UNITED STATES
                SECURITIES AND EXCHANGE COMMISSION

                      Washington, D.C. 20549


                            FORM 10-Q


(X)    QUARTERLY  REPORT  PURSUANT  TO  SECTION 13 OR 15(d) OF THE
       SECURITIES  EXCHANGE ACT OF 1934 FOR THE  QUARTERLY  PERIOD
       ENDED JUNE 30, 1998

                                OR

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


       Commission File Number: 0-21022


                   SHAMAN PHARMACEUTICALS, INC.
      (Exact name of registrant as specified in its charter)


                     Delaware                                       94-3095806
(State or other jurisdiction of incorporation or organization)  (I.R.S. Employer
                                                          Identification Number)

213 East Grand Avenue, South San Francisco, California               94080
      (Address of principal executive offices)                    (ZIP Code)


Registrant's telephone number, including area code:     650-952-7070


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                      Yes               X                No

Number of shares of Common  Stock,  $.001 par  value,  outstanding
as of July 31, 1998:  18,982,978




                                       1
<PAGE>





                    SHAMAN PHARMACEUTICALS, INC.

                         INDEX FOR FORM 10-Q

                            June 30, 1998

<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                                                          PAGE
                                                                         NUMBER

PART I             FINANCIAL INFORMATION

Item 1.            Financial Statements and Notes

                   Condensed  Balance  Sheets as of June 30,  1998         
                   (unaudited) and December 31, 1997                       3

                   Condensed Statements of Operations for the          
                   three and six months ended June 30, 1998 and
                   June 30, 1997 (unaudited)                               4

                   Condensed Statements of Cash Flows for the six      
                   months ended June 30, 1998 and June 30, 1997
                   (unaudited)                                             5

                   Notes to Condensed Financial Statements                 6

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

Item 3.            Qualitative and  Quantitative  Disclosure About    
                   Market Risk                                            13


PART II            OTHER INFORMATION

Item 1.            Legal Proceedings                                      28

Item 2.            Changes in Securities                                  28

Item 3.            Defaults in Senior Securities                          28

Item 4.            Submission of Matters to a Vote of Security Holders    28
                   
Item 5.            Other Information                                      29

Item 6.            Exhibits and Reports on Form 8-K                       29


SIGNATURES                                                                30

</TABLE>



                                       2
<PAGE>




PART I   FINANCIAL INFORMATION

      Item 1.  Financial Statements and Notes
<TABLE>
<CAPTION>

                          SHAMAN PHARMACEUTICALS, INC.
                            CONDENSED BALANCE SHEETS

<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                    June 30,      December 31, 
                                                      1998            1997
                                                  ------------   ------------
                                                  (Unaudited)
    ASSETS

    Current assets:
       Cash and cash equivalents                $     950,375   $  11,340,702   
       Short-term investments                       4,254,174      10,079,943
       Amounts  due from related parties              466,348         192,551
       Prepaid expenses and other current assets      680,513         553,507
                                                 ------------   -------------
    Total current assets                            6,351,410      22,166,703
 
      Property and equipment, net                   3,459,314       3,972,140
      Other assets                                    646,179         613,657
                                                 ------------    ------------

    Total assets                                $  10,456,903   $  26,752,500
                                                  ============   ============

    LIABILITIES AND STOCKHOLDERS' EQUITY
    (NET CAPITAL DEFICIENCY)

    Current liabilities:
       Accounts payable and other accrued 
         expenses                               $   1,437,052   $     925,701
       Accrued clinical trial costs                 2,757,390       1,689,659
       Accrued professional fees                    1,014,113         718,625
       Accrued compensation                           424,396         368,272
       Advances - contract research                   343,750       1,133,605
       Current installments of long-term            2,598,243       2,783,976
         obligations                             ------------    ------------

    Total current liabilities                       8,574,944       7,619,838

    Long-term obligations, excluding current        
       installments                                 3,694,056       4,017,979
    Senior convertible notes                        7,868,349       9,967,044

    Stockholders' equity:
       Series A preferred stock                           400             400
       Common stock                                    18,471          17,796
       Additional paid-in capital                 120,957,665     117,164,524
       Deferred compensation and other             
         adjustments                               (1,094,296)       (124,910)
       Accumulated deficit                       (129,562,686)   (111,910,171)
                                                 -------------   -------------

    Total stockholders' equity (net capital 
       deficiency)                                 (9,680,446)      5,147,639    
                                                  ------------   ------------

    Total liabilities and stockholders' equity                    
    (net capital deficiency)                    $  10,456,903   $  26,752,500
                                                 ============    ============

</TABLE>

   NOTE:  The balance  sheet at  December  31,  1997 has been  derived  from the
   audited  financial  statements  at that date but does not  include all of the
   information  and  footnotes   required  by  generally   accepted   accounting
   principles for complete financial statements.

   See Notes to condensed financial statements.




                                       3
<PAGE>




<TABLE>
<CAPTION>



                          SHAMAN PHARMACEUTICALS, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)



                          Three Months Ended June 30,  Six Months Ended June 30,
                          ---------------------------  -------------------------
                              1998          1997           1998         1997
                           ---------     ---------      ---------    ----------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Revenue from 
   collaborative
     agreements          $   849,855    $  875,000    $ 1,724,855   $ 1,750,000

Operating expenses:
   Research and 
      development          8,226,889     5,537,830     15,739,987    11,553,198
   General and 
      administrative       1,407,509     1,718,247      2,683,620     2,709,346
                         -----------   -----------    -----------   -----------

Total operating expenses   9,634,398     7,256,077     18,423,607    14,262,544
                         -----------    -----------    -----------   -----------

Loss from operations      (8,784,543)   (6,381,077)   (16,698,752)  (12,512,544)

Other income (expense):
   Interest income           124,510       303,628        356,878       554,740
   Interest expense         (503,745)     (178,989)    (1,310,641)     (280,383)
                         -----------   -----------    -----------   -----------

Net loss                 $(9,163,778)  $(6,256,438)  $(17,652,515) $(12,238,187)
                         ===========   ===========    ===========   ===========

Net loss per share       $     (0.50)  $     (0.36)  $      (0.98) $      (0.75)
                         ===========   ===========    ===========   ===========

Shares used in calculation of
   net loss per share     18,153,000    17,263,000     17,994,000    16,359,000
                         ===========   ===========    ===========   ===========


</TABLE>


  See Notes to condensed financial statements.



                                       4
<PAGE>



<TABLE>
<CAPTION>


                          SHAMAN PHARMACEUTICALS, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                Increase (Decrease) in Cash and Cash Equivalents
                                   (Unaudited)


                                                     Six Months Ended June 30,
                                               --------------------------------
                                                   1998                1997
                                               -------------      -------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Operating activities:

Net loss                                      $ (17,652,515)     $ (12,238,190)

Adjustments to reconcile net loss to net
cash used in operating activities:

    Depreciation                                    714,488            904,104    
    Amortization of warrants and deferred                                
       equity costs                                 349,237            114,227
    Loss on disposal of fixed assets                 19,834                  -
    Payment of interest in Common Stock             455,959                  -

Changes in operating assets and liabilities:

    Prepaid expenses, other current assets    
       and other assets                            (433,325)           408,302
    Accounts payable, accrued expenses and
       contract research advances                 1,124,668           (314,910)
                                               -------------      -------------

Net cash used in operating activities           (15,421,654)       (11,126,467)
                                               -------------      -------------


Investing activities:

  Purchases of available-for-sale investments    (1,999,049)        (5,051,129)                                            
  Maturities of available-for-sale            
     investments                                  5,048,516            986,097
  Sales of available-for-sale investments         2,805,510                  -
  Capital expenditures                             (221,496)          (543,908)
                                               -------------      -------------

Net cash provided by (used in) investing     
activities                                        5,633,481         (4,608,940)
                                              -------------       -------------


Financing activities:

  Proceeds from issuance of Common Stock             14,545         15,898,557
  Principal payments on long-term           
     obligations                                 (1,127,822)        (2,100,348)
  Proceeds from issuance of long-term               
     obligations                                          -          5,000,000
  Proceeds from asset financing                 
     arrangements                                   511,123                  -
                                               ------------       -------------

Net cash provided by (used in) financing      
     activities                                    (602,154)        18,798,209
                                               -------------      -------------
Net increase (decrease) in cash and cash 
    equivalents                                 (10,390,327)         3,062,802
Cash and cash equivalents at beginning of    
     period                                      11,340,702         16,051,251
                                              -------------      -------------
Cash and cash equivalents at end of period    $     950,375      $  19,114,053
                                              =============      =============

</TABLE>


See Notes to condensed financial statements.



                                       5
<PAGE>





                          SHAMAN PHARMACEUTICALS, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

                                  June 30, 1998
                                   (Unaudited)

1.    Basis of Presentation

      Shaman  Pharmaceuticals,  Inc. ("Shaman" or the  "Company")  discovers and
develops novel  pharmaceutical  products for the treatment of human diseases and
their symptoms  through the isolation and optimization of active compounds found
in  tropical  plants  with a history of  medicinal  use.  The  Company has three
product candidates in clinical development:  SP-303/Provir,  an oral product for
the  treatment  of  diarrhea  in  people  with AIDS and  other  watery  diarrhea
indications;  nikkomycin  Z, an oral  antifungal  for the  treatment of systemic
fungal infections;  and SP-134101,  an oral product for the treatment of Type II
diabetes.  Shaman  maintains an active Type II diabetes  research  program which
serves  as the basis for its  collaboration  with  Lipha  S.A.,  a  wholly-owned
subsidiary of Merck KGaA, Darmstadt, Germany ("Lipha/Merck").

      The  accompanying  unaudited  condensed  financial  statements  have  been
prepared in accordance with generally accepted accounting principles for interim
financial  information and in accordance with the  instructions to Form 10-Q and
Rule  10-01 of  Regulation  S-X.  Accordingly,  they do not  include  all of the
information and footnotes required by generally accepted  accounting  principles
for complete financial statements. In the opinion of management, all adjustments
(consisting only of normal  recurring  adjustments)  considered  necessary for a
fair presentation have been included.  The results of operations for the interim
periods shown herein are not necessarily indicative of operating results for the
entire year.

      This  unaudited  financial  data  should be read in  conjunction  with the
audited financial  statements and notes thereto included in the Company's Annual
Report on Form 10-K/A for the fiscal year ended  December 31,  1997,  filed with
the Securities and Exchange Commission on May 28, 1998.

2.    Series B Convertible Preferred Stock Financing

      In June 1998,  the Company  entered into Stock  Purchase  Agreements  (the
"Stock  Agreements") with certain of its stockholders (the "Buyers") pursuant to
which the Company  acquired the right to sell to the Buyers,  subject to certain
conditions  and in one or two tranches  closing no later than February 28, 1999,
up to an aggregate of 7,000 shares of the Company's Series B Custom  Convertible
Preferred Stock (the "Series B Preferred Stock") for an aggregate purchase price
of  $7,000,000.  The Stock  Agreements  became  effective  on June 22, 1998 (the
"Effective  Date")  but will be  terminated  upon the  closing  of the  Series C
Convertible Preferred Stock Financing. See Note 5 - Subsequent Event.

      As  consideration  for  entering  into the Stock  Agreements,  the Company
issued to the Buyers on the Effective  Date  warrants  (the "June  Warrants") to
purchase an 



                                       6
<PAGE>

aggregate of 350,000 shares of Common Stock.  The June Warrants are  exercisable
for a period of five years after the  Effective  Date at an  exercise  price per
share equal to 115% of the average  trading price of the Common Stock during the
specified  measurement  periods. The June Warrants provide for adjustment of the
number of shares of Common Stock issuable upon exercise thereof,  including upon
the  distribution of certain  dividends,  or upon the division or combination of
the Company's Common Stock. The Company filed a registration  statement with the
Securities and Exchange  Commission  (the "SEC") for the resale of shares issued
upon exercise of the June Warrants,  which  registration  statement was declared
effective on July 10, 1998.  The Company has  attributed a value of $1.0 million
to these June  Warrants.  This amount has been  recorded as a deferred  interest
expense and is being amortized monthly over five years.

3.    Loss per Share

      Basic net loss per share is computed using the weighted  average number of
shares of common stock outstanding. At June 30, 1998 and 1997, outstanding stock
options and other stock equivalents are antidilutive.

4.    Recent Accounting Pronouncements

      In June 1997, the Financial Accounting Standards Board issued Statement of
Financial  Accounting  Standards  No.  130,  Reporting   Comprehensive   Income.
Statement  130   establishes   new  rules  for  the  reporting  and  display  of
comprehensive  income and its components including unrealized gains or losses on
available-for-sale  securities;  however, adoption in the quarter and six months
ended June 30, 1998 did not have a material  impact on the  Company's net income
or stockholders' equity.

      In June 1997, the Financial Accounting Standards Board issued Statement of
Financial  Accounting  Standards  No.  131,  Disclosures  about  Segments  of an
Enterprise and Related Information.  Statement 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual  financial  statements  and  requires  that those  enterprises  report
selected  information about operating segments in interim financial reports.  It
also establishes  standards for related disclosures about products and services,
geographic  areas,  and major  customers.  Statement  131 is  effective  for the
financial  statements  for fiscal years  beginning  after December 15, 1997, and
therefore  the Company will adopt the new  requirements  retroactively  in 1998.
Management  has not  completed  its  review  of  Statement  131,  but  does  not
anticipate that the adoption of this statement will have a significant effect on
the Company's reported segments and disclosures.

5.    Subsequent Event

      Series C Convertible Preferred Stock Financing

     In August 1998, the Company filed a registration statement with the SEC for
a public  offering  of a minimum of  140,000  ("the  Minimum")  and a maximum of
200,000 (the "Maximum") shares of Series C Convertible Preferred Stock for gross
proceeds of a minimum of $14.0 million and a maximum of $20.0 million (the "1998
Public  Offering").  Each share of Series C Preferred Stock shall be entitled to
receive  


                                       7
<PAGE>

cumulative  dividends paid  semi-annually  each year to the holders of record of
such shares as follows: (i) a stock-on-stock  dividend of $10.00 per annum, paid
in arrears,  in shares of Common  Stock  (valued at 85% of the  average  closing
price of the Common  Stock for the 10 trading day period  ending  three  trading
days prior to the date on which the  dividend is paid);  plus (ii) a cash amount
equaling  0.00005% of the  Company's  United  States net sales,  if any, for the
preceding two calendar quarters of its  SP-303/Provir  product for the treatment
of  diarrhea  (equivalent  to a 7% royalty for the Minimum and a 10% royalty for
the Maximum of the aggregate shares of Series C Preferred Stock) less $5.00 (the
value of the semi-annual stock dividend). If, under Delaware law, the Company is
unable to pay the cash  amount of the  Dividends,  then the cash  portion of the
Dividends  shall be  payable  in shares of Common  Stock  (valued  at 85% of the
average  closing price of the Common Stock for the 10 day trading  period ending
three trading days prior to the date on which the dividend is paid).  Each share
shall be convertible  at any time  commencing on the date on which any shares of
Series C Preferred  Stock were first  issued and  continuing  for a period of 30
days thereafter, and again commencing 12 months after such initial issuance date
at the election of each holder,  and  automatically on the sixth  anniversary of
the initial  issuance date into greater of (i) 16.6667 shares of Common Stock or
(ii) such number of shares of Common  Stock as equals $100 divided by 85% of the
average  closing  price of the Common Stock  reported by the Nasdaq Stock Market
for the 10 trading day period  ending  three  trading  days prior to the date of
conversion.  The registration statement was declared effective by the Securities
and Exchange Commission on August 14, 1998.



                                       8
<PAGE>




                          SHAMAN PHARMACEUTICALS, INC.

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

Overview

      Shaman  Pharmaceuticals,  Inc.  ("Shaman" or the "Company")  discovers and
develops novel  pharmaceutical  products for the treatment of human diseases and
their symptoms  through the isolation and optimization of active compounds found
in  tropical  plants  with a history of  medicinal  use.  The  Company has three
product candidates in clinical development:  SP-303/Provir,  an oral product for
the  treatment  of  diarrhea  in  people  with AIDS and  other  watery  diarrhea
indications;  nikkomycin  Z, an oral  antifungal  for the  treatment of systemic
fungal infections;  and SP-134101,  an oral product for the treatment of Type II
diabetes.  Shaman  maintains an active Type II diabetes  research  program which
serves as the basis for its collaboration with Lipha/Merck.

      The Company began  operations in March 1990. To date,  Shaman has not sold
any products.  However, the Company's lead compound,  SP-303/Provir is currently
in a Phase III human clinical trial for the treatment of diarrhea in people with
AIDS.  If the results of this trial (which is currently  over 85%  enrolled) are
positive,  the  Company  expects  to  file  an NDA for  commercial  approval  of
SP-303/Provir in early 1999. With a fast track  designation from the FDA for the
indication  of  diarrhea  in  people  with AIDS, the  Company is  preparing  for
potential  product  launch in the second half of 1999 and intends to retain U.S.
marketing rights to this product. The Company's  accumulated deficit at June 30,
1998, was approximately $129.6 million. Since its inception, Shaman has financed
it research,  development and administrative  activities through various private
and  public  equity  financings,  loan and debt  financings,  and  collaborative
agreements  with  pharmaceutical  companies  and,  to a lesser  extent,  through
equipment and leasehold improvement lease financings.

Results  of  Operations  for the Six Months  Ended June 30, 1998 and 1997

      The Company recorded  collaborative  revenues of $850,000 and $875,000 for
the quarters  ended June 30, 1998 and 1997,  respectively,  and  $1,725,000  and
$1,750,000  for the six  months  ended  June 30,  1998 and  1997,  respectively.
Revenues  for the quarter and six months ended June 30, 1998  resulted  from the
Company's on-going research funding from Shaman's collaboration with Lipha/Merck
and research funding from Ono  Pharmaceutical  Co., Ltd. of Osaka, Japan ("Ono")
through May 1998.  Revenues  for the quarter and six months  ended June 30, 1997
resulted   from  the   Company's   on-going   research   funding  from  Shaman's
collaborations  with Lipha/Merck and Ono. The Company expects that revenues from
collaborative agreements will continue to fluctuate in the future as development
of its various compounds  proceeds and new product  candidates are partnered for
development  and  commercialization.  In May 1998,  the Company's  collaborative
agreement with Ono (the  "Agreement"),  and the ongoing research and development
funding received pursuant thereto,  expired under the original terms thereof and
was not renewed.  Under the  Agreement,  Ono will continue to provide  milestone
payments and  royalties to Shaman on any  resulting  



                                       9
<PAGE>

products they develop from compounds  identified  during the three-year  term of
the Agreement.

      The Company incurred research and development expenses of $8.2 million and
$5.5 million for the  quarters  ended June 30, 1998 and 1997,  respectively  and
$15.7 million and $11.6 million for the six months ended June 30, 1998 and 1997,
respectively.  These  increases  were  primarily  attributable  to the Company's
increased  clinical  development   activities  with  respect  to  SP-303/Provir.
Research  and  development  expenses  are  expected  to  increase in 1998 as the
Company   continues  its  clinical   development   activities  with  respect  to
SP-303/Provir  and  other  product  candidates  and the  Company  maintains  its
diabetes research program.

      General and administrative expenses were $1.4 million and $1.7 million for
the quarters  ended June 30, 1998 and 1997,  respectively,  and $2.7 million for
each six month period ending June 30, 1998 and 1997. The decrease in the quarter
ended June 30, 1998  compared to the quarter  ended June 30, 1997 was  primarily
attributable to lower legal dispute costs. The Company's  expanded  research and
clinical  activities  are not  expected  to require  commensurate  increases  in
general and administrative support and expense.

      Interest  income was $125,000 and $304,000 for the quarters ended June 30,
1998 and 1997, respectively,  and $357,000 and $555,000 for the six months ended
June 30, 1998 and 1997, respectively.  Interest income decreased for the quarter
and six months  ended June 30,  1998,  compared  with the quarter and six months
ended June 30, 1997,  due to lower average cash and  investment  balances as the
Company continues to fund its operations.

      Interest expense was $504,000 and $179,000 for the quarters ended June 30,
1998 and 1997, respectively and $1,311,000 and $280,000 for the six months ended
June 30, 1998 and 1997, respectively. Interest expense increased for the quarter
and six months  ended June 30,  1998,  compared  with the quarter and six months
ended June 30, 1997 due to higher average debt balance and  amortization  of the
non-cash interest expense of $266,000 and $320,000,  respectively, in connection
with certain debt financing.

Liquidity and Capital Resources

      As of June 30, 1998, the Company's cash, cash equivalents, and investments
totaled approximately $5.2 million,  compared with $21.4 million at December 31,
1997. This cash balance does not include expected  proceeds from the 1998 Public
Offering of an approximate minimum of $12.8 million and an approximate  maximum
of $18.5  million.  The Company  invests excess cash according to its investment
policy that provides  guidelines  with regard to liquidity,  type of investment,
credit ratings and concentration limits.

      In June 1998,  the Company  entered into Stock  Purchase  Agreements  (the
"Stock  Agreements") with certain of its stockholders (the "Buyers") pursuant to
which the Company  acquired the right to sell to the Buyers,  subject to certain
conditions  and in one or two tranches  closing no later than February 28, 1999,
up to an aggregate of 7,000 shares of the Company's Series B Custom  Convertible
Preferred Stock (the "Series B Preferred Stock") for an aggregate purchase price
of  $7,000,000. The Stock  Agreements  



                                       10
<PAGE>

became effective on June 22, 1998 (the "Effective  Date") but will be terminated
upon the closing of the 1998 Public Offering.

      In June 1997, the Company issued $10.4 million of senior convertible notes
(the  "1997  Private  Placement").  The notes  mature  in  August  2000 and bear
interest  at a rate of 5.5% per  annum.  Interest  on the  notes  may be paid in
Common Stock or cash at the Company's  option.  The notes are  convertible  into
Common Stock of the Company at a 10% discount  from the low trading price during
a  designated  time  period  prior  to  the  conversion.  The  Company  filed  a
registration  statement  with  the SEC for the  resale  of  shares  issued  upon
conversion of these notes, which  registration  statement was declared effective
on August 29,  1997.  As of August 10, 1998,  a total  principal  amount of $4.0
million of the notes had been converted into an aggregate of 1,151,168 shares of
Common Stock.

      In March 1998, the Company and the purchasers of the notes entered into an
Amendment Agreement (the "Amendment Agreement"), in order to avoid conversion of
the notes at a price that would be unduly  dilutive  to the  Company's  existing
stockholders.  As consideration for entering into the Amendment  Agreement,  the
Company  issued to the purchasers of the notes warrants to purchase an aggregate
of 137,500 shares of Common Stock (the "March Warrants"). The March Warrants are
exercisable  through March 18, 2001 at an exercise price of $7.50 per share. The
Company  filed a  registration  statement  with the SEC for the resale of shares
issued upon exercise of the March  Warrants,  which  registration  statement was
declared effective on July 10, 1998.

      In May 1997,  the Company  obtained a $5.0 million loan,  which  amortizes
over 36 months, to pay off pre-existing debt, finance capital asset acquisitions
and  finance  continued  research  and  clinical  development  of the  Company's
existing product candidates.  The loan carries an annual interest rate of 14.58%
and is  payable in equal  monthly  installments  over the term of the loan.  The
lender was granted 10-year  warrants to purchase 200,000 shares of the Company's
Common Stock at an exercise price of $6.25 per share. The Company has attributed
a value of  $648,000  to these  warrants.  This  amount has been  recorded  as a
discount on the related debt and is being amortized as interest expense over the
term of the loan.

      In  September 1996,  the Company  entered  into a five-year  collaborative
agreement with Lipha/Merck to jointly develop Shaman's  antihyperglycemic drugs.
Upon signing the  collaboration,  the Company received an annual research fee of
$1.5  million  which  was  amortized  to  revenue  over 12  months,  as work was
performed.  The Company  also  received  approximately  $3.0 million for 388,918
shares of Common Stock priced at $7.71 per share,  representing a 20% premium to
the  weighted  average  price  of the  Company's  Common  Stock  at the  time of
purchase.  In exchange for  development  and  marketing  rights in all countries
except  Japan,  South  Korea,  and Taiwan  (which are  covered  under an earlier
agreement  between Shaman and Ono),  Lipha/Merck will provide up to $9.0 million
in research payments and up to $10.5 million in equity  investments  priced at a
20% premium to a multi-day volume weighted average price of the Company's Common
Stock at the time of  purchase.  The  agreement  also  provides  for  additional
preclinical  and clinical  milestone  payments to the Company in excess of $10.0
million  per   compound   for  each   antihyperglycemic   drug   developed   and
commercialized. Lipha/Merck will bear all pre-clinical, clinical,



                                       11
<PAGE>


regulatory and other development expenses associated with the compounds selected
under the agreement.  In addition,  as products are commercialized,  Shaman will
receive  royalties on all product  sales outside the United States and up to 50%
of the profits (if the Company  exercises its co-promotion  rights) or royalties
on all product sales in the United  States.  Certain of the  milestone  payments
will be credited  against  future royalty  payments,  if any, due to the Company
from sales of products  developed  pursuant to the  agreement.  As of August 10,
1998, the Company has received an aggregate of $7.5 million under the agreement.
A balance of $12 million in committed capital remains under the agreement.

      In July 1996,  the Company  closed a private  placement (the "1996 Private
Placement")  pursuant  to  Regulation  S under the  Securities  Act of 1933,  as
amended,  with one investor in which it received  gross proceeds of $3.3 million
for the sale of 400,000 shares of Series A Preferred  Stock and for the issuance
of a six-year  warrant to purchase  550,000 shares of the Company's Common Stock
at an exercise price of $10.18 per share.  The Series A Preferred Stock does not
carry a dividend  obligation  and will  convert  into Common Stock no later than
July 23, 1999 at a price per share  between  $6.00 and $8.15,  depending  on the
market  value  of  the  Company's  Common  Stock  during  the  period  prior  to
conversion.  Holders of Series A Preferred  Stock are entitled to a  liquidation
preference  of $8.15 per share.  In  addition  to the sale of Series A Preferred
Stock and the warrant,  the Company has the right,  from time to time during the
period  beginning  January  1997  and  ending  July  2000,  subject  to  certain
conditions,  including  continued  listing of the Common  Stock on any  national
exchange,  to sell up to  1,200,000  additional  shares of  Common  Stock to the
investor  at a  formula  price  of 100% or 101% of a  multi-day  average  of the
Company's Common Stock price at the time of sale. If the Company  exercises this
right, the investor has the option to increase the number of shares it purchases
by up to an aggregate of 527,500 shares.

     Over the next year and potentially longer depending on clinical results and
regulatory  reviews,  the Company expects to incur substantial  additional costs
relating to the  continued  preclinical  and clinical  testing of its  products,
regulatory  activities  and  research  and  development  programs.  The  Company
anticipates  that its  cash,  cash  equivalents  and  investment  balances,  the
collaborative  revenue  committed by  Lipha/Merck,  Lipha/Merck's  commitment to
purchase  additional  equity  and  either (i) the  proceeds  of the 1998  Public
Offering or (ii) Shaman's  additional rights to sell Common Stock under the 1996
Private  Placement and Series B Preferred Stock under the Stock  Agreements will
be adequate to fund operations through the filing of an NDA on SP-303/Provir for
the fast track  indication of diarrhea in people with AIDS, at least through the
first quarter of 1999.  Milestone  payments which may be received by the Company
from Ono and  Lipha/Merck  would  extend the  Company's  capacity to finance its
operations  beyond  that time.  However,  there can be no  assurance  that these
milestones will be achieved,  nor that additional  funding,  if needed,  will be
available on reasonable terms, or at all.

Future Outlook

      In addition to historical  information,  this report contains predictions,
estimates and other  forward-looking  statements  that involve a number of risks
and uncertainties. These risks and uncertainties include the fact that Shaman is
still a  relatively  young  company  and has not yet  completed  a full cycle of
development,  



                                       12
<PAGE>

regulatory approval and commercialization for any of its product candidates. The
clinical and  regulatory  processes  through which the  Company's  products must
proceed  are  complex,  uncertain  and  costly,  and no  assurance  can be given
regarding the timing of clinical or regulatory progress or that the Company will
be  successful  in  commercializing  any  of  its  product   candidates.   These
development processes require substantial amounts of funding, and the Company is
dependent on corporate  partners and the equity markets to finance such efforts.
Where  access to funding  is  difficult,  the  Company's  stockholders  may face
significant  dilution,  and the  ability  of the  Company  to  proceed  with its
programs and plans may be  significantly  and  adversely  affected.  Actions and
advances by competitors may also significantly  affect the Company's  prospects,
as  may  the  existence  of  patents  held  by  such  competitors  or  potential
competitors.  In addition, there can be no assurance that any plants required by
the Company will be  indefinitely  available or that any compounds  derived from
the plant material will result in protected proprietary rights for the Company.

      Year 2000  Compliance.  Many  currently  installed  computer  systems  and
software  products  are coded to accept only two digit  entries in the date code
field and cannot  distinguish 21st century dates from 20th century dates.  These
date code fields will need to  distinguish  21st century dates from 20th century
dates and, as a result,  many companies'  software and computer systems may need
to  be   upgraded  or  replaced  in  order  to  comply  with  such  "Year  2000"
requirements.

      The Company is in the process of assessing  the impact of year 2000 on its
operations and systems,  including those of its suppliers and  collaborators and
other third parties.  Management is in the process of formalizing its assessment
procedures and developing a plan to address  identified issues, if any. To date,
the Company has evaluated its  financial  and  accounting  systems and concluded
that they are not and will not be  materially  affected  by the year  2000.  The
Company does not yet know the extent,  if any, of the impact of the year 2000 on
its other systems and equipment or those of third parties with which the Company
does business.  There can be no assurance that third parties, such as suppliers,
clinical research  organizations and  collaborative  parties,  are using systems
that are year 2000  compliant  or will  address any year 2000 issues in a timely
fashion,  or at all.  Any  year  2000  compliance  problems  experienced  by the
Company,   its  suppliers,   its  clinical   research   organizations,   or  its
collaborative  partners  could have a material  adverse  effect on the Company's
business, financial condition and results of operations.

Item 3. Qualitative and Quantitative Disclosure About Market Risk.

        Not Applicable.



                                       13
<PAGE>


Risk Factors

      This  Form  10-Q  contains,   in  addition  to   historical   information,
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended,  that involve  risks and  uncertainties  such as  statements  of the
Company's plans, objectives,  expectations and intentions.  The Company's actual
results   could   differ   materially   from  the  results   discussed   in  the
forward-looking  statements.  Factors  that could  cause or  contribute  to such
differences include those discussed in "Risk Factors," "Management's  Discussion
and Analysis of Financial Condition and Results of Operations," and elsewhere in
Form 10-K/A for fiscal year ended  December 31, 1997,  filed with the Securities
and Exchange Commission on May 28, 1998.

      Risk Regarding Failure to Meet Continued Listing Requirements. On June 10,
1998,  the  Company  received  correspondence  from The Nasdaq  National  Market
("Nasdaq")  stating  that  they had found  that the  Company  no longer  met the
$4,000,000 net tangible asset  requirement  for continued  listing on The Nasdaq
National Market.  As of June 30, 1998, the Company had a net capital  deficiency
of  ($9,680,446).  On July 15, 1998,  the Company  requested a formal hearing to
determine the Company's  compliance  with the Nasdaq listing  requirements.  The
hearing date has been scheduled for September 3, 1998.  The Company  believes it
is in compliance with all other listing requirements. However, absent additional
financing,  the receipt of license fees or  milestone  payments  from  corporate
partnerships or the conversion of outstanding convertible notes, there can be no
assurance  that the Company  will  satisfy the Nasdaq  National  Market  listing
requirements  at or after  the time of such  hearing.  If the  Company  fails to
satisfy The Nasdaq National Market that it meets such  requirements,  the Common
Stock will no longer be traded on The Nasdaq  National  Market,  and the Company
would need to seek listing on the American Stock Exchange, however, there can be
no assurance that it could be listed on the American Stock  Exchange.  If traded
on the American  Stock  Exchange,  the Company's  Common Stock may be subject to
reduced liquidity and reduced analyst  coverage,  the Company's ability to raise
capital in the future may be inhibited  and the  Company's  business,  financial
condition and results of operations could be materially adversely affected.

      Early Stage of Development;  Technological Uncertainty. Shaman has not yet
completed the development of any products.  Many of the Company's  products will
require significant  additional clinical testing and investment of capital prior
to commercialization.  Products for therapeutic use in human health care must be
evaluated  in extensive  human  clinical  trials to  determine  their safety and
efficacy  as part of a  lengthy  process  to  obtain  government  approval.  The
Company's  SP-303/Provir,  nikkomycin  Z and  SP-134101  products  are  each  in
clinical  development.  Positive results for any of these products in a clinical
trial do not necessarily assure that positive results will be obtained in future
clinical trials or that government  approval to commercialize  the products will
be obtained.

      Clinical trials may be terminated at any time for many reasons,  including
toxicity or adverse event  reporting.  There can be no assurance that any of the
Company's  products will be  successfully  developed,  enter into human clinical
trials,  prove to be safe and  efficacious in clinical  trials,  meet applicable
regulatory standards,  


                                       14
<PAGE>

obtain required regulatory approvals, be capable of being produced in commercial
quantities at reasonable  costs or be successfully  marketed or that the Company
will not  encounter  problems in clinical  trials that will cause the Company to
delay or suspend product  development.  Failure of any of the Company's products
to be  commercialized  could have a  material  adverse  effect on the  Company's
business, financial condition and results of operations.

      History  of  Operating  Losses;  Products  Still  in  Development;  Future
Profitability  Uncertain.  Shaman was  incorporated  in 1989 and has experienced
significant operating losses in each of its fiscal years since operations began.
As of June 30, 1998, the Company's  accumulated deficit was approximately $129.6
million.  The Company has not  generated  any product  revenues to date.  All of
Shaman's  products and  compounds are still in research and  development  stage,
which requires substantial  expenditures of funds. In order to generate revenues
or profits, the Company,  alone or with others, must successfully develop, test,
obtain regulatory approval for and market its potential  products.  No assurance
can be given that Shaman's product development efforts will be successful,  that
required  regulatory  approvals  will be  obtained,  or that  the  products,  if
developed and introduced,  will be successfully  marketed or will achieve market
acceptance.

      Future Capital Needs;  Uncertainty of Additional  Funding.  As of June 30,
1998,  the  Company  had cash,  cash  equivalents  and  investment  balances  of
approximately  $5.2  million.  The Company will require  substantial  additional
funds to conduct the  development  and testing of its potential  products and to
manufacture and market any products that may be developed.  The Company's future
capital requirements will depend on numerous factors,  including the progress of
its research and development programs,  the progress of preclinical and clinical
testing, the time and costs involved in obtaining regulatory approvals, the cost
of  filing,  prosecuting,  defending  and  enforcing  patent  claims  and  other
intellectual property rights,  competing  technological and market developments,
changes in the Company's existing collaborative and licensing relationships, the
ability of the Company to establish additional  collaborative  relationships for
the  manufacture  and marketing of its potential  products,  and the purchase of
additional  capital  equipment.  In addition,  senior convertible notes purchase
agreements  entered into by the Company in connection  with a private  placement
completed in 1997, provide that under certain circumstances the Company would be
required to redeem all or some portion of the principal  balance remaining ($6.4
million at August 10, 1998), which redemption could significantly accelerate the
Company's cash expenditures and capital requirements beyond the levels currently
anticipated and would materially and adversely  affect the Company's  ability to
conduct its business.

      The Company will need to seek additional funding through public or private
equity or debt financings,  collaborative arrangements or from other sources. If
additional funds are raised by issuing equity securities,  significant  dilution
to existing  stockholders  may result.  In the event that  additional  funds are
obtained  through  collaborative  agreements,  such  agreements  may require the
Company to relinquish rights to certain of its technologies, product candidates,
products or  marketing  territories  that the Company  would  otherwise  seek to
develop or  commercialize  itself.  There can be no  assurance  that  additional
financing  sources will be available on acceptable  terms or at all. If adequate
funds are not available, the Company will need to 



                                       15
<PAGE>

delay,  scale  back  or  eliminate  one or more of its  research,  discovery  or
development  programs,  which  could  have  a  material  adverse  effect  on the
Company's business, financial condition and results of operations.

      No Assurance of Successful Product Development. The Company's research and
development  programs  are at various  stages of  development,  ranging from the
research  stage  to  clinical  trials.   Substantial   additional  research  and
development  will be  necessary  in order  for the  Company  to move  additional
product  candidates  into clinical  testing or to complete  clinical  testing of
current  product  candidates,  and  there  can be no  assurance  that any of the
Company's research and development efforts on these or other potential products,
including SP-303/Provir, nikkomycin Z, and SP-134101 will lead to development of
products that are shown to be safe and effective in clinical trials.

      In addition,  there can be no assurance  that any such  products will meet
applicable  regulatory  standards,  be capable of being  produced in  commercial
quantities at acceptable costs, be eligible for third party  reimbursement  from
governmental or private  insurers,  be  successfully  marketed or achieve market
acceptance.  Further,  the Company's  products may prove to have  undesirable or
unintended  side  effects  that may prevent or limit their  commercial  use. The
Company may find, at any stage of this complex product development process, that
products that appeared promising in preclinical  studies or Phase I and Phase II
clinical trials do not demonstrate efficacy in larger-scale,  Phase III clinical
trials  and  do not  receive  regulatory  approvals.  Accordingly,  any  product
development  program  undertaken  by the Company may be  curtailed,  redirected,
suspended or eliminated at any time.

      Uncertainties  Associated with Clinical Trials. Shaman has conducted,  and
plans to continue conducting, extensive and costly clinical trials to assess the
safety and efficacy of its  potential  products.  The rate of  completion of the
Company's  clinical trials is dependent upon,  among other factors,  the rate of
completion and approval of trial protocols, the availability of funds for trials
and the rate of patient  enrollment.  Patient  enrollment  is a function of many
factors,  including  the  nature  of the  Company's  clinical  trial  protocols,
existence  of  competing  protocols,  size of patient  population,  proximity of
patients to clinical sites and eligibility  criteria for the study. Any delay in
patient enrollment will result in increased costs and delays, which could have a
material adverse effect on the Company's  ability to complete clinical trials in
a timely fashion.

      In addition,  there can be no  assurance  that the  Company's  testing and
development schedules will be met. Any failure to meet such schedules could have
a material  adverse effect on the Company's  business,  financial  condition and
results of  operations.  The  Company's  clinical  trials may be delayed by many
factors,  including,  but  not  limited  to:  slower  than  anticipated  patient
enrollment;  difficulty in finding a sufficient  number of patients  fitting the
appropriate  trial  profile;  difficulties  in  the  acquisition  of  sufficient
supplies of clinical  trial  materials;  or failure to show efficacy in clinical
trials or adverse events  occurring  during the clinical  trials.  Completion of
testing,  studies  and trials  may take  several  years,  and the length of time
varies substantially with the type, complexity,  novelty and intended use of the
product. In addition, data obtained from preclinical and clinical activities are
susceptible  to varying  interpretations,  which could  delay,  limit or prevent
regulatory  approval.  Delays or 



                                       16
<PAGE>

rejections  may be  encountered  based upon many factors,  including  changes in
regulatory  policy  during the period of  product  development  and could have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

      The Company  cannot assure that patients  enrolled in its clinical  trials
will respond to the Company's product candidates. Setbacks are to be expected in
conducting  human clinical  trials.  Failure to comply with the FDA  regulations
applicable to such testing can result in delay,  suspension or  cancellation  of
such testing,  and/or  refusal by the FDA to accept the results of such testing.
In addition,  the FDA or the Company may suspend  clinical trials at any time if
either of them concludes that any patients  participating  in any such trial are
being exposed to unacceptable health risks.  Further,  there can be no assurance
that human clinical  testing will demonstrate that any current or future product
candidate  is safe or effective or that data derived from any such study will be
suitable for submission to the FDA or other regulatory  authorities.  Failure of
the Company's  clinical trials to demonstrate safety or efficacy in humans could
cause the delay,  suspension,  or termination of any product program,  including
SP-303/Provir,  nikkomycin Z and  SP-134101,  and could have a material  adverse
effect on the Company's business, financial condition and results of operations.

      Dependence on  Collaborative  Relationships.  The  Company's  research and
development  efforts in its  diabetes  program and, to a lesser  extent,  in its
other programs,  have been dependent upon its arrangements  with Lipha/Merck and
Ono and their funding for research and development efforts  thereunder.  Because
research and  development  funding  from Ono has ended,  the Company must in the
future rely on continued  funding from  Lipha/Merck  or milestone  payments from
products  developed  by  either  Ono or  Lipha/Merck,  if any,  or must seek new
collaborations to provide further funding for its diabetes program. There can be
no assurance that such further  funding will be obtained or that any significant
revenues will ultimately be derived from any of the Company's collaborations.

      The  Company  expects  to  seek  additional  collaborative  agreements  to
commercialize its other product candidates and will, in particular, need to rely
on such third  party  arrangements  to  commercialize  its  products,  including
SP-303/Provir,  outside the United  States.  No assurance  can be given that the
Company will be successful in  negotiating  or entering into such  agreements on
terms favorable to the Company or at all, or that any such agreement, if entered
into by the Company,  will be successful.  A failure to successfully  enter into
such  agreements  and sell  products  thereunder  would have a material  adverse
effect on the Company's business, financial condition and results of operations.

      Rapid Technological Change and Substantial Competition. The pharmaceutical
industry is subject to rapid and substantial technological change. Technological
competition from pharmaceutical and biotechnology  companies and universities is
intense.  Many  of  these  entities  have  significantly  greater  research  and
development  capabilities,  as well  as  substantial  marketing,  manufacturing,
financial and managerial resources,  and represent  significant  competition for
the Company.  There can be no  assurance  that  developments  by others will not
render the Company's products or technologies noncompetitive or that the Company
will be able to keep  pace with  



                                       17
<PAGE>

technological developments.  Competitors have developed or are in the process of
developing  technologies  that  are,  or in the  future  may be,  the  basis for
competitive  products.  Some of these  products  may have an entirely  different
approach or means of accomplishing the desired  therapeutic effect than products
developed by the Company.  These  competing  products may be more  effective and
less costly than the products developed by the Company. In addition, other forms
of medical  treatment  may offer  competition  to the  Company's  products.  The
development of competing  compounds could have a material  adverse effect on the
Company's business, financial condition or results of operations.

      Government  Regulation;  No Assurance  of  Regulatory  Approvals.  All new
drugs,  including  the  Company's  products  under  development,  are subject to
extensive and rigorous  regulation by the federal  government,  principally  the
FDA,  as well as  comparable  agencies in state and local  jurisdictions  and in
foreign countries. These authorities,  in particular the FDA, impose substantial
requirements  upon the  preclinical  and  clinical  testing,  manufacturing  and
marketing of  pharmaceutical  products.  The steps required before a drug may be
approved for marketing in the United States  generally  include (i)  preclinical
laboratory and animal tests,  (ii) the submission to the FDA of an IND for human
clinical  testing,  (iii) adequate and well controlled  human clinical trials to
establish the safety and efficacy of the drug,  (iv) submission to the FDA of an
NDA, and (v) satisfactory  completion of an FDA inspection of the  manufacturing
facility or facilities at which the drug is made to assess  compliance with Good
Manufacturing Practices ("GMP").

      Lengthy and detailed  preclinical  and  clinical  testing,  validation  of
manufacturing and quality control processes, and other costly and time-consuming
procedures  are  required  for  approval  of a new drug.  Satisfaction  of these
requirements  typically  takes several years and the time needed to satisfy them
may vary  substantially,  based  on the  type,  complexity  and  novelty  of the
pharmaceutical  product. The effect of government  regulation may be to delay or
to prevent marketing of potential products for a considerable period of time and
to impose  costly  procedures  upon the  Company's  activities.  There can be no
assurance  that the FDA or any other  regulatory  agency will grant approval for
any products  developed by the Company on a timely basis, or at all.  Success in
preclinical  or early stage  clinical  trials  does not assure  success in later
stage clinical trials.

      Data obtained from preclinical and clinical  activities are susceptible to
varying interpretations which could delay, limit or prevent regulatory approval.
If  regulatory  approval  of a product  is  granted,  such  approval  may impose
limitations on the indicated uses for which a product may be marketed.  Further,
even if regulatory  approval is obtained,  later discovery of previously unknown
problems  with a product may result in  restrictions  on the product,  including
withdrawal  of the product  from the market.  Any delay or failure in  obtaining
regulatory  approvals  would have a  material  adverse  effect on the  Company's
business, financial condition and results of operation.

      Among the conditions for FDA approval of a  pharmaceutical  product is the
requirement  that  the   manufacturer's   (either  the  Company  itself  or  any
third-party  manufacturer) quality controls and manufacturing procedures conform
to GMP,  which must be  followed at all times.  The FDA  strictly  enforces  GMP
requirements through 



                                       18
<PAGE>

periodic  unannounced  inspections.  There can be no assurance that the FDA will
determine that the facilities and manufacturing procedures of the Company or any
third-party  manufacturer  of the  Company's  planned  products  conform  to GMP
requirements.  Additionally,  the Company or its third-party  manufacturers must
pass a  pre-approval  inspection  of their  manufacturing  facilities by the FDA
before  the  Company  can obtain  marketing  approval.  Failure  to comply  with
applicable regulatory  requirements may result in penalties such as restrictions
on a product's marketing or withdrawal of a product from the market.

      The FDA's policies may change and additional government regulations may be
promulgated  which could prevent or delay  regulatory  approval of the Company's
potential products.  Moreover,  increased attention to the containment of health
care costs in the United States could result in new government  regulations that
could have a material adverse effect on the Company's  business.  The Company is
unable to predict the likelihood of adverse  governmental  regulation that might
arise from future  legislative or  administrative  action,  either in the United
States or abroad.

      The  Company  will also be subject  to a variety  of  foreign  regulations
governing clinical trials, registration and sales of its products. Regardless of
whether FDA approval is obtained, approval of a product by comparable regulatory
authorities of foreign countries must be obtained prior to marketing the product
in those countries.  The approval process varies from country to country and the
time needed to secure  approval may be longer or shorter than that  required for
FDA  approval.  Delays in the  approval  process or the  failure to obtain  such
foreign  approvals  would  have a  material  adverse  effect  on  the  Company's
business, financial condition and results of operations.

      Dependence on Sources of Supply.  The Company currently imports all of the
plant  materials from which its products are derived from countries in Latin and
South America, Africa and Southeast Asia. To the extent that its products cannot
be economically  synthesized or otherwise produced, the Company will continue to
be  dependent  upon a supply of raw plant  material.  The Company  does not have
formal agreements in place with all of its suppliers.  In addition,  a continued
source of plant supply is subject to the risks inherent in international  trade.
These risks  include  unexpected  changes in regulatory  requirements,  exchange
rates,  tariffs and barriers,  difficulties in coordinating and managing foreign
operations,  political  instability  and potentially  adverse tax  consequences.
Interruptions in supply or material increases in the cost of supply could have a
material  adverse  effect on the  Company's  business,  financial  condition and
results  of  operations.  In  addition,   tropical  rain  forests,  and  certain
irreplaceable   plant   resources   therein,   are  currently   threatened  with
destruction.  In the event  portions  of the rain  forests are  destroyed  which
contain the source  material from which Shaman's  current or future products are
derived,  such destruction could have a material adverse effect on the Company's
business, financial condition and results of operations.

      Limited  Manufacturing and Marketing Experience and Capacity.  The Company
currently produces products only in quantities necessary for clinical trials and
does not have the staff or  facilities  necessary  to  manufacture  products  in
commercial  quantities.  As a result,  the  Company  must rely on  collaborative
partners or third-party  manufacturing  facilities.  If the Company or its third
party  manufacturers  should  



                                       19
<PAGE>

encounter  delays or difficulties in producing,  packaging and  distributing the
Company's  finished  products,   clinical  trials,  regulatory  filings,  market
introduction and subsequent sales of such products could be adversely affected.

      Contract  manufacturers must conform to GMP regulations  strictly enforced
by the FDA on an  ongoing  basis  through  its  facilities  inspection  program.
Contract manufacturing  facilities must pass a pre-approval  inspection of their
manufacturing  facilities  before the FDA will approve an NDA.  Certain material
manufacturing  changes that occur after  approval are also subject to FDA review
and  clearance  or  approval.  There can be no  assurance  that the FDA or other
regulatory  agencies will approve the process or the  facilities by which any of
the Company's  products may be manufactured.  The Company's  dependence on third
parties for the  manufacture  of products  may  adversely  affect the  Company's
ability to develop  and  deliver  products  on a timely and  competitive  basis.
Should the Company be required to manufacture  products itself, the Company will
be required to build or purchase a  manufacturing  facility,  will be subject to
the regulatory  requirements  described above, to similar risks regarding delays
or difficulties  encountered in manufacturing any such products and will require
substantial  additional capital. There can be no assurance that the Company will
be able to manufacture  any such products  successfully  or in a  cost-effective
manner.

      The Company  currently has no sales staff.  There can be no assurance that
the Company will be able to successfully  establish a marketing and sales force.
To the extent that the Company does not or is unable to successfully establish a
complete  marketing and sales force,  there can be no assurance that the Company
will achieve a successful product entry into the marketplace. Such failure would
have a material adverse effect on the Company's  business,  financial  condition
and results of operations.

      Uncertainty  Regarding  Patents  and  Proprietary  Rights;  Current  Legal
Proceedings Regarding Patents and Proprietary Rights. The Company's success will
depend in large  part on its  ability to obtain and  maintain  patents,  protect
trade secrets and operate  without  infringing  upon the  proprietary  rights of
others.  Moreover,  others may have  filed  patent  applications,  may have been
issued patents or may obtain additional  patents and proprietary rights relating
to products or processes competitive with those of the Company.  There can be no
assurance  that the Company's  patent  applications  will be approved,  that the
Company will develop additional  proprietary products that are patentable,  that
any issued  patents will provide the Company with  adequate  protection  for its
inventions or will not be  challenged  by others,  or that the patents of others
will not impair the ability of the Company to  commercialize  its products.  The
patent position of companies in the pharmaceutical  industry generally is highly
uncertain,  involves complex legal and factual questions,  and has recently been
the subject of much litigation.  No consistent  policy has emerged from the U.S.
Patent and  Trademark  Office  ("PTO") or the courts  regarding  the  breadth of
claims  allowed  or the  degree  of  protection  afforded  under  pharmaceutical
patents.  There is considerable  variation  between countries as to the level of
protection afforded under patents and other proprietary rights. Such differences
may expose the Company to differing risks of  commercialization  in each foreign
country in which it may sell  products.  There can be no  assurance  that others
will not independently develop similar products,  duplicate any of the Company's
products or design around any patents of the Company.



                                       20
<PAGE>

      A  number  of   pharmaceutical   companies   and   research  and  academic
institutions have developed technologies,  filed patent applications or received
patents on various  technologies that may be related to the Company's  business.
Some of these  technologies,  applications  or  patents  may  conflict  with the
Company's  technologies or patent applications.  The European Patent Office, the
French Patent Office, the German Patent Office and the Australian Patent Office,
have each granted a patent containing broad claims to  proanthocyanidin  polymer
compositions (and methods of use of such compositions), which are similar to the
Company's specific proanthocyanidin polymer composition (which covers the active
pharmaceutical ingredient in SP-303/Provir), to Leon Cariel and the Institut des
Substances Vegetales. The effective filing date of these patents is prior to the
effective  filing date of the Company's  foreign  pending patent  application in
Europe.  Certain of the foreign patents have been granted in jurisdictions where
examination  is not  rigorous.  The Company has  instituted an Opposition in the
European Patent Office against granted  European Patent No. 472531 owned by Leon
Cariel and Institut des  Substances  Vegetales.  The Company  believes  that the
granted claims are invalid and intends to vigorously prosecute the Opposition.

      There can be no assurance  that the Company will be  successful  in having
the granted  European patent revoked or the claims  sufficiently  narrowed so as
not to potentially cover the Company's  proanthocyanidin polymer composition and
methods of use. There can be no assurance that Daniel Jean,  Leon Cariel and the
Institut des Substances Vegetales will not assert claims relating to this patent
against the Company. There can be no assurance that the Company would be able to
obtain a license to this patent at all,  or at  reasonable  cost,  or be able to
develop or obtain  alternative  technology  to use in Europe or  elsewhere.  The
earlier  effective  filing  date of this  patent  could  limit  the scope of the
patents,  if any, that the Company may be able to obtain or result in the denial
of the Company's patent applications in Europe or elsewhere.

      In the United  States,  the PTO has rendered  judgment in an  interference
(the  "Interference")  declared between the Company's issued patent covering its
specific  proanthocyanidin  polymer  composition  and  certain  claims  of  U.S.
application  corresponding to the granted European patent of Leon Cariel and the
Institut des Substances  Vegetales by Daniel Jean and Leon Cariel.  Judgment was
awarded to the Company on July 14, 1997. Since the period for appeal has passed,
this judgment is now final.

      Additionally, in connection with the Interference proceeding,  the Company
has had an  opportunity to review the claims and file history of the Daniel Jean
and Leon Cariel  patent  application  which,  under U.S.  patent  law,  are kept
confidential. One broad claim, in particular, of the Daniel Jean and Leon Cariel
patent  application,  which was not involved in the Interference  proceeding and
which  has  been   indicated  to  be  allowable,   covers  a  large  variety  of
proanthocyanidin polymers. The Company believes that this broad claim is subject
to attack as invalid in view of prior art.  Based on knowledge of the  Company's
specific  proanthocyanidin  polymer  composition,  the Company believes that the
manufacture,  use or sale of its specific  proanthocyanidin  polymer composition
would not constitute infringement of this broad claim, once it issues. There can
be no assurances  however,  that the Company would prevail  should an action for
infringement of such claim be commenced.  In addition, if patents that cover the
Company's activities have been or are issued to other companies, there can
 


                                       21
<PAGE>


be no  assurance  that the  Company  would be able to obtain  licenses  to these
patents  ata  reasonable  cost,  or at  all,  or be able to  develop  or  obtain
alternative technology.

      If the Company does not obtain such licenses, it could encounter delays or
be  precluded  from  introducing  products  to  the  market.  Litigation  may be
necessary to defend against or assert claims of infringement, to enforce patents
issued to the  Company or to protect  trade  secrets  or  know-how  owned by the
Company. Additional interference proceedings may be declared or become necessary
to  determine  issues  of  invention;   such  litigation   and/or   interference
proceedings  could result in substantial  cost to and diversion of effort by the
Company  and may have a  material  adverse  effect  on the  Company's  business,
financial  condition  and results of  operations.  In addition,  there can be no
assurance that such efforts by the Company will be successful.

      The Company's competitive position is also dependent upon unpatented trade
secrets.  All  employees  of  the  Company  have  entered  into  confidentiality
agreements.   However,   there  can  be  no  assurance   that  others  will  not
independently  develop  substantially  equivalent  information and techniques or
otherwise gain access to the Company's  trade  secrets,  that such trade secrets
will not be disclosed or that the Company can effectively  protect its rights to
unpatented  trade secrets.  To the extent that the Company or its consultants or
research  collaborators use intellectual  property owned by others in their work
for the  Company,  disputes  also  may  arise as to the  rights  in  related  or
resulting know-how and inventions.

      Patent  applications  in the United  States are  generally  maintained  in
secrecy  until  patents are issued.  Since  publication  of  discoveries  in the
scientific  or patent  literature  tends to lag  behind  actual  discoveries  by
several  months,  Shaman  cannot be  certain  that it was the first to  discover
compositions  covered by its pending  patent  applications  or the first to file
patent  applications  on such  compositions.  There can be no assurance that the
Company's patent  applications  will result in issued patents or that any of its
issued  patents  will  afford   comprehensive   protection   against   potential
infringement.

      The Company is presently  prosecuting 13 patent applications with the PTO,
but the Company does not know whether any of these  applications  will result in
the  issuance of any  patents or, if any patents are issued,  whether any issued
patent will provide significant  proprietary  protection or will be circumvented
or invalidated. During the course of patent prosecution, patent applications are
evaluated, inter alia, for utility, novelty, non-obviousness and enablement. The
PTO may require that the claims of an  initially  filed  patent  application  be
amended if it is determined that the scope of the claims includes subject matter
that is not useful, novel, non-obvious or enabled.

      Furthermore,  in certain instances, the practice of a patentable invention
may require a license from the holder of dominant patent rights.  In cases where
one  party  believes  that it has a claim to an  invention  covered  by a patent
application  or  patent  of a second  party,  the first  party  may  provoke  an
interference  proceeding in the PTO or such a proceeding  may be declared by the
PTO.  In  general,  in an  interference  proceeding,  the PTO would  review  the
competing  patents and/or patent  applications  to determine the validity of the
competing  claims,   including  but  not  limited  to  



                                       22
<PAGE>

determining  priority of invention.  Any such determination  would be subject to
appeal in the appropriate  U.S.  federal courts.  

     There can be no assurance that  additional  patents will be obtained by the
Company  or that the 16 U.S.  patents  issued to date will  provide  substantial
protection or be of commercial benefit to the Company.  The issuance of a patent
is not conclusive as to its validity or enforceability,  nor does it provide the
patent holder with freedom to operate  without  infringing  the patent rights of
others.  A patent could be challenged by litigation  and, if the outcome of such
litigation were adverse to the patent holder,  competitors  could be free to use
the subject matter  covered by the patent,  or the patent holder may license the
technology to others in  settlement  of such  litigation.  The  invalidation  of
patents owned by or licensed to the Company or  non-approval  of pending  patent
applications could create increased competition,  with potential adverse effects
on the  Company  and  its  business  prospects.  In  addition,  there  can be no
assurance that any applications of the Company's technology will not infringe on
patents or proprietary  rights of others or that licenses that might be required
as a result of such  infringement for the Company's  processes or products would
be available on commercially reasonable terms, if at all.

      The  Company  cannot  predict  whether  its  or  its  competitors'  patent
applications will result in valid patents being issued. Litigation,  which could
result in substantial cost to the Company,  may also be necessary to enforce the
Company's  patent  and  proprietary  rights  and/or to  determine  the scope and
validity  of others'  proprietary  rights.  The Company  may, on a voluntary  or
involuntary  basis,  participate  in  interference  proceedings  that may in the
future be declared by the PTO,  which could  result in  substantial  cost to the
Company.  There can be no assurance  that the outcome of any such  litigation or
interference  proceedings  will be  favorable to the Company or that the Company
will be able to obtain  licenses to  technology  that it may require or that, if
obtainable, such technology can be licensed at a reasonable cost.


      Year 2000  Compliance.  Many  currently  installed  computer  systems  and
software  products  are coded to accept only two digit  entries in the date code
field and cannot  distinguish 21st century dates from 20th century dates.  These
date code fields will need to  distinguish  21st century dates from 20th century
dates and, as a result,  many companies'  software and computer systems may need
to  be   upgraded  or  replaced  in  order  to  comply  with  such  "Year  2000"
requirements.

      The Company is in the process of assessing  the impact of year 2000 on its
operations and systems,  including those of its suppliers and  collaborators and
other third parties.  Management is in the process of formalizing its assessment
procedures and developing a plan to address  identified issues, if any. To date,
the Company has evaluated its  financial  and  accounting  systems and concluded
that they are not and will not be  materially  affected  by the year  2000.  The
Company does not yet know the extent,  if any, of the impact of the year 2000 on
its other systems and equipment or those of third parties with which the Company
does business.  There can be no assurance that third parties, such as suppliers,
clinical research  organizations and  collaborative  parties,  are using systems
that are year 2000  compliant  or will  address any year 2000 issues in a timely
fashion,  or at all.  Any  year  2000  compliance  problems  experienced  by the
Company,   its  suppliers,   its  clinical   research   organizations,   or  its



                                       23
<PAGE>

collaborative  partners  could have a material  adverse  effect on the Company's
business, financial condition and results of operations.

      Uncertainty of Product Pricing,  Reimbursement  and Related  Matters.  The
Company's  business  may be  materially  adversely  affected  by the  continuing
efforts of governmental and third party payers to contain or reduce the costs of
health care through various means. For example, in certain foreign markets,  the
pricing or  profitability  of health  care  products  is  subject to  government
control.  In the United States,  there have been, and the Company  expects there
will  continue  to be, a number of  federal  and state  proposals  to  implement
similar  government  control.  While the Company cannot predict whether any such
legislative or regulatory proposals or reforms will be adopted, the announcement
of such  proposals  or  reforms  could  have a  material  adverse  effect on the
Company's ability to raise capital or form  collaborations,  and the adoption of
such proposals or reforms could have a material  adverse effect on the Company's
business, financial condition or results of operations.

      In addition, in both the United States and elsewhere, sales of health care
products are dependent in part on the availability of  reimbursement  from third
party  payers,  such as  government  and private  insurance  plans.  Significant
uncertainty exists as to the reimbursement  status of newly approved health care
products, and third party payers are increasingly challenging the prices charged
for medical  products and services.  If the Company  succeeds in bringing one or
more products to the market,  there can be no assurance that  reimbursement from
third party payers will be available or will be  sufficient to allow the Company
to sell its products on a competitive or profitable basis.

      Possible  Volatility of Stock Price.  From time to time,  the stock market
has experienced  significant price and volume fluctuations that may be unrelated
to  the  operating  performance  of  particular  companies  or  industries.  In
addition,  the market price of the Company's Common Stock, like the stock prices
of many publicly traded biotechnology and smaller pharmaceutical  companies, has
been and may  continue to be highly  volatile.  The market price of the Series C
Preferred  Stock  may  likewise  be  volatile.  Announcements  of  technological
innovations, regulatory matters or new commercial products by the Company or its
competitors,  developments or disputes  concerning patent or proprietary rights,
publicity  regarding  actual or potential  medical results  relating to products
under development by the Company or its competitors,  regulatory developments in
both the United States and foreign countries, public concern as to the safety of
pharmaceutical  products,  and economic and other external  factors,  as well as
period-to-period  fluctuations  in  financial  results,  may have a  significant
impact on the market price of Shaman's Common Stock or Series C Preferred Stock.

      No Assurance of Public Trading Market for Preferred  Stock. An application
for inclusion of the Series C Preferred Stock on the OTC Bulletin Board has been
filed by the Placement Agent in conjunction with the 1998 Public  Offering.  The
OTC Bulletin Board staff has informed the Placement  Agent that the inclusion of
the  Series  C  Preferred  Stock on the OTC  Bulletin  Board  may not be  deemed
effective  until the termination of the 1998 Public  Offering.  The OTC Bulletin
Board is an unorganized,  inter-dealer,  over-the-counter  market which provides
significantly  less liquidity  than The Nasdaq Stock Market,  and quotes for the
stocks  included  on the OTC  Bulletin  



                                       24
<PAGE>

Board are not typically  listed in the  financial  sections of newspapers as are
those for The Nasdaq  Stock  Market.  Therefore,  prices for  securities  traded
solely on the OTC Bulletin  Board may be difficult to obtain and  purchasers  of
the Series C  Preferred  Stock may be unable to resell  the  Series C  Preferred
Stock at or near the original  offering price or at any price.  In the event the
Series C Preferred Stock is not included on the OTC Bulletin  Board,  quotes for
the  Series C  Preferred  Stock may be  included  in the "pink  sheets"  for the
over-the-counter market. There can be no assurance that a regular trading market
for the Series C  Preferred  Stock will  develop  after  completion  of the 1998
Public Offering or that, if developed, it will be sustained.

      Environmental  Regulation. In connection with its research and development
activities and manufacturing of clinical trial materials, the Company is subject
to federal, state and local laws, rules,  regulations and policies governing the
use,  generation,   manufacture,  storage,  air  emission,  effluent  discharge,
handling  and  disposal of certain  materials  and wastes.  Although the Company
believes  that it has complied with these laws and  regulations  in all material
respects  and  has  not  been  required  to  take  any  action  to  correct  any
noncompliance,  there can be no assurance  that the Company will not be required
to incur  significant  costs to comply with  environmental and health and safety
regulations in the future.  The Company's  research and  development  activities
involve  the  controlled  use of  hazardous  materials,  chemicals,  viruses and
various  radioactive  compounds.  Although the Company  believes that its safety
procedures  for  handling  and  disposing  of such  materials  comply  with  the
standards  prescribed  by state and federal  regulators,  the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident,  the Company could be held liable for any damages
that  result.  The Company  has secured  insurance  to  mitigate  such  expense,
however, any such liability could exceed the insurance coverage and resources of
the  Company.  Such  liability  could  have a  material  adverse  effect  on the
Company's business, financial condition and results of operations.

      Anti-Takeover  Effect of  Delaware  Law and  Certain  Charter  and  Bylaws
Provisions. Certain provisions of the Company's Certificate of Incorporation and
Bylaws  may have the  effect of making it more  difficult  for a third  party to
acquire,  or discouraging a third party from  attempting to acquire,  control of
the Company.  Such provisions could limit the price that certain investors might
be willing  to pay in the  future  for  shares of the  Common  Stock or Series C
Preferred  Stock.  At August 10, 1998, the Company's  Board of Directors had the
authority to issue up to 400,000  additional  shares of  Preferred  Stock (after
giving  effect to the  issuance  of the  maximum of  200,000  shares of Series C
Preferred Stock) and to determine the price, rights, preferences, privileges and
restrictions  of  those  shares  without  any  further  vote  or  action  by the
stockholders.

      The rights of the  holders of Common  Stock and Series C  Preferred  Stock
will be subject to, and may be adversely  affected by, the rights of the holders
of any  Preferred  Stock  that may be  issued in the  future.  The  issuance  of
Preferred  Stock with voting rights,  while providing  desirable  flexibility in
connection with possible  acquisitions and other corporate purposes,  could have
the effect of making it more  difficult  for a third party to acquire a majority
of the  outstanding  voting  stock  of the  Company.  Other  than  the  Series C
Preferred  Stock,  the Company has no present plans to issue shares of Preferred
Stock with voting rights.  Certain  provisions of Delaware law applicable to 



                                       25
<PAGE>

the Company  could also delay or make more  difficult a merger,  tender offer or
proxy  contest  involving  the  Company,  including  Section 203 of the Delaware
General Corporation Law, which prohibits a Delaware corporation from engaging in
any business  combination with any interested  stockholder for a period of three
years unless certain conditions are met.

      Product  Liability  Exposure;  Limited Insurance  Coverage.  The Company's
business exposes it to potential  product  liability risks which are inherent in
the  development,  testing,  manufacture,  marketing and sale of  pharmaceutical
products.  Product liability insurance for the pharmaceutical industry generally
is  expensive.  There can be no assurance  that the  Company's  present  product
liability insurance coverage, which includes coverage for acts by third parties,
including  manufacturers of the Company's product candidates,  is adequate. Such
existing  coverage  will not be  adequate as the Company  further  develops  its
products, and no assurance can be given that adequate insurance coverage against
all potential claims will be available in sufficient  amounts or at a reasonable
cost. Certain of the Company's development and manufacturing  agreements contain
insurance and indemnification  provisions pursuant to which the Company could be
held accountable for certain  occurrences.  Such liability could have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.

      Limitation of Liability and Indemnification.  The Company's Certificate of
Incorporation  limits,  to the maximum  extent  permitted  by Delaware  Law, the
personal  liability  of  directors  for  monetary  damages  for  breach of their
fiduciary  duties as a director.  The Company's  Bylaws provide that the Company
shall indemnify its officers, directors, employees and agents to the full extent
permitted by the general  corporation  law of Delaware.  The Company has entered
into  indemnification  agreements  with its  officers and  directors  containing
provisions which are in some respects broader than the specific  indemnification
provisions contained in Delaware Law. The indemnification agreements may require
the Company,  among other  things,  to  indemnify  such  officers and  directors
against certain  liabilities that may arise by reason of their status or service
as directors or officers (other than liabilities arising from willful misconduct
of a culpable  nature),  to advance their  expenses  incurred as a result of any
proceeding  against  them as to which they could be  indemnified,  and to obtain
directors'  and  officers'  insurance,  if available on  reasonable  terms.  The
Company currently maintains directors' and officers' insurance.

      Section 145 of the Delaware Law provides that a corporation  may indemnify
a director,  officer, employee or agent made or threatened to be made a party to
an action by reason of the fact that he was a  director,  officer,  employee  or
agent of the  corporation  or was  serving  at the  request  of the  corporation
against expenses actually and reasonably incurred in connection with such action
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best  interests  of the  corporation,  and,  with  respect to any
criminal  action or proceeding,  had no reasonable  cause to believe his conduct
was  unlawful.  Delaware  Law  does not  permit a  corporation  to  eliminate  a
director's  duty of care,  and the  provisions of the Company's  Certificate  of
Incorporation have no effect on the availability of equitable remedies,  such as
injunction or rescission, for a director's breach of the duty of care.



                                       26
<PAGE>

      Dilution.  The biopharmaceutical  industry is capital  intensive.  In this
regard the  Company  has entered  into a number of  financings,  many which have
included  securities that are convertible into shares of Common Stock.  Dilution
may occur  upon the  exercise  of  outstanding  options  and  warrants  and upon
conversion of senior convertible notes, the Series A Preferred Stock, the Series
C Preferred Stock and, if issued, the Series B Preferred Stock. Stockholders may
also  suffer  additional  dilution  if the  Company  exercises  its right to put
additional  shares  of its  Common  Stock  to  Fletcher  International  Limited,
pursuant to its agreements with such investor.

      Dependence  on Key  Personnel.  The  Company's  ability  to  maintain  its
competitive position depends in part upon the continued contributions of its key
senior management.  The Company's future performance also depends on its ability
to attract and retain qualified management and scientific personnel. Competition
for such  personnel is intense,  and there can be no assurance  that the Company
will be able to continue to attract, assimilate or retain other highly qualified
technical and management  personnel in the future.  The loss of key personnel or
the failure to recruit additional personnel or to develop needed expertise could
have a material adverse effect on the Company's  business,  financial  condition
and results of operations.



                                       27
<PAGE>




PART II    OTHER INFORMATION


Item 1.    Legal Proceedings

           None.

Item 2.    Changes in Securities

           None.

Item 3.    Defaults in Senior Securities

           None.

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

      (a)  The Annual Meeting of Stockholders of Shaman Pharmaceuticals, Inc.
           was held on May 15, 1998.

      (b)  The following Directors were elected to serve as Class I directors 
           for two years or until their successors are elected and qualified:

           Name                                   Position
           -------------------                    ----------------
           Lisa A. Conte                          Class I Director
           Adrian D.P. Bellamy                    Class I Director

           The  following  Directors  continue  to serve their two year terms as
           elected at last year's Annual Meeting held on May 22, 1997:

           Name                                   Position
           ----------------------                 ---------------------
           G. Kirk Raab                           Chairman of the Board
           Herbert H. McDade, Jr.                 Class II Director
           M. David Titus                         Class II Director

      (c)  The matters voted upon at the meeting and voting of the stockholders
           with respect thereto are as follows:

           (i)   The election of Class I directors to hold office for a term of 
                 two years from the Annual Meeting.

                 Lisa A. Conte
                 For:  14,674,604                  Withheld:  193,554

                 Adrian D.P. Bellamy
                 For:  14,666,004                  Withheld:  202,154



                                       28
<PAGE>

           (ii)  Approval of an  Amendment to  the Company's  1992  Stock Option
                 Plan (the "Plan") to increase the  maximum  number of shares of
                 the Company's Common  Stock  authorized for issuance  under the
                 Plan by an additional 500,000 shares,


                 For: 12,273,290                   Against:  2,473,063
                 Abstain: 121,805


           (iii) Ratification  of  the  appointment  of Ernst & Young LLP as the
                 Company's independent auditors for the year ending December 31,
                 1998.

                 For: 14,719,410                  Against:  95,783
                 Abstain:  52,965


Item 5.    Other information

           None.

Item 6.    Exhibits and Reports on Form 8-K

(a)        Exhibits

           Exhibit No.         Description
           -----------         -----------------------
           27                  Financial Data Schedule

(b)        No  current  reports  on  Form 8-K  were  filed  during  the  quarter
           ended June 30, 1998.


                                       29
<PAGE>


                                   SIGNATURES



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

Dated:  August 14, 1998


                               Shaman Pharmaceuticals, Inc.
                                  (Registrant)



                               /s/   Lisa A. Conte
                               -------------------------------------
                               Lisa A. Conte
                               President and Chief Executive Officer
                               (principal executive officer)


                               /s/   Stephanie C. Diaz
                               --------------------------------------------
                               Stephanie C. Diaz
                               Chief Financial Officer
                               (principal financial and accounting officer)



                                       30
<PAGE>