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 MARCH 31, 1998.

                                       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 May 11, 1998.


<PAGE>

                                 PARACELSIAN, INC. AND SUBSIDIARY


                                               Index


<TABLE>
<CAPTION>

                                                                                              Page
                                                                                              ----
<S>                                                                                            <C>
PART I. - FINANCIAL INFORMATION

Item 1.    Financial Statements

Consolidated  Balance Sheets as of March 31, 1998  (Unaudited) and September 30,
1997 (Audited).
                                                                                                3


Consolidated  Statements of Operations  for the three and six months ended March
31, 1998 and 1997 and the period from  inception  (April 15,  1991) to March 31,
1998 (Unaudited).                                                                               4


Consolidated Statements of Stockholders' Equity for the period from inception
(April 15, 1991) to March 31, 1998 (Unaudited).                                                 5


Consolidated  Statements  of Cash Flows for the six months  ended March 31, 1998
and 1997 and the  period  from  inception  (April  15,  1991) to March 31,  1998
(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
</TABLE>



                                                 2
<PAGE>

<TABLE>
<CAPTION>
                                  PARACELSIAN, INC. AND SUBSIDIARY
                                    (A Development Stage Company)
                                     Consolidated Balance Sheets


                                                                         March 31,     September 30,
                                                                           1998            1997
                                                                       ------------    ------------
                                                                        (Unaudited)      (Audited)
<S>                                                                     <C>                 <C>        
   ASSETS
   Current Assets:
         Cash and cash equivalents                                     $    557,238    $    886,249
         Inventory                                                          171,689         156,323
         Prepaid expenses and other current assets                           40,387          61,437
         Loan to East West Herbs, Ltd., - current portion                   170,000         170,000
                                                                       ------------    ------------
              Total current assets                                          939,314       1,274,009
                                                                       ------------    ------------

   Equipment, net                                                           304,431         305,079

   Other Assets:
         TCM extracts on-hand                                               389,049         466,839
         Licensing agreement, net                                           271,258         367,258
         Patents and trademarks, net                                        116,586         125,586
         Loan to East West Herbs, Ltd., - noncurrent portion                127,500         170,000
                                                                       ------------    ------------
                                                                            904,393       1,129,683
                                                                       ------------    ------------
                                                                       $  2,148,138    $  2,708,771
                                                                       ============    ============


   LIABILITIES AND STOCKHOLDERS' EQUITY
   Current Liabilities:
         Accounts payable                                              $    126,476    $    268,702
         Accrued expenses                                                   137,055         180,664
         Due to related party                                                 7,002          18,557
                                                                       ------------    ------------
              Total current liabilities                                     270,533         467,923
                                                                       ------------    ------------

   Commitments and Contingency

   Stockholders' Equity:
         Commonstock, $.01 par value;  20,000,000 shares authorized;
               14,871,296 shares outstanding March 1998
               and 12,004,867 September 1997                                148,710         120,045
         Additional paid-in capital                                      22,555,650      22,084,315
         Deficit accumulated during the development stage               (19,484,240)    (18,620,997)
         Treasury stock, at cost; 265,478 shares                         (1,342,515)     (1,342,515)
                                                                       ------------    ------------
              Total stockholders' equity                                  1,877,605       2,240,848
                                                                       ------------    ------------
                                                                       $  2,148,138    $  2,708,771
                                                                       ============    ============

                    See accompanying notes to consolidated financial statements.

                                                  3
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                                 PARACELSIAN, INC. AND SUBSIDIARY
                                                   (A Development Stage Company)
                                               Consolidated Statements of Operations
                                For the three months and six months ended March 31, 1998 and 1997,
                                          And the period from inception to March 31, 1998
                                                           (Unaudited)


                                                                                                                       Cumulative
                                                        Three Months Ended                  Six Months Ended           Period from
                                                              March 31,                          March 31,             Inception to
                                                     --------------------------       --------------------------         March 31,
   Revenues:                                            1998            1997             1998            1997              1998
                                                     ----------     -----------       ----------     -----------      -------------
<S>                                                  <C>            <C>               <C>            <C>              <C>          
       Marketing rights                              $       --     $        --       $       --     $        --      $     254,995
       Products                                           1,675           3,525            1,675           3,525            164,388
       Product testing                                   12,050              --           33,970              --             33,970
       Product royalties                                     --             140                            1,070              1,246
       Subscription revenue                                  --              --               --              --             31,625
                                                     ----------     -----------       ----------     -----------      -------------
                                                         13,725           3,665           35,645           4,595            486,224

   Operating expenses:
       Research and product engineering                 194,675         448,297          377,157         836,032          7,044,777
       Newsletter expenses                                   --              --               --              --            955,586
       General and administrative                       297,161         595,508          555,401         973,723          8,758,304
       Product launch costs                                  --              --               --              --            300,544
       Cost of products sold                                 --              --               --              --             95,023
       Officer stock compensation                            --              --               --              --          1,228,275
                                                     ----------     -----------       ----------     -----------      -------------
                                                        491,836       1,043,805          932,558       1,809,755         18,382,509
                                                     ----------     -----------       ----------     -----------      -------------
         Loss from operations during
         the development stage                         (478,111)     (1,040,140)        (896,913)     (1,805,160)       (17,896,285)

   Interest income, net                                  12,889          18,161           26,702          61,427            501,557
   Gain on sale of assets                                 1,700              --            6,968              --             38,488

                                                     ----------     -----------       ----------     -----------      -------------
         Net loss during the development stage       $ (463,522)    $(1,021,979)      $ (863,243)    $(1,743,733)     $ (17,356,240)
                                                     ==========     ===========       ==========     ===========      =============


         Basic net loss per share                    $    (0.03)    $     (0.06)      $    (0.06)    $     (0.16)
                                                     ==========     ===========       ==========     ===========

   Weighted average number of
       common stock outstanding                      15,576,296      10,599,041       15,576,296      10,595,768
                                                     ==========     ===========       ==========     ===========

                                    See accompanying notes to consolidated financial statements.

                                                                  4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
 
                                 PARACELSIAN, INC. AND SUBSIDIARY
                                   (A Development Stage Company)
                         Consolidated Statements of Stockholders' Equity
                         For the period from inception to March 31, 1998
                                           (Unaudited)



                                                         Preferred Stock         Common Stock        
                                                         Shares   Amount       Shares    Amount      
                                                         ------   ------     ---------   ------      

<S>                                                      <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      
   Net loss (April 15, 1991 to September 30, 1991)                                                   
                                                         ------   ------     ---------   ------      

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

   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      
   Issuance of Warrants - February 1992                                                              
   Net loss (for the year ended September 30, 1992)                                                  
                                                         ------   ------     ---------   ------      

   BALANCE, September 30, 1992                               --       --     2,312,388   23,124      

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

   BALANCE, September 30, 1993                               --       --     2,312,388   23,124      

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

   BALANCE, September 30, 1994                               --       --     2,312,388   23,124      

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

<PAGE>
<TABLE>
<CAPTION>

                                          PARACELSIAN, INC. AND SUBSIDIARY
                                            (A Development Stage Company)
                                   Consolidated Statements of Stockholders' Equity
                                   For the period from inception to March 31, 1998
                                                     (Unaudited)

                                                                             Deficit
                                                                           Accumulated
                                                               Additional  During the
                                                                Paid-in    Development        Treasury
                                                                Capital       Stage             Stock      Total
                                                               ---------   ------------       --------   ----------

<S>                                                            <C>         <C>                <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                                369,017                                    371,690
   Net loss (April 15, 1991 to September 30, 1991)                           (133,469)                     (133,469)
                                                               ---------   ----------         --------   ----------

   BALANCE, September 30, 1991                                   369,017     (133,469)              --      249,622

   Redemption of Common Stock - November 1991                                                                (2,450)
   Initial Public Offering of Common Stock -
      February 1992, net of costs                              5,103,451                                  5,114,951
   Issuance of Warrants - February 1992                            1,000                                      1,000
   Net loss (for the year ended September 30, 1992)                        (1,221,943)                   (1,221,943)
                                                               ---------   ----------         --------   ----------

   BALANCE, September 30, 1992                                 5,473,468   (1,355,412)              --    4,141,180

   Warrant dividend - September 1993                             436,898     (500,000)                      (63,102)
   Net loss (for the year ended September 30, 1993)                        (2,022,614)                   (2,022,614)
                                                               ---------   ----------         --------   ----------

   BALANCE, September 30, 1993                                 5,910,366   (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                                 5,910,366   (5,818,288)              --      115,202

   Issuance of Common Stock for acquisition of
      Pacific Liaisons - October 1994                          1,632,833                                  1,644,000
   Exercise of Warrants                                          716,644                                    718,856
   Common Stock purchased by Officer -
      January 1995                                             1,311,075                                  1,318,125


                            See accompanying notes to consolidated financial statements.

                                                          5
</TABLE>
<PAGE>

                                   PARACELSIAN, INC. AND SUBSIDIARY
                                    (A Development Stage Company)
                           Consolidated Statements of Stockholders' Equity
                           For the period from inception to March 31, 1998
                                             (Unaudited)

<TABLE>
<CAPTION>

                                                          Preferred Stock        Common Stock       
                                                          Shares   Amount       Shares   Amount     
                                                         --------  ------      --------  ------     
<S>                                                        <C>       <C>       <C>        <C>       
   Continued from the previous page

   Issuance of Common Stock for services rendered -
     January 1995                                                                33,330     333     
     April 1995                                                                 200,000   2,000     
   Issuance of Common Stock for conversion
     of short-term liabilities - June 1995                                       13,000     130     
   Issuance of Common Stock - August 1995                                       300,000   3,000     
   Issuance of Preferred Stock - September 1995
     Series A, net of costs                                10,700     107                           
     Series B, net of costs                                10,000     100                           
     Series C, net of costs                                 5,000      50                           
   Net loss (for the year ended September 30, 1995)                                                 
                                                         --------  ------     ---------  ------     

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

   Issuance of Series B Preferred Stock, net of costs      76,651     767                           
   Exercise of Warrants                                                          73,318     733     
   Issuance of Common Stock for services rendered -
     October 1995                                                                33,336     331     
   Purchase of Treasury Stock - November 1995                                                       
   Conversion of Preferred Stock                         (102,351) (1,024)    5,371,010  53,710     
   Preferred dividends and beneficial
     conversion feature                                                                             
   Issuance of Common Stock for conversion
     of short-term liabilities - January 1996                                     2,500      25     
   Issuance of Common Stock for services rendered -
     February 1996                                                               25,000     250     
   Issuance of Warrants and Options for services
     rendered  - February 1996                                                                      
   Issuance of Common Stock - June 1996                                         733,334   7,333     
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                         PARACELSIAN, INC. AND SUBSIDIARY
                                          (A Development Stage Company)
                                 Consolidated Statements of Stockholders' Equity
                                 For the period from inception to March 31, 1998
                                                   (Unaudited)

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

   Issuance of Common Stock for services rendered -
     January 1995                                             21,167                                      21,500
     April 1995                                              373,000                                     375,000
   Issuance of Common Stock for conversion
     of short-term liabilities - June 1995                    48,849                                      48,979
   Issuance of Common Stock - August 1995                    749,625                                     752,625
   Issuance of Preferred Stock - September 1995
     Series A, net of costs                                  361,018                                     361,125
     Series B, net of costs                                  399,900                                     400,000
     Series C, net of costs                                  218,422                                     218,472
   Net loss (for the year ended September 30, 1995)                    (3,031,196)                    (3,031,196)
                                                          ----------   ----------      ----------     ----------

   BALANCE, September 30, 1995                            11,742,899   (8,849,484)             --      2,942,688

   Issuance of Series B Preferred Stock, net of costs      3,999,233                                   4,000,000
   Exercise of Warrants                                      154,676                                     155,409
   Issuance of Common Stock for services rendered -
     October 1995                                             42,669                                      43,000
   Purchase of Treasury Stock - November 1995                                          (1,342,515)    (1,342,515)
   Conversion of Preferred Stock                             (52,686)
   Preferred dividends and beneficial
     conversion feature                                    1,628,000   (1,628,000)
   Issuance of Common Stock for conversion
     of short-term liabilities - January 1996                  9,975                                      10,000
   Issuance of Common Stock for services rendered -
     February 1996                                            27,875                                      28,125
   Issuance of Warrants and Options for services
     rendered  - February 1996                               132,500                                     132,500
   Issuance of Common Stock - June 1996                    1,965,663                                   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 March 31, 1998
                                              (Unaudited)


                                                         Preferred Stock         Common Stock        
                                                         Shares   Amount      Shares      Amount     
                                                         ------   ------    ----------   ---------   
<S>                                                       <C>     <C>         <C>           <C>      
   Continued from the previous page

   Sale of Warrants - June 1996                                                                      
   Issuance of Common Stock - July 1996                                         91,667         917   
   Issuance of Common Stock for services rendered -
     July 1996                                                                   5,000          50   
   Exercise of Options - September 1996                                         15,000         150   
   Issuance of Common Stock - September 1996                                   683,333      68,833   
   Net loss (for the year ended September 30, 1996)                                                  
                                                         ------   ------    ----------   ---------   

   BALANCE, September 30, 1996                               --       --    11,935,082     119,348   

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

   BALANCE, September 30, 1997                               --       --    12,004,867     120,045   
                                                         ------   ------    ----------   ---------   

   Issuance of Common - January 1998                                         3,571,429      35,715   
   Surrender of shares - January 1998                                         (705,000)     (7,050)  
   Net loss (for the six months ended March 31, 1998)        --       --            --          --   
                                                         ------   ------    ----------   ---------   

   BALANCE, March 31, 1998                                   --   $   --    14,871,296   $ 148,710   
                                                         ======   ======    ==========   =========   
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                          PARACELSIAN, INC. AND SUBSIDIARY
                                            (A Development Stage Company)
                                   Consolidated Statements of Stockholders' Equity
                                   For the period from inception to March 31, 1998
                                                     (Unaudited)


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

   Sale of Warrants - June 1996                               35,000                                          35,000
   Issuance of Common Stock - July 1996                      250,075                                         250,992
   Issuance of Common Stock for services rendered -
     July 1996                                                 4,950                                           5,000
   Exercise of Options - September 1996                       37,350                                          37,500
   Issuance of Common Stock - September 1996               1,997,826                                       2,004,659
   Net loss (for the year ended September 30, 1996)                         (4,201,764)                   (4,201,764)
                                                          ----------      ------------    -----------    -----------

   BALANCE, September 30, 1996                            21,976,005       (14,679,248)    (1,342,515)     6,073,590

   Issuance of Common Stock for services rendered -
     January 1997                                             22,835                                          22,907
   Termination of warrants - February 1997                   (35,000)                                        (35,000)
   Repayment of officer stock subscription receivable         89,850                                          89,850
   Issuance of Common Stock for services rendered -
     July 1997                                               30,625                                           31,250
   Net loss (for the year ended September 30, 1997)                         (3,941,749)                   (3,941,749)
                                                         -----------      ------------    -----------    -----------

   BALANCE, September 30, 1997                            22,084,315       (18,620,997)    (1,342,515)     2,240,848
                                                         -----------      ------------    -----------    -----------

   Issuance of Common - January 1998                         464,285                                         500,000
   Surrender of shares - January 1998                          7,050                                              --
   Net loss (for the six months ended March 31, 1998)             --          (863,243)            --       (863,243)
                                                         -----------      ------------    -----------    -----------

   BALANCE, March 31, 1998                               $22,555,650      $(19,484,240)   $(1,342,515)   $ 1,877,605
                                                         ===========      ============    ===========    ===========

                             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 six months ended March 31, 1998 and 1997
                                       And the period from inception to March 31, 1998
                                                         (Unaudited)

                                                                                                               Cumulative
                                                                                Six Months Ended               Period from
                                                                                    March 31,                  Inception to
                                                                          ---------------------------           March 31,
                                                                             1998              1997               1998
                                                                          ---------         ---------         -------------

<S>                                                                       <C>              <C>                <C>          
   Cash flows from operating activities:
       Net loss                                                           $(863,243)       $(1,743,733)       $(17,356,240)
       Adjustments to reconcile net loss to net cash used in
       operating activities:
          Gain on the sale of assets                                         (1,700)                               (33,220)
          Non-cash compensation expense                                          --                 --           1,228,275
          Other non-cash expenses                                                --            170,656           1,510,203
          Depreciation and amortization                                     214,650            147,510           1,461,622
          Changes in assets and liabilities:
              (Increase) decrease in inventory                              (15,366)                --            (171,689)
              (Increase) decrease in prepaid expenses and
                 other current assets                                        21,050           (254,783)            (10,967)
              (Decrease) increase in accounts payable                      (142,226)          (143,112)            480,999
              (Decrease) increase in due to related party                   (11,555)           (34,667)              7,002
              (Decrease) increase in deferred revenue                            --              1,900                  --
              (Decrease) increase in accrued expenses                       (43,609)          (143,486)            137,055
                                                                          ---------        -----------        ------------
          Net cash used in operating activities                            (841,999)        (1,999,715)        (12,746,960)
                                                                          ---------        -----------        ------------

   Cash flows from investing activities:
       Purchase of investments                                                   --                 --          (6,719,089)
       Redemption of investments                                                 --                 --           6,719,089
       Purchase of equipment                                                (31,212)           (16,887)           (763,398)
       Proceeds from sale of equipment                                        1,700                 --              53,220
       Acquisition of licensed technology                                        --                 --             (53,656)
       Acquisition of patents and trademarks                                     --            (42,951)           (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) proceeds (to) from East West Herbs, Ltd.                       42,500                 --            (297,500)
                                                                          ---------        -----------        ------------
          Net cash provided by (used in) investing activities                12,988            (59,838)         (1,857,153)
                                                                          ---------        -----------        ------------

   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                     500,000                 --          10,830,109
       Proceeds from the exercise (redemption) of warrants                       --            (35,000)            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               500,000            (35,000)         15,161,351
                                                                          ---------        -----------        ------------

   Net increase (decrease) in cash and cash equivalents                    (329,011)        (2,094,553)            557,238

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

   Cash and cash equivalents, end of period                               $ 557,238        $ 2,076,849        $    557,238
                                                                          =========        ===========        ============

                                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 six months ended March 31, 1998 and 1997
                                   And the period from inception to March 31, 1998
                                                     (Unaudited)

                                                                                                           Cumulative
                                                                                   Six Months Ended       Period from
                                                                                       March 31,          Inception to
                                                                             --------------------------    March 31,
                                                                                 1998           1997         1998
                                                                             -----------   ------------   ------------
<S>                                                                             <C>          <C>            <C>    

   Supplemental disclosures:
       Cash paid during the period for interest                              $     2,485   $      7,019   $    21,769
                                                                             ===========   ============   ===========

   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                               $        --   $     38,125   $   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
                                                                             ===========   ============   ===========

                            See accompanying notes to consolidated financial statements.

                                                          9
</TABLE>
<PAGE>

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


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             MARCH 31, 1998 AND 1997


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  $863,000 for the six months ended March 31, 1998 and has
working  capital  of  approximately  $666,000  at March 31,  1998.  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 March 31, 1998 and
September 30, 1997 approximated $557,000 and $887,000, 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  $85,747  and  $76,747,
respectively,  at March 31, 1998 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>
                                                                   March 31,      September 30,
                                                                     1998              1997
                                                                  -----------       ----------
                                                    Useful
                                                    Lives
                                                    -----
<S>                                                <C>            <C>                <C>     
            Laboratory equipment                   10 Years       $   542,903       $  480,171
            Office furniture and equipment         10 Years            86,345           86,345
            Computer equipment and software        5 Years            133,852          133,852
                                                                  -----------       ----------
                                                                      763,100          700,368
            Less - accumulated depreciation                           458,669          395,299
                                                                  -----------       ----------
                                                                  $   304,431       $  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.       STOCKHOLDERS' EQUITY:

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 an 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.  All
directors  will stand for  election  at the annual  meeting of the  shareholders
scheduled for May 13, 1998.

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 prior  written  notice is received  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 March 31, 1998 as compared to the
                        Three Months Ended March 31, 1997

RESULTS OF OPERATIONS

During the second  quarter of the fiscal  year  ending  September  30,  1998 the
Company  generated  revenue  of $13,725  from  product  testing  and the sale of
products as compared to $3,665 of royalty and product  sale  revenue in the same
quarter of the prior  year.  This  represents  an increase of $10,060 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  $7,045,000 in product testing  research,  development and engineering.
The Company expended  $194,675 in the second quarter of fiscal 1998, as compared
to $377,157 in the second quarter in fiscal 1997,  this represents a decrease of
$182,482.  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  $297,161 for the second  quarter of
fiscal 1998 as compared to $595,508 in the second 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 $298,347 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 will be lower in
futures quarters of fiscal 1998 than comparable quarters in fiscal 1997.

The  Company has  incurred  net losses of  $17,356,000  as a  development  stage
company from inception (April 15, 1991) to March 31, 1998, of which $464,000 was
incurred in the second  quarter of fiscal 1998 and $ 1,022,000  was  incurred in
second  quarter  of fiscal  1997.  The basic net loss per share of common  stock
amounted  to $.03 for the three  months  ended  March 31,  1998 and $.06 for the
three  months  ended March 31, 1997.  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 March 31,  1998 does not  believe  that there will be any  significant
impact on the future financial  position,  operating results,  and cash flows of
the Company.

LIQUIDITY & CAPITAL RESOURCES

As of March 31, 1998, the Company maintained working capital of $666,000,  which
included cash and cash equivalents of $557,000.

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, or
contacting  stock  brokers or major  shareholders  with the intent to affect the
price of  plaintiff's  stock or from

                                       15
<PAGE>

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 negotiated a mutual release and settlement.  Under the terms of
the  settlement  dated April 30,  1998,  the  Company  agreed to pay John Babish
$12,500 upon signing and $26,000  payable over 60 months at an interest  rate of
8.5%.


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     May 11, 1998
                                PARACELSIAN, INC.

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

                                       16