<PAGE>

                                    UNITED STATES
                          SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C. 20549
                                           
                                           
                                           
                                      FORM 10-Q
                                           
                                           
                                           
               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                           SECURITIES EXCHANGE ACT OF 1934.
                                           
                                           
                  FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
                                           
                            Commission File Number 0-18044
                                           
                                 PROCYTE CORPORATION
              (Exact name of the registrant as specified in its charter)
                                           
                                           
                                           
                                           
                                           
WASHINGTON                                                           91-1307460
(State of incorporation)                   (I.R.S. Employer Identification No.)

BUILDING A, 8511 154TH AVENUE N.E., REDMOND, WA                           98052
(Address of principal executive offices)                             (Zip code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:              (425) 869-1239

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:                NONE


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 September 30, 1997, there were issued and outstanding 13,364,958 shares of
common stock, par value $.01 per share.

                                       1


<PAGE>

                             PROCYTE CORPORATION
  
                                   INDEX

<TABLE>
<CAPTION>

<S>                                                                                <C>
PART I  -  FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 3
    Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 3
       BALANCE SHEET-AS OF SEPT. 30, 1997 AND DEC. 31, 1996 (UNAUDITED). . . . . . . 3
       STATEMENTS OF OPERATIONS-THREE AND NINE MONTHS ENDED SEPT. 30, 1997 & 1996
         (UNAUDITED) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
       STATEMENTS OF CASH FLOWS -NINE MONTHS ENDED SEPT. 30, 1997 AND 1996
         (UNAUDITED) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
       STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) . . . . . . . . . . . . . . . . 6
       NOTES TO FINANCIAL STATEMENTS (UNAUDITED) . . . . . . . . . . . . . . . . . . 7
    Item 2 - Management's Discussion and Analysis of Financial Condition and
       Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
    Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . .16
    Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . .16
    Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .16
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
</TABLE>

                                       


                                       2

<PAGE>

                        PART I  -  FINANCIAL INFORMATION
                                           
ITEM 1. FINANCIAL STATEMENTS

        BALANCE SHEET-AS OF SEPT. 30, 1997 AND DEC. 31, 1996 (UNAUDITED)

<TABLE>
<CAPTION>
                                                      Sept. 30,1997       Dec. 31, 1996
                                                     -----------------------------------
<S>                                                  <C>                  <C>
ASSETS
CURRENT ASSETS
  Cash and cash equivalents........................     $4,298,805          $1,804,875 
  Securities available for sale....................      9,867,714          19,041,961 
  Inventories......................................      1,787,114             596,740 
  Other............................................        526,273             318,580 
                                                     -----------------------------------
                               TOTAL CURRENT ASSETS     16,479,906          21,762,156 

PROPERTY AND EQUIPMENT, AT COST
  Equipment........................................      3,896,425           3,604,764 
  Leasehold improvements...........................      5,015,348           5,097,833 
  Improvements in progress.........................        465,439           1,463,940 
  Less accumulated depreciation and amortization...      3,461,976          (4,306,094)
                                                     -----------------------------------
                        PROPERTY AND EQUIPMENT, NET      5,915,235           5,860,443 

PATENTS, AT COST                                           290,930             290,930 
  Less accumulated amortization....................       (121,269)           (109,270)
                                                     -----------------------------------
                                       PATENTS, NET        169,661             181,660 

OTHER                                                      384,399             159,399 
                                                     -----------------------------------
                                       TOTAL ASSETS    $22,949,201         $27,963,658 
                                                     -----------------------------------
                                                     -----------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY 
CURRENT LIABILITIES
  Accounts payable.................................       $170,299             $334,843 
  Accrued liabilities..............................      1,014,668              779,890 
                                                     -----------------------------------
                          TOTAL CURRENT LIABILITIES      1,184,967            1,114,733 

DEFERRED LEASE PAYMENTS                                     10,029               10,148 

STOCKHOLDERS' EQUITY
  Preferred stock $01 par value:2,000,000 shares 
    authorized; no shares issued or outstanding....
  Common stock $01 par value: 30,000,000 shares 
    authorized; shares issued and outstanding 
    13,364,958 - Sept 30, 1997 and 13,364,958 -
    December 31, 1996..............................
  Additional paid-in capital.......................     82,769,840           82,576,340 
  Deficit accumulated during the development
    stage..........................................    (61,149,160)         (55,870,339)
                                                     -----------------------------------
                         TOTAL STOCKHOLDERS' EQUITY     21,754,205           26,838,777 
                                                     -----------------------------------

         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY    $22,949,201          $27,963,658 
                                                     -----------------------------------
                                                     -----------------------------------
</TABLE>

                        SEE NOTES TO FINANCIAL STATEMENTS


                                       3

<PAGE>


 STATEMENTS OF OPERATIONS-THREE AND NINE MONTHS ENDED SEPT. 30, 1997 AND 1996
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                                   Jan 1, 1985
                                                                                                                  (predecessor
                                                       Three months ended Sept 30,    Nine months ended Sept 30,  inception) to
                                                       ---------------------------------------------------------    Sept 30,
                                                           1997          1996           1997         1996             1997
                                                       -----------------------------------------------------------------------
<S>                                                    <C>          <C>           <C>           <C>           <C>
STATEMENTS OF OPERATIONS DATA:
REVENUES 
  Product revenues . . . . . . . . . . . . . . . . . .     $41,391      $14,153       $123,962       $14,153       $154,525
  Contract Manufacturing . . . . . . . . . . . . . . .     135,723       88,722        705,706       563,938      1,565,646
  License Fees . . . . . . . . . . . . . . . . . . . .           0            0              0       900,000      1,500,000
  R&D Collaborative Agreements . . . . . . . . . . . .           0            0              0             0      7,754,711
  Interest income. . . . . . . . . . . . . . . . . . .     252,705      437,375        760,235     1,222,954      9,418,980
  Other income . . . . . . . . . . . . . . . . . . . .                                 400,000                    1,112,110
                                                                    ----------------------------------------------------------
                                        TOTAL REVENUES     429,819      540,250      1,989,904     2,701,045     21,505,972

COSTS AND EXPENSES
  Cost of product sales. . . . . . . . . . . . . . . .      17,362        6,532         48,583         6,532         62,493
  Research & development . . . . . . . . . . . . . . .   1,025,296    1,701,652      3,677,586     4,908,639     53,556,855
  Litigation settlement. . . . . . . . . . . . . . . .           0            0              0             0      5,750,000
  General & administrative . . . . . . . . . . . . . .   1,036,660    1,130,885      3,542,554     3,554,731     23,288,571
                                                       -----------------------------------------------------------------------
                              TOTAL COSTS AND EXPENSES   2,079,318    2,839,069      7,268,723     8,463,370     82,657,919

NET LOSS                                               $(1,649,499) $(2,298,819)   $(5,278,819)  $(5,768,857)  $(61,151,947)

NET LOSS PER COMMON SHARE. . . . . . . . . . . . . . .      $(0.12)      $(0.17)        $(0.40)       $(0.44)        $(7.59)
  Weighted average number of common shares used 
  in computing net loss per common share . . . . . . .  13,340,058   13,225,773     13,315,257    13,191,941      8,057,022

</TABLE>

                       SEE NOTES TO FINANCIAL STATEMENTS


                                       4


<PAGE>

STATEMENTS OF CASH FLOWS -NINE MONTHS ENDED SEPT. 30, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                             January 1,1985
                                                                                              (predecessor 
                                                             Nine months ended September 30,  inception) to
                                                             -------------------------------  September 30,
                                                                  1997           1996             1997
                                                             -----------------------------------------------
<S>                                                          <C>             <C>             <C>
OPERATING ACTIVITIES
NET LOSS . . . . . . . . . . . . . . . . . . . . . . .        ($5,278,820)    ($5,768,857)    $(61,151,947)
  Adjustments to reconcile net loss
  to net cash used in operating activities:
  Depreciation . . . . . . . . . . . . . . . . . . . .            485,172         477,245        5,041,935
  Patent expense . . . . . . . . . . . . . . . . . . .             11,999          12,000          798,928
  Amortization of discount on marketable securities. .                  0               0          (15,625)
  (Gain) loss on sale of securities available for sal                  86         137,074         (137,502)
  Stock grants and Restricted Stock grants . . . . . .            194,250         194,250          526,971
  Compensation expense on stock options. . . . . . . .                  0          28,630          597,638
  Changes in assets and liabilities:
  (Increase) decrease in inventories . . . . . . . . .         (1,190,373)       (557,828)      (1,787,113)
  (Increase) decrease in other current assets. . . . .           (207,692)        (46,284)        (526,275)
  (Increase) decrease in insurance receivable. . . . .                  0       2,000,000                0
  (Increase) decrease in escrowed cash . . . . . . . .                  0      (2,500,000)               0
  Increase in other assets . . . . . . . . . . . . . .                  0      (1,132,044)          (9,399)
  Increase (decrease) in accounts payable. . . . . . .           (164,544)       (209,108)          85,180
  Increase (decrease) in accrued liabilities . . . . .            234,776        (151,444)         959,758
  Increase (decrease) in deferred lease payments . . .               (119)        (14,817)          10,029
  Decrease in deferred use tax . . . . . . . . . . . .                  0               0          (94,713)
                                                             -----------------------------------------------
                 NET CASH USED IN OPERATING ACTIVITIES         (5,915,265)     (7,531,183)     (55,702,135)
                                                             -----------------------------------------------

FINANCING ACTIVITIES
  Proceeds from issuance of stock - net. . . . . . . .                  0          94,478       81,405,340
  Proceeds from borrowings . . . . . . . . . . . . . .                                             500,000
                                                             -----------------------------------------------
             NET CASH PROVIDED BY FINANCING ACTIVITIES                  0          94,478       81,905,340
                                                             -----------------------------------------------

INVESTING ACTIVITIES
  Purchase of property and equipment . . . . . . . . .           (539,966)       (400,679)     (10,861,242)
  Purchase of securities available-for-sale. . . . . .        (44,160,774)   (135,794,265)    (423,841,203)
  Proceeds from sale or maturity of securities
  available for sale . . . . . . . . . . . . . . . .           53,334,935     141,986,636      414,126,616
  Patents:
  Expenditures . . . . . . . . . . . . . . . . . . . .                  0               0       (1,018,117)
  Reimbursements . . . . . . . . . . . . . . . . . . .                  0               0           64,546
  Other. . . . . . . . . . . . . . . . . . . . . . . .           (225,000)              0         (375,000)
                                                             -----------------------------------------------
                 NET CASH USED IN INVESTING ACTIVITIES          8,409,195       5,791,692      (21,904,400)
                                                             -----------------------------------------------

NET INCREASE IN CASH AND CASH EQUIVALENTS                       2,493,930      (1,645,013)       4,298,805

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                1,804,875       6,019,740 
                                                             -----------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                     $4,298,805      $4,374,727       $1,642,316
                                                             -----------------------------------------------
                                                             -----------------------------------------------

SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES
Conversion of debt to common stock . . . . . . . . .                                              $500,000
                                                                                                ------------
                                                                                                ------------
Issuance of stock for patents. . . . . . . . . . . .                                               $27,790
                                                                                                ------------
                                                                                                ------------
</TABLE>

                        SEE NOTES TO FINANCIAL STATEMENTS

                                       5

<PAGE>


                  STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)

<TABLE>
<CAPTION>

                                              Common Stock       Additional
                                      --------------------------  Paid-in     Accumulated
                                         Shares      Par Value    Capital       Deficit        Total
                                      ------------------------------------------------------------------
<S>                                   <C>            <C>       <C>           <C>            <C>
Balance, Dec. 31, 1996                 13,277,558     $132,776  $82,576,340   ($55,870,339)  $26,838,777
                                      ------------------------------------------------------------------
Hymedix Restricted Stock:

($2.59 per share) March 31                 25,000          250       64,500                       64,750

($2.59 per share) June 30                  25,000          250       64,500                       64,750

($2.59 per share) Sept 30                  25,000          250       64,500                       64,750

Net loss                                                                        (5,278,820)   (5,278,820)
                                      ------------------------------------------------------------------
Balance, Sept 30, 1997                 13,327,558     $133,276  $82,705,340   ($61,149,159)  $21,754,207
                                      ------------------------------------------------------------------
                                      ------------------------------------------------------------------
</TABLE>


                       SEE NOTES TO FINANCIAL STATEMENTS



                                       6

<PAGE>


                                 PROCYTE CORPORATION
                            (a development stage company)
                      NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
                                           
1.   BASIS OF PRESENTATION

     The accompanying unaudited Financial Statements of ProCyte Corporation
("ProCyte" or the "Company") for the three and nine-month periods ended
September 30, 1997 and 1996, have been prepared by the Company in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X. 
Pursuant to such rules and regulations, the Financial Statements do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.  Accordingly, this financial
information should be read in conjunction with the complete Financial
Statements, including the notes thereto and the auditors' opinion, which are
included in the Company's Annual Report Form 10-K for the year ended December
31, 1996.  In the opinion of management, all material adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included.  Interim results are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997.

2.   INVESTMENTS

     At September 30, 1997, the Company's investments consisted entirely of U.S.
Treasury bills & notes and U.S. Agency securities and were classified as
"available for sale."  The amortized cost and estimated market value for
investments maturing in one year or less was $4,298,805, and for those maturing
in one through five years was $9,867,714.  There were no gross unrealized gains
or losses at September 30, 1997.  Realized losses from sales of investments in
the three and nine-month periods ended September 30, 1997 were $(545) and $(86),
respectively.  

3.   EXISTING CORPORATE LICENSE AGREEMENTS

HYMEDIX INTERNATIONAL, INC.

     In November 1995, ProCyte entered into a license agreement with Hymedix
International, Inc. ("Hymedix") in which the Company acquired the exclusive
worldwide rights, outside of Asia, to five FDA-cleared wound care products
developed by Hymedix, as well as exclusive rights to the use of the underlying
technology in the territory for future wound care products.  Additionally, the
Company acquired, on a non-exclusive basis, the rights to a sixth FDA-cleared
wound care product in the same territory.  The Company shares marketing rights
to the sixth product with B. Braun Medical, Inc.  The Company also acquired
exclusive worldwide rights to the drug delivery application of Hymedix's
polymer-based technology for wound healing applications.

     Under the terms of the agreement with Hymedix, the Company is obligated to
pay certain upfront, milestone and royalty payments.  The Company's upfront
payment included 200,000 shares of the Company's common stock, releasable over a
two-year period in four equal assignments of 50,000 shares each, unless Hymedix
has materially breached the license agreement or the Company has terminated the
license agreement.  The stock is subject to SEC Rule 144 restrictions and has
piggyback registration rights for a limited period of time.  The Company may
terminate the agreement at any time upon sixty days' written notice.  The
Company accrues the estimated expense of the milestone payment on an on-going
basis.


                                       7

<PAGE>

4.   INVENTORIES

     Inventories consist of raw materials, work in process and finished 
goods, and are accounted for at the lower of cost or market.  As of September 
30, 1997, finished goods inventory was valued at $516,575, and raw materials 
and work-in-process inventory was valued at $1,270,539.

5.   STOCKHOLDERS' EQUITY

     Information relating to stock options granted, exercised, canceled and
currently exercisable is as follows:

<TABLE>
<CAPTION>

                                                   Shares subject   Weighted average 
                                                     to option       exercise price
                                                   ---------------------------------
                                                   ---------------------------------
<S>                                                <C>                <C>
Balance, January 1, 1996 . . . . . . . . . . . .     1,524,957          $4.44 
  Granted. . . . . . . . . . . . . . . . . . . .       402,000          $2.94
  Exercised. . . . . . . . . . . . . . . . . . .       (40,263)         $2.35
  Canceled . . . . . . . . . . . . . . . . . . .      (305,334)         $7.50
                                                   ---------------------------------
Balance, Sept 30, 1996 . . . . . . . . . . . . .     1,581,360          $3.46
                                                   ---------------------------------
                                                   ---------------------------------
Balance, January 1, 1997 . . . . . . . . . . . .     1,375,695          $3.53
  Granted. . . . . . . . . . . . . . . . . . . .       207,500          $2.07
  Exercised. . . . . . . . . . . . . . . . . . .             0          $0.00
  Canceled . . . . . . . . . . . . . . . . . . .      (447,973)         $3.55
                                                   ---------------------------------
Balance, Sept 30, 1997 . . . . . . . . . . . . .     1,135,222          $3.25
                                                   ---------------------------------
                                                   ---------------------------------
Currently exercisable. . . . . . . . . . . . . .       669,212          $3.71
                                                   ---------------------------------
                                                   ---------------------------------
</TABLE>

     During the three-month period ended September 30, 1997, the Compensation
Committee of the Board of Directors approved grants to employees of incentive
stock options under the Company's 1989 Restated Stock Option Plan to purchase
243,000 shares of common stock.  All options are subject to vesting schedules.

6.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," was recently issued and is effective for the Company's fiscal year
ending December 31, 1997.  This statement requires a change in the presentation
of earnings per share.  Early adoption of this statement is not permitted. 
Management believes that the impact of the adoption of this statement on the
financial statements, taken as a whole, will not be material.

     SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was also recently issued and is effective for the Company's year
ending December 31, 1998.  The Company is currently evaluating the effects of
this statement; however management believes that the impact of its adoption will
not be material to the financial statements, taken as a whole.


                                       8

<PAGE>

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

CORPORATE OVERVIEW

     For the first nine months of 1997 ProCyte introduced or received clearance
to market an array of wound care products.  As the Company's product line has
expanded, it has begun to focus its efforts on the specialty wound care sectors
- including dermatologists and plastic and cosmetic surgeons.

     ProCyte initially began marketing in the wound care sector with its own
direct sales force whose efforts revolved around promotion of ProCyte's wound
care products - particularly Iamin-REGISTERED TRADEMARK- Hydrating Gel and the
OsmoCyte-REGISTERED TRADEMARK- Pillow Wound Dressings - to the broad-based
chronic and acute care markets.  This market includes hospitals, nursing homes
and home health care.  In third quarter 1997, the Company elected to eliminate
the expense of having its own sales force in light of plans to partner the
distribution of its products in these competitive markets with more established
sales and marketing organizations worldwide.  Discussions are ongoing with
potential partners.

     In September 1997, ProCyte launched the third product in its system of
copper-peptide containing wound care products for use following hair restoration
surgery.  GraftCyte-TM- Post-Surgical Shampoo is now available to hair
transplant specialists and their patients, together with the company's
GraftCyte-TM- Moist Dressings and Hydrating Mist. 

     An estimated 200,000 hair restoration procedures are performed annually in
the United States.  ProCyte is the first company to provide a line of products
that address the importance of wound repair in the hair transplant process.  The
company's GraftCyte-TM- products are promoted through specialty distributors.

     In October, ProCyte presented its GraftCyte-TM- System at the International
Hair Restoration Conference in Barcelona, Spain.  The company is sponsoring a
CNBC program on innovations in hair restoration procedures, and the role its
wound care products play, on the November 22, 1997 CNBC program HEALTHY LIVING,
scheduled to air at 12:00 p.m. Eastern time.

LIQUIDITY AND CAPITAL RESOURCES

     The Company relies primarily on equity financings, contract manufacturing
fees, interest income, product sales and corporate partnerships to fund its
operations and capital expenditures.  At September 30, 1997, the Company had
approximately $14.2 million in cash, cash equivalents and securities available
for sale, as compared to $20.8 million at December 31, 1996.  

     Through September 30, 1997, the Company has invested a total of
approximately $2.7   million in laboratory and computer equipment, furniture and
leasehold improvements.  In addition, the Company has invested approximately
$6.5 million in leasehold improvements and equipment for its manufacturing
plant. 

     Increases in inventory were anticipated and planned.  The increase in raw
material and work-in-process inventory resulted primarily from a ramp-up for a
large, ongoing production campaign of the Company's primary copper peptide
compound. Finished goods inventory rose primarily as a result of the continued
completion and stocking of its finished products, primarily items from the
GraftCyte-TM- family of products.


                                       9

<PAGE>

     The Company anticipates that its existing capital resources should be
sufficient to fund its cash requirements for approximately two years.  However,
the amounts and timing of expenditures will depend on such things as the
progress and results of ongoing clinical development programs, the rate at which
operating losses are incurred, the execution of in-licensing or product
distribution agreements with others, the establishment of out-licensing
agreements or strategic alliances for certain of the Company's products or
technology, the FDA regulatory process and similar processes among similar
agencies in other countries, and other factors, many of which are beyond the
Company's control, such as changes in healthcare product reimbursement
schedules.  

OPERATING LOSSES

     The Company is engaged in the development of healthcare products utilizing
copper-peptide containing and polymer-based compounds.  Such research and
development has historically been funded from the Company's equity-derived
working capital and through corporate partnerships.  The Company has incurred
operating losses since its inception due to financial and regulatory
requirements required to support research, development and clinical studies of
its proprietary technology.  In particular, the Company has supported and
continues to finance development of investigational Iamin-Registered Trademark-
gel for potential treatment of chronic dermal wounds, and other wound care
studies or pharamacoeconomic analyses involving its product candidates or
commercial products.

     The Company expects to incur additional operating losses for a number of
years until its product lines have been expanded and successfully distributed. 
At September 30, 1997, the Company's accumulated deficit was approximately $61.2
million.

REVENUE

     For the three and nine-month periods ended September 30, 1997, ProCyte
earned revenue from  product sales, contract manufacturing services, other
income and interest income of $429,819 and $1,989,904, respectively.  The
Company was performing contract research and development in 1996 that it is not
conducting in 1997, and ProCyte received its first FDA product clearances in
1996 to begin promoting its products in the US in the second half of that year. 
Consequently, comparisons between revenue for the three and nine-month periods
ended September 30, 1997 and the corresponding periods in 1996 are not
meaningful.

     The increase in the Company's three and nine-month operating revenue for
the period ended September 30, 1997, compared to the like year-ago periods, was
primarily a result of increased product sales and fees from contract
manufacturing.  The decrease in total revenue for the three and nine-month
periods ended September 30, 1997, compared to the same periods in 1996, was
primarily a result of lower interest earnings due to decreased cash available
for investment.

EXPENSES

     Research and development expenses continued to decrease to $1,025,296 and
$3,677,586, respectively, for the three and nine-month periods ended September
30, 1997, and related primarily to the Company's planned expenditures for
development of its wound care, skin and hair health product candidates.  This
compares to research and development expenses of $1,701,652 and $4,908,639,
respectively, for the same three and nine-month periods in 1996.  The Company
anticipates that expenditures for research and development will remain at or
near current levels as a result of the stage of current product development and
distribution.


                                      10

<PAGE>

     General and administrative expenses were also reduced to $1,036,660 and
$3,542,554 for the three and nine-month periods ended September 30, 1997,
compared to $1,130,885 and $3,554,731, respectively, for the like periods in
1996.  The decreases in such expenses were planned and were primarily related to
reduced staffing expenses.  The Company anticipates that expenditures may
decrease or remain at or near current levels as a result of planned distribution
changes.  In third quarter 1997 the Company implemented its plan to eliminate
its direct sales staff and promote products through corporate partnerships and
select distributorships. The impact of the reduced sales force expenses will be
reflected in the fourth quarter.

IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS

     The entire discussion in this report contains forward-looking statements. 
Any and all statements of goals, beliefs, intent, plans, anticipation or
expectations set forth in its SEC reports and other communications may be
forward-looking statements.  Readers are cautioned not to place undue reliance
on these forward-looking statements which reflect the Company's position only as
of the date hereof.  The Company undertakes no obligation to publicly release
the result of any revisions to these forward-looking statements which may be
made to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.

     The following factors, among others (including those described in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996),
could affect the Company's actual results with regard to such forward-looking
statements, and could cause such results to differ materially from those
expressed in the Company's forward-looking statements.  

GENERAL FINANCIAL POSITION OF THE COMPANY

     The Company anticipates that its operating expenses will remain the same 
or decrease in 1997 and subsequent years as the Company moves products 
forward in commercialization, enters distribution relationships or reduces 
certain of its overhead expenses.  The Company may be required to raise 
additional capital through equity offerings, strategic alliances, technology 
or product out-licensing or other sources.  There can be no assurance that 
such funds will be available to the Company on acceptable terms, if at all.

     The Company expects to try to negotiate strategic collaborations or other
suitable partnerships for certain applications of its technology, such as
inflammatory bowel disease, and to seek product distributors for its chronic and
acute wound care products worldwide.  There can be no assurance that the Company
will be successful in these endeavors.

     Although strategic partnerships have provided revenue to the Company in 
the past, the Company has no such partnerships at present and there can be no 
assurance  of such alliances in future or that any future alliances will be 
successful.  Additionally, though the Company makes every effort to 
extensively review products or technologies it may seek to acquire, 
distribute or in-license, there can be no assurance that products so obtained 
will be commercialized successfully, if at all.


                                      11

<PAGE>

CLINICAL AND COMMERCIAL DEVELOPMENT OF NOVEL COMPOUNDS AND PRODUCTS

     There can be no assurance that the Company will commence, continue or
successfully complete preclinical or clinical testing or commercial development,
including commercial-scale manufacturing and market launch of any of the
Company's product candidates identified above, or that, if successfully
developed, such product candidates would be cleared by the FDA for sale in the
United States or by comparable regulatory authorities for sale in other
countries.  Approval of a product for marketing in one country does not ensure
approval for marketing in other countries.  Launch of a product does not ensure
market acceptance.  The results of Phase I, Phase II or Phase III studies are
not necessarily indicative of efficacy or safety of a commercial product for
human use.

CONTRACT MANUFACTURING

     ProCyte's manufacturing plant was commissioned in 1994, and allows the
Company to offer to provide select contract manufacturing services to industry
clientele in addition to serving its own product manufacture requirements.  For
the quarter ended September 30, 1997, ProCyte had provided or was still
performing contract manufacturing services on behalf of two clients, including
one multinational pharmaceutical company and one biotechnology company.

     The Company expects to utilize approximately 75% of the plant's current
capacity for these endeavors in 1997, though, for the reasons outlined elsewhere
in this report, and including such things as unexpected or unsuccessful plant
audits or regulatory inspections, the potential impact of adverse weather
conditions on plant operations, the decision of a client to manufacture its own
products or have them manufactured elsewhere, the potential lack of market
acceptance of the Company's or clients' products, and competition, there can be
no assurance that the Company will be successful.

     Given the risks and uncertain timelines associated with device,
pharmaceutical and biotechnology products being developed, tested, reviewed or
sold by clients of the manufacturing facility, and the Company's own products,
the Company may be unable to maintain sufficient clientele to counter the effect
that regulatory delays, product failures, product recalls, and other such
circumstances may have on its contract manufacturing capabilities and revenues. 
Also, such factors as unexpected or unsuccessful plant audits or regulatory
inspections, the potential impact of adverse weather conditions on plant
operations, the decision of a client to manufacture its own products or have
them manufactured elsewhere, inability or failure to manufacture a product to
established product specifications, the potential lack of market acceptance of
clients' products, and competition, mean there can be no assurance that the
Company will be successful in its contract manufacturing endeavors.

WOUND CARE PRODUCT DEVELOPMENT, MANUFACTURE AND DISTRIBUTION

     Factors beyond the Company's control, such as delays in obtaining FDA 
clearance to market new products, delays in product launch, the promotion and 
introduction of competitive products by others with larger and more 
established sales and marketing organizations, lack of product acceptance by 
the marketplace, changes in Medicare reimbursement and the impact this would 
have on product pricing, unexpected difficulties in scaling-up the full scale 
commercial manufacturing processes, obtaining suitable raw materials, and 
staffing the production operation, mean that there can be no assurance that 
the Company will be able to commercialize any of its planned wound care 
products in a cost-effective, timely manner, if at all.


                                      12


<PAGE>

PATENTS AND PROPRIETARY RIGHTS

     ProCyte's success depends in part upon its ability to protect its 
products and technology under intellectual property laws in the Unites States 
and abroad. As of September 30, 1997, the Company had 18 issued United States 
patents expiring between 2005 and 2010, and over 100 issued foreign patents 
and patent registrations.  The patents relate to use of the Company's 
copper-based technology for a variety of healthcare applications, and to the 
composition of certain biologically active, synthesized compounds.  The 
Company's strategy has been to apply for patent protection for certain 
compounds and their discovered uses that are believed to have potential 
commercial value in countries which offer significant market potential.

     The Company currently holds several registered trademarks for its 
product candidates.  There can be no assurance as to the breadth or degree of 
protection that the Company's existing trademarks or patents, or any 
additional trademarks or patents that may be granted in the future, will 
afford the Company, or that any additional trademarks or patents will be 
issued to the Company.  In addition, there can be no assurance that others 
will not independently develop substantially equivalent proprietary 
technology that is not covered by the Company's patents or that others will 
not be issued patents that may prevent the Company's manufacture, sale or use 
of the Company's proposed products or require licensing and the payment of 
significant fees or royalties by the Company for the pursuit of its business. 
 Litigation, which could result in substantial cost to the Company, may be 
necessary to enforce the Company's patents or to determine the scope and 
validity of other parties' proprietary rights.  If the outcome of any such 
litigation were adverse, the Company's business could be materially affected. 
 The Company is unable to predict how courts would resolve any future issues 
relating to the validity and scope of the Company's patents or trademarks 
should they be challenged.

     The Company also intends to rely on its unpatented proprietary know-how, 
and there can be no assurance that others will not develop or acquire 
equivalent proprietary information.  To the extent that corporate partners or 
consultants apply Company technological information independently developed 
by them or by others to Company projects or apply Company technology or 
know-how to other projects, disputes may arise as to the ownership of 
proprietary rights to such information.

COMPETITION

     Competition in the Company's initial area of sales and distribution - 
wound care and related applications - is particularly intense, involving a 
number of well-established, major pharmaceutical and healthcare companies, 
such as Bristol Myers Squibb's Convatec division, Kendall Healthcare Company, 
and Johnson and Johnson.  A significant number of smaller companies as well 
are developing or marketing competitive wound care products, some of which 
may have an entirely different approach than products being developed by the 
Company.

     Wound care is an evolving field as far as technology, regulations, and 
products are concerned.  The Company believes that its most substantial 
competition with respect to its planned wound care product line will come 
from established pharmaceutical and healthcare companies, which are 
significantly larger than the Company and have substantially greater 
financial resources, marketing and sales staffs, and experience in obtaining 
regulatory approvals, as well as in manufacturing and marketing wound care 
products.  In addition, such companies have considerable years of experience, 
and established reputations, promoting to healthcare providers.

                                      13

<PAGE>

     Competition in all of the Company's areas of interest, including wound 
care, is based on scientific and technological advances, the availability of 
patent protection, access to adequate capital, the requirement for and 
ability to obtain government approval for new products or testing, timing and 
scope of regulatory approvals, product pricing, manufacturing and marketing 
capability. There can be no assurance that the Company's competitors will not 
succeed in bringing to market technologies and/or products that may make the 
proposed products being developed by the Company obsolete or noncompetitive.  
Some of the Company's competitors may achieve product commercialization 
earlier than the Company, which may adversely affect market introductions and 
sales of the Company's proposed products.  Competition for highly qualified 
scientific, technical, and managerial personnel, consultants and advisors on 
whose services the Company depends is also intense.

     The contract manufacturing service business also is highly competitive. 
Competitors include major chemical and pharmaceutical companies, as well as 
specialized biotechnology firms, smaller contract chemical manufacturers and 
some universities.  Many of these companies or institutions have greater 
financial, technical and marketing resources than the Company.

     The chemical, commodity-products and pharmaceutical industries have 
undergone and are expected to continue to undergo significant technological 
and strategic change, and the Company expects the competition to intensify as 
technical advances or business alliances are made by others in fields of 
interest to the Company.  The Company believes that its success in competing 
with others will depend on such things as its ability to retain scientific 
expertise and capable, experienced management, and identifying and pursuing 
scientifically feasible, medically relevant, and commercially viable 
opportunities.

GOVERNMENT REGULATION

     The manufacture and marketing of ProCyte's products, whether internally 
developed and licensed-in, and its research and development activities in 
general, are subject to extensive regulation in the United States by the 
federal government, principally by the FDA, and in other countries by similar 
health and regulatory authorities.  The Federal Food, Drug and Cosmetic Act 
and the regulations promulgated thereunder, and other federal and state 
statutes govern, among other things, the testing, manufacture, safety, 
labeling, storage, recordkeeping, advertising and promotion of pharmaceutical 
products and medical devices.  Product development and approval or clearance 
within the regulatory framework requires a number of years and involves the 
expenditure of substantial resources. 

     In order to obtain FDA clearance to market a new drug or device in the 
United States for use in humans, it is necessary to proceed through several 
stages of product testing, including research and development, clinical 
trials, the filing of a product registration dossier such as a new drug 
application or 510(k) application with the FDA to obtain authorization to 
market a product. The Company's product candidates may be regulated by any of 
a number of divisions of the FDA.

     Before human testing of a therapeutic product candidate may commence, 
the FDA, and like agencies in other countries, generally require certain 
preclinical testing, such as toxicology studies in animals, to begin to 
establish product safety.  Results of such studies are submitted as part of 
the application to the regulatory agency.  Preclinical testing is not 
necessarily indicative of the safety or effectiveness of a product candidate 
for human use.

                                      14

<PAGE>

     Human clinical trials of an investigational therapeutic compound in the 
United States typically involve a three-phase process.  Following the IND 
submission period, Phase I trials may be conducted with a small group of 
healthy volunteers or, in some instances, patients, to determine the early 
safety profile and the pattern of drug absorption, distribution and 
metabolism.  Phase II trials are conducted with groups of patients afflicted 
with a specific disease or specific element of a disease to determine 
preliminary effectiveness, optimal dosage and treatment regimens and expanded 
evidence of safety.  Phase III comparative trials are conducted with a larger 
number of patients at multiple test sites to gather information about safety 
and effectiveness that is needed to evaluate the overall benefit-risk 
relationship of the compound and to provide an adequate basis for proposed 
product labeling.

     The results of clinical trials are submitted to the FDA, and to similar 
agencies in other countries, in the form of an of NDA or like submission, for 
approval to commence commercial distribution of the product.  The regulatory 
agencies may take one to two years or more to act on an NDA or like 
submission, if they elect to act at all.  The final decision rests with the 
regulatory agency as to whether or not approval will be granted.  The 
regulatory agencies, at their discretion, may request further testing, 
additional data,  or may deny approval if the agency determines that 
regulatory approval criteria are not sufficiently satisfied.  As such, there 
can be no assurance that any approvals of the Company's proposed candidates 
would be granted on a timely basis, if at all, following completion of 
clinical testing.

     In the United States, products that do not seek to make effectiveness 
claims based on human clinical evaluation, may be subject to review and 
regulation under the FDA's 510(k) medical device guidelines.  Similar 
guidelines exist for such products in other countries.  Such products, which 
include wound care dressings, ointments and gels, must show safety and 
substantial equivalency with predicate products already cleared to be 
marketed by the FDA.  There can be no assurance that such product pre-market 
notification applications submitted to the FDA or similar agencies in other 
countries will receive clearance to be marketed, or that the labeling claims 
sought will be approved, or that, if cleared, such products will be 
commercially successful.  

     In addition to obtaining FDA or other countries' approval or clearance 
to market a product, the prospective manufacturer's quality control and 
manufacturing procedures must conform to current good manufacturing practices 
("cGMPs") guidelines, or ISO 9000 standards, when appropriate.  In complying 
with standards set forth in these regulations, which are subject to change at 
any time without notice to the Company, manufacturers must continue to expend 
time, monies and effort in production and quality control.  Manufacturing 
establishments, such as ProCyte's manufacturing plant, are also subject to 
regulations from and inspections by other foreign, federal, state or local 
agencies, such as the Drug Enforcement Agency, the city water and waste 
treatment agencies, and state and federal safety and health regulations.  
There can be no assurance that the Company's manufacturing facility or its 
operations for the manufacture of its own product candidates or the bulk 
products manufactured and processes followed by the Company on behalf of its 
clients will be able to meet all appropriate guidelines or to pass 
inspections by any government agency.  If the Company's manufacturing 
operations should fail to pass an inspection, for any reason, the possible 
resultant outcome on the plant's continuing operations, and the financial 
impact on the Company's overall reputation and operations could be severely 
adversely affected.

     The Company also is or may become subject to various other foreign, 
U.S., state and local laws, regulations and policies relating to, among other 
things, safe working conditions, good laboratory practices, animal welfare, 
and the use and disposal of hazardous or potentially hazardous substances 
used in connection with research, development and/or manufacturing.

                                     15

<PAGE>

                        PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

        None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to the shareholders for vote during third 
quarter 1997.

ITEM 5. OTHER INFORMATION

        None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a)  Exhibits - None. 

        (b)  Reports on Form 8-K - None.




                                      16


<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) 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.


                                                PROCYTE CORPORATION
                                                   (REGISTRANT)



Date:  October 31, 1997               By:      /s/ John F. Clifford
                                          -----------------------------------
                                          John F. Clifford, President and CEO



Date:  October 31, 1997               By:       /s/ Jon Sortland
                                          -----------------------------------
                                          Jon Sortland, Manager of Accounting



                                      17