<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, 1996

                         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.)

12040 115th Avenue N.E., Suite 210, Kirkland, WA              98034-6900
------------------------------------------------              ----------
(Address of principal executive offices)                      (Zip code)

Registrant's telephone number, including area code:           (206)820-4548
                                                              -------------


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 the filing
requirements for 90 days.

                             Yes {X}     No{ }


As of November 8, 1996, there were issued and outstanding 13,363,758 shares of
common stock, par value $.01 per share.

<PAGE>

                              PROCYTE CORPORATION

                                    INDEX



PART I    FINANCIAL INFORMATION                                         PAGE NO.

          Item 1.   Financial Statements (unaudited)                            
                    Balance Sheet-
                         As of September 30, 1996 and 
                         December 31, 1995                                   3

                         Statements of Operations - 
                         Three and nine months ended 
                         September 30, 1996 and 1995                         4

                         Statements of Cash Flows
                         For nine months ended 
                         September 30, 1996 and 1995                         5
     
                         Statements of Stockholders' Equity                  6
     
                         Notes to Financial Statements                       7

          Item 2.   Management's Discussion and             
                    Analysis of Financial Condition and 
                         Results of Operations                               9
                    

PART II   OTHER INFORMATION                                                 
          Item 1.   Legal Proceedings                                       16
             Item 4.   Submission of Matters to a Vote of Security Holders  16
             Item 5.   Other Information                                    16
             Item 6.   Exhibits and Reports on Form 8-K                     17



SIGNATURES                                                                  17

EXHIBIT INDEX                                                               17


                                       2

<PAGE>

Part I  -  FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
                                  PROCYTE CORPORATION
                             (a development stage company)
                                    BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                  September 30,    December 31,
                                                                      1996             1995
                                                                 ---------------  ---------------
                                                                   (unaudited)
                                                                 ---------------  ---------------
ASSETS
<S>                                                              <C>              <C>
CURRENT ASSETS
Cash and cash equivalents..................................       $  4,374,727     $  6,019,740
Cash in escrow.............................................          2,500,000                0
Securities available for sale .............................         23,728,335       30,057,780
Insurance claim receivable.................................          1,000,000        3,000,000
Inventories................................................            557,828                0
Other......................................................            523,400          477,116
                                                                 ---------------  ---------------
  Total current assets.....................................         32,684,290       39,554,636

PROPERTY AND EQUIPMENT, at cost
Equipment..................................................          3,729,508        3,328,829
Leasehold improvements.....................................          5,097,833        5,097,833
Less accumulated depreciation and amortization.............         (3,722,044)      (3,244,799)
                                                                 ---------------  ---------------
  Property and equipment, net..............................          5,105,297        5,181,863

PATENTS, at cost...........................................            290,930          290,930
Less accumulated amortization..............................           (105,270)         (93,270)
                                                                 ---------------  ---------------
  Patents, net.............................................            185,660          197,660

OTHER......................................................          1,291,443          159,399
                                                                 ---------------  ---------------
TOTAL ASSETS...............................................      $  39,266,690    $  45,093,558
                                                                 ---------------  ---------------
                                                                 ---------------  ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable...........................................      $     469,590    $     678,698
Accrued liabilities........................................            536,008          687,452
Payable to stockholders for settlement of litigation.......          7,750,000        7,750,000
                                                                 ---------------  ---------------
  Total current liabilities................................          8,755,598        9,116,150

DEFERRED LEASE PAYMENTS....................................             54,355           69,172
DEFERRED STATE SALES TAXES.................................             23,682           23,682

COMMITMENTS

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 13,358,758
   - September 30, 1996 and 13,318,495 -  
   December 31, 1995.......................................            132,464          131,311
Additional paid-in capital.................................         82,638,437       82,350,862
Deficit accumulated during the development stage...........        (52,282,077)     (46,513,220)
Unearned compensation......................................            (55,769)         (84,399)
                                                                 ---------------  ---------------
   Total stockholders' equity..............................         30,433,055       35,884,554
                                                                 ---------------  ---------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................      $  39,266,690    $  45,093,558
                                                                 ---------------  --------------
                                                                 ---------------  --------------
</TABLE>

                                       3

                       SEE NOTES TO FINANCIAL STATEMENTS

<PAGE>


                                                       PROCYTE CORPORATION
                                                   (A DEVELOPMENT STAGE COMPANY)
                                                      STATEMENTS OF OPERATIONS
                                                          (unaudited)

<TABLE>
<CAPTION>
                                                                                                                   January 1,
                                                                                                                      1985
                                                                                                                  (predecessor
                                           Three months ended September 30,    Nine months ended September 30,    inception) to
                                           --------------------------------    -------------------------------    September 30,
                                                1996              1995             1996               1995            1996
                                           ---------------   --------------    --------------   --------------   ---------------
<S>                                         <C>                 <C>              <C>               <C>              <C> 
REVENUES
Product revenues.......................      $   14,153                            $   14,153                       $    14,153
Research and development
  revenues under collaborative
  agreements...........................          88,722            250,000            563,938       1,536,315         8,470,485
License fees...........................               0                  0            900,000                         1,500,000
Interest income........................         437,375            434,382          1,222,954       1,898,529         8,258,755
Other .................................                                                                                 697,764
                                            -----------        -----------        -----------     -----------      ------------
Total revenues.........................         540,250            684,382          2,701,045       3,434,844        18,941,157
                                            -----------        -----------        -----------     -----------      ------------

COSTS AND EXPENSES
Cost of product sales                             6,532                                 6,532                             6,532
Research and
  development..........................       1,701,652          1,095,982          4,908,639       4,819,351        48,048,997
 Litigation settlement.................                                                                               4,750,000
 General & administrative..............       1,130,885            968,930          3,554,731       2,869,838        18,420,493
                                            -----------        -----------        -----------     -----------      ------------
Total costs and  expenses..............       2,832,537          2,064,912          8,463,370       7,689,189        71,219,490
                                            -----------        -----------        -----------     -----------      ------------
NET LOSS...............................     $(2,298,819)       $(1,380,530)       $(5,768,857)    $(4,254,345)     $(52,284,865)
                                            -----------        -----------        -----------     -----------      ------------
                                            -----------        -----------        -----------     -----------      ------------

NET LOSS PER
  COMMON SHARE.........................        $  (0.17)          $  (0.11)          $  (0.44)       $  (0.32)         $  (6.94)
                                            -----------        -----------        -----------     -----------      ------------
                                            -----------        -----------        -----------     -----------      ------------

Weighted average number of
  common shares used in computing
  net loss per common share............      13,225,773         13,118,495         13,191,941      13,083,800         7,533,964
                                            -----------        -----------        -----------     -----------      ------------
                                            -----------        -----------        -----------     -----------      ------------

</TABLE>

                       SEE NOTES TO FINANCIAL STATEMENTS

                                      4

<PAGE>

<TABLE>
<CAPTION>
                                                     PROCYTE CORPORATION
                                                 (a development stage company)
                                                   STATEMENTS OF CASH FLOWS
                                                         (unaudited)

                                                                                                                    January 1, 
                                                                                                                       1985 
                                                                                                                   (predecessor
                                                                       Nine months ended September 30,             inception) to 
                                                                   -------------------------------------           September 30, 
OPERATING ACTIVITIES                                                     1996                  1995                    1996
                                                                   -----------------   --------------------   ---------------------
<S>                                                                <C>                 <C>                    <C>
Net Loss                                                                ($5,768,857)          ($4,254,345)            $(52,284,865)
 Adjustments to reconcile net loss
  to net cash used in operating activities:
   Depreciation....................................................         477,245               586,084                3,972,714
   Patent expense..................................................          12,000                45,000                  782,929
   Amortization of discount on marketable securities...............                                                        (15,625)
   (Gain) loss on sale of securities available for sale............         137,074              (238,010)                 (50,550)
   Stock grants and Restricted Stock grants........................         194,250                                        267,971
   Compensation expense on stock options...........................          28,630                55,257                  684,369
   Changes in assets and liabilities:
    (Increase) decrease in inventories.............................        (557,828)                                      (557,828)
    (Increase) decrease in other current assets....................         (46,284)              (43,581)                (523,403)
    (Increase) decrease in insurance receivable....................       2,000,000                     0               (1,000,000)
    (Increase) decrease in escrowed cash...........................      (2,500,000)                    0               (2,500,000)
    (Increase) decrease in deferred offering expenses..............               0
    (Increase) decrease in other assets............................      (1,132,044)                                    (1,141,443)
     Increase (decrease) in accounts payable.......................        (209,108)              (32,988)                 384,471
     Increase (decrease) in accrued liabilities....................        (151,444)             (517,012)                 481,100
     Increase (decrease) in litigation payable.....................               0                                      7,750,000
     Increase (decrease) in deferred income........................               0              (340,344)                       0
     Increase (decrease) in deferred lease payments................         (14,817)               (8,892)                  54,355
     Decrease in deferred use tax..................................               0                     0                  (71,031)
                                                                   -----------------   --------------------   ---------------------
Net cash used in operating activities..............................      (7,531,183)           (4,748,831)             (43,766,836)
                                                                   -----------------   --------------------   ---------------------
FINANCING ACTIVITIES
  Proceeds from issuance of stock - net............................          94,478                27,423               81,389,374
  Proceeds from borrowings.........................................                                                        500,000
                                                                   -----------------   --------------------   ---------------------
Net cash provided by financing activities..........................          94,478                27,423               81,889,374
                                                                   -----------------   --------------------   ---------------------
INVESTING ACTIVITIES
 Purchase of property and equipment................................        (400,679)               36,210               (8,982,080)
 Refund (payment) Interest-bearing lease deposit...................                                                       (150,000)
 Purchase of securities available-for-sale.........................    (135,794,265)         (127,464,452)            (344,288,060)
 Proceeds from sale or maturity of securities available for sale...     141,986,636           117,824,183              320,625,900
 Patents:
  Expenditures.....................................................               0               (29,351)              (1,018,117)
  Reimbursements...................................................               0                                         64,546
                                                                   -----------------   --------------------   ---------------------
Net cash used in investing activities..............................       5,791,692            (9,633,410)             (33,747,811)
                                                                   -----------------   --------------------   ---------------------
NET INCREASE  IN CASH AND CASH EQUIVALENTS.........................      (1,645,013)          (14,354,818)               4,374,727
CASH AND CASH EQUIVALENTS
      AT BEGINNING OF PERIOD.......................................       6,019,740            26,243,922
                                                                   -----------------   --------------------   ---------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.........................      $4,374,727           $11,889,104               $4,374,727
                                                                   -----------------   --------------------   ---------------------
                                                                   -----------------   --------------------   ---------------------
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>

                               PROCYTE CORPORATION
                          (a development stage company)
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                            
                                                                                            Deficit
                                                                                          Accumulated
                                                        Common Stock         Additional    During the
                                                  ----------   ----------     Paid-in     Development    Unearned
                                                    Shares      Par Value     Capital        Stage      Compensation       Total
                                                  ----------   ----------  ------------  ------------   ------------   -------------
<S>                                               <C>          <C>         <C>           <C>            <C>            <C> 
Balance, December 31, 1995....................... 13,131,095   $ 131,311   $ 82,350,862  (46,513,220)      (84,399)    $ 35,884,554
                                                  ----------   ----------  ------------  ------------   ------------   -------------
Exercise of stock options:
  ($2.64 per share) January 5 to April 12 .......     14,635         146         35,705                                      35,851
  ($2.53 per share) January 5 to September 6.....      8,836          88         22,267                                      22,355
  ($2.16 per share) April 1 to September 15......     16,792         169         36,103                                      36,272
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) September 30..................     25,000         250         64,500                                      64,750
Amortization of unearned compensation............                                                           28,630           28,630
Net loss.........................................                                         (5,768,857)                    (5,768,857)
                                                  ----------   ----------  ------------  ------------   ------------   -------------
Balance, September 30, 1996...................... 13,246,358     132,464     82,638,437  (52,282,077)      (55,769)      30,433,055
                                                  ----------   ----------  ------------  ------------   ------------   -------------
                                                  ----------   ----------  ------------  ------------   ------------   -------------

</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") as of September 30, 1996 and December 31, 1995, and
for the three and nine-month periods ended September 30, 1996 and 1995, 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,
incorporated by reference on Form 10-K, for the year ended December 31, 1995. 
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, 1996.

2.   INVESTMENTS

     At September 30, 1996, the Company's investments consist entirely of U.S.
Treasury bills and notes which are classified as "available for sale."  The
amortized cost and estimated market value for investments maturing in one year
or less is $11,150,724, and those maturing in one through five years is
$12,577,611.  There were no gross unrealized gains or losses at September 30,
1996, and realized gains and losses from sales of investments in the three and
nine-month periods ended September 30, 1996 were $23,905 and $(137,074),
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 November
1995 upfront 


                                       7
<PAGE>

payment included 200,000 shares of the Company's common stock, releasable 
over a two-year period in four equal segments of 50,000 shares each, unless 
Hymedix has materially breached the agreement or the Company has terminated 
the 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.

     During the three-month period ended March 31, 1996, and pursuant to the
agreement, the Company paid $150,000 to Hymedix for the 1996 research and
development program related to the licensed technology.  During second quarter
1996, the Company released 50,000 shares of the Company's common stock to
Hymedix, and on July 3, 1996 paid Hymedix a milestone payment of $500,000 due
under the terms of the agreement.

KISSEI PHARMACEUTICAL CO., LTD.
     In November 1993, the Company entered into a license agreement with Kissei
Pharmaceutical Co., Ltd. ("Kissei").  Under the terms of the agreement, the
Company granted to Kissei an exclusive license to make, have made, use and sell
the Company's Iamin-Registered Trademark- compound in Japan, China, Taiwan, and
Korea for topical wound healing applications, including chronic human dermal
wounds such as diabetic ulcers, venous stasis ulcers, pressure sores, surgical
wounds and burns.

     Pursuant to the terms of the agreement with Kissei, the Company will
manufacture Kissei's requirements for the Iamin-Registered Trademark- compound
for Kissei's product development and for Kissei's clinical trials for the first
approved use of the Iamin-Registered Trademark- compound in Japan.  In addition,
Kissei is responsible for making certain research and development, milestone and
royalty payments to the Company subject to the terms of the agreement.  In
January 1996, Kissei paid the Company a $900,000 milestone payment due under the
agreement.  Kissei may terminate the agreement at any time upon sixty days'
written notice.

KAKEN PHARMACEUTICAL CO., LTD.
     On January 31, 1996, the Company's license agreement with Kaken
Pharmaceutical Co., Ltd. ("Kaken"), for development of the Company's peptide-
copper hair growth technology in Asia, was terminated.  As a result, ProCyte
regained worldwide rights to the use of its technology for hair growth and hair
loss prevention applications.  Kaken satisfied all of its research and
development funding obligation to ProCyte during the term of the agreement.  

4.   INVENTORIES

     Inventories consist of raw materials, work in process and finished goods,
and are accounted for at the lower of cost or market.
          
5.   STOCKHOLDERS' EQUITY

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


                                       8
<PAGE>

                                             to option          range
                                             ---------          -----

          Balance, January 1, 1995           1,412,710       $.09 - $11.88
               Granted                         428,500               $2.94
               Exercised                       203,880       $.09 -  $2.16
               Canceled                         98,812       $.86 - $11.25
                                             ---------
          Balance, Sept. 30, 1995            1,538,518


          Balance, January 1, 1996           1,536,957      $2.15 - $11.88
               Granted                         390,000      $2.78 -  $4.20
               Exercised                        40,263      $2.16 -  $2.64
               Canceled                        301,843      $2.53 - $11.88
                                             ---------
          Balance, Sept. 30, 1996            1,584,861

          Currently exercisable                696,225
                                               -------


     During the three-month period ended September 30, 1996, the Compensation
Committee of the Board of Directors approved grants of incentive stock options
to purchase an aggregate of 44,500 shares of the Company's common stock to
employees of the Company.  All options are subject to vesting schedules.  In
addition, the Compensation Committee approved grants of incentive and non-
qualified stock options to Mr. Jack Clifford, the newly appointed president and
chief executive officer, as part of his total compensation plan.  Mr. Clifford
was granted an incentive stock option to purchase 105,633 shares of the
Company's common stock, and a non-qualified stock option to purchase 44,367
shares of the Company's common stock under the terms of the Company's 1989
Restated Stock Option Plan, and a non-qualified stock option to purchase 100,000
shares of the Company's common stock under the Company's newly adopted 1996
Stock Option Plan, which is subject to shareholder approval at the next meeting
of the shareholders. 

     During the three-month period ended September 30, 1996, the Compensation
Committee of the Board of Directors also approved certain amendments to the
Company's 1991 Restated Stock Option Plan for Non-Employee Directors.  Pursuant
to one of these amendments, two non-employee directors each received a grant of
non-qualified stock options to purchase 6,000 shares of the Company's common
stock.  The plan amendments and the grants of options to the non-employee
directors are subject to shareholder approval at the next meeting of the
Company's shareholders. 


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

LIQUIDITY AND CAPITAL RESOURCES


                                       9
<PAGE>

     The Company relies primarily on equity financings and corporate
partnerships to fund its operations and capital expenditures.  At September 30,
1996, the Company had cash, cash equivalents and short-term investments of
approximately $28.1 million.

     The Company believes that its present capital resources and expected
revenues from its product sales, and existing license and contract manufacturing
agreements should be sufficient to fund the Company's currently planned
operations and capital needs for approximately two years.  The Company's future
cash requirements, however, may vary materially from those now expected because
of a number of factors, including the cost to staff a dedicated sales force and
cash requirements for expansion of the Company's manufacturing facility for
commercialization of polymer-based wound care products.

     ProCyte's mission is to become a fully integrated healthcare products and
services company through continued pursuit of its threefold strategy, which the
Company implemented in 1995 in an effort to build long-term shareholder value. 
This strategy includes: (1) development of certain of the Company's proprietary
family of copper-based compounds for therapeutic or other applications; (2)
utilization of the Company's manufacturing facility to serve both the Company's
own clinical and commercial needs as well as to address the contract
manufacturing needs of selected industry clients; and (3) continued development
of prezatide copper acetate ("PCA")-containing and polymer-based wound
dressings, and, if appropriate, evaluation and acquisition through in-licensing
or cross-licensing of technologies or products which complement the Company's
wound care product focus.  In addition, the Company continues to seek corporate
partners or out-licensing opportunities to develop and/or distribute certain of
its technologies or products.

     During third quarter 1996, the Company had three copper-based drug
candidates in clinical development.  Enrollment in the Company's Phase II study
of investigational PC1358, tradenamed Tricomin-Registered Trademark- solution,
was completed in first quarter 1996.  The treatment and evaluation phase of the
study is continuing.

     The Company's Phase I/II safety and initial effectiveness study of PCA in
humans, administered via retention enema, for the potential treatment of mild to
moderate ulcerative colitis, was completed during third quarter 1996.  The
results of this early-stage study, which was designed to measure the effect of
the experimental therapy versus placebo in affecting remission and symptomatic
improvement, showed that the investigational compound, tradenamed Iamin-IB-
Registered Trademark- solution, provided statistically significant findings
regarding the number of patients who experienced overall symptom improvement in
the high drug dose group (1.0% PCA) versus placebo. Patients in the 1.0% PCA
group had a two-fold improvement in reduction of disease activity as compared to
the placebo group.  Additionally, patients in the 1.0% PCA treatment group
experienced no worsening of symptoms as was reported for the low dose (0.1%) and
placebo groups.  The rate of remission was slightly improved for the 1.0% PCA
treated group, but this rate was not statistically significant.  The Company is
investigating partnership or licensing opportunities for any further development
of this application of its technology in order to focus resources on its wound
care product development.


                                       10
<PAGE>

     ProCyte initiated a Phase II study of PCA in the UK during third quarter
1996.  In this clinical study, the compound will be tested against standard
compression wrap in the treatment of venous stasis ulcers.  Additionally, Kissei
has placed an order for quantities of PCA bulk compound for its planned Phase II
testing in Japan, which is expected to commence in 1997.

     The Company has diminished its internal efforts and resource commitment in
the area of anti-viral research with certain of its proprietary compounds due to
ProCyte's internal resource commitment to wound care product commercialization
and contract manufacturing priorities.  

     ProCyte's second strategic goal in 1996 is to continue to expand the
utilization of the Company's manufacturing plant by providing contract
manufacturing services to select industry clientele and to service ProCyte's own
product needs.  The Company currently utilizes the plant for the manufacture of
ProCyte's own bulk compounds for clinical or commercial use, and for the
development of manufacturing processes for the Company's planned polymer-based
wound care products.  In the first nine months of 1996, the Company also
performed contract manufacturing services on behalf of outside clients.  The
Company expects to utilize approximately 85% of the plant's current capacity for
overall manufacturing endeavors in 1996, including manufacture of its own
products and product candidates and contract manufacturing services provided on
behalf of clients of the plant.

     The third primary business strategy being pursued by the Company in 1996
builds upon the Company's pioneering research expertise in the complex field of
wound care and healing.  In February 1996, the FDA granted ProCyte clearance to
market Iamin-Registered Trademark- Hydrating Gel as a 510(k)-regulated medical
dressing for the care and management of acute and chronic wounds, including
diabetic ulcers, venous stasis ulcers, pressure sores, first and second degree
burns, postoperative incisions and skin abrasions.  The product was launched in
the U.S. in July 1996.

     ProCyte is continuing to evaluate the polymer technology to which it
acquired worldwide rights, exclusive of Asia, for wound care product
applications.  In third quarter 1996, the Company continued to conduct marketing
studies with several of its prototype products which incorporate the polymer
and/or PCA technology, and the Company is working to develop manufacturing
methods for the first of these planned products.  The Company announced in July
1996, that it had filed its first 510(k) pre-market notification with the FDA
for clearance to market a ProCyte developed polymer-based dressing called
OsmoCyte-TM- Pillow Wound Dressing.

     ProCyte intends to continue to explore corporate alliance relationships
with companies that are capable of pursuing alternative commercialization
strategies of the Company's skin health and hair technologies in Asia and
elsewhere, and to distribute and/or develop certain other Company compounds
and/or products.  


RISK FACTORS


                                       11
<PAGE>

     The entire discussion in this report, as well as other management
discussion of the Company's goals and expectations as reported in the Company's
Annual Report on Form 10-K and its Annual Report to Shareholders for the year
ended December 31, 1995, contain 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.  

     The following factors, among others, 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 may be required to raise additional capital through equity
offerings, strategic alliances or other sources.  There can be no assurance that
such funds will be available to the Company on acceptable terms, if at all.

     There can be no assurance that the Company will be successful in attracting
or retaining corporate alliances on terms favorable to the Company, whether for
the Company's hair or IBD technology or otherwise, or that the interests and
motivations of any corporate partner or licensee would be or remain consistent
with those of the Company, or that such partners or licensees would successfully
perform the technology transfer, clinical development, regulatory compliance,
manufacturing, marketing or other obligations.  Suspension or termination of
agreements with the Company's current or future partners or licensees could have
a material adverse effect on the development of the Company's proposed products
and could materially adversely effect the Company's financial position.

CLINICAL AND COMMERCIAL DEVELOPMENT OF NOVEL COMPOUNDS

     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 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.


                                       12
<PAGE>

CONTRACT MANUFACTURING

     Given the risks and uncertain timelines associated with pharmaceutical and
biotechnology products being developed, tested, reviewed or sold by clients of
the manufacturing facility, the Company will be required to strive 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, 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 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 and distribution networks, 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.

COMPETITION

     Competition in the Company's planned area of initial product launch, wound
care, is particularly intense, involving a number of well-established, major
pharmaceutical and healthcare companies, such as Bristol Myers Squibb, Kendall
Healthcare Company, Johnson & Johnson, and others.  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, and have
considerable experience, and established reputations, promoting to healthcare
providers.

     Competition in the Company's other areas of interest, as well as wound
care, is based on scientific and technological advances, the availability of
patent protection, access to adequate 


                                       13
<PAGE>

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.

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, 1996, the Company had 18 issued United States patents
expiring between 2005 and 2010, and 123 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 


                                       14 
<PAGE>

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 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.

     The Company may elect to abandon or license certain patents for specific
applications of its technologies, or in countries where it feels that the
expense of patent filing and maintenance exceeds the market opportunity.  If the
Company does not correctly evaluate the potential market of any such
applications or the market opportunities in any such countries, such actions
could cause the Company to forego significant future revenue and could have a
material adverse effect on the financial condition of the Company.

OPERATING LOSSES

     The Company is engaged in the research and development of human health care
products, including potential pharmaceutical agents, utilizing copper-containing
and polymer-based compounds.  Such research and development has 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 Iamin-Registered Trademark-
gel for potential treatment of chronic dermal wounds, investigational prezatide
copper acetate ("PCA") for potential treatment of inflammatory bowel disease,
investigational PC1358 for potential treatment of hair loss conditions, and
polymer-based wound care products.

     The Company expects to incur additional operating losses for a number of
years until its proposed products may be approved and successfully distributed. 
At September 30, 1996, the Company's accumulated deficit was approximately 
$52.3 million.

REVENUES

     For the three and nine-month periods ended September 30, 1996, ProCyte
earned revenues from product sales, contract  manufacturing and collaborative
agreements of $102,875 and $1,478,091, and interest income of $437,375 and
$1,222,954, respectively.  This compares to collaborative agreement revenues
alone of $250,000 and $1,536,315, and interest income of $434,382 and $1,898,529
earned in the first three and nine-month periods, respectively, in 1995.  The
decrease in revenues from the year ago period was primarily as a result of
contract manufacturing product release schedules, which are expected to occur in
the fourth quarter of 


                                       15
<PAGE>

1996.  

EXPENSES

     Research and development expenses for the three and nine-month periods
ended September 30, 1996 were $1,708,184 and $4,915,171, respectively, compared
to $1,095,982 and $4,819,351 for the same periods in 1995.  Expenditures during
the period conform with the Company's planned expenses, relating primarily to
the Company's clinical and wound care product development programs.

     General and administrative expenses for the three and nine-month periods
ended September 30, 1996 were $1,130,885 and $3,554,731, respectively, compared
to $968,930 and $2,869,838 for the same periods in 1995.  The increase was
primarily related to sales force staffing expenses and one-time legal and other
fees incurred as a result of the Company's defense and settlement of the class
action lawsuit, and the related arbitration proceedings pending against two of
the Company's insurance providers.

                          PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

     On March 5, 1996, the Company announced that a tentative settlement had
been reached in the shareholder lawsuit filed in October 1994 against the
Company and certain of its officers and directors.  The Company continues to
believe that there was no wrongdoing on the part of the Company and/or any of
its officers and directors, but reached the tentative settlement agreement in an
effort to focus management's attention and corporate financial resources on the
important business of building long-term shareholder value in the Company.

     The settlement, which was for $7.75 million, received court approval on
September 12, 1996.  The court directed that approximately $2.7 million of the
settlement fund be paid to the plaintiffs' counsel for their fees and to
reimburse their expenses. On October 22, 1996 the Company paid the $5.25 million
balance owing the settlement fund with cash, rather than shares of the Company's
common stock.  ProCyte and one of its insurance carriers had already paid $2.5
million of the settlement in June 1996.  Two other carriers have declined
coverage, one with respect to $1.0 million, and the other with respect to $2.0
million.  Arbitration proceedings are pending against both carriers.

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

     None.

ITEM 5.   OTHER INFORMATION

     On July 23, 1996, the Board of Directors appointed John F. "Jack" Clifford
as president and chief executive officer, in place of Joseph Ashley who remains
a consultant to the 


                                      16
<PAGE>

Company and chairman of the board. 

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits filed as part of this report are listed in the accompanying
          Exhibit Index.

     (b)  There were no reports on From 8-K for the quarter ended September 30,
          1996.

                                  SIGNATURES

     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.


                                         PROCYTE CORPORATION
                                            (REGISTRANT)

Date:     November 8, 1996         By       /s/Jack Clifford
                                       -------------------------------------
                                              Jack Clifford
                                       President and Chief Executive Officer

Date:     November 8, 1996         By:      /s/Robert MacDonald
                                       -------------------------------------
                                              Robert MacDonald
                                         Principal Accounting Officer



                                 EXHIBIT INDEX

Exhibit              Description                                           Note
-------------------------------------------------------------------------------
10.3     ProCyte Corporation 1991 Stock Option Plan for Non-employee Directors,
          amended
10.21    ProCyte Corporation 1996 Stock Option Plan
10.22    Consulting Agreement for Mr. Ashley
27.1     Financial Data Schedule




                                       17