<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 December 31, 1996
                             Comission file number 1-9613
                                                   ------

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




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




   6555 Nancy Ridge Drive, Suite 200, 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 February 13, 1997, there were 8,132,279 shares of the registrant's Common
Stock, $.02 par value outstanding.

<PAGE>

                           XYTRONYX, 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.   Financial Statements:

              Consolidated Balance Sheets -
              December 31, 1996 and March 31, 1996 . . . . . . . . . . . . . .2

              Consolidated Statements of Operations -
              Three Months and Nine Months Ended 
              December 31, 1996 and 1995 and from
              September 23, 1983 (Inception) to
              December 31, 1996. . . . . . . . . . . . . . . . . . . . . . . .3


              Consolidated Statements of Stockholders' Equity -
              Nine Months Ended December 31, 1996 and 1995 . . . . . . . . . .4

              Consolidated Statements of Cash Flows -
              Nine Months Ended December 31, 1996 and 1995
              and from September 23, 1983 (Inception) to
              December 31, 1996. . . . . . . . . . . . . . . . . . . . . . . .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 2.   Changes in Securities. . . . . . . . . . . . . . . . . . . . . 13
    Item 5.   Other Information. . . . . . . . . . . . . . . . . . . . . . . 13
    Item 6.   Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 14

SIGNATURE      . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

<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, 1996
and this Quarterly Report on Form 10-Q.

                                       1
<PAGE>

XYTRONYX, INC. AND SUBSIDIARIES (A Development Stage Enterprise)

CONSOLIDATED BALANCE SHEETS (unaudited)


<TABLE>
<CAPTION>
                                                                 DECEMBER 31, 1996    March 31, 1996
-----------------------------------------------------------------------------------------------------
<S>                                                              <C>                  <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents                                            $2,932,616           $409,651 
Short-term investments                                                        -          1,288,106 
Accounts receivable, net of allowance                                     2,615              2,668 
Inventory                                                                72,195             40,907 
Prepaid expenses                                                        274,886             95,945 
-----------------------------------------------------------------------------------------------------
    Total current assets                                              3,282,312          1,837,277 

Property and equipment, net of accumulated depreciation                 102,582            135,234 
Patent costs, net of accumulated amortization                           165,804            190,159 
Other assets                                                                  -             11,798 
-----------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                         $3,550,698         $2,174,468 
-----------------------------------------------------------------------------------------------------


LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable                                                       $835,987           $214,310 
Accrued expenses                                                        232,319            378,927 
Note payable                                                             74,904                   -
Line of credit                                                          509,700                   -
Current portion of capitalized leases                                     4,598             12,512 
-----------------------------------------------------------------------------------------------------
    Total current liabilities                                         1,657,508            605,749 

Other liabilities                                                        14,267             20,670 



STOCKHOLDERS' EQUITY:
Convertible preferred stock, $25 par value, 300,000 shares 
    authorized; 16,725 issued and outstanding at December 31, 1996      418,125                   -
Common stock, $.02 par value,  30,000,000 shares authorized;
    8,132,279 and 8,051,029 shares issued and outstanding at 
    December 31 and March 31, 1996, respectively                        162,646            161,021 
Capital in excess of par value                                       32,292,365         29,680,590 
Deficit accumulated during the development stage                    (30,994,213)       (28,293,562)
-----------------------------------------------------------------------------------------------------
    Total stockholders' equity                                        1,878,923          1,548,049 
-----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                           $3,550,698         $2,174,468 
-----------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.

                                       2
<PAGE>

XYTRONYX, INC. AND SUBSIDIARIES (A Development Stage Enterprise)

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

<TABLE>
<CAPTION>
                                            Three Months Ended            Nine Months Ended
                                                December 31,                  December 31,        September 23, 1983
                                         -----------------------      ------------------------      (inception) to 
                                           1996            1995          1996           1995       December 31, 1996
---------------------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>           <C>            <C>          <C>
REVENUES

   Product sales                         $  8,294         $  700      $  20,991      $  11,730        $1,870,737
   License fees and royalties                 836              -            836              -           480,836
   Contract research                       17,500              -         39,172         45,000           268,063
   Marketing rights                             -        175,000              -        205,000         1,306,500
   Interest and other                       3,562         26,055         25,123         80,933         1,535,920
---------------------------------------------------------------------------------------------------------------------
Total revenues                             30,192        201,755         86,122        342,663         5,462,056
---------------------------------------------------------------------------------------------------------------------

COSTS AND EXPENSES

   Cost of product sales                   29,642         34,094         50,810         94,508         2,953,545
   Product development                    482,872        458,976      1,772,293      1,160,699        14,171,157
   General and administrative             219,667        269,738        773,717        961,749        15,383,700
   Business development 
     and marketing                          9,677         80,893        139,560        342,198         3,407,243
   Interest and other                      33,622         13,628         50,393         24,763           540,624
---------------------------------------------------------------------------------------------------------------------
Total costs and expenses                  775,480        857,329      2,786,773      2,583,917        36,456,269
---------------------------------------------------------------------------------------------------------------------

Net loss                                ($745,288)     ($655,574)   ($2,700,651)   ($2,241,254)     ($30,994,213)
---------------------------------------------------------------------------------------------------------------------

Net loss per share 
   of common stock                        ($0.09)        ($0.10)        ($0.33)        ($0.40)
----------------------------------------------------------------------------------------------

Weighted average 
   shares outstanding                   8,131,736      6,323,681      8,087,737      5,617,865
----------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.

                                       3
<PAGE>

XYTRONYX, INC. AND SUBSIDIARIES (A Development Stage Enterprise)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (unaudited)

<TABLE>
<CAPTION>
                                                                                                       Deficit
                                             Convertible                                             Accumulated
                                           Preferred  Stock           Common Stock       Capital     During the
                                          ------------------     --------------------   in Excess    Development
                                          Shares   Par Value      Shares    Par Value  of Par Value      Stage        Total
----------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>      <C>           <C>        <C>        <C>           <C>            <C>
Balance at March 31, 1995                                        5,263,029   $105,261  $26,816,207   ($25,037,659)  $1,883,809 
Private placement of common stock
  November 1995                                                  2,788,000     55,760    2,867,777                   2,923,537 
Net loss                                                                                               (2,241,254)  (2,241,254)
----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995                                     8,051,029   $161,021  $29,683,984   ($27,278,913)  $2,566,092 
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------

Balance at March 31, 1996                                        8,051,029   $161,021  $29,680,590   ($28,293,562)  $1,548,049 
Exercise of Warrants                                                81,250      1,625       74,750                      76,375 
Issuance of Warrants                                                                        45,000                      45,000 
Private Placement of Preferred Stock                                                                                   -   
  December 1996                           16,725      418,125                            2,492,025                   2,910,150 
Net Loss                                                                                               (2,700,651)  (2,700,651)
----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996              16,725     $418,125    8,132,279   $162,646  $32,292,365   ($30,994,213)  $1,878,923 
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.

                                       4
<PAGE>

XYTRONYX, INC. AND SUBSIDIARIES (A Development Stage Enterprise)

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

<TABLE>
<CAPTION>
                                                              Nine Months Ended
                                                                 December 31,         September 23, 1983
                                                              -----------------          (inception) to
                                                               1996         1995       December 31, 1996
--------------------------------------------------------------------------------------------------------
<S>                                                        <C>          <C>           <C>
OPERATING ACTIVITIES
Net loss                                                   ($2,700,651) ($2,241,254)    ($30,994,213)
Adjustments to reconcile net loss to net cash 
used by operating activities:
    Depreciation and amortization                               82,794       88,863        1,556,807
    Non-cash expense upon issuance of common stock
         options, common stock and warrants                     45,000            -          520,296
    Net book value of disposal of property and equipment         2,648        5,507          150,900
    Option income from retirement of stock
         or amounts previously advanced by customer                  -            -         (400,000)
    Changes in assets and liabilities:
         Accounts receivable                                        53        5,308           (2,616)
         Inventory                                             (31,288)       6,529          (72,198)
         Prepaid expenses and other assets                    (167,143)    (121,705)        (274,063)
         Accounts payable                                      621,677     (119,179)         835,986
         Accrued expenses                                     (146,608)     405,048           88,296
         Customer advances                                           -      (30,888)         140,863
         Other liabilities                                      (2,976)      (8,921)               -
--------------------------------------------------------------------------------------------------------
    Net cash (used) by operating activities                 (2,296,494)  (2,010,692)     (28,449,942)

INVESTING ACTIVITIES
Purchases of short-term investments                                  -   (1,422,357)      (5,480,432)
Maturities of short-term investments                         1,288,106      992,326        5,480,432
Capital expenditures                                            (4,927)     (12,765)        (826,590)
Patent costs                                                   (23,508)     (45,822)        (904,136)
Other                                                                -            -             (996)
--------------------------------------------------------------------------------------------------------
    Net cash provided (used) by investing activities         1,259,671     (488,618)      (1,731,722)

FINANCING ACTIVITIES
Issuance of notes payable                                      218,966      325,426        1,878,367
Repayment of notes payable                                    (144,062)    (214,948)      (1,584,719)
Issuance of line of credit                                     509,700            -          509,700
Repayment of capital lease obligations                         (11,341)     (28,306)        (186,323)
Long-term customer advances                                          -            -          100,000
Issuance of common and preferred stock                       2,986,525    2,923,537       32,334,755
Issuance of stock warrants                                           -            -           62,500
--------------------------------------------------------------------------------------------------------
    Net cash provided by financing activities                3,559,788    3,005,709       33,114,280
--------------------------------------------------------------------------------------------------------
Net increase in cash
    and cash equivalents                                     2,522,965      506,399        2,932,616
Cash and cash equivalents at beginning of period               409,651      827,752                -
--------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                  $2,932,616   $1,334,151       $2,932,616 
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.

                                       5
<PAGE>

                           XYTRONYX, 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 Xytronyx, 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.

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 accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business.  The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amount and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern. 
The Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
comply with the terms and covenants of its financing agreements and business
contracts, to obtain additional financing or refinancing as may be required, and
ultimately to attain successful operations.  Management anticipates that without
significant revenues its currently available resources will allow planned
operations to continue through December 1997. Unanticipated expenses, however,
could shorten that period.  Accordingly, the Company will require additional
financing from time-to-time until it begins to generate positive cash flow from
operations (See Note 6).  There can be no assurance that the Company will be
successful in obtaining financing, or that it will attain positive cash flow
from operations.

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 December 31, 1996 and March 31, 1996, results of operations for the three
months and nine months ended December 31, 1996 and 1995 and from September 23,
1983 (inception) to December 31, 1996 and cash flows for the nine months ended
December 31, 1996 and 1995 and from September 23, 1983 (inception) to December
31, 1996. The results of operations for the three months and nine months ended
December 31, 1996 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 


                                      6

<PAGE>


statements and footnotes thereto as set forth in the Company's Annual Report 
on Form 10-K for the year ended March 31, 1996.

The Company has been informed that it is out of compliance with certain 
listing requirements of the American Stock Exchange because of its record of 
losses, cash outflows, reduced shareholders' equity and impaired financial 
condition. The company is in discussions with the Exchange regarding the 
Company's condition, however, there can be no assurance that the listing will 
be continued.

2.  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") for cancer.  The agreement gives the Company the right to
acquire BTI at anytime prior to April 30, 1997 by a merger of BTI into a wholly
owned subsidiary of the Company.  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 or securities convertible into
Common Stock if the issuance of such securities (i) is in connection with the
acquisition of a company and the shares of Common Stock or securities
convertible into Common Stock could result in an increase in the number of
outstanding shares of Common Stock of 20% or more, (ii) is in connection with
the acquisition of a company where a director, officer or substantial
shareholder of the Company has a 5% or greater interest in such company and the
issuance of the securities could result in an increase in outstanding Common
Stock of 5% or more.  

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.  

Under the agreement, the Company will assist BTI during the option period in
preparing one or more 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 up to $1,250,000 in expenses
budgeted to be incurred by BTI during the option period.  These expenses
represent the majority of BTI's budgeted expenditures for the period and are
expected to be comprised primarily of product development costs. Under the terms
of the agreement, the Company is also required to advance to BTI funds to repay
$285,000 in indebtedness in the event that the Company completes an equity
financing with net proceeds of $2,500,000 or more, and to advance to BTI funds
to repay an additional $243,000 in indebtedness in the event the Company
completes an equity financing with net proceeds of $5,000,000 or more. BTI and
the debtholders have agree to defer any of the scheduled payments until the
Company completes the final closing of its equity financing. 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 


                                      7

<PAGE>

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 quarter ended December 31, 1996 and for the 
nine month period then ended, the Company advanced $206,000 and $635,000 
respectively, to BTI and such advances are included in product development 
expense.  In the event that the Company terminates the agreement, the Company 
would remain obligated to continue funding such product development expenses 
incurred during the period ending 90 days from such termination, up to the 
$1,250,000 discussed above. 

3.  LICENSE AGREEMENT WITH WOUND HEALING OF OKLAHOMA

On May 8, 1996 the Company entered into an agreement with Wound Healing of
Oklahoma ("WHO"), a privately held corporation, under which the Company acquired
an exclusive world-wide license to a certain technology, Photodynamic
Immunotherapy-TM- ("PDIT-TM-") treatment for cancer.  Under the agreement, the
Company granted WHO a ten-year warrant to purchase 100,000 shares of the
Company's common stock at an exercise price of $2.25 per share and must pay a
minimum royalty of $50,000 per year. The first year is payable in two stages, 1)
$25,000 due upon execution of the agreement and 2) $25,000 due upon submission
of an IND application to the FDA. Based upon the negotiated terms of the
agreement, the warrants were valued at $25,000.  During the nine months ended
December 31, 1996 the Company recorded $50,000 in product development expense
related to the agreement which included a $25,000 royalty payment and $25,000
related to the issuance of the warrants.   

4.  NOTE PAYABLE

The note payable is an insurance premium finance agreement with principal and
interest, at an annual rate of 10.50%, payable in monthly installments of
$25,406, due in full on March 15, 1997. 

5.  LINE OF CREDIT

On September 30, 1996 the Company entered into a line of credit agreement with
two shareholders under which the Company may borrow up to $500,000.  The
agreement calls for interest at the rate of 12% per annum.  Principal and
accrued interest are due and payable not later than February 28, 1997. As of
December 31, 1996, the line of credit balance is $500,000 plus accrued interest
of $9,700.

In connection with the line of credit agreement discussed above, the Company
granted the two shareholders five-year warrants to purchase 150,000 shares of
the Company's common stock at an exercise price of $0.96, which was the initial
conversion price of the Series A Convertible Preferred Stock sold in the Private
Placement discussed in Note 6. The warrants are valued at $20,000, all of which
was recorded as interest expense in the quarter ended December 31, 1996. 
 
6.  PRIVATE PLACEMENT

On December 19, 1996, the Company completed an initial closing on $3,345,000
(net proceeds to the Company of $2,910,150) of 33.45 Premium Preferred Units at
a price per Unit of $100,000, each Unit consisting of 500 shares of Preferred
Stock, par value $25.00 per share, stated value $200.00 per share, and 50,000
Common Stock Purchase Warrants, to accredited individuals and institutional
investors pursuant to Regulation D under the Securities Act of 1933, 

                                      8

<PAGE>

as amended. The placement agent for the Private Placement received an 
aggregate dollar commission of $434,850 for the initial closing.  The 
placement agent is affiliated with certain significant shareholders of the 
Company. Each share of Preferred Stock may be converted at the option of the 
holder at the lowest of 80% of the average closing bid price of the Company's 
Common Stock on the American Stock Exchange for the thirty consecutive 
trading days immediately preceding the date of any closing in the Private 
Placement.  In addition, the conversion price is subject to further 
adjustment on the date which is twelve months after the final closing date if 
the average closing bid price of the Common Stock for the thirty consecutive 
trading days immediately preceding that date is less than 130% of the 
conversion price as adjusted, subject to a limit on the number of shares that 
may be issued pursuant to such reset.  Each Warrant entitles the holder to 
purchase one share of Common Stock at a price of $1.00 per share and may be 
exercised until November 26, 2005.  The maximum offering amount of the 
Private Placement is 100 Units which would represent aggregate proceeds of 
$10,000,000, subject to an additional overallotment option of 25 units.  The 
Company expects the Private Placement to be completed no later than March, 
1997; however, there can no assurance that the Company will be able to 
successfully sell further Units.  The securities sold in the initial closing 
and the securities which are to be offered under the Private Placement have 
not been registered under the Securities Act and may not be offered or sold 
in the United States without registration or an applicable exemption from 
registration requirements.  In accordance with the terms of the Private 
Placement, the Company has agreed to file a registration statement with 
respect to resale of certain of the securities to be offered. Holders of the 
Preferred stock will be entitled to receive dividends as, when and if 
declared by the Board of Directors. The Company does not intend to pay cash 
dividends on the Convertible Preferred Stock or the underlying Common Stock 
for the foreseeable future. Liquidating rights for preferred shareholders are 
$260.00 per share plus accrued, but unpaid dividends.

7.  EQUITY INCENTIVE PLANS

In December, 1996, the Board of Directors approved a new form of Equity
Incentive Plan to provide long-term performance incentives to key employees and
consultants to the Company in the form of stock options, stock appreciation
rights, restricted stock and other awards, including cash-based awards.  In
addition, the Board of Directors approved a Stock Option Plan for Non-Employee
Directors which provides for grants of stock options to non-employee members of
the Company's Board of Directors.  Each plan provides up to 3,000,000 shares of
the Company's common stock to be granted for this purpose. The Board intends
that the plans be submitted to stockholders for approval; however, the Company
may issue awards under the plans prior to stockholder approval. The Board of
Directors awarded 675,000 stock options at market value on the date of the grant
to H. Laurence Shaw, its President and Chief Executive Officer which are
intended to the extent possible to qualify as incentive stock options. Of the
initial grant, 525,000 stock options shall vest quarterly over a period of two
years and 150,000 stock options shall vest quarterly over a two year period
commencing on the first anniversary of  the effective date of his employment
agreement.

                                      9

<PAGE>



                           XYTRONYX, 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 aggregated $30,000 for the quarter ended December 31, 1996, a 85%
decrease from revenues of $202,000 recorded during the same period of the prior
year. Current quarter revenues relate to product sales and contract research for
the use of the Company's Kephra-TM- reversible color change technology in
various applications. Prior year revenues for the quarter included $175,000 of
marketing rights income.  No such revenues were earned in the current quarter. 
Cost of product sales decreased $4,000, or 13%, from the prior year.  This
decrease is consistent with the decrease in product sales.

Total revenues for the nine month period ending December 31, 1996 totaled 
$86,000, a decrease of $257,000, or 75%, from the same period of the prior 
year. Prior year revenues for this nine month period included approximately 
$205,000 in marketing rights income.  No such revenues were earned in the 
current year. Cost of product sales for the nine month period ending December 
31, 1996 decreased $44,000, or 46%, from the prior year, consistent with the 
decrease in product sales.

Product development costs totaled $483,000 for the quarter, an increase of
$24,000 or 5%  over the prior year costs of $459,000.  The majority of the
increase resulted from the initiation of work on two projects in the cancer
therapy area, including:  (i) $206,000 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, and (ii) $104,000 in
expenses related to the acquisition of the Photodynamic Immunotherapy-TM-
("PDIT-TM-") technology for the treatment of cancer, expenses incurred in
association with a related research agreement and expenses incurred related to
in-house product development of the PDIT-TM- technology.  No such costs were
incurred in the prior year. 

For the nine months ended December 31, 1996, product development costs increased
$612,000, or 53%, over the same period of the prior year to $1,772,000. The
initiation of work on the two projects discussed above generated expenses of $
1,123,000 for the nine month period.  No such costs were incurred in the same
period of the prior year.  This increase was offset by a reduction in
expenditures for the nine month period related to the completion of the U.S. FDA
clinical trials for the Periodontal Tissue Monitor ("PTM"). 

Business development costs for the current quarter totaled $10,000, a decrease
of $71,000, or 88%, from the same quarter of the prior year.  The decrease is 
the result of management concentrating its efforts on the initial closing of a
private placement financing which occurred on December 19, 1996 (See Part II,
Item 2 of this 10-Q).  General and administrative expenses for the three month
period ended December 31, 1996 decreased 19%  to $220,000 from the same period
of the prior year. The decrease is largely the  result of  personnel attrition.

                                      10

<PAGE>

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

Business development costs for the nine month period ended December 31, 1996
decreased  $203,000, or 59%, from the same period of the prior year to 140,000.
General and administrative expenses for the nine month period ended December 31,
1996 decreased $188,000, or 20%, from the same period of the prior year to
$774,000.  Both decreases are the result of management concentrating its efforts
in the product development area related to PDT and PDIT discussed above and the
initial closing of the private placement.

Net loss for the quarter ended December 31, 1996 totaled $745,000, a 14%
increase over the prior year's second quarter loss of $656,000.  This increase
is a result of the increase in product development efforts discussed above and
increased interest expense offset by lower business development and general and
administrative expenses. Net loss per share of common stock for the quarter
ended December 31, 1996 was $.09, a 10% decrease from the prior year's third
quarter loss of $.10 per share primarily due to a 1,808,000 increase in the
weighted average number of shares outstanding. 

Net loss for the nine months ended December 31, 1996 totaled $2,701,000, an
increase of $460,000, or 21%, over the same period of the prior year.  This
increase is a result of the increase in product development efforts offset by a
reduction in other expenditures.  Net loss per share of common stock for the
nine months ended December 31, 1996 was $.33, a 17% decrease from the loss of
$.40 per share for the same period of the prior year.  The decrease is primarily
a result of a 2,469,000 increase in the weighted average number of shares
outstanding for the nine month period.

CAPITAL RESOURCES AND LIQUIDITY

Cash, cash equivalents and short-term investments at December 31, 1996 totaled
$2,933,000, an increase of  $1,235,000 from the March 31, 1996 balances. 
Working capital at December 31, 1996 increased by 32% from March 31, 1996 to
$1,625,000.  These increases were primarily due to the initial closing of the
private placement financing  in which the Company raised a net amount of
$2,910,000 through the sale of Premium Preferred Units (See Part II, Item 2 of
this 10-Q). Prepaid expenses increased by $179,000 as a result of the prepayment
of annual insurance premiums and costs associated with the private placement. 
Notes payable and line of credit increased by $585,000 as a result of obtaining
a $500,000 line of credit proceeds used as bridge financing prior to the initial
closing of the private placement and financing insurance premiums. Accounts
payable and accrued expenses increased a net $475,000 for the nine-month period.

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. As described in Note 6 of the Notes to
Consolidated Financial Statements the Company expects the proceeds from the sale
of the Premium Preferred Units will be sufficient to meet its cash needs until
December 31, 1997. Unanticipated expenses or working capital requirements could,
however, shorten that period.

In March 1996 the Company completed a 12-month U.S. clinical trial of PTM at
three universities. The Company has compiled and analyzed the data generated
from the clinical studies.  In September 1996 the Company submitted a Premarket
Approval application ("PMA") to the Food and Drug Administration ("FDA") and is
currently awaiting a response from the FDA.  The completion of the clinical
studies have resulted in the reduction or elimination of certain product
development expenses.


                                      11

<PAGE>

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

In May 1996 the Company entered into an agreement with Hawe-Neos Dental to
distribute the PTM in Europe.  In September 1996, the Company received the
initial purchase order for $75,000 associated with the European launch of the
PTM from Hawe Neos.  The order is expected to be delivered in the fourth quarter
of Fiscal 1997.  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 is in the process
of identifying marketing partners for the PTM for the U.S. and other markets. 
In the event the Company begins selling material quantities of the PTM, the
Company may need additional working capital, and additional personnel and space,
both of which may cause an increase in the net utilization of cash.  However,
there can be no assurance that FDA PMA approval or any other required regulatory
approvals will be forthcoming, that the Company will complete any new marketing
agreements, or that any of its existing or future marketing partners will order
the PTM products in increased 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 expects to fund certain product development 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 the Company expects to fund certain product
development expenses incurred by BTI, which will increase the Company's net
utilization of cash.

The Company has been informed that it is out of compliance with certain 
listing requirements of the American Stock Exchange because of its record of 
losses, cash outflows, reduced shareholders' equity and impaired financial 
condition. The company is in discussions with the Exchange regarding the 
Company's condition, however, there can be no assurance that the listing will 
be continued.

The Company continues to be engaged in efforts to obtain additional financing
and to seek strategic partners to aid in the development and marketing of its
products.  The continued existence of the Company is dependent upon receiving
additional financing from time-to-time until it begins to generate positive cash
flow from operations.  If and as orders for the Company's products are placed in
increasing quantities, the Company expects to seek equity and/or debt financing 
as a function of availability and cost.  No assurance can be given that the
Company will be successful in obtaining additional equity and/or debt financing
or locating new strategic partners, or that it will be able to generate positive
cash flow from operations.

                                      12

<PAGE>


PART II-OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES

On December 19, 1996, the Company completed an initial closing on $3,345,000 
(net proceeds to the Company of $2,910,150) of 33.45 Premium Preferred Units 
at a price per Unit of $100,000, each Unit consisting of 500 shares of 
Preferred Stock, par value $25.00 per share, stated value $200.00 per share, 
and 50,000 Common Stock Purchase Warrants, to accredited individuals and 
institutional investors pursuant to Regulation D under the Securities Act of 
1933, as amended. The placement agent for the Private Placement, whose name 
will be disclosed upon completion of the Private Placement, received an 
aggregate dollar commission of $434,850 for the initial closing.  Each share 
of Preferred Stock may be converted at the option of the holder at the lowest 
of 80% of the average closing bid price of the Company's Common Stock on the 
American Stock Exchange for the thirty consecutive trading days immediately 
preceding the date of any closing in the Private Placement.  In addition, the 
conversion price is subject to further adjustment on the date which is twelve 
months after the final closing date if the average closing bid price of the 
Common Stock for the thirty consecutive trading days immediately preceding 
that date is less than 130% of the conversion price as adjusted, subject to a 
limit on the number of shares that may be issued pursuant to such reset.  
Each Warrant entitles the holder to purchase one share of Common Stock at a 
price of $1.00 per share and may be exercised until November 26, 2005.  The 
maximum offering amount of the Private Placement is 100 Units which would 
represent aggregate proceeds of $10,000,000, subject to an additional 
Overallotment option of 25 units.  The Company expects the Private Placement 
to be completed no later than March, 1997; however, there can no assurance 
that the Company will be able to successfully sell further Units.  The 
securities sold in the initial closing and the securities which are to be 
offered under the Private Placement have not been registered under the 
Securities Act and may not be offered or sold in the United States without 
registration or an applicable exemption from registration requirements.  In 
accordance with the terms of the Private Placement, the Company has agreed to 
file a registration statement with respect to resale of certain of the 
securities to be offered.

ITEM 5.  OTHER INFORMATION

On December 11, 1996, the Board of Directors of the Company approved, among
other matters, the following changes to the Company and its management,
conditioned upon a closing or closings of at least $3,000,000 of gross proceeds
in the Private Placement by December 31, 1996:

    A.   The hiring of Dr. H. Laurence Shaw as Chief Executive Officer and
         President of the Company;

    B.   The appointment of Dr. Jerry A. Weisbach as a Director of the Company,
         a scientific advisor and consultant to the Company; and

    C.   The appointment of Dr. David Golde as Chairman of the Company's newly
         formed Scientific Advisory Board.

On December 19, 1996, following the initial closing of the Company's Private
Placement, the Company accepted resignations from the Board of Directors of each
of H. Laurence Garrett, III, William L. Jorgenson, John M. Kolbas, Morris S.
Weeden and Larry Bymaster.  The current Board of Directors consists of  Jack H.
Halperin, H. Laurence Shaw, M.D., Elliott H. Vernon,


                                      13

<PAGE>

Jerry A. Weisbach, Ph.D. and Michael S. Weiss.  Larry Bymaster remains as an 
employee of the Company.


In December, 1996, the Board of Directors approved a new form of Equity 
Incentive Plan to provide long-term performance incentives to key employees 
and consultants to the Company in the form of stock options, stock 
appreciation rights, restricted stock and other awards, including cash-based 
awards.  In addition, the Board of Directors approved a Stock Option Plan for 
Non-Employee Directors which provides for grants of stock options to members 
of the Company's Board of Directors.  The Board intends that the plans be 
submitted to stockholders for approval; however, the Company may issue awards 
under the plans prior to stockholder approval.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

a.)  EXHIBITS

Exhibit Number     Description of Exhibit
--------------     ----------------------
    4.6            Certificate of Designations of Series A Convertible
                   Preferred Stock of Xytronyx, Inc.

    10.45          Xytronyx, Inc. Equity Incentive Plan.
    10.46          Xytronyx, Inc. Stock Option Plan for Non-Employee Directors.

    10.47          Employment Agreement between Xytronyx, Inc. and H. Laurence
                   Shaw dated December 16, 1996.


b.) REPORTS ON FORM 8-K


Date of  Report      Item Reported                    Financial Statements Filed
---------------      -------------                    --------------------------
December 19,1996     Item 5 - Other Events                      None
                     News Release dated December 19, 
                     1996 announcing that the Company 
                     had an initial closing of a 
                     private placement of equity 
                     securities to accredited 
                     individuals and institutional 
                     investors pursuant to Regulation 
                     D under the Securities Act of 
                     1933, as amended, that the Company 
                     had hired Dr. H. Laurence Shaw to 
                     serve as the Company's new Chief 
                     Executive and President, that Jerry 
                     A. Weisbach has agreed to join the 
                     Company's Board of Officer Directors 
                     and Scientific Advisory Board, and 
                     that David W. Golde, M.D. has agreed 
                     to join the Company as Chairman of the 
                     Scientific Advisory Board filed as 
                     Exhibit 99.1 hereto, is hereby 
                     incorporated into this Report by 
                     reference.

<PAGE>


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.

                                  Xytronyx, Inc.


Date:  February 13, 1997           /s/  H. Laurence Shaw
                                   -----------------------------
                                   H. Laurence Shaw
                                   President and Chief Executive Officer
                                   (Principal Accounting Officer and Officer
                                   duly authorized to sign this report on 
                                   behalf of the registrant)