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


                                   Form 10-QSB



 X       Quarterly report under Section 13 or 15(d) of the Securities  Exchange
----     Act of 1934 (Fee  required) for the quarterly  period ended  September
         30, 1998.
----     Transition report under Section 13 or 15(d) of the Securities  Exchange
         Act of 1934 (No fee required) For the transition period from to

Commission file number 1-11586


                                PTI HOLDING INC.
                         -----------------------------
                 (Name of small business issuer in its charter)


              Delaware                                        13-3590980
            -----------                                     ----------------
(State or jurisdiction                                     (I.R.S. Employer
of incorporation or organization)                          Identification No.)

c/o 15 East North Street, Dover, DE                             19901
---------------------------------------                     ----------------
(Address of principal executive offices)                     (Zip Code)

                                 (302) 678-0855
                    --------------------------------------
                (Issuer's Telephone Number, Including Area Code)



Securities registered under Section 12(b) of the Exchange Act:
Title of each class
---------------------                                      Name of each exchange
                                                           on which registered
Common Stock, par value                                    ---------------------
  $.01 per share                                           None
-----------------------                                    ---------------------
Securities registered under Section 12(g) of the Act:      
Title of each class
-----------------------
Common Stock, par value
$.01 per share
-----------------------
         


         Check  whether the issuer:  (1) filed  reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for past 90 days. Yes X No

         State the number of shares  outstanding  of each class of the  issuer's
classes of common equity, as of the latest  practicable date. As of November 11,
1998, 4,951,352 shares of the issuer's common equity were outstanding.



<PAGE>




ITEM 1.  Financial Statements.


                                                                           Page
                                                                          ------

Consolidated Balance Sheet as of September 30, 1998                        F-1

Consolidated Statements of Operations for the three and nine months       
ended September 30, 1998 and 1997                                          F-2
                                                                           
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1998 and 1997                                   F-3


Notes to Consolidated Financial Statements                               F-4-F-6


                                     PART I



ITEM 2.  Management's Discussion and Analysis


         Statements  in this  Quarterly  Report on Form  10-QSB  concerning  the
Company's  business outlook or future economic  performance;  or other financial
items;  and plans and objectives  related  thereto;  and  statements  concerning
assumptions   made  or  expectations  as  to  any  future  events,   conditions,
performance or other matters, are  "forward-looking  statements" as that term is
defined  under the  Federal  Securities  Laws.  Forward-looking  statements  are
subject  to risks,  uncertainties  and other  factors  that could  cause  actual
results to differ materially from those stated in such statements.

         PTI  Holding  Inc.  (collectively  with its  wholly-owned  subsidiaries
referred  to herein  as the  "Company"),  manufactures  and  markets  protective
equipment,  primarily  bicycle  helmets and safety ear plugs.  In addition,  the
Company markets and distributes bicycles and bicycle-related products, and other
safety and medical supplies.

         On March 1, 1994, the Company acquired Foam-O-Rama, Inc. ("Foam") a New
York  corporation  which is  principally  engaged in the business of the design,
marketing and sale of bicycle helmets, by merging it with and into the company's
wholly-owed operating subsidiary,  Protective Technologies International Inc., a
New York corporation ("PTI"). From and after March 2, 1994, Foam had no separate
or  independent  existence,  having been merged into PTI. PTI has since expanded
its  product  line  from  bicycle  helmets  to  include   bicycles  and  bicycle
accessories.

         On August 5, 1997, the Company expanded its line of protective products
by acquiring Flents Products Co., Inc., (`Flents"), which is principally engaged
in the business of  manufacturing  wax earplugs  and the  marketing  and sale of
earplugs and other  safety and medical  supplies,  such as an eye drop  delivery
system,  styptic  devices,  and  air-filter  masks.  For  purposes of  financial
accounting  and income  tax,  the Merger was deemed to have  occurred  as of the
opening of business on June 1, 1997.

         On May 12, 1998, Flents acquired certain assets of the Comfees division
of Magnivision,  a subsidiary of American Greetings Corporation,  for a purchase
price of approximately $1,700,000.  Comfees manufactures and distributes contact
lens cases,  liquid  dispensers,  medicine  dispensers,  finger  splints and ear
protectors,  among other health and beauty care items. Comfees products are sold
through several mass merchandisers, including K-Mart and Target.



<PAGE>



Results of Operations:
----------------------

      Three months ended September 30, 1998 Compared to Three months ended
                               September 30, 1997
          

         The  Company's  net sales were  $12,917,533  during the  quarter  ended
September 30, 1998, an increase of 52% from its net sales of $8,502,729  for the
same period in 1997. The sales increase from 1997 to 1998 resulted predominantly
from the following:

Increased sales to existing customers through the addition of new helmet models.
Increased  market share at the expense of competitors. 
Increased sales in existing models due to growth in the overall helmet market.
Increased sales of the Company's bicycle and bicycle accessory products.
The  addition of new retail outlets for the Company's products.
Introduction of new accessory product lines.
The Company's license  arrangements  both with Hasbro,  Inc., to manufacture and
   market helmets,  bicycles and bicycle accessories under the PlayskoolTM brand
   name,  and with Mattel,  Inc. to  manufacture  and market  helmets  under the
   Barbie(TM) name.
Net sales  of  its  Flents  subsidiary  of  $2,610,883, for  the  quarter  ended
   September 30, 1998 as compared to sales of $1,688,263 for the period in 1997.

         The cost of  sales  for the  quarter  ended  September  30,  1998  were
$8,164,560 for PTI and $1,371,424 for Flents (resulting in a consolidated  gross
profit  margin of 26%).  The cost of sales for the quarter  ended  September 30,
1997  were  $4,879,419  for  PTI  and  $908,590  for  Flents   (resulting  in  a
consolidated  gross  profit  margin of 32%).  The  decrease in the gross  profit
margin was primarily due to a change in the mix of product sales. We experienced
an increase in sales of products that generally have lower gross profit margins.

         Selling,  general and  administrative  expenses  for the quarter  ended
September   30,  1998  were   $2,784,640   compared  to  selling,   general  and
administrative  expenses of  $1,614,017  for the same period in 1997.  SG&A as a
percentage of sales were 22% and 19% for the quarters  ended  September 30, 1998
and 1997, respectively.  The increased selling, general and administrative costs
in 1998 was primarily due to the higher costs  associated  with the expansion of
the  helmet,   bicycle  and  bicycle  accessory,   the  acquisition  of  Flents,
installation of new systems, and the higher costs for human resources.

         The  Company  had a net  income  of  $100,689  for  the  quarter  ended
September 30, 1998 compared to the Company's net income of $624,663 for the same
period in 1997.


       Nine months ended September 30, 1998 Compared to Nine months ended
                               September 30, 1997


         The Company's net sales were  $44,060,744  during the nine months ended
September 30, 1998, an increase of 79% from its net sales of $24,675,644 for the
same period in 1997. The sales increase from 1997 to 1998 resulted predominantly
from the following:

Increased sales to existing customers through the addition of new helmet models.
Increased  market share at the expense of competitors.  
Increased sales in existing models due to growth in the overall helmet market.
Increased sales of the Company's bicycle and bicycle accessory products.
The addition of new retail outlets for the Company's products.
Introduction of new accessory product lines.
The Company's  license arrangements  both with Hasbro,  Inc., to manufacture and
   market helmets,  bicycles and bicycle accessories under the PlayskoolTM brand
   name,  and with Mattel,  Inc. to  manufacture  and market  helmets  under the
   Barbie(TM) name.
Net sales of its  Flents  subsidiary  of $6,654,788,for  the nine  months  ended
   September  30,1998,  as compared to sales of  $2,226,952  for the period June
   1, 1997 through September 30,1997. Flents was acquired on June 1, 1997.

         The cost of sales for the nine  months  ended  September  30, 1998 were
$27,381,990 for PTI and $3,519,406 for Flents (resulting in a consolidated gross
profit margin of 30%). The cost of sales for the nine months ended September 30,
1997  were  $15,498,130  for PTI  and  $1,234,445  for  Flents  (resulting  in a
consolidated  gross  profit  margin of 32%).  The  decrease in the gross  profit
margin was primarily due to a change in the mix of product sales. We experienced
an increase in sales of products that generally have lower gross profit margins.

         Selling,  general and administrative expenses for the nine months ended
September   30,  1998  were   $8,402,243   compared  to  selling,   general  and
administrative  expenses of  $3,742,700  (not  including  the  one-time non cash
accounting  charge) for the same period in 1997.  SG&A as a percentage  of sales
were  19% and 15% for the  nine  months  ended  September  30,  1998  and  1997,
respectively.  The increased selling,  general and administrative  costs in 1998
was  primarily  due to the higher  costs  associated  with the  expansion of the
helmet,  bicycle and bicycle  accessory  business,  the  acquisition  of Flents,
installation of new systems, and the higher costs for human resources.

         The Company had a net income of  $2,349,198  for the nine months  ended
September 30, 1998  compared to the Company's net loss of  $(1,427,882 ) for the
same period in 1997.  The net loss for the nine months ended  September 30, 1997
included a one-time non cash accounting  charge of $3,844,531 for the conversion
of Series A Preferred  Stock into Common Stock by the  Directors of the Company.
Without the charge net income for the nine months ended September 30, 1997 would
have been $2,416,649.


Capital Resources
-----------------

         The Company has satisfied its capital requirements through the proceeds
of its initial public offering of securities,  which resulted in net proceeds of
approximately  $3,800,000,  through  the  proceeds of a  Regulation  "S" private
placement in November 1994,  which  resulted in gross proceeds of  approximately
$750,000,  through the exercise of certain outstanding options held by employees
and consultants of the Company,  which resulted in net proceeds of approximately
$400,000,  through internal cash flow, through PTI's opening of a revolving line
of credit in May,  1996 and  through the  exercise  of public  warrants in 1997,
which resulted in gross proceeds of approximately $3,000,000.

         On May 6, 1996,  the Company  opened a revolving  line of credit at Key
Bank of New York. The line of credit is collateralized by inventory, receivables
and other  assets.  As of  September  30,  1998,  the  Company  had  $17,916,338
outstanding  pursuant to such line of credit ($20,000,000  available,  including
$2,000,000 specifically for the future capital expenditures).

         The Company's  working  capital at September 30, 1998 was $9,952,789 as
compared to $10,192,577 at September 30, 1997.

         The cash flows of the Company have fluctuated due to capital  spending,
working  capital  requirements,  and bank loans.  The Company  expects that cash
flows in the near  future  will be  primarily  determined  by the  levels of net
income, working capital requirements,  and financings, if any, undertaken by the
Company.  Net cash increased by $112,100 and $368,227 in the  nine-months  ended
September 30, 1998 and 1997, respectively.

         Net cash used in operating activities was $10,776,445 and $2,244,050 in
the  nine-months  ended  September 30, 1998 and 1997,  respectively.  Net income
(loss) was $2,349,198 and $(1,427,882) for the same periods, respectively.

         Net cash used in investing  activities was $5,084,533 and $2,620,885 in
the nine-months ended September 30, 1998 and 1997,  respectively.  Net cash used
in  investing  activities  pertains to capital  expenditures  in these  periods,
primarily for computer systems and manufacturing  equipment, and for the payment
as consideration for the purchase of the acquired product line.

         Net  cash  provided  by  financing  activities  was  $15,973,078  and $
5,233,162 in the nine-months  ended  September 30, 1998 and 1997,  respectively.
Cash flows from financing  activities  were  primarily  affected by the net bank
loans of $15,848,077 and $2,131,501 in these periods, respectively.

         The Company  pays its  employees  and  vendors on a weekly,  monthly or
bimonthly  basis,  while its customers pay for products on an average of 75 days
after  shipment,  and  therefore the Company has  substantial  needs for working
capital.

         Based on the  Company's  current  plans,  management  anticipates  that
current cash balances,  together with the Company's line of credit and cash flow
generated from  operations,  will be sufficient to continue to fund  production,
purchase of equipment, increased marketing activities and continued research and
development,  as  well as the  rest  of the  Company's  cash  requirements,  for
approximately the next 18 months.

         The  Company's  research and  development  efforts are directed  toward
developing  new  products,   improving   existing   products  and  refining  its
manufacturing  processes.  Such  research  and  development  costs  amounted  to
approximately  $130,000  for the  nine  months  ended  September  30,  1998  and
approximately  $73,000 for the nine  months  ended  September  30,  1997.  It is
expected  that the Company  will spend  approximately  $150,000 on research  and
development during the 1998 year.


Year 2000 Compliance

         The Company has  recently  finalized  its  installation  of the SAP R/3
accounting system, which is year 2000 compliant. The Company does not anticipate
any material additional costs with regard to its year 2000 compliance.

         The year 2000  issue is  expected  to affect  the  systems  of  various
entities  with which the Company  interacts,  including  suppliers  and vendors.
However,  there can be no assurance that the systems of other companies on which
the  Company's  systems  rely will be  timely  converted,  or that a failure  by
another  company's  systems to be year 2000 compliant  would not have a material
adverse effect on the Company.







ITEM 6.  Exhibits; List and Reports on Form 8-K.


         (a)      Exhibits

3.1  Registrant's  Articles  of  Incorporation,   as  amended,  incorporated  by
     reference to the like  numbered  exhibit in the  Registrant's  Registration
     Statement on Form SB-2 under the Securities  Act of 1933, as amended,  File
     No. 33-53466

3.2  Registrant's  by-laws,  incorporated  by  reference  to the  like  numbered
     exhibit in the Registrant's  Registration  Statement on Form SB-2 under the
     Securities Act of 1933, as amended, File No. 33-53466


4.4  Form of  Underwriters'  Warrant,  incorporated  by  reference  to the  like
     numbered  exhibit in the Registrant's  Registration  Statement on Form SB-2
     under the Securities Act of 1933, as amended, File No. 33-53466

10.2 Form of Stock Option  granted to  employees,  independent  contractors  and
     consultants,  incorporated  by  reference  to exhibit  number  10.14 in the
     Registrant's  Registration  Statement on Form SB-2 under the Securities Act
     of 1933, as amended, File No. 33-53466

10.3 Agreement  and Plan of Merger  dated  February  14,  1994 among  Protective
     Technologies  International  Inc.,  Foam-O-Rama,  Inc., Ellen Schaeffer and
     Lori Hillsberg,  as amended,  incorporated by reference to exhibit number 2
     in the  Registrant's  Current Report on Form 8-K dated March 16, 1994 under
     the Securities Exchange Act of 1934, as amended

10.4 Noncompetition   Agreement   dated   March  1,  1994   between   Protective
     Technologies  International  Inc. and Ellen  Schaeffer and Lori  Hillsberg,
     incorporated  by  reference  to  exhibit  number  99.1 in the  Registrant's
     Current  Report  on Form 8-K  dated  March 16,  1994  under the  Securities
     Exchange Act of 1934, as amended

10.5 Noncompetition   Agreement   dated   March  1,  1994   between   Protective
     Technologies  International  Inc. and Warren  Schaeffer and Alan Hillsberg,
     incorporated  by  reference  to  exhibit  number  99.2 in the  Registrant's
     Current  Report  on Form 8-K  dated  March 16,  1994  under the  Securities
     Exchange Act of 1934, as amended

10.6 Form of Promissory Note memorializing  loans from directors and officers as
     authorized  by the Board of Directors on March 13,  1996,  incorporated  by
     reference to exhibit number 10.21 in the Registrant's Annual Report on Form
     10-KSB  for the  period  ended  December  31,  1995,  under the  Securities
     Exchange Act of 1934, as amended

10.7 Guarantee   from  Warren   Schaeffer  and  Alan   Hillsberg  to  Protective
     Technologies  International  Inc.,  incorporated  by  reference  to exhibit
     number 10.21 in the  Registrant's  Quarterly  Report on Form 10-QSB for the
     period ended September 30, 1995, under the Securities Exchange Act of 1934,
     as amended

10.8 Exclusive  License and Purchase  Guarantee  Agreement,  dated July 19, 1994
     between Toy Biz,  Inc.  and the  Registrant,  incorporated  by reference to
     exhibit number 10.22 in the  Registrant's  Quarterly  Report on Form 10-QSB
     for the period ended September 30, 1995, under the Securities  Exchange Act
     of 1934, as amended

10.10Line of Credit  Agreement  (Asset  Based),  dated May 6, 1996,  between Key
     Bank of New York, Protective  Technologies  International Inc., PTI Holding
     Inc. and  Protective  Technologies  of America Inc.,  and  collateral  loan
     documents thereto, incorporated by reference to exhibit number 10.25 in the
     Registrant's  Quarterly  Report on Form 10-QSB dated March 31, 1996,  under
     the Securities Exchange Act of 1934, as amended

10.13Merger Agreement and plan of  Reorganization  dated July 25, 1997 among PTI
     Holding Inc. and Flents  Products Co.,  Inc., as amended,  incorporated  by
     reference to exhibit numbers 1 and 2 in the Registrant's  Current Report on
     Form 8-K date August 20, 1997 under the Securities Exchange Act of 1934, as
     amended.



         (b)  Reports on Form 8-K

                  No current  report on form 8-K was filed by the Company during
the quarter ended September 30, 1998.















                                   SIGNATURES

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


Dated November 13, 1998


PTI HOLDING INC.



By  /s/ Meredith Birrittella
    Meredith W. Birrittella,
    Chairman of the Board
    Chief Executive Officer (authorized signatory)





By /s/ Anthony Costanzo
   Anthony Costanzo
   Chief Financial Officer






<PAGE>
<TABLE>



                         PTI HOLDING INC. & SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                   (Unaudited)
                               September 30, 1998

<S>                                                                                                                <C>

ASSETS

Current assets:

 Cash and cash equivalents                                                                                        $ 794,260
 Accounts receivable, net of allowance for returns and doubtful collections of $457,574                          12,005,194
 Inventories                                                                                                     21,173,618
 Deferred tax asset, net                                                                                            284,340
 Prepaid expenses and other current assets                                                                        3,232,752
                                                                                                                -----------

    Total current assets                                                                                         37,490,164

Deferred tax asset, net                                                                                             207,690

Equipment and improvements, net of accumulated depreciation of $2,022,068                                         3,312,531
Intangible assets, net of accumulated amortization of $828,361                                                    5,321,013

                                                                                                        --------------------
                                                                                                               $ 46,331,398
                                                                                                        ====================


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Loan payable, bank                                                                                        $ 17,916,338
     Accounts payable and accrued expenses                                                                        8,810,150
     Other current liabilities                                                                                      810,887
                                                                                                        --------------------

     Total current liabilities                                                                                   27,537,375
                                                                                                        --------------------

Commitments and contingencies

Stockholders' equity:
     Common stock, $.01 par value; authorized 10,000,000 shares, issued and outstanding
          4,951,352 shares                                                                                           49,514
     Note receivable from exercise of stock warrants                                                                (58,322)
     Capital in excess of par                                                                                    16,268,267
     Retained earnings                                                                                            2,534,564
                                                                                                        --------------------      

     Total stockholders' equity                                                                                  18,794,023
                                                                                                        --------------------


                                                                                                               $ 46,331,398
                                                                                                       ====================
</TABLE>
<PAGE>

<TABLE>

                        PTI HOLDING INC. AND SUBSIDIARIES
                 CONSOLIDATED FINANCIAL STATEMENTS OF OPERATIONS
                                   (Unaudited)

              THREE & NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997


<S>                                                         <C>                <C>                       <C>               <C>  
                                                         For the Three Months ended                 For the Nine Months ended
                                                                 September 30,                               September 30,
                                                       -------------------------------             -------------------------------
                                                            1998               1997                     1998               1997
                                                       ------------        -----------             ------------       ------------

Net sales                                              $ 12,917,533        $ 8,502,729             $ 44,060,744       $ 24,675,644

Cost of sales                                             9,535,984          5,788,009               30,901,396         16,732,575
                                                       ------------        -----------             ------------       ------------  
Gross profit                                              3,381,549          2,714,720               13,159,348          7,943,069

Selling, general and administrative expenses:
     SG&A - before stock based compensation               2,784,640          1,614,017                8,402,243          3,742,700
     Stock-based compensation expense                           -                  -                        -            3,844,531
                                                       ------------        -----------             ------------       ------------
                                                          2,784,640          1,614,017                8,402,243          7,587,231
                                                       ------------        -----------             ------------       ------------

Income from operations                                      596,909          1,100,703                4,757,105            355,838

Interest expense, net of interest income                    423,309             55,271                  698,349            140,954
                                                       ------------        -----------             ------------       ------------

Income before income taxes                                  173,600          1,045,432                4,058,756            214,884

Income taxes                                                 72,911            420,769                1,709,558          1,642,766
                                                       ------------        -----------             ------------       ------------

Net income (loss)                                         $ 100,689          $ 624,663              $ 2,349,198       $ (1,427,882)
                                                       ============        ===========             ============       =============





Net income (loss) per share of common stock
   Basic                                                     $ 0.02             $ 0.13                   $ 0.49            $ (0.34)
   Diluted                                                   $ 0.02             $ 0.13                   $ 0.46            $ (0.34)

Weighted  average shares outstanding
   Basic                                                  4,862,499          4,650,601                4,818,745          4,252,201
   Diluted                                                5,118,380          4,869,539                5,140,356          4,252,201

</TABLE>
<PAGE>

<TABLE>

                         PTI HOLDING INC. & SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (Unaudited)

                  NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<S>                                                                                       <C>                   <C>
                                                                                          1998                  1997
                                                                                      ----------           ------------
Cash flows from operating activities:
      Net income (loss)                                                               $ 2,349,198          $ (1,427,882)
      Adjustments to reconcile net income (loss) to net cash used in operating
        activities:
      Provision for returns and doubtful accounts                                         349,074                     -
      Depreciation and amortization                                                     1,015,053               370,334
      Amortization of intangible assets                                                   173,974               109,604
      Deferred income tax (benefit)                                                      (194,507)              (92,277)
      Stock-based compensation                                                                  -             3,844,531
      (Increase) decrease in operating assets:
          Accounts receivable                                                          (7,127,097)           (1,732,667)
          Inventories                                                                 (13,015,690)           (4,377,532)
          Prepaid expenses and other current assets                                    (1,208,601)             (205,846)
      Increase (decrease) in operating liabilities:
         Accounts payable and accrued expenses                                          6,128,263             2,244,598
         Other current liabilities                                                        753,888              (976,913)
                                                                                     -------------          ------------

      Net cash used in operating activities                                           (10,776,445)           (2,244,050)
                                                                                     -------------          ------------

Cash flows from investing activities:
      Cash payments as consideration for purchase of acquired product line             (1,703,809)           (1,855,289)
      Loan to stockholders                                                               (923,048)              (23,583)
      Purchase of equipment and improvements                                           (2,457,676)             (742,013)
                                                                                     -------------          ------------

      Net cash (used in) investing activities                                          (5,084,533)           (2,620,885)
                                                                                     -------------          ------------

Cash flows from financing activities:
      Proceeds from issuance of common stock                                              125,001             3,101,661
      Proceeds from bank loan, net                                                     15,848,077             2,131,501
                                                                                     ------------           -----------

      Net cash provided by financing activities                                        15,973,078             5,233,162
                                                                                     ------------           -----------

Net increase in cash and cash equivalents                                                 112,100               368,227

Cash and cash equivalents, beginning of year                                              682,160               361,878
                                                                                     ------------           -----------

Cash and cash equivalents, end of year                                                  $ 794,260             $ 730,105
                                                                                     ============           ===========

Supplemental disclosures:
      Interest paid                                                                     $ 742,860             $ 209,977
      Income taxes paid                                                                 1,784,500             2,740,004

Non-cash investing and financing activities:
      Common stock issued as partial consideration for the purchase of
         the acquired company                                                                   -             2,701,650
      Conversion of preferred stock                                                             -                 2,500


</TABLE>
<PAGE>

                                            
                        
                        PTI HOLDING INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



1.      Basis of presentation:

        The consolidated financial statements included herein have been prepared
        by the Company,  without an audit, pursuant to the rules and regulations
        of the  Securities  and Exchange  Commission.  Certain  information  and
        disclosures  normally  included  in  financial  statements  prepared  in
        accordance  with  generally  accepted  accounting  principles  have been
        condensed  or  omitted  pursuant  to such rules and  regulations.  These
        unaudited   consolidated   financial   statements   should  be  read  in
        conjunction with the consolidated financial statements and notes thereto
        included  in the  Company's  Annual  Report on Form  10-KSB for the year
        ended  December  31,  1997 and filed with the  Securities  and  Exchange
        Commission.

        In the opinion of the Company's management, these unaudited consolidated
        financial  statements  include  all  adjustments,  consisting  solely of
        normal recurring  adjustments,  necessary in order to present fairly the
        Company's  consolidated  financial position as of September 30, 1998 and
        the results of their  operations  and their cash flows for the three and
        nine months ended September 30, 1998 and 1997. The results of operations
        for an interim period are not  necessarily  indicative of the results to
        be attained in any other fiscal period.


2.      Summary of significant accounting policies:

        Earnings per share:

        In February  1997,  the Financial  Accounting  Standards  Board ("FASB")
        issued Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
        "Earnings  Per Share".  This  statement  establishes  new  standards for
        computing  and  presenting  earnings  per  share  (EPS),  replacing  the
        presentation  of formerly  required  primary EPS with a presentation  of
        basic EPS. For entities with complex capital  structures,  the statement
        requires dual presentation of both basic EPS and diluted EPS on the face
        of the statement of  operations.  Under this new standard,  basic EPS is
        computed based on weighted  average shares  outstanding and excludes any
        potential  dilution.  Diluted EPS reflects  potential  dilution from the
        exercise or  conversion  of  securities  into common stock or from other
        contracts to issue common  stock.  The Company  adopted SFAS 128 for its
        financial statements issued for the year ended December 31, 1997.

        A  reconciliation  between the numerators and  denominators of the basic
        and diluted EPS computation for net income (loss) is as follows:

<TABLE>

                            Nine months ended September 30, 1998          Nine months ended September 30, 1997
                            ------------------------------------          ------------------------------------
<S>                          <C>             <C>          <C>              <C>            <C>            <C>
                                                       Per share                                     Per share
                           Net Income      Shares       amounts          Net (loss)      Shares       amounts 
                           ----------      ------      ---------         ----------      ------      ---------

Basic EPS                 $ 2,349,198     4,818,745       $ 0.49       $(1,427,882)     4,252,201      $ (0.34)
                                                       =========                                     ==========
Dilutive stock options
& warrants                                  321,611                                           -
                                         ----------                                     ---------

Diluted EPS               $ 2,349,198     5,140,356       $ 0.46       $(1,427,882)     4,252,201      $ (0.34)
                         ============    ==========    =========      =============    ==========    ==========
</TABLE>


The  potentially  diluted  shares that were not included in the  computation  of
diluted  earnings  per share  because to do so would be  antidultive  consist of
stock options and warrants as follows:
                                                       Options/Warrants
                                                  -------------------------
Nine months ended September 30, 1998                          -
Nine months ended September 30, 1997                       467,906

                                  



     
        Reclassification:

        For the comparability, certain 1997 amounts have been reclassified where
        appropriate  to conform the  financial  statement  presentation  used in
        1998.


        Recently Issued Accounting Standards

        In  June  1997,  the  FASB  issued  Statement  of  Financial  Accounting
        Standards No. 130 ("SFAS 130"), "Reporting  Comprehensive Income", which
        establishes  standards for reporting and display of comprehensive income
        and its components (revenues, expenses, gains, and losses) in a full set
        of general purpose  financial  statements.  The Company adopted No. SFAS
        130 in the first quarter 1998,  which did not have a material  impact on
        its financial statements.

        In June 1997, the FASB issued SFAS No. 131,  "Disclosures about Segments
        of an Enterprise and Related  Information",  which establishes standards
        for  the  way  public  business  enterprises  report  information  about
        operating segments in interim and annual financial  statements.  It also
        establishes   standards  for  related  disclosures  about  products  and
        services,  geographic areas and major customers.  The Company will adopt
        SFAS No. 131 for the year ending December 31, 1998.

        In June 1998 the FASB issued SFAS No. 133,  "Accounting  for  Derivative
        Instruments   and  Hedging   Activities".   The  Statement   establishes
        accounting  and  reporting  standards  requiring  that every  derivative
        instrument  (including certain derivative  instruments embedded in other
        contracts)  be  recorded  in the  balance  sheet as  either  an asset or
        liability  measured  at its fair  value.  The  Statement  requires  that
        changes  in the  derivative's  fair  value be  recognized  currently  in
        earnings  unless  specific hedge  accounting  criteria are met.  Special
        accounting for qualifying hedges allows a derivative's  gains and losses
        to offset  related  results on the hedged item in the income  statement,
        and  requires  that a company must  formally  document,  designate,  and
        assess the effectiveness of transactions that receive hedge accounting.

        Statement  133 is effective  for fiscal years  beginning  after June 15,
        1999. A company may also  implement the Statement as of the beginning of
        any fiscal quarter after issuance  (that is, fiscal  quarters  beginning
        June  16,  1998  and  thereafter).   Statement  133  cannot  be  applied
        retroactively.   Statement  133  must  be  applied  to  (a)   derivative
        instruments and (b) certain  derivative  instruments  embedded in hybrid
        contracts that were issued,  acquired,  or substantively  modified after
        December 31, 1997 (and, at the  company's  election,  before  January 1,
        1998).

        The  adoption  of SFAS  133  will not  have a  material  impact  on the
        financial statements.


3.      Contingent liabilities:

        Certain claims,  suits and complaints  arising in the ordinary course of
        business  have been filed or are  pending  against the  Company.  In the
        opinion of management, all matters are without merit or of such kind, or
        involve  such  amounts,  as would  not  have a  material  effect  on the
        financial position and results of operations of the Company if concluded
        unfavorably.

        While the Company has not experienced any product  liability  claims, it
        presently  cannot be  determined if its product  liability  insurance is
        adequate to cover any losses that may arise.


4.       New product line:

        On May 12,  1998,  the Company  acquired  certain  assets of the Comfees
        division of Magnivision, a subsidiary of American Greetings Corporation,
        for a purchase price of approximately  $1,700,000.  Comfees manufactures
        and  distributes  contact  lens  cases,   liquid  dispensers,   medicine
        dispensers,  finger splints and ear  protectors,  among other health and
        beauty  care items.  Comfees  products  are sold  through  several  mass
        merchandisers, including K-Mart and Target. The fair market value of the
        assets acquired was $481,842.


5.      Related party transactions:

        At September 30, 1998, officers/directors owed the Company approximately
        $1,255,000. These loans bear interest at 6% per annum.

        For the nine months ended  September  30, 1998,  the Company  recognized
        interest    income   of    approximately    $43,700    from   loans   to
        officers/directors.


6.      Line of credit:

        On May 6, 1996,  the Company  established a revolving  line of credit at
        Key Bank of New York. The line of credit is collateralized by inventory,
        receivables and other assets. During September 1998, the availability on
        the line of credit  increased from $7,000,000 to $20,000,000  (including
        $2,000,000  specifically  for the future  capital  expenditures).  As of
        September 30, 1998, the Company had $17,916,338  outstanding pursuant to
        such line of credit.