SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   Form 10-QSB

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

Commission file number 0-21151


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

DELAWARE                                                             91-1418002
(State or other jurisdiction of                                (I.R.S. Employer
 incorporation or organization)                              Identification No.)


1077 Northern Blvd., Roslyn, NY                                    11576
(Address of principal executive offices)                         (Zip Code)


                                  516-365-1909
                           (Issuer's telephone number)


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

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.

     There were  4,262,600  shares of common  stock  issued and  outstanding  on
January 15, 1998.

Transitional Small Business Disclosure Format
(Check one):

Yes        No  X
   -----     -----



<PAGE>



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

GENERAL

     The Company is in the business of developing and commercializing  potential
processes for the non-destructive, non-invasive testing of both above ground and
buried  pipeline to evaluate the condition  and  integrity of the pipeline.  The
Company believes that the development of its pulse propagation  analyzer process
and the further refinement of the technology associated therewith has progressed
to the point where it  believes  commercial  utilization  is now  feasible.  The
Company  has not,  as of yet,  obtained  significant  revenues  from its planned
primary source of revenues and has no commercial  contracts in place for the use
of its process or technology. The goal of the Company has been the establishment
of  technological  feasibility  associated  with its services to  electronically
measure corrosion in piping of all kinds. The Company's process identifies areas
of  corrosion,  areas  that lack  cathodic  protection  and areas  that may have
defective  coating  on both  below  ground  and above  ground  pipes.  The pulse
propagation analyzer consists of a computer,  software to enhance collection and
processing  of data,  a precision  multi-channel  pulse  generator  and a signal
analyzer.  During fiscal 1996,  the Company  began to see rapid  progress in the
development  of its  technology  and its  ability  to meet the  expectations  of
potential  customers.  By that time,  the  Company had begun to  accelerate  its
efforts  and expend  more  resources  to develop its  technology  faster.  Thus,
expenses have been generally  increasing at a faster pace than in prior periods.
The Company  expects these trends to continue as its  technological  development
continues  at this  accelerated  pace.  The  Company  believes  that it attained
technological feasibility of its process with the completion of its research and
development activity in a controlled environment in July of 1996.

     In order for the Company to obtain significant revenues from the use of its
technology,  the Company must establish a sales and marketing  organization that
is effective  and obtains  customers  for its pulse  propagation  analyzer.  The
Company must also be able to supply and train work crews in  sufficient  numbers
to satisfy the  requirements of its customers.  From inception  through December
31, 1997, the Company  incurred  losses of $2,749,619 and losses are expected to
continue at least through the third quarter of the year ending June 30, 1998; no
assurances can be given that losses will not continue thereafter.

RESULTS OF OPERATIONS

Quarter Ended December 31, 1997 Compared to the Quarter Ended December 31, 1996
-------------------------------------------------------------------------------

     The Company had no revenues for either of the quarters  ended  December 31,
1997 or December  31,  1996.  The loss from  operations  for the  quarter  ended
December 31, 1997 was $257,122  compared to a loss from  operations  of $645,538
for the quarter ended December 31, 1996. The loss for the quarter ended December
31, 1997  decreased by $388,416 over the  comparable  quarter ended December 31,
1996,  primarily because of a non-cash expense of $559,154 which was incurred in
the quarter  ended  December  31, 1996  related to the  issuance or extension of
common stock purchase  warrants issued to management and consultants.  Excluding
this non-cash expense,  operating losses for the quarter ended December 31, 1997
were actually $170,738 greater than for the quarter ended December 31, 1996. The


                                        2

<PAGE>


operating  loss for the quarter ended  December 31, 1997 was offset  somewhat by
interest  income in the  amount of $64,265  representing  interest  earned  from
proceeds of the  Company's  public  offering  which was completed in February of
1997. This resulted in a net loss of $192,857 for the quarter ended December 31,
1997 compared to a net loss of $645,251 for the quarter ended December 31, 1996.
Research and development  expenses  increased  significantly  to $75,131 for the
quarter  ended  December  31, 1997  compared  to $51,573  for the quarter  ended
December 31, 1996. General and administrative  expenses increased  substantially
to $181,991 for the quarter ended December 31, 1997 from $34,811 for the quarter
ended December 31, 1996, primarily because of increased expenses associated with
setting up new corporate offices in New York and the establishment of a research
and development facility in Ferndale, Washington following the completion of the
public offering.  The Company also incurred  increased salary expense because it
was in the financial  position to pay the salaries and  consulting  fees that it
had been limited in paying in the quarter ended December 31, 1996.

Six Months  Ended  December 31, 1997  Compared to Six Months Ended  December 31,
--------------------------------------------------------------------------------
1996.
-----

     Revenues  remained  constant at $30,000 for the six months  ended March 31,
1997  compared to the six months ended  December 31, 1996.  Revenues in both six
month  periods  were  derived  from  research  and   development   contracts  or
demonstration contracts with two large multi-national oil companies. Total costs
and expenses for the six months ended  December 31, 1997 were $478,376  compared
to total costs and expenses of $738,261  for the six months  ended  December 31,
1996. However, of the total costs and expenses for the six months ended December
31, 1996, $559,154,  or 75.7% were for noncash,  nonrecurring charges associated
with the issuance or extension of common stock purchase warrants. Excluding this
non-cash  expense,  operating  losses for the six months ended December 31, 1997
were actually  $299,269 greater than for the six months ended December 31, 1996.
This  represents  an  increase  of 167.1%.  Research  and  development  expenses
increased to $154,675 for the six months ended  December 31, 1997 from  $118,166
for the six months ended December 31, 1996, an increase of $36,509 or 30.9%. The
increase is primarily due to an increase in research and  development  activity.
General and administrative  expenses increased for the six months ended December
31, 1997 to $323,701,  compared to $60,941 for the six months ended December 31,
1996.

     Management  believes  that both  revenues  and  expenses of the Company are
likely to increase  during the fiscal year ending June 30, 1998  compared to the
fiscal  year  ended  June  30,  1997  if it is  able to  secure  contracts  with
customers, of which there is no assurance. The revenues earned by the Company to
date  principally  relate to research and development  activities that have been
sponsored by large  multi-national  oil  companies  and large  utilities.  These
activities   included  field  research  and   development  at  such   companies'
facilities.  These activities are likely to continue during the year ending June
30, 1998 and for the  foreseeable  future.  Management  is also working  towards
obtaining fee for service  contracts,  which are hoped to be the major source of
the Company's  revenues.  If fee for service contracts are obtained,  management
expects its  expenditures  associated with personnel and testing  equipment will
begin to rise. In addition,  as the Company  begins to actually  provide fee for
service  work,  additional   administrative  support  activities  will  increase
together with related expenses.



                                        3

<PAGE>




LIQUIDITY AND CAPITAL RESOURCES

     Revenues for the period from July 1, 1988 (inception)  through December 31,
1997,  were $512, 189 while expenses were  $3,501,965,  resulting in a loss from
operations,   since  inception,  of  $2,989,776.  Net  cash  used  in  operating
activities  from inception  through  December 31, 1997 was  $1,668,650.  Of this
amount,  $148,227 was spent in the three month  period ended  December 31, 1997.
Thus, while the revenues derived from research and development activities funded
by  multi-national  oil companies and major  utilities  have been  indicative of
financial support for the Company's efforts to develop its technology, they have
not been sufficient to cover expenses.  Accordingly,  the Company has maintained
adequate  liquidity and cash reserves  through the private  placement and public
offering of its common stock.  Such private  placements,  from inception through
the period  ended  March 31,  1996,  totaled  $1,471,567.  The  Company  has not
conducted any private  placements  of its common stock since that date.  Noncash
expenses  relating to the issuance of new common stock warrants or the extension
of  previously  issued  warrants in the amount of $559,154  were incurred in the
quarter ended December 31, 1996.  These  transactions had no effect on aggregate
stockholders'  equity.  At December 31, 1997, the Company had working capital of
$4,478,354  and no material long term  commitments or material  commitments  for
capital expenditures.

     In February of 1997, the Company  completed an initial  public  offering of
its common stock,  selling  1,000,000  shares at a price of $6.00 per share,  as
well as an Underwriter's  overallotment option of 50,000 shares, also at a price
of $6.00 per share.  Net  offering  proceeds of  approximately  $5,172,000  were
realized  by the  Company  from  this  public  offering.  The  Company,  pending
utilization  of the net proceeds in  operations,  has invested  such proceeds in
short-term, high grade,  interest-bearing instruments. The Company believes that
its current  capital  resources and liquidity are adequate for at least the next
twelve months.  Other than equipment purchases for field crews if the Company is
successful  in  obtaining  commercial  contracts,  the Company does not have any
plans for  significant  capital  expenditures.  To date,  the  Company  has only
obtained small research and  development  contracts,  the proceeds of which were
used to defray a portion of the Company's research and development costs.

RESOURCES

     As of December 31, 1997 the Company did not have any  material  commitments
for capital  expenditures.  However, it is management's  intention to direct the
Company's  activities  towards obtaining fee for service  contracts,  which will
necessitate the Company attracting,  hiring,  training and outfitting  qualified
technicians. The Company's intention is to purchase such equipment for its field
crews for the foreseeable future, until such time as the scope of the operations
may require alternate  sources of financing such equipment.  The timing of these
events  is  dependent  upon the  Company's  ability  to obtain  fee for  service
contracts,   which  is  dependent  upon  the  Company's  continuing  ability  to
demonstrate the  effectiveness of its technology.  The Company believes that its
cash position is  sufficient to satisfy its operating  needs for the next twelve
months.  Management believes it is well on the way to reaching these milestones,


                                        4

<PAGE>


but there can be no assurance that the Company's process will be accepted within
any particular time frame, or at all. The Company recently  acquired  commercial
office space in the NewYork City area as well as space to carry out research and
development  activities  in Ferndale,  Washington.  The Company will continue to
incur increased expenses  associated with the leasing of such space. The Company
will also incur additional personnel expenses as it hires and trains field crews
and support personnel related to the successful receipt of commercial contracts.

                                     PART II

Item 1. Legal Proceedings.

     The Company is not a party to any pending or threatened legal proceedings.

Item 2. Changes in Securities.

     None.

Item 3. Defaults Upon Senior Securities.

     None.

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

     On November 14, 1997 the Company held its annual meeting of shareholders in
     New York,  NY. The only agenda  item at the  meeting was the  election of a
     Board of Directors.  Henry  Gemino,  Gale D. Burnett,  G.L.  Scott,  Murphy
     Evans,  John Tsungfen Kuo and Allen G. Reeves were all elected as directors
     to serve until the next annual shareholder's meeting.

Item 5. Other Information.

     None.



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

     (a) Exhibits.
               None

     (b) Reports on Form 8-K.
               None



                                        5

<PAGE>


                                   SIGNATURES

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



                                         PROFILE TECHNOLOGIES, INC.
                                               (Registrant)


Date: January 21, 1998                   /s/ G.L. Scott
                                         ---------------------------------------
                                         G.L. SCOTT
                                         Chief Executive Officer



                                         /s/ Henry Gemino
                                         ---------------------------------------
                                         HENRY GEMINO
                                         Chief Financial Officer


                                        6

<PAGE>


Item 1. Financial Statements


                           PROFILE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                            Condensed Balance Sheets

==============================================================================
                                                   December 31,       June 30, 
                                                       1997             1997
==============================================================================

                                     Assets
                                     ------
                                                     (unaudited)
Current assets:
   Cash and cash equivalents                        $ 4,558,813      4,936,600
   Contract work-in-progress                               --           20,000
   Prepaid expenses                                      16,483         52,798
                                                    --------------------------

          Total current assets                        4,575,296      5,009,398

Property and equipment, net                              82,868         34,941
Patents                                                 204,037        189,037
Other assets                                              3,530          3,350
                                                    --------------------------

          Total assets                              $ 4,865,731      5,236,726
                                                    --------------------------

                      Liabilities and Stockholders' Equity
                      ------------------------------------


Current liabilities:
   Accounts payable - stockholder                        18,069          2,500
   Other accounts payable                                 1,528          5,919
   Accrued wages                                           --           20,614
   Other accrued liabilities                             77,345        122,142
                                                     -------------------------

          Total current liabilities                      96,942        151,175
                                                     -------------------------

Stockholders' equity:
   Common stock, $0.001 par value. Authorized
      10,000,000 shares; issued and outstanding
      4,262,600 shares at December 31, 1997 
      at June 30, 1997                                    4,263          4,263
   Additional paid-in capital                         7,514,145      7,514,145
   Deficit accumulated during the development 
        stage                                        (2,749,619)    (2,432,857)
                                                     -------------------------

          Total stockholders' equity                  4,768,789      5,085,551

==============================================================================

          Total liabilities and stockholders'
            equity                                  $ 4,865,731    $ 5,236,726
==============================================================================



            See accompanying notes to condensed financial statements



<PAGE>
<TABLE>
<CAPTION>



                                                PROFILE TECHNOLOGIES, INC.
                                             (A Development Stage Enterprise)

                                            Condensed Statements of Operations
                                                       (unaudited)

==============================================================================================================================
                                                Period from
                                               July 1, 1988
                                            (inception) through        Three months ended                 Six months ended
                                                December 31,               December 31,                      December 31,
                                              ---------------         ---------------------             --------------------
                                                    1997              1997             1996             1997            1996
==============================================================================================================================

<S>                                           <C>                <C>               <C>              <C>              <C>   
Revenues - testing services and 
   research and development fees               $   512,189             --               --             30,000           30,000
                                               -------------------------------------------------------------------------------

Costs and expenses:
   Research and development                      1,512,365           75,131           51,573          154,675          118,166
   General and administrative                    1,130,446          181,991           34,811          323,701           60,941
   Excess of fair market value
     over exercise price of extended
     and assigned existing common
     stock purchase warrants                       350,000             --             50,000             --             50,000

Fair value of common stock purchase
   warrants granted to consultants                 509,154             --            509,154             --            509,154
                                               -------------------------------------------------------------------------------

          Total costs and expenses               3,501,965          257,122          645,538          478,376          738,261
                                               -------------------------------------------------------------------------------

          Loss from operations                  (2,989,776)        (257,122)        (645,538)        (448,376)        (708,261)
                                               -------------------------------------------------------------------------------

Interest income                                    240,057           64,265              287          131,614            1,342
Other income                                           100             --               --               --               --
                                               -------------------------------------------------------------------------------

          Net loss                             $(2,749,619)        (192,857)        (645,251)        (316,762)        (706,919)
                                               -------------------------------------------------------------------------------

Basic and diluted loss per share                                $     (0.05)           (0.17)     $     (0.07)           (0.19)

Weighted average common and common
   share equivalents outstanding                                  4,262,600        3,756,350        4,262,600        3,756,350

==============================================================================================================================



                                    See accompanying notes to condensed financial statements

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                               PROFILE TECHNOLOGIES, INC.
                                            (A Development Stage Enterprise)

                                           Statements of Stockholders' Equity
                                                      (unaudited)

=============================================================================================================================
                                                                                                         Deficit                   
                                                                                                       accumulated     Total    
                                                               Common stock            Additional      during the      Stock-    
                                                         -----------------------        paid-in        development    holders'   
                                                           Shares        Amount         capital           stage        equity
=============================================================================================================================
<S>                                                     <C>          <C>              <C>             <C>             <C>    
Sale at inception (July 1, 1988),
   $.0005 per share                                      1,000,000    $      500          --               --             500
Sale of common stock in July,
   $.0005 per share                                        600,000           300          --               --             300
Sale of common stock in September,
   $.25 per share                                          400,000         1,200        98,800             --         100,000
Net loss                                                      --            --            --            (85,749)      (85,749)
                                                         --------------------------------------------------------------------

Balances at June 30, 1989                                2,000,000         2,000        98,800          (85,749)       15,051

Sale of common stock in September,
   $.25 per share                                           80,000            80        19,920             --          20,000
Net loss                                                      --            --            --            (13,683)      (13,683)
                                                         --------------------------------------------------------------------

Balances at June 30, 1990                                2,080,000         2,080       118,720          (99,432)       21,368

Sale of common stock in October,
   $.25 per share                                          114,000           114        28,386             --          28,600
Issuance of common stock for services
   in November, $.25 per share                              40,000            40         9,960             --          10,000
Net loss                                                      --            --            --            (30,593)      (30,593)
                                                         --------------------------------------------------------------------

Balances at June 30, 1991                                2,234,000         2,234       157,068         (130,025)       29,275

Sale of common stock in September,
   $.625 per share                                         296,000           296       184,704             --         185,000
Sale of common stock in May,
   $1.50 per share                                         141,268           141       211,761             --         211,902
Net loss                                                      --            --            --           (267,186)     (267,186)
                                                         --------------------------------------------------------------------

Balances at June 30, 1992                                2,671,268         2,671       553,531         (397,211)      158,991

Sale of common stock in January,
   $1.50 per share                                          51,000            51        76,449             --          76,600
Net loss                                                      --            --            --           (132,905)     (132,905)
                                                         --------------------------------------------------------------------

Balances at June 30, 1993                                2,722,268         2,722       629,980         (530,116)      102,586

Net loss                                                      --            --            --            (13,503)      (13,503)
                                                         --------------------------------------------------------------------

Balances at June 30, 1994                                2,722,268         2,722       629,980         (543,619)       89,083

Repurchases of common stock in October                     (16,000)          (15)      (13,984)            --         (14,000)
Sale of common stock in December, $1.75
   per share, net of issuance costs
     of $22,115                                            268,332           269       447,196             --         447,465
Excess of fair value over exercise price of
   existing common stock purchase warrants
     extended in December                                     --            --         210,000             --         210,000
Net loss                                                      --            --            --           (453,382)     (453,382)
                                                         --------------------------------------------------------------------

Balances at June 30, 1995                                2,974,600         2,975     1,273,192         (997,001)      279,166

Issuance of common stock for services in October,
   $1.00 per share                                          20,000            20        19,980             --          20,000
Sale of common stock in December - March, $2.00
   per share, net of issuance costs of $34,600             218,000           218       401,182             --         401,400
Excess of fair value over exercise price of
   existing common stock purchase warrants
     extended in March                                        --            --          90,000             --          90,000
Net loss                                                      --            --            --           (400,853)     (400,853)
                                                         --------------------------------------------------------------------


(Continued on next page)

<PAGE>

                                               PROFILE TECHNOLOGIES, INC.
                                            (A Development Stage Enterprise)

                                           Statements of Stockholders' Equity
                                                      (unaudited)
                                                      (continued)

=============================================================================================================================
                                                                                                         Deficit                   
                                                                                                       accumulated     Total    
                                                               Common stock            Additional      during the      Stock-    
                                                         -----------------------        paid-in        development    holders'   
                                                           Shares        Amount         capital           stage        equity
=============================================================================================================================
<S>                                                     <C>          <C>              <C>             <C>             <C>    
Balances at June 30, 1996                                3,212,600         3,213     1,784,354       (1,397,854)      389,713

Fair value of common stock purchase warrants
   granted to consultants                                     --            --         509,154             --         509,154
Excess of fair market value over exercise price
   of existing common stock purchase warrants
     assigned by principal stockholder to others              --            --          90,000             --          50,000
Sale of common stock in February - March, $6.00
   per share, net of issuance costs of $1,128,313        1,050,000         1,050     5,170,637             --       5,171,687
Net loss                                                      --            --            --         (1,035,003)   (1,035,003)
                                                         --------------------------------------------------------------------

Balances at June 30, 1997                                4,262,800         4,263     7,514,145       (2,432,857)    5,085,551

Net loss                                                      --            --            --           (316,762)     (316,762)
=============================================================================================================================

Balances at December 31, 1997                            4,262,600         4,263     7,514,145       (2,749,619)    4,768,789
=============================================================================================================================


                                   See accompanying notes to condensed financial statements


</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                            PROFILE TECHNOLOGIES, INC.
                                         (A DEVELOPMENT STAGE ENTERPRISE)

                                        Condensed Statements of Cash Flows
                                                   (unaudited)

===================================================================================================================
                                                                Period from
                                                                July 1, 1988
                                                            (inception) through              Six months ended
                                                                December 31,                   December 31,
                                                            -------------------          -----------------------
                                                                    1997                 1997               1996
===================================================================================================================

<S>                                                             <C>                  <C>                 <C>   
Cash flows from operating activities:
   Net loss                                                     $(2,749,619)           (316,762)           (706,919)
   Adjustments to reconcile net loss to
     net cash used in operating activities:
       Depreciation and amortization                                134,886              17,544              10,301
       Services received in exchange for
        common stock                                                 10,000                --                  --
       Excess of fair value over exercise  
        price of extended and assigned
        existing common stock purchase warrants                     350,000                --                50,000
       Fair value of common stock purchase
        warrants granted to consultants                             509,154                --               509,154
       Changes in assets and liabilities:
        Contract work-in-progress                                      --                20,000             (30,000)
        Accounts receivable/payable - stockholder                    18,069              15,569             (12,154)
        Prepaid expenses                                            (16,483)             36,315                (281)
        Other assets                                                 (3,530)               (180)               --
        Other accounts payable                                        1,528              (4,391)             (2,005)
        Accrued wages                                                  --               (20,614)             15,750
        Other accrued liabilities                                    77,345             (44,797)             10,974
                                                                ---------------------------------------------------

          Net cash used in operating activities                  (1,668,650)           (297,316)           (155,180)
                                                                ---------------------------------------------------
Cash flows from investing activities:
   Patents                                                         (184,037)            (15,000)               (452)
   Purchase of property and equipment                              (213,653)            (65,471)               (345)
                                                                ---------------------------------------------------

          Net cash used in investing activities                    (397,690)            (80,471)               (797)
                                                                ---------------------------------------------------
Cash flows from financing activities:
   Proceeds from issuance of common stock,
    net of issuance costs                                         6,643,254                --                  --
   Repurchase of common stock                                       (14,000)               --                  --
   Deferred IPO costs                                                  --                  --               (31,635)
   Organizational costs                                              (4,101)               --                  --
                                                                ---------------------------------------------------

          Net cash provided by (used in) financing activities     6,625,153                --               (31,635)
                                                                ---------------------------------------------------

          Increase (decrease) in cash and cash equivalents        4,558,813            (377,787)           (187,612)

Cash and cash equivalents at beginning of period                       --             4,936,600             212,689
                                                                ---------------------------------------------------

Cash and cash equivalents at end of period                        4,558,813           4,558,813              25,077
                                                                ---------------------------------------------------
Supplemental disclosure of noncash financing
   and investing activities -
   Patent costs in exchange for common stock                    $    20,000                --                  --
===================================================================================================================





                            See accompanying notes to condensed financial statements

</TABLE>
<PAGE>


DRAFT 1/26/98 PRELIMINARY & TENTATIVE
FOR DISCUSSION PURPOSES ONLY


                           PROFILE TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)

                    Notes to Condensed Financial Statements

                          ---------------------------



(1)  Basis of Presentation

     The unaudited interim condensed  financial  statements and related notes of
     Profile  Technologies,  Inc.  (Company) have been prepared  pursuant to the
     instructions to Form 10QSB.  Accordingly,  certain information and footnote
     disclosures  normally  included  in the  financial  statements  prepared in
     accordance with generally accepted accounting  principles have been omitted
     pursuant  to  such  instructions.   The  accompanying  condensed  financial
     statements and related notes should be read in conjunction with the audited
     financial  statements and notes thereto  included in the annual report Form
     10KSB for the year ended June 30, 1997

     The  information  furnished  reflects,  in the opinion of  management,  all
     adjustments,  consisting of only normal recurring items, necessary for fair
     presentation  of the  results of the  interim  periods  presented.  Interim
     results are not necessarily indicative of results for a full year.

(2)  Net Loss Per Share

     The Company  adopted the  provisions  of Statement of Financial  Accounting
     Standards No. 128, Earnings Per Share during the quarter ended December 31,
     1997.   This   statement   establishes   standards  for  the   computation,
     presentation  and  disclosure  of earnings per share (EPS),  replacing  the
     presentation  currently  required  Primary EPS with a presentation of Basic
     EPS. It also requires dual presentation of Basic EPS and Diluted EPS on the
     face of the income  statement for entities with complex capital  structures
     and requires  restatement  of all prior EPS figures.  Basic EPS is based on
     the weighted-average number of common shares outstanding during the period.
     Diluted  EPS is based on the  potential  dilution  that would  occur,  upon
     exercise or conversion  of securities  into common stock using the treasury
     stock method.  Restatement of EPS amounts reported for the three months and
     six months ended  December  31, 1997 and 1996  resulted in no change to the
     previously  presented amounts.  Additionally,  for fiscal year 1997, common
     and common  equivalent  shares issued during the twelve months  immediately
     preceding  the date of the  Company's  initial  public  offering  have been
     included in the  calculation of common and common  equivalent  shares as if
     they were outstanding for all periods presented, including loss years where
     the impact of the  incremental  share is  antidilutive,  using the treasury
     stock method and the anticipated initial public offering price.










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