:
<S>                                                                   <C>                     <C>          <C>             
       Net loss                                                       $    (399,721)     $    (721,754)    $   (16,892,718)
       Adjustments to reconcile net loss to net cash used in
       operating activities:
          Gain on the sale of assets                                         (5,268)                 -             (36,788)
          Non-cash compensation expense                                           -                  -           1,228,275
          Other non-cash expenses                                                 -             38,895           1,510,203
          Depreciation and amortization                                     107,325             73,755           1,354,297
          Changes in assets and liabilities:
              (Increase) decrease in inventory                              (15,366)                 -            (171,689)
              (Increase) decrease in prepaid expenses and other               6,000            (66,466)            (26,017)
              (Decrease) increase in accounts payable                      (153,243)           (74,643)            469,982
              (Decrease) increase in due to related party                   (11,555)           (17,334)              7,002
              (Decrease) increase in deferred revenue                             -              7,932                   -
              (Decrease) increase in accrued expenses                       (21,164)           (65,403)            159,500
                                                                      -------------      -------------       -------------
          Net cash used in operating activities                            (492,992)          (825,018)        (12,397,953)
                                                                      -------------      -------------       -------------

   Cash flows from investing activities:
       Purchase of investments                                                    -                  -          (6,719,089)
       Redemption of investments                                                  -                  -           6,719,089
       Purchase of equipment                                                      -             (5,819)           (732,186)
       Proceeds from sale of equipment                                        5,268                  -              56,788
       Acquisition of licensed technology                                         -                  -             (53,656)
       Acquisition of patents and trademarks                                      -            (18,711)           (352,953)
       Acquisition of New Century Nutrition newsletter                            -                  -            (350,000)
       Acquisition of option for East West Herbs, Ltd.
          and related acquisition costs                                           -                  -             (92,866)
       Loan to East West Herbs, Ltd.                                                                              (340,000)
       Proceeds from loan to East West Herbs, Ltd.                           42,500                  -              42,500
                                                                      -------------      -------------       -------------
          Net cash used in investing activities                              47,768            (24,530)         (1,822,373)
                                                                      -------------      -------------       -------------

   Cash flows from financing activities:
       Sale of common stock, initial public offering, net of costs                -                  -           5,124,014
       Sale of common and preferred stock, net of costs                           -                  -          10,330,109
       Proceeds from the exercise of warrants                                     -                  -             666,295
       Proceeds from the exercise of options                                      -                  -              37,500
       Purchase of treasury stock                                                 -                  -          (1,342,515)
       Cost of warrant dividend                                                   -                  -             (63,102)
       Payment on equipment contract                                              -                  -             (90,950)
                                                                      -------------      -------------       -------------
          Net cash (used in) provided by financing activities                     -                  -          14,661,351
                                                                      -------------      -------------       -------------

   Net increase (decrease) in cash and cash equivalents                    (445,224)          (849,548)            441,025

   Cash and cash equivalents, beginning of period                           886,249          4,171,402                   -
                                                                      -------------      -------------       -------------

   Cash and cash equivalents, end of period                           $     441,025      $   3,321,854       $     441,025
                                                                      =============      =============       =============

                                 See accompanying notes to consolidated financial statements.

                                                              8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                  Paracelsian, Inc. and Subsidiary
                                                    (A Development Stage Company)
                                                Consolidated Statements of Cash Flows
                                       For the three months ended December 31, 1997 and 1996 ,
                                         And the period from inception to December 31, 1997


                                                                                                              Cumulative
                                                                            Three Months Ended                Period from
                                                                                December 31,                  Inception to
                                                                    -----------------------------------       December 31,
                                                                           1997              1996                1997
                                                                    ----------------     --------------      -------------

   Supplemental disclosures:
<S>                                                                 <C>                 <C>                  <C>          
       Cash paid during the period for interest                     $             -     $        1,785       $      19,284
                                                                    ================    ===============      =============

   Supplemental disclosure of non-cash investing and financing activities:
       Fair value of assets acquired, net of cash acquired          $             -     $            -       $   1,702,000
       Less - liabilities assumed                                                 -                  -              52,000
       Less - issuance of common stock                                            -                  -           1,644,000
                                                                    ---------------     --------------       -------------
          Net cash paid                                             $             -     $            -       $       6,000
                                                                    ===============     ==============       =============
       Warrant dividend                                             $             -                  -       $     500,000
       Issuance of common stock/warrants for services
          and to reduce short-term liabilities                      $             -                  -       $     550,456
       Purchase of equipment                                        $             -                  -       $      90,950
       Repayment of officer stock subscription receivable           $             -                  -              89,850
       Issuance of common stock for licensing and technology rights $             -     $            -       $       3,338
                                                                    ===============     ==============       =============

   Supplemental disclosures:
       Cash paid during the period for interest                     $             -     $        1,785       $      19,284
                                                                    ===============     ==============       =============


                                 See accompanying notes to consolidated financial statements.

                                                              9
</TABLE>

<PAGE>

                        PARACELSIAN, INC. AND SUBSIDIARY
                          (A Development Stage Company)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 1997 AND 1996


1.       MANAGEMENT REPRESENTATION

The  consolidated  financial  statements  included  herein have been prepared by
Paracelsian,  Inc. and subsidiary (the "Company") without audit, pursuant to the
rules and  regulations of the Securities and Exchange  Commission  applicable to
quarterly  reporting on Form 10-QSB and reflect,  in the opinion of the Company,
all  adjustments  necessary  to present  fairly the  financial  information  for
Paracelsian, Inc. and its consolidated subsidiary. All such adjustments are of a
normal and  recurring  nature.  Certain  information  and  footnote  disclosures
normally included in financial statements, prepared in accordance with generally
accepted accounting  principles,  have been condensed or omitted as permitted by
such  regulations.  These  consolidated  financial  statements and related notes
should be read in conjunction  with the  consolidated  financial  statements and
related  notes  included in the  Company's  Annual Report on Form 10-KSB for the
fiscal year ended September 30, 1997.

2.       ORGANIZATION, BUSINESS, AND RISK FACTORS:

ORGANIZATION AND BUSINESS
Paracelsian,  Inc., (the "Company") is a unique biotechnology based company that
utilizes both proprietary and non-proprietary  screening  technology to identify
novel  compounds of unique  therapeutic  benefit from herbal and other botanical
sources.  These  assays  also  provide  a  vehicle  through  which  the  Company
identifies  and/or confirms the mechanisms  through which  traditional herbs and
other  botanicals  provide the therapeutic or functional  benefits  suggested by
their  traditional  use.  The Company  has  developed  technologies  to identify
potential  products that inhibit the  biological  signals  generated by targeted
cells  that  result in  controlled  or  uncontrolled  growth and  division.  The
Company's  screening  technology  evaluates  the  effects  of  herbal  and other
botanical products on intracellular  signals referred to as "Signal Transduction
Technology."

Cell  division is one of the basic steps in biology  necessary for normal growth
of tissues to support life.  The Company's  technology  enables  researchers  to
observe signal  transduction  and measure the effects of chemicals  contained in
synthetic or natural compounds, and substances occurring in nature such as herbs
and  combinations  of herbal  extracts on cell division.  In the course of these
observations,  the Company can  distinguish  the effects of such  substances  on
targeted  cells,  thereby  screening  compounds to identify those with promising
favorable  therapeutic  effects or favorable effects on the body's structure and
function.  (This  proprietary  technology,  including the  components,  methods,
procedures  and  know-how  employed in this  screening  process,  is referred to
herein as the "Screening Technology".)

In  October  1994,  Pacific  Liaisons   (Pacific),   a  partnership  engaged  in
identifying and acquiring biologically active pharmaceutical compounds,  natural
products and foods from Eastern Asia,  merged with a wholly-owned  subsidiary of
the  Company  and the  Company  now  maintains  a library of over 2,700  natural
medicinal extracts.  The Company,  also has, by agreement,  access to over 5,000
additional  Tradition Chinese  Extracts.  The initial group of extracts has been
processed  with the Company's  screening  technology,  with many of the extracts
showing significant potential for development as either pharmaceutical compounds
or dietary  supplements.  As the Company develops new screening  technologies or
screening  protocols  focused on conditions  other than those  applicable to the
current  screens,  the  library  will be  screened  again to  further  determine
potential  candidates for drug or dietary  supplement  development.  The Company
also has access to the informational database related to the medicinal extracts,
which contains,  among other things, a history of the usage of each extract (see
Note 3).

In November 1995, the Company purchased  substantially all the assets related to
NEW  CENTURY  NUTRITION,  a  newsletter  promoting  disease  prevention  through
nutrition.  In December  1996, the Company  decided to cease  publication of the
newsletter.

                                       10
<PAGE>


DEVELOPMENT STAGE COMPANY AND RISK FACTORS
The  Company  is  considered  to be a  development  stage  company as defined in
Statement of Financial  Accounting Standards No. 7, "Accounting and Reporting by
Development Stage Enterprises." Since inception,  the Company has been primarily
engaged in research, product engineering and raising capital.

The Company, as a development stage enterprise,  has yet to generate significant
revenues and has no assurance of substantial future revenues.  Even if marketing
efforts are successful,  it may take several years before  significant  revenues
are  realized.  The  Company is subject to a number of risks that may affect its
ability to become an  operating  enterprise  or impact its  ability to remain in
existence,  including  risks related to successful  development and marketing of
its  products,   patent   protection  of  proprietary   technology,   government
regulation,  competition from substitute products  (including  technologies that
may not yet have been  developed),  dependence  on key employees and the need to
obtain additional funds that may not be available to it.

As shown in the accompanying  financial  statements,  the Company incurred a net
loss of approximately  $400,000 for the three months ended December 31, 1997 and
has working capital of approximately  $556,000 at December 31, 1997. The Company
continues to expend funds on product  research and  development  and general and
administrative expenses and has not generated significant revenues subsequent to
year-end.

3.       SIGNIFICANT ACCOUNTING POLICIES:

CONSOLIDATION
The  consolidated  financial  statements of the Company  include the accounts of
Paracelsian,  Inc. and its wholly owned subsidiary ParaComm, Inc. formerly known
as Para Acquisition  Corp. All intercompany  balances and transactions have been
eliminated.

CASH AND CASH EQUIVALENTS
Cash and cash equivalents  consist of highly liquid investments with an original
maturity of three months or less.  Cash  equivalents as of December 31, 1997 and
September 30, 1997 approximated $390,000 and $857,000, respectively.

RESEARCH AND PRODUCT ENGINEERING
Company-sponsored  research  and  product  engineering  expenditures  have  been
charged to expense as  incurred.  These  costs  consist  primarily  of  employee
salaries and direct  laboratory costs. The cost of extracts used in research and
development activities is expensed as consumed.

NET LOSS PER SHARE
Effective  December 31, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings Per Share", which replaced the
calculation  of  primary  and fully  diluted  earnings  per share with basic and
diluted earnings per share. Basic loss per share is computed by dividing the net
loss by the  weighted-average  number of common  shares  outstanding  during the
period.  Diluted loss per share is not  presented as the  inclusion of potential
common shares (stock options and warrants) would be antidilutive.

PATENTS AND TRADEMARKS
The Company has  acquired or applied for certain  patent and  trademark  rights.
Costs associated with the acquisition and application for these rights have been
capitalized  and are  being  amortized  on the  straight-line  method  over  the
estimated legal life of the assets which range from 15 to 17 years.  Accumulated
amortization  of  the  patents  and  trademarks  totaled  $81,247  and  $76,747,
respectively,  at December 31, and September 30, 1997. As of September 30, 1997,
management has determined a portion of these assets to be impaired  according to
FASB 121,  and as a result  $162,770  has been  expensed  during  the year ended
September 30, 1997.

                                       11
<PAGE>


EQUIPMENT AND DEPRECIATION
Equipment is stated at cost and is depreciated  over the estimated  useful lives
of  the  assets  using  the  straight-line  method.  Equipment  consists  of the
following:
<TABLE>
<CAPTION>

                                                                  December 31,      September 30,
                                              USEFUL LIVES            1997               1997
                                              ------------        ------------       ------------
<S>                                              <C>              <C>                <C>         
            Laboratory equipment                 10 Years         $    474,903       $    480,171
            Office furniture and equipment       10 Years               86,345             86,345
            Computer equipment and software      5 Years               133,852            133,852
                                                                  ------------       ------------
                                                                       695,100            700,368
            Less - accumulated depreciation                            405,951            395,299

                                                                  $    289,149       $    305,079
                                                                  ============       ============
</TABLE>


USE OF ESTIMATES
The  preparation of the  consolidated  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
the disclosure of contingent assets and liabilities at the date of the financial
statements.  Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

4.       SUBSEQUENT EVENTS:

In January,  1998 the Company  signed an  agreement  with Biomar  International,
Inc.("Biomar")  in which Biomar  agreed to purchase  3,571,429  shares of common
stock for  $500,000.  In  addition,  Biomar  received  warrants  to  purchase an
additional  2,971,429  shares of common stock at a price of $.175 per share or a
total of $520,000, subject to increase in the Company's authorized shares. These
warrants  expire 90 days after the shares and warrants are  registered  with the
Securities and Exchange Commission ("SEC").  Biomar became the major shareholder
and obtained the right to name a new Board of Directors. Biomar is controlled by
T. Colin  Campbell a former  director  of the  Company  and his son,  T.  Nelson
Campbell a former Vice President of the Company.

The  Purchase  Agreement  also  provided  for the  resignation  of the  Board of
Directors  serving on January 14, 1998 and the appointment of Biomar's  nominees
to the Board of Directors of the Corporation  (the "Board").  Effective  January
14, 1998,  all of the Board  members other than the  Chairman,  Mr.  Theodore P.
Nikolis,  resigned immediately and T. Nelson Campbell, the Chairman of the board
of directors of Biomar,  was appointed to the Board. Under the rules of the SEC,
Biomar is required to give notice to the  shareholders  of the  Corporation  not
less  than 10 days  prior to the date  that it  appoints  the  persons  who will
constitute a majority of the Board. Upon satisfaction of the requirements of the
SEC rules on  February  9, 1998,  Mr.  Nikolis  resigned  as a  director  of the
Corporation  and  appointments  of  the  new  directors  became  effective.  The
shareholders will not vote on the appointments of Mr. Campbell and the other new
directors,  but all  directors so  appointed  will be subject to election at the
next annual meeting of the shareholders.

On January 23,  1995,  the Company  approved a stock  purchase by the  Company's
President and then Chief  Executive  Officer to purchase an aggregate of 705,000
shares  of the  Company's  common  stock at a price of $.05 and $.56 per  common
share  for  245,000  and  460,000  shares  of  common  stock,  respectively.  In
connection with this transaction,  the Company  recognized a one-time,  non-cash
compensation expense of approximately $1,228,000 in the year ended September 30,
1995. In conjunction  with the purchase of these shares,  the Company extended a
note to the officer for $230,000, due December 31, 1995. Subsequently, this note
was extended  until December 31, 1997. In January 1998, the shares of stock were
returned  to the Company  and the note was  forgiven.  The shares of stock had a
fair market value that  approximated  the outstanding note balance of 180,000 at
September  30,  1997  which  has  been  reflected  as an  offset  to  additional
paid-in-capital.

                                       12
<PAGE>

The Company  entered into an employment  agreement  with Bernard M. Landes to be
President and Chief Executive Officer of the Corporation as of January 15, 1998.
The initial  employment term is for one year and  automatically  extended for an
additional  one year period unless  written  notice from the  Corporation or the
Officer.  Under the  Agreement,  the  Officer  receives an annual cash salary of
$175,000,  with  annual  adjustments  and  discretionary  bonuses  of $50,000 as
determined  by the Board.  The Officer was also  granted  100,000  shares of the
Common  Stock and  granted  options  to  acquire an  additional  500,000  shares
provided certain performance criteria are satisfied.

                                       13

<PAGE>



ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

             Three Months Ended December 31, 1997 as compared to the
                      Three Months Ended December 31, 1996

RESULTS OF OPERATIONS

During the first  quarter of the  fiscal  year  ending  September  30,  1998 the
Company generated revenue of $21,905 from product testing as compared to $930 of
royalty income from the exclusive license agreement with  Calbiochem-Novabiochem
International. This represents an increase of $20,975 in revenue from last year.

A  significant  portion of the  Company's  strategy  is to expand its testing of
natural  products.  The Company believes that it has an opportunity to develop a
new area of quality assurance that will add value to the products it tests. This
new  "functional"  approach  to  quality  assurance  will  assist  consumers  in
selecting  herbs  and  other  botanical  products  based on  their  demonstrated
biological activity,  rather than relying solely on analytical  techniques which
measure  only the  presence  or absence of certain  marker  compounds.  This new
approach to quality assurance bridges the gap between purely analytical  methods
of validation and the use of clinical  trials to validate the  effectiveness  of
natural  products  relative to the structure and function  claims being made for
them under the Dietary Supplement Health and Education Act of 1994.

Since the Company's inception (April 15, 1991) through December 31, 1997, it has
invested  $6,850,000 in product testing  research,  development and engineering.
The Company  expended  $182,482 in the first quarter of fiscal 1998, as compared
to $347,066 in the first quarter in fiscal 1997,  this  represents a decrease of
$164,584.  This  decrease  is  attributable  to lower  personnel  costs  and the
cancellation of the research agreement with the National Cancer Institute.

General and  administrative  expenses  were  $258,240  for the first  quarter of
fiscal 1998 as compared to $418,883 in the first  quarter of fiscal 1997.  These
expenses relate to the administration  and management of the Company,  including
personnel  costs,  legal,  accounting,  consulting,  investor  relations and the
administration of the research,  development and product engineering activities.
This decrease of $160,643 is attributable  to lower personal costs,  lower legal
and other  professional  and consulting costs and other general cost reductions.
The Company  anticipates its general and  administrative  expenses in the second
quarter of fiscal 1998 to be lower than the first quarter of fiscal 1998.

The  Company has  incurred  net losses of  $16,893,000  as a  development  stage
company from inception  (April 15, 1991) to December 31, 1997, of which $400,000
was  incurred in the first  quarter of fiscal 1998 and $ 721,754 was incurred in
first  quarter  of fiscal  1997.  The  basic net loss per share of common  stock
amounted to $.03 for the three months  ended  December 31, 1997 and $.06 for the
three months ended December 31, 1996. The Company  anticipates  that losses will
continue  throughout fiscal 1998, but at a significantly  lower level than prior
years.

NEW ACCOUNTING PRONOUNCEMENTS

In 1997, the Financial  Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting  Comprehensive  Income",  SFAS
No. 131, "Disclosures about Segments of an Enterprises and Related Information",
and  SFAS  No.  132,   "Employers'   Disclosures   about   Pensions   and  Other
Postretirement  Benefits".  SFAS No. 130 establishes standards for reporting and
display of  comprehensive  income and its  components.  SFAS No. 131 establishes
standards  for  reporting  information  about  operating  segments  and  related
disclosures  about products and services,  geographic areas and major customers.
SFAS No. 132 revises current disclosure  requirements for employers' pension and
other retiree benefits.  These standards are effective for years beginning after
December 15, 1997.  These standards  expand or modify current  disclosures  and,
accordingly,  will have no impact on the Company's reported financial  position,
results of operations and cash flows.

YEAR 2000 COMPLIANCE

The  Company  is  currently  analyzing  the  potential  of the Year  2000 on the
processing  of  date  sensitive   information  by  the  Company's   computerized
information  systems.  The Year 2000 problem is the result of computer  programs
being written using two digits (rather then four) to define an application year.
The Company is studying  the impact of the 

                                       14
<PAGE>

Year 2000 problem on its  accounting  systems and other  aspects of its business
and as of December  31, 1997 and has  determined  there will be no impact of the
future financial position, operating results, and cash flows of the Company.

LIQUIDITY & CAPITAL RESOURCES

As of December 31, 1997,  the Company  maintained  working  capital of $556,000,
which included cash and cash equivalents of $441,000.

The Company expects to continue its research and  development  efforts but focus
them in  different  areas than prior  years.  During  fiscal  1998,  the Company
intends to do more  product  testing  for outside  companies.  The Company is in
discussions  with a number of companies to do quality  testing on their products
and  anticipates   securing  new  sources  of  revenue  as  a  results  of  such
discussions.

The Company has  significantly  reduced its personnel and other costs since June
1997 and  will  continue  to  operate  in a cost  effective  manner  in order to
maximize the productivity of its cash reserves.

In January,  1998 the Company  signed an  agreement  with Biomar  International,
Inc.("Biomar")  in which Biomar  agreed to purchase  3,571,429  shares of common
stock for  $500,000.  In  addition,  Biomar  received  warrants  to  purchase an
additional  2,971,429  shares of common stock at a price of $.175 per share or a
total of $520,000.  These warrants  expire 90 days after the shares and warrants
are  registered  with the  Securities and Exchange  Commission  ("SEC").  Biomar
became  the  major  shareholder  and  obtained  the right to name a new Board of
Directors.  Biomar is controlled by T. Colin  Campbell a former  director of the
Company and his son, T. Nelson Campbell a former Vice President of the Company.

This additional  financing will enable the Company's available cash and existing
sources of funding to satisfy its capital  requirements  through September 1998.
The Company's future capital requirements will depend on many factors, including
its ability to generate significant revenues,  and continued scientific progress
in its research and development programs, the magnitude of such programs and the
settlement of various law suits. The Company intends to seek additional  funding
sources;  however there can be no assurance  that  additional  financing will be
available on acceptable terms or at all.

PART II  OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

PARACELSIAN, INC. V. JOHN BABISH

During  1993,  an action was  commenced  against  the  Company,  a Company  Vice
President and a shareholder  and former  employee of the Company.  The complaint
seeks  money  damages  and  alleges  that  in  1990,   prior  to  the  Company's
incorporation,   certain   individuals   became  partners  with  the  individual
defendants in a venture formed to  commercialize  products which the Company had
originally  intended to develop.  Management believes that the action is without
merit  and  is  vigorously  opposing  the  allegations  and  that  the  ultimate
resolution of this  litigation  will not have a material  adverse  effect on the
Company's financial position or results of operations.

On April 25, 1997 the Company filed a complaint in the U.S.  District  Court for
the Northern  District of New York against John G. Babish,  a former officer and
director of the Company.  The  complaint  alleges that Mr.  Babish  engaged in a
pattern of wrongful conduct by which he sought to unjustly enrich himself and to
seize control of the Company at the expense of the Company and its shareholders.
That conduct  included in part the  manipulation  of the Company's  stock price,
trading in the Company's  stock on inside  information,  breach of fiduciary and
contractual  duties,  theft of Company  property,  and  usurpation  of corporate
opportunities.


The Company  initially  obtained a temporary  restraining  order prohibiting the
defendant alone or in cooperation with others from transferring any of the stock
or assets of or other interests in the Company, from issuing a press release,

                                       15
<PAGE>

or contacting stock brokers or major  shareholders with the intent to affect the
price of  plaintiff's  stock or from  disseminating  any trade  secrets or other
confidential  information of the plaintiffs.  The restraining  order against the
defendant  expired,  and the court declined the Company's request to extend that
order in a preliminary injunction.

The  defendant  denied  any  wrongdoing  in his  answer  to the  complaint,  and
counterclaimed  for damages "between  $375,000 and $1,829,587" on account of the
Company's alleged failure to register shares of common stock underlying  certain
warrants.  Defendant moved to dismiss the suit, and that motion was denied.  The
parties have commenced mutual  disclosure of evidence as required by law and are
currently in negotiations for mutual release and settlement.


DR. T COLIN CAMBELL V. PARACELSIAN, INC.

On May 20, 1997, Dr. T. Colin Campbell, a former director of the Company,  filed
a petition  in the  Delaware  Court of  Chancery  pursuant to Section 211 of the
Delaware  General  Corporation  Law  ("DGCL").  The  petition  sought  an  order
compelling  the  Company to hold an annual  meeting of  stockholders  and sought
other forms of relief relating thereto,  including requesting that the Court set
a time and place for the meeting and ordering that certain board seats be put up
for  election.  On June 11,  1997,  the  Company  announced  that  the  Board of
Directors  had  scheduled  the annual  meeting for August 13, 1997 and had set a
record date of July 10, 1997 for stockholders entitled to attend and vote at the
meeting. On the same day, the Company moved to dismiss the petition.

On June 20, 1997, petitioner filed a cross-motion in opposition to the Company's
motion to dismiss,  and an application,  pursuant to Section 223(c) of the DGCL,
to require  the  Company to hold an  election  at the annual  meeting to replace
directors  recently  appointed to the Board.  Subsequently,  petitioner moved to
postpone the scheduled August 13th meeting in order to have more time to conduct
a proxy  contest.  The  Court  scheduled  a  hearing  for July 28,  1997 to hear
argument on that motion.  Following the hearing,  the Court ruled from the bench
and denied  petitioner's  request to  postpone  the  meeting,  but  granted  the
petitioner  leave to amend his petition.  To date,  petitioner  has not filed an
amended petition.

Pursuant to the stock  purchase  agreement  executed on January 14, 1998, Dr. T.
Colin  Campbell  has agreed not to pursue his claims and has given the Company a
full and final release of all claims,  including any claims which he may have or
contended that he may have had.


Item 6(a)    EXHIBITS

             None

Item 6(b)    REPORTS ON FORM 8-K.

             None


SIGNATURES

         In accordance  with Section 13 or 15(d) of the  Securities and Exchange
Act,  the  registrant  caused  this  report to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.

Date     February 17, 1998

                                            PARACELSIAN, INC.

                                    By: /s/ Bernard M. Landes
                                       -----------------------------
                                            Bernard M. Landes
                                            President and
                                            Chief Executive Officer