<PAGE>







                                    FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington D.C.  20549


                   Quarterly Report Under Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                       for the Quarter Ended June 30, 1997
                          Commission file number 1-9613
                                                 ------

          PACIFIC PHARMACEUTICALS, INC. (FORMERLY NAMED XYTRONYX, INC.)
          -------------------------------------------------------------
             (Exact name of registrant as specified in its charter)




               Delaware                                  36-3258753
-------------------------------------------------------------------------------
       (State of incorporation)            (I.R.S. Employer Identification No.)



          6730 Mesa Ridge Road, Suite A, San Diego, CA          92121
          -------------------------------------------------------------
          (Address of principal executive offices)          (Zip  Code)



                                    (619) 550-3900
              ----------------------------------------------------
              (Registrant's Telephone number, including area code)



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 
                                         ---     ---

As of August 14, 1997, there were 8,392,279 shares of the registrant's Common
Stock, $.02 par value outstanding.

<PAGE>

                 PACIFIC PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)
                         INCORPORATED SEPTEMBER 23, 1983



                                      INDEX

Cautionary Statement Under the Private Securities 
Litigation Reform Act of 1995. . . . . . . . . . . . . . . . . . . . . . . . 1

PART I - FINANCIAL INFORMATION

   Item 1.     Consolidated Financial Statements:
   
               Consolidated Balance Sheets -
               June 30, 1997 and March 31, 1997 . . . .  . . . . . . . . . . 2

               Consolidated Statements of Operations -
               Three Months Ended 
               June 30, 1997 and 1996 and from
               September 23, 1983 (Inception) to
               June 30, 1997. . . . . . . . . . . . . . . . . . . . . . . . 3

   
               Consolidated Statements of Stockholders' Equity -
               Three Months Ended June 30, 1997 and 1996. . . . . . . . . . 4
   
               Consolidated Statements of Cash Flows -
               Three Months Ended June 30, 1997 and 1996
               and from September 23, 1983 (Inception) to
               June 30, 1997 . . . . . . . . . .  . . . . . . . . . . . . . 5
   
               Notes to Consolidated Financial Statements . . . . . . . . . 6


   Item 2.     Management's Discussion and Analysis of
               Financial Condition and Results of Operations. . . . . . . . 10


PART II - OTHER INFORMATION

   Item 6.     Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 12

SIGNATURE       . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

<PAGE>

               CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES 
                          LITIGATION REFORM ACT OF 1995


Statements in this Quarterly Report on Form 10-Q under the caption 
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations" and in the "Notes to Consolidated Financial Statements", as well 
as oral statements that may be made by the Company or by officers, directors 
or employees of the Company acting on the Company's behalf, that are not 
historical fact constitute "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.  These forward-looking 
statements involve risks and uncertainties, including, but not limited to, 
the risk that the Company may not be able to obtain additional financing, if 
necessary; the risk that the Company may not be able to maintain its listing 
on the American Stock Exchange; and the risk that the Company may not be able 
to continue the necessary development of its operations on a profitable 
basis.  In addition, the Company's business, operations and financial 
condition are subject to reports and statements filed from time to time with 
the Securities and Exchange Commission, including the Company's Annual Report 
on Form 10-K for the fiscal year ended March 31, 1997 and this Quarterly 
Report on Form 10-Q.


                                       1
<PAGE>

PACIFIC PHARMACEUTICALS, INC. AND SUBSIDIARIES (A Development Stage Enterprise)

CONSOLIDATED BALANCE SHEETS (unaudited)


<TABLE>
                                                          JUNE 30, 1997     March 31, 1997
                                                          -------------     --------------
<S>                                                       <C>               <C> 
ASSETS
CURRENT ASSETS:
Cash and cash equivalents                                  $    475,471      $  1,784,599
Short-term investments                                        4,986,064         4,981,435
Accounts receivable, net                                         72,308            99,066
Receivable from officer                                         300,000                - 
Inventory                                                        42,403            41,677
Prepaid expenses                                                221,561            87,311
                                                           ------------      ------------
     Total current assets                                     6,097,807         6,994,088

Property and equipment, net                                      68,409            82,563
Patent costs, net                                               108,985           157,597
                                                           ------------      ------------
TOTAL ASSETS                                               $  6,275,201      $  7,234,248
                                                           ------------      ------------
                                                           ------------      ------------


LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable                                           $    522,671      $    723,523
Accrued expenses                                                218,339           161,574
Current portion of capitalized leases                             4,743             4,670
                                                           ------------      ------------
     Total current liabilities                                  745,753           889,767
                                                           ------------      ------------

Capital leases, net of current portion                           11,813            13,072
                                                           ------------      ------------


STOCKHOLDERS' EQUITY:
Convertible preferred stock, $25 par value, 2,000,000
  shares authorized; 50,001.5 issued and outstanding
  at June 30,1997 and March 31, 1997 (liquidation
  preference $13,000,390)                                     1,250,038         1,250,038
Common stock, $.02 par value, 100,000,000 shares 
  authorized; 8,192,279 and 8,151,029 shares 
  issued and outstanding at June 30, 1997 and 
  March 31, 1997                                                163,846           163,021
Capital in excess of par value                               39,691,751        38,274,539
Deficit accumulated during the development stage            (35,588,000)      (33,356,189)
                                                           ------------      ------------
     Total stockholders' equity                               5,517,635         6,331,409
                                                           ------------      ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                 $  6,275,201      $  7,234,248
                                                           ------------      ------------
                                                           ------------      ------------

</TABLE>

See Notes to Consolidated Financial Statements.

                                       2
<PAGE>

PACIFIC PHARMACEUTICALS, INC. AND SUBSIDIARIES (A Development Stage Enterprise)

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

<TABLE>

                                   Three Months Ended 
                                        June 30,           September 23, 1983
                               -------------------------     (inception) to
                                   1997         1996          June 30, 1997
                               -----------   -----------   ------------------
<S>                            <C>           <C>           <C>
REVENUES
   Product sales               $       700   $     5,025     $  1,950,931
   License fees and royalties           95             -          481,302
   Contract research                     -         3,972          268,063
   Marketing rights                      -             -        1,311,500
   Interest and other              100,488        15,835        1,740,601
                               -----------   -----------     ------------
Total revenues                     101,283        24,832        5,752,397
                               -----------   -----------     ------------

COSTS AND EXPENSES

   Cost of product sales            14,002         9,770        3,011,937
   Product development             360,899       721,487       15,325,427
   General and administrative      534,775       292,489       16,300,273
   Business development
     and marketing                  73,858        58,092        3,632,144
   Interest and other               53,198         2,389          608,993
                               -----------   -----------     ------------
Total costs and expenses         1,036,732     1,084,227       38,878,774
                               -----------   -----------     ------------

Net loss before convertible
   preferred stock dividends      (935,449)   (1,059,395)     (33,126,377)
                               -----------   -----------     ------------

Convertible preferred stock
   dividends                     1,296,362             -        2,461,623

Net loss applicable to 
   common shareholders         $(2,231,811)  $(1,059,395)    $(35,588,000)
                               -----------   -----------     ------------

Net loss per share
   of common stock                  ($0.27)       ($0.13)
                               -----------   -----------

Weighted average common
   stock outstanding             8,158,227     8,083,378
                               -----------   -----------

</TABLE>

See Notes to Consolidated Financial Statements.

                                       3
<PAGE>

PACIFIC PHARMACEUTICALS, INC. AND SUBSIDIARIES (A Development Stage Enterprise)
          
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (unaudited)

<TABLE>

                                                                                                            Deficit
                                                                                                          Accumulated
                                         Convertible Preferred Stock      Common Stock        Capital      During the
                                         ---------------------------  -------------------  in Excess of   Development
                                                Shares    Par Value     Shares  Par Value    Par Value       Stage         Total
                                               --------   ----------  --------- ---------  ------------  -------------  -----------
<S>                                            <C>        <C>         <C>        <C>        <C>           <C>           <C>
Balance at March 31, 1996                                             8,051,029  $161,021   $29,680,590   $(28,293,562) $ 1,548,049
Exercise of warrants                                                     37,500       750        34,500                      35,250
Net loss                                                                                                    (1,059,395)  (1,059,395)
                                               --------   ----------  ---------  --------   -----------   ------------  -----------
Balance at June 30,1996                                               8,088,529  $161,771   $29,715,090   $(29,352,957)    $523,904
                                               --------   ----------  ---------  --------   -----------   ------------  -----------
                                               --------   ----------  ---------  --------   -----------   ------------  -----------

BALANCE AT MARCH 31, 1997                      50,001.5   $1,250,038  8,151,029  $163,021   $38,274,539   $(33,356,189) $ 6,331,409
EXERCISE OF WARRANTS                                                     41,250       825        37,950                      38,775
PREFERRED STOCK UNIT PURCHASE OPTION
 COMPENSATION FOR FINANCIAL ADVISORY SERVICES                                                    82,900                      82,900
CONVERTIBLE PREFERRED STOCK DIVIDENDS                                                         1,296,362     (1,296,362)         -
NET LOSS                                                                                                     (935,449)    (935,449)
                                               --------   ----------  ---------  --------   -----------   ------------  -----------
BALANCE AT JUNE 30, 1997                       50,001.5   $1,250,038  8,192,279  $163,846   $39,691,751   $(35,588,000)  $5,517,635 
                                               --------   ----------  ---------  --------   -----------   ------------  -----------
                                               --------   ----------  ---------  --------   -----------   ------------  -----------

</TABLE>

See Notes to Consolidated Financial Statements.

                                       4
<PAGE>


PACIFIC PHARMACEUTICALS, INC. AND SUBSIDIARIES (A Development Stage Enterprise)

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


<TABLE>
<CAPTION>
                                                            Three Months Ended    
                                                                 June 30,          September 23, 1983
                                                            ------------------       (inception) to
                                                            1997          1996        June 30, 1997
                                                            ----          ----        -------------
<S>                                                      <C>         <C>              <C>
OPERATING ACTIVITIES                                          
Net loss                                                 $(935,449)  $(1,059,395)     $(33,126,377)
Adjustments to reconcile net loss to net cash      
used by operating activities:     
   Depreciation and amortization                            24,393        30,547         1,608,137
   Non-cash expense upon issuance of common stock   
      options, common stock and warrants                    82,900             -           603,196
   Net book value of disposal of long term assets           58,534             -           223,850
   Option income from retirement of stock                                          
      or amounts previously advanced by customer                 -             -          (400,000)
   Changes in assets and liabilities:
      Accounts receivable                                 (273,242)       (6,426)         (372,309)
      Inventory                                               (726)        4,426           (42,406)
      Prepaid expenses and other assets                   (134,252)     (181,198)         (232,538)
      Accounts payable                                    (200,852)      163,223           522,671
      Accrued expenses                                      56,765       (75,670)           74,316
      Customer advances                                          -             -           140,863
      Other liabilities                                         73        (2,976)           (4,793)
                                                       -----------   -----------      ------------
   Net cash (used) by operating activities              (1,321,856)   (1,127,469)      (31,005,390)

INVESTING ACTIVITIES
Purchases of short-term investments                         (4,629)     (256,116)      (10,466,496)
Maturities of short-term investments                             -       992,825         5,480,432
Capital expenditures                                        (2,545)       (3,353)         (833,972)
Patent costs                                               (17,614)       (4,754)         (930,041)
Other                                                            -            -              7,829
                                                       -----------   -----------      ------------
   Net cash provided (used) by investing activities        (24,788)      728,602        (6,742,248)

FINANCING ACTIVITIES
Issuance of notes payable                                        -       218,966         2,183,868
Repayment of notes payable                                       -             -        (1,965,124)
Repayment of capital lease obligations                      (1,259)       (9,192)         (180,866)
Long-term customer advances                                      -             -           100,000
Issuance of common and preferred stock                      38,775        35,250        38,022,731
Issuance of stock warrants                                       -             -            62,500
                                                       -----------   -----------      ------------
   Net cash provided by financing activities                37,516       245,024        38,223,109
                                                       -----------   -----------      ------------
Net increase (decrease) in cash
   and cash equivalents                                 (1,309,128)     (153,843)          475,471
Cash and cash equivalents at beginning of period         1,784,599       409,651                 -
                                                       -----------   -----------      ------------
Cash and cash equivalents at end of period             $   475,471   $   255,808      $    475,471
                                                       -----------   -----------      ------------

</TABLE>

See Notes to Consolidated Financial Statements.


                                       5
<PAGE>
                 PACIFIC PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A Development Stage Enterprise)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
             ------------------------------------------------------

1.  PRINCIPLES OF INTERIM PERIOD REPORTING

The consolidated financial statements include the accounts of Pacific 
Pharmaceuticals, Inc. and its wholly owned subsidiaries, Perio Test, Inc. and 
XYX Acquisition Corp. (collectively the "Company"). All significant 
intercompany balances and transactions have been eliminated. On August 7, 
1997, the Company's stockholders approved a name change to Pacific 
Pharmaceuticals, Inc. The Company was formerly known as Xytronyx, Inc.

The Company has not earned significant revenues from planned principal 
operations.  Accordingly, the Company's activities have been accounted for as 
those of a "Development Stage Enterprise" as set forth in Financial 
Accounting Standards Board Statement No. 7 ("FAS 7"). Among the disclosures 
required by FAS 7 are that the Company's financial statements be identified 
as those of a development stage enterprise, and that certain consolidated 
financial statements disclose activity since the date of the Company's 
inception.

The preparation of financial statements in conformity with generally accepted 
accounting principles requires management to make estimates and assumptions 
that affect the reported amount of assets and liabilities and disclosure of 
contingent assets and liabilities at the date of the financial statements and 
the reported amounts of revenues and expenses during the period.  Actual 
results may differ from those estimates.

In the opinion of the Company, the unaudited consolidated financial 
statements contain all of the adjustments, consisting only of normal 
recurring adjustments and accruals, necessary to present fairly the financial 
position of the Company as of June 30, 1997 and March 31, 1997, results of 
operations for the three months ended June 30, 1997 and 1996 and from 
September 23, 1983 (inception) to June 30, 1997 and cash flows for the three 
months ended June 30, 1997 and 1996 and from September 23, 1983 (inception) 
to June 30, 1997. The results of operations for the three months ended June 
30, 1997 are not necessarily indicative of the results to be expected in 
subsequent periods or for the year as a whole.  For further information, 
refer to the consolidated financial statements and footnotes thereto as set 
forth in the Company's Annual Report on Form 10-K for the year ended March 
31, 1997.

Loss per share of common stock is computed by dividing the net loss 
applicable to common stockholders by the weighted average number of shares of 
common stock outstanding during the period. Common stock equivalents have not 
been included as they are antidilutive.


                                       6
<PAGE>

In February 1997, the Financial Accounting Standards Board issued Statement 
of Financial Accounting Standards ("SFAS") No. 128, EARNINGS PER SHARE (EPS). 
This statement requires the presentation of earnings per share to reflect 
both "Basic EPS" as well as "Dilutive EPS" on the face of the statement of 
operations. In general, Basic EPS excludes dilution created by stock 
equivalents and is a function of weighted average number of common shares 
outstanding for the periods. Diluted EPS does reflect the potential dilution 
created by stock equivalents as if such equivalents are converted into common 
stock and is calculated in substantially the same manner as fully Diluted EPS 
illustrated in Accounting Principals Board Opinion No. 15 "EARNINGS PER 
SHARE".

The Company will be required to adopt the new method of reporting EPS 
starting with the quarter ended December 31, 1997. Based on the Company's 
historical results and capital structure, the anticipated results of 
implementing SFAS No. 128 would reflect net loss per share in materially the 
same manner as currently reported. 

2.  PRODUCT APPROVAL AND DISTRIBUTION AGREEMENT

On June 23, 1997, the Company received approval from the United States Food 
and Drug Administration ("FDA") to begin commercial sales and distribution in 
the United States for its Periodontal Tissue Monitor ("PTM") product. The 
Company also signed a letter of intent with Steri-Oss, a leading dental 
implant company, for the exclusive five-year distribution of PTM in North 
America and other countries, excluding Europe and Japan.

3.  OPTION TO ACQUIRE BINARY THERAPEUTICS, INC.

On June 4, 1996 the Company entered into an agreement with Binary 
Therapeutics, Inc. ("BTI") under which the Company was granted an option to 
acquire BTI, a development stage company with certain technologies in the 
area of Photodynamic Therapy ("PDT") treatment for cancer.  The agreement, as 
amended,  gives the Company the right to acquire BTI by a merger of BTI into 
a wholly-owned subsidiary of the Company. In February 1997, the Company and 
BTI agreed to extend the period during which the Company may exercise its 
option to acquire BTI from April 30, 1997 until such time as BTI has 
completed human clinical trials of Boronated Porphyrin Compound ("BOPP") at 
an agreed upon dose level (the "Option Period"). The Option Period was 
extended at the Company's request to enable BTI to complete pre-clinical 
studies, to commence clinical trials in humans and to demonstrate that a 
given dose level of BOPP in humans would not cause certain adverse events. 
Accordingly, the Company has deferred its election to exercise the option.
 
The agreement calls for the Company to issue common stock to the BTI 
stockholders with an aggregate acquisition value of $6,000,000. The number of 
shares of the Company's common stock to be issued will be determined based 
upon the market value of the Company's common stock prior to the date of 
exercise, although the value of the common stock cannot be less than $2.00 or 
more than $6.00 per share. The agreement has been approved by a majority of 
the stockholders of BTI. The Board of Directors voted to approve the merger, 
however the merger is also subject to shareholder approval for  the issuance 
of additional shares of common stock. One of the Company directors is also a 
director of BTI.


                                       7
<PAGE>

Under the agreement, the Company will assist BTI during the option period in
preparing the PDT products for advancement into human clinical trials. In order
to exercise its rights to consummate the merger, the Company will have to
satisfy certain conditions, including funding expenses incurred by BTI during
the option period.  These expenses represent the majority of BTI's expenditures
for the option period and are comprised primarily of product development costs.
The Company is also required to advance to BTI funds to repay $628,000 in
indebtedness, including accrued interest as part of the acquisition price of
BTI. Certain holders of such indebtedness are shareholders of the Company.  In
exchange for such funding BTI will issue convertible notes to the Company which
may be converted into BTI equity at the Company's option.  The Company has
elected to record all advances to BTI as product development expense in the
period incurred due to uncertainties regarding the ultimate value to be realized
from the convertible notes. During the quarters ended June 30, 1997 and 1996,
the Company advanced $208,000 and $201,000, respectively to BTI and such
advances are included in product development expense. During the Option Period,
the Company advanced $1,490,000 to BTI. 
 
4. NON-CASH CONVERTIBLE PREFERRED STOCK DIVIDEND

In fiscal year 1997, the Company did a private placement of Premium Preferred 
Units ("Units"), each Unit consisting of 500 shares of Convertible Preferred 
Stock ("Preferred Stock"), par value $25.00 per share, and 50,000 Common 
Stock Purchase Warrants ("Warrants"). Subscribers to the private placement  
purchased the Units at a discount from the closing prices of the Company's 
common stock on December 19, 1996 and March 7, 1997. The resulting discount 
of $4,754,000 is considered a non-cash dividend ("Dividend") and is 
recognized as a return to the Preferred Stockholders from the date of 
issuance of the Preferred Stock to the date in which the Preferred Stock is 
eligible for conversion into Common Stock. During the year ended March 31, 
1997 and the quarter ended June 30, 1997, the Company recognized a non-cash 
Dividend to Preferred Stockholders of $1,165,000 and $1,296,000, 
respectively. All of the subscribers to the Private Placement entered into a 
Lock-up Agreement ("Lock-up") with the Company. In the Lock-up, each 
subscriber agreed not to sell or exercise any of the securities contained in 
the Units until the underlying common stock is registered with the Securities 
and Exchange Commission. When the registration statement becomes effective, 
25% of the securities become unlocked and 25% become unlocked in each 90 day 
interval following the effective date of the registration statement required 
to register the underlying common stock with the Securities and Exchange 
Commission. 

The Preferred Stock is convertible into Common Stock upon issuance, except 
that most of the subscribers to the Private Placement signed a letter 
amending the initial Subscription Agreement, in which they agreed not to 
convert any of the Preferred Stock until the underlying Common Stock is 
registered. The amendment provides that they may convert the Preferred Stock 
into Common Stock in accordance with the Lock-up mentioned in the prior 
paragraph. For the three months ended June 30, 1997, the estimated effective 
date of the registration statement was revised from July 1, 1997 to September 
1, 1997. This change in estimate resulted in the reduction of $482,000 of 
convertible preferred stock dividends, and $.06 of net loss per common share 
for the quarter ended June 30, 1997. 


                                       8
<PAGE>

5.   FINANCIAL ADVISORY SERVICES

Under the terms of the Placement Agency agreement the Company signed with 
Paramount Capital Inc.("Paramount"), Paramount will provide financial 
advisory services to the Company for an 18 month period beginning March 8, 
1997. The Company will pay Paramount $2,500 per month and has agreed to sell 
to Paramount 2.5 Units at a price equal to 110% of the unit price paid by 
investors in the 1997 Private Placement. The convertible Preferred Stock 
contained in the Units converts into 260,417 shares of  the Company's common 
stock ("Advisory Stock"). There are also warrants ("Advisory Warrants") to 
purchase 125,000 shares of the Company's common stock at $1.00 per share 
attached to the Units, which are exercisable until March 7, 2007. The market 
price of the Company's common stock on March 7, 1997 was $1.50 per share. The 
Company valued the Advisory Stock at $335,000 and the Advisory Warrants at 
$162,000 using a generally accepted valuation program in accordance with SFAS 
123. The Company recorded $83,000 in general and administrative expenses as 
amortization of such value for the three months ended June 30, 1997 related 
to this agreement.

6.   RELATED PARTY TRANSACTION

Under the terms of the employment agreement with the Company's Chairman and 
President, Dr. H. Laurence Shaw, the Company is required to pay all of Dr. 
Shaw's relocation expenses. In that regard, the Board of Directors approved 
an interest free bridge loan of $300,000 to Dr. Shaw for the purpose of 
acquiring a new residence in California prior to the sale of his New Jersey 
residence. The loan, which was made on May 13, 1997, will be paid back upon 
the  earlier of (i) the sale of Dr. Shaw's New Jersey residence or (ii) 
December 17, 2001. 

As of August 14, 1997, the New Jersey residence has been sold and is in 
escrow pending the close of the transaction. Accordingly, the Company has 
classified the loan as a current asset and has not recorded any imputed 
interest due to immateriality.

7.  SUBSEQUENT EVENTS

On August 7, 1997, the Company's stockholders approved an increase in the 
authorized number of common stock from 30,000,000 to 100,000,000 shares and 
preferred stock from 300,000 to 2,000,000 shares.


                                       9
<PAGE>

                 PACIFIC PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)
                         INCORPORATED SEPTEMBER 23, 1983

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


RESULTS OF OPERATIONS

Total revenues were $101,000 for the quarter ended June 30, 1997, a $76,000 
increase from revenues of $25,000 recorded during the same period of the 
prior year. Current year revenue increased over the prior year due to 
increased interest income of $66,000 and gain on sale of fixed assets during 
the quarter of $18,000.

Product development costs totaled $361,000 for the quarter, a decrease of 
$360,000 or 50% over the prior year first quarter costs of $721,000.  The 
majority of the decrease relates to the following areas:  (i) decrease of 
$70,000 in funding of product development expenses in accordance with the 
Agreement and Plan of Merger with Binary Therapeutics, Inc. ("BTI"), the 
holder of certain technologies in the area of Photodynamic Therapy ("PDT") 
for the treatment of cancer; (ii) decrease of $77,000 in expenses related to 
Photodynamic Immunotherapy-TM- ("PDIT-TM-") technology for the treatment of 
cancer; (iii) decrease of $110,000 in expenses related PTM product 
development, as the PTM product was approved by the FDA during the current 
quarter and (iv) a $90,000 decrease in product development expenses related 
to the Company's Kephra product line. The Company is not actively seeking 
licensing opportunities or making product development expenditures for these 
products. 

Business development costs for the current quarter totaled $74,000, an 
increase of $16,000, or 27%, from the same quarter of the prior year. 
Expenses increased as the Company spent more time and resources in developing 
corporate partnerships for its various products. 

General and administrative expenses for the three month period ended June 30, 
1997 increased  83% to $535,000 from the same period of the prior year. The 
Company incurred significant legal and accounting fees related to the 
registration of the securities sold in the recent private placement and began 
the recognition of an 18 month financial advisory agreement in which the 
Company has granted a preferred stock purchase option in exchange for such 
services (see Note 5).  There were no such costs incurred during the same 
period of the prior year.

Interest and other expenses include a $50,000 charge relating to the 
remaining unamortized portion of Kephra patent costs.

Net loss before convertible preferred stock dividends for the quarter ended 
June 30, 1997 totaled $935,000 or a 12% decrease over the prior year's first 
quarter loss of $1,059,000.  This decrease is a result of less product 
development expenses associated with the Company's products under 
development. Net loss per share of common stock for the quarter ended June 
30, 1997 was $.27 compared to $.13 in the same quarter in the previous year. 
During the quarter ended June 30, 1997, the Company recognized a non-cash 
convertible preferred stock dividend of $1,296,000 (See Note 4). No such 
recognition occurred during the same quarter of the prior year.


                                      10
<PAGE>

CAPITAL RESOURCES AND LIQUIDITY

Cash, cash equivalents and short-term investments at June 30, 1997 totaled 
$5,462,000, a $1,304,000 decrease from the March 31, 1997 balance. Working 
capital at June 30, 1997 decreased by $752,000 from March 31, 1997 to 
$5,352,000. These decreases were primarily due to the net loss before 
convertible preferred stock dividends for the three month period ending June 
30, 1997, pay down of certain current liabilities and a relocation bridge 
loan made to an officer of the Company for $300,000 (See Note 6). Prepaid 
expenses increased by $134,000 as a result of the prepayment of annual 
insurance premiums. 

Since inception, the Company has experienced negative cash flow from 
operations, and the Company considers it prudent to anticipate that negative 
cash flow from operations will continue for the foreseeable future, and that 
outside sources of funding will continue to be required.  Without significant 
future revenues, the Company's financial resources are anticipated to be 
adequate through June 1998, based on a continuation of the pattern of 
expenses which have prevailed during fiscal years 1997 and 1998. 
Unanticipated expenses or working capital requirements could, however, 
shorten that period.

In May 1996 the Company entered into an agreement with Hawe-Neos Dental to 
distribute the PTM in Europe.  In January 1995 the Company entered into an 
agreement with Shofu Dental Company for distribution of the PTM in Japan.  
Shofu is currently conducting Japanese clinical trials of the PTM. The 
Company signed a letter of intent for an exclusive five year renewable 
distribution agreement with Steri-Oss, Inc. to distribute the Company's PTM 
product in the United States and other countries not covered by an existing 
distribution agreement (See Note 2). In the event the Company begins selling 
material quantities of the PTM, the Company may need additional working 
capital, and additional personnel and space, all of which may cause an 
increase in the net utilization of cash.  However, there can be no assurance 
that any of its existing or future marketing partners will order the PTM 
products in significant quantities.

In May 1996 the Company entered into an agreement with Wound Healing of 
Oklahoma ("WHO"), a privately held corporation, under which it acquired an 
exclusive license to certain proprietary technology in the PDIT treatment of 
cancer.  The Company incurred $367,000 in  product development expenses since 
the acquisition of the license and expects to continue funding such efforts 
associated with the commercialization of the licensed technology, including 
the commencement of human clinical trials, which will increase the Company's 
net utilization of cash.  However, there can be no assurance that FDA and 
other regulatory approval required to commence such trials will be 
forthcoming.

In June 1996 the Company entered into an agreement which granted the Company 
the option to acquire Binary Therapeutics, Inc. ("BTI").  BTI is a privately 
held, development stage enterprise holding certain technologies for the PDT 
treatment of cancer.  Under the agreement as amended,  the Company has spent 
$1,490,000 and is currently funding substantially all expenses of BTI, which 
consist primarily of product development expenses, and expects to continue 
funding such expenses until the Company determines if it will elect to 
exercise its option to acquire BTI. There can be no assurance that the 
Company will exercise its option to acquire BTI (See Note 3).


                                       11
<PAGE>

PART II-OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

DATE OF  REPORT             ITEM REPORTED            FINANCIAL STATEMENTS FILED
---------------             -------------            --------------------------
June 10, 1997                                                    No

                    News release dated June 6, 1997, 
                    announcing that the Company received
                    an approvable letter from the U.S. 
                    Food and Drug Administration (FDA)
                    for a premarket application (PMA) for 
                    the Periodontal Tissue Monitor (PTM).  
                    The approval is contingent upon certain 
                    manufacturing requirements and labeling 
                    issues.  

                    News release dated May 29, 1997, 
                    announcing that the Company signed a 
                    letter of intent with Steri-Oss, a leading 
                    dental implant company, for the 
                    distribution of the Company's Periodontal 
                    Tissue Monitor (PTM). Under the proposed 
                    five year agreement, Steri-Oss would be 
                    the exclusive distributor of PTM in North 
                    America and other countries, excluding 
                    Europe and Japan 


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.

                                            Pacific Pharmaceuticals, Inc.



Date:  August 14, 1997                      /s/ JAMES HERTZOG      
                                            ----------------------------------
                                            James Hertzog
                                            Controller     
                                            (Principal Accounting Officer and 
                                            duly authorized to sign this report
                                            on behalf of the registrant)


                                       12