SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

(MARK ONE)

[X]      QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
         ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                         Commission File Number: 0-18399


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


DELAWARE                                                 62-1386759
--------                                                 ----------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)


                   7279 BRYAN DAIRY ROAD, LARGO, FLORIDA 33777
                  --------------------------------------------
                    (Address of Principal Executive Offices)


                                 (727) 548-0900
                                 --------------
              (Registrant's telephone number, including area code)


         Check whether the Registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.

                        (1)     Yes  [X]                   No   [ ]

                        (2)     Yes  [X]                   No   [ ]
<PAGE>

                      APPLICABLE ONLY TO ISSUERS INVOLVED
           IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

         Check whether the Registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
after the distribution of securities under a plan confirmed by court.

                      Yes  [X]                   No   [ ]


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

         State the number of shares outstanding of each of the Registrant's
classes of Common Stock, as of May 9, 2001:

Common Stock, par value             $.001 - 2,375,796

Class B Common Stock, par value     $.001 - 4,505


                 Transitional Small Business Disclosure Format:

                      Yes  [ ]                   No   [X]


                                       2
<PAGE>

                         FOUNTAIN PHARMACEUTICALS, INC.

                                     INDEX

                                                                            PAGE
                                                                            ----

PART I.                FINANCIAL INFORMATION*
-------                ---------------------

    Item 1.            Condensed Financial Statements (Unaudited)

                       Balance Sheets - September 30, 2000                     4
                       and March 31, 2001 (Unaudited)

                       Statements of Operations - for the three and six        5
                       months ended March 31, 2001 and 2000
                       (Unaudited)

                       Statement of Stockholders' Deficit - for                6
                       the period from September 30, 2000
                       through March 31, 2001 (Unaudited)

                       Statements of Cash Flows - for the six                  7
                       months ended March  31, 2001 and 2000
                       (Unaudited)

                       Notes to Condensed Financial Statements                 8
                       (Unaudited)

    Item 2.            Management's Discussion and                             9
                       Analysis or Plan of Operation

PART II.               OTHER INFORMATION

    Item 1.            Legal Proceedings                                      13
    Item 2.            Changes in Securities                                  13
    Item 3.            Defaults Upon Senior Securities                        13
    Item 4.            Submission of Matters to a Vote                        13
                       of Security Holders
    Item 5.            Other Information                                      13
    Item 6.            Exhibits and Reports on Form 8-K                       14


* The accompanying financial information is not covered by an Independent
  Certified Public Accountant's Report.


                                       3
<PAGE>

                         FOUNTAIN PHARMACEUTICALS, INC.
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  MARCH 31,
                                                                    2001           SEPTEMBER 30,
                                                                (UNAUDITED)            2000
                                                                ------------       ------------
<S>                                                             <C>                <C>
                                     ASSETS
Current assets:
    Cash and cash equivalents                                   $     32,069       $     88,687
    Accounts receivable, net of allowance                             48,824             50,409
      for uncollectible accounts
      ($ 1,770, March 31, 2001;
       $10,600, September 30, 2000)
    Inventories                                                      192,682            233,169
    Prepaid expenses                                                   2,790              6,184
                                                                ------------       ------------

    Total current assets                                             276,365            378,449

Furniture and equipment, less
    accumulated depreciation
    ($365,992, March 31, 2001;
     $342,581, September 30, 2000)                                    77,907            101,819

Patent costs, less accumulated
    amortization ($50,298, March 31,
    2001; $45,408, September 30, 2000)                               159,049            157,884

Other assets                                                           9,233             10,046
                                                                ------------       ------------

Total assets                                                    $    522,554       $    648,198
                                                                ============       ============

                     LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
    Accounts payable and accrued expenses                       $    199,956       $    219,114
    Accrued interest                                                 462,905            303,887
    Current maturities of long-term debt                                                17,810
    Notes Payable, related party                                   2,711,500          2,476,000
                                                                ------------       ------------

        Total current liabilities                                  3,374,361          3,016,811

Long-term debt, less current maturities                                                  13,799
                                                                ------------       ------------

        Total liabilities                                          3,374,361          3,030,610
                                                                ------------       ------------

Stockholders' deficit
    Preferred stock, par value $.001,
       2,000,000 shares authorized, issued
       and outstanding (1.2 votes per share)                           2,000              2,000
    Common stock, par value $.001, 50,000,000
       shares authorized; 2,375,796 shares
       issued and outstanding (1 vote per share)                       2,376              2,376
    Class B common stock; par value $.001,
       5,000,000 shares authorized; 4,505 shares
       issued and outstanding  (5 votes per share)                         5                  5
    Additional paid-in capital                                    17,086,682         17,086,682
    Accumulated deficit                                          (19,942,870)       (19,473,475)
                                                                ------------       ------------
       Total stockholders' deficit                                (2,851,807)        (2,382,412)
                                                                ------------       ------------

Total liabilities and stockholders' deficit                     $    522,554       $    648,198
                                                                ============       ============
</TABLE>

                                       4
<PAGE>

                         FOUNTAIN PHARMACEUTICALS, INC.
                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED                   SIX MONTHS ENDED
                                                           MARCH 31,                           MARCH 31,
                                                 -----------------------------       -----------------------------
                                                     2001              2000              2001              2000
                                                 -----------       -----------       -----------       -----------
<S>                                              <C>               <C>               <C>               <C>
Revenue                                          $   190,250       $   430,380       $   382,261       $   567,294

Cost of sales                                         20,836            45,694            51,555            82,754
                                                 -----------       -----------       -----------       -----------

Gross profit                                         169,414           384,686           330,706           484,540
                                                 -----------       -----------       -----------       -----------
Operating expenses:
    Research and development                          62,758           128,191           130,008           200,308
    General and administrative                       100,100           143,885           191,886           278,885
    Selling                                          139,952           286,759           299,357           702,751
    Depreciation and amortization                     14,389            13,899            28,802            27,747
                                                 -----------       -----------       -----------       -----------

Total operating expenses                             317,199           572,734           650,053         1,209,691
                                                 -----------       -----------       -----------       -----------

Loss from operations                                (147,785)         (188,048)         (319,347)         (725,151)

Other income (expenses):
    Interest income                                    6,452               757             6,765             1,431
    Interest expense                                 (77,763)          (60,910)         (160,806)         (102,188)
    Gain on sale of furniture and equipment                                                  250
    Other income (expense)                             3,615            (4,337)            3,743            (4,337)
                                                 -----------       -----------       -----------       -----------

Total other income (expenses)                        (67,696)          (64,490)         (150,048)         (105,094)
                                                 -----------       -----------       -----------       -----------

Net loss                                         $  (215,481)      $  (252,538)      $  (469,395)      $  (830,245)
                                                 ===========       ===========       ===========       ===========

Earnings per share:

    Net loss per share                           $      (.09)      $      (.11)      $      (.20)      $      (.35)
                                                 ===========       ===========       ===========       ===========

    Weighted average number of shares
      outstanding:                                 2,380,301         2,380,301         2,380,301         2,380,301
                                                 ===========       ===========       ===========       ===========
</TABLE>

                  See notes to condensed financial statements.


                                       5
<PAGE>

                         FOUNTAIN PHARMACEUTICALS, INC.
                       STATEMENTS OF STOCKHOLDERS' DEFICIT
          FOR THE PERIOD FROM SEPTEMBER 30, 2000 THROUGH MARCH 31, 2001
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                                  CLASS B
                                    PREFERRED STOCK                        COMMON STOCK                         COMMON STOCK
                            -------------------------------       ------------------------------      ------------------------------
                               SHARES             AMOUNT             SHARES            AMOUNT            SHARES            AMOUNT
                            ------------       ------------       ------------      ------------      ------------      ------------
<S>                            <C>             <C>                   <C>            <C>                      <C>        <C>
Balances
    September 30, 2000         2,000,000       $      2,000          2,375,796      $      2,376             4,505      $          5

Net Loss for the Period
                            ------------       ------------       ------------      ------------      ------------      ------------


Balances,
    March 31, 2001             2,000,000       $      2,000          2,375,796      $      2,376             4,505      $          5
                            ============       ============       ============      ============      ============      ============

<CAPTION>

                             ADDITIONAL        ACCUMULATED
                           PAID-IN CAPITAL       DEFICIT             TOTAL
                            ------------      ------------       ------------
<S>                         <C>               <C>                <C>
Balances
    September 30, 2000      $ 17,086,682      $(19,473,475)      $ (2,382,412)

Net Loss for the Period                           (469,395)          (469,395)
                            ------------      ------------       ------------


Balances,
    March 31, 2001          $ 17,086,682      $(19,942,870)      $ (2,851,807)
                            ============      ============       ============
</TABLE>

                  See notes to condensed financial statements.


                                       6
<PAGE>

                         FOUNTAIN PHARMACEUTICALS, INC.
                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                            SIX MONTHS ENDED MARCH 31,
                                                            -------------------------
                                                               2001            2000
                                                            ---------       ---------
<S>                                                         <C>             <C>
Cash flows from operating activities:
    Net loss                                                $(469,395)      $(830,245)
    Adjustments to reconcile net loss to
        net cash used in operating activities:
        Gain on sale of furniture and equipment                  (250)             --
        Depreciation                                           23,912          23,039
        Amortization                                            4,890           4,708
        Increase (decrease) in cash due to changes in:
           Accounts receivable                                  1,585         (72,364)
           Inventories                                         40,487          15,352
           Prepaid expenses                                     3,394          19,214
           Other assets                                           813              --
           Accounts payable and accrued expenses              139,860          56,394
                                                            ---------       ---------

Net cash used in operating activities                        (254,704)       (783,902)
                                                            ---------       ---------

Cash flows from investing activities:
    Deferred patent costs incurred                             (6,055)         (3,314)
    Acquisition of furniture and equipment                         --         (22,059)
    Proceeds from sale of furniture and equipment                 250              --
                                                            ---------       ---------

Net cash used in investing activities                          (5,805)        (25,373)
                                                            ---------       ---------

Cash flows from financing activities:
    Director and Officer loans                                235,500         831,000
    Payments on note payable, bank                            (31,609)         (7,816)
    Repayment of Director and Officer loans                        --         (20,000)
                                                            ---------       ---------

Net cash provided by financing activities                     203,891         803,184
                                                            ---------       ---------

Decrease in cash and cash equivalents                         (56,618)         (6,091)

Cash and cash equivalents at beginning of period               88,687         176,998
                                                            ---------       ---------

Cash and cash equivalents at end of period                  $  32,069       $ 170,907
                                                            =========       =========
</TABLE>

                 SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION

Interest paid was $1,788 and $2,873 for the six months ended March 31, 2001 and
2000, respectively.

                  See notes to condensed financial statements.

                                       7
<PAGE>

                         FOUNTAIN PHARMACEUTICALS, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                FOR THE SIX MONTHS ENDED MARCH 31, 2001 AND 2000
                                   (UNAUDITED)

1.   The interim financial statements of Fountain Pharmaceuticals, Inc. (the
     "Company") which are included herein are unaudited and have been prepared
     in accordance with generally accepted accounting principles for interim
     financial information and with the instructions to Form 10-QSB. In the
     opinion of management, these interim financial statements include all the
     necessary adjustments to fairly present the results of the interim periods,
     and all such adjustments are of a normal recurring nature. The interim
     financial statements should be read in conjunction with the audited
     financial statements for the two years ended September 30, 2000 included in
     the Company's Annual Report on Form 10-KSB for the year then ended. The
     report of the Company's independent auditors for the year ended September
     30, 2000 contains an explanatory paragraph as to the substantial doubt of
     the Company's ability to continue as a going concern. No adjustments have
     been made to the accompanying financial statements to give effect to this
     uncertainty. The interim results reflected in the accompanying financial
     statements are not necessarily indicative of the results of operations for
     a full fiscal year.

     The basic net loss per common share is computed by dividing the net loss by
     the weighted average number of common shares outstanding.

     Diluted net loss per common share is computed by dividing the net loss,
     adjusted on an as if converted basis, by the weighted average number of
     common shares outstanding plus potential dilutive securities (Common Stock
     options and Warrants). For the six months ended March 31, 2001 and 2000
     potential dilutive securities had an anti-dilutive effect and were not
     included in the calculation of diluted net loss per common share.

2.   Management's plans regarding operations and capital resources:

     The Company has incurred recurring losses and has a $3,097,996 working
     capital deficit at March 31, 2001. During the past three years these losses
     have been principally funded through sales of preferred stock ($2,500,000)
     to an entity controlled by the Company's current Chairman of the Board (Mr.
     Schuchert) and advances of $2,711,500 from Mr. Schuchert. Given the limited
     financial resources of the Company, the Company is continuing to reduce
     operating expenses. In addition, the Company is continuing to de-emphasize
     building an internal sales infrastructure and is concentrating its efforts
     on establishing partnerships and/or joint ventures with sales channels that
     do not require up front investment or overhead expense. These relationships
     may include commission only sales personnel, E-Commerce marketing partners,
     etc. Based upon the Company's current budget guidelines, management
     believes that the Company has sufficient working capital to enable the
     Company to meet its anticipated operating expenses through May 18, 2001.
     The Company is in discussions with Mr. Schuchert regarding funding the
     Company's near term cash needs. However, no agreement has been reached and
     Mr. Schuchert is not obligated to provide such financing. If the Company is
     unable to secure additional financing from Mr. Schuchert in the very near
     term, it will not be able to continue as a going concern and will suspend
     operations.


                                       8
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         BACKGROUND

         The Company was organized during 1989 to develop and commercialize
certain proprietary compound encapsulation technologies. Following several years
of continued developmental efforts, the Company was able to secure patents on
several aspects of its technologies in the United States and Europe, introduce
branded products in certain markets and develop strategic associations with
pharmaceutical companies.

         From inception through 1994, the Company remained in the development
stage while experiencing substantial losses. Its principal source of capital was
derived from a series of private financing transactions and an initial public
offering in 1990. Sales revenues during this period were insufficient to offset
the Company's operating costs and liabilities. Consequently, the Company filed
for protection under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the Middle District of Florida, Tampa
Division on November 30, 1994. Upon successfully reorganizing its operations and
finances, the Company emerged from bankruptcy in July 1996.

         In July 1997, the Company completed a private placement of 2,000,000
newly-designated and issued shares of Series A Convertible Preferred Stock (the
"Preferred Stock") to Fountain Holdings, LLC ("Holdings"), a Wyoming limited
liability company, controlled by Joseph S. Schuchert, Jr. As a result of this
private placement (the "Private Placement"), the Company obtained additional
working capital of $2.5 million, which it utilized to enhance the expansion of
the Company's sales and marketing program, as well as to further the Company's
research and development efforts.

         As a result of significant increases in marketing costs associated with
the expansion of existing product lines and the introduction of new products
during fiscal year ended September 30, 1998, which were not offset by sales
revenues during the period, the Company substantially utilized its working
capital resources. In order to provide working capital, the Company also entered
into a secured credit arrangement with Mr. Schuchert as of December 31, 1998.
The credit agreement provides for a two-year line of credit of up to $1,500,000
subject to the Company satisfying certain agreed upon quarterly operating budget
guidelines.

         As a result of additional costs associated with the development and
marketing of two new product lines during fiscal year ended September 30, 1999,
the Company fully utilized the $1,500,000 line of credit. In order to maintain
operations for fiscal year ending September 30, 2000, the Company obtained short
term unsecured loans from its former President, Mr. Gerald Simmons and Mr. John
C. Walsh, a director of the Company in the aggregate amount of $20,000. During
fiscal year ended September 30, 2000 and subsequently, Mr. Schuchert made
additional unsecured advances to the Company, the terms of which have not been
finalized. As of May 9, 2001, the outstanding principal balance of this
unsecured loan was $1,211,500.

         The Company is in discussions with Mr. Schuchert regarding funding the
Company's


                                       9
<PAGE>

near term cash needs. However, no agreement has been reached and Mr.
Schuchert is not obligated to provide such financing. If the Company does not
secure additional financing from Mr. Schuchert in the very near term, the
Company will not be able to continue as a going concern and will suspend
operations. SEE "LIQUIDITY AND CAPITAL RESOURCES."

         RESULTS OF OPERATIONS

         During the quarter ended March 31, 2001, the Company realized a net
loss of $215,481 on revenues of $190,250, compared to net loss of $252,538 on
revenues of $430,380 for the quarter ended March 31, 2000. The decrease in
losses from the prior year's quarter ended March 31, 2000, is attributable
primarily to the overall reduction in operating expenses. The decrease in
revenues of 55.8% from the prior year's quarter ended March 31, 2000 was a
direct result of the Company's European licensee in Switzerland transitioning
its sunscreen production to a non-Lyphazome technology process. See "Liquidity
and Capital Resources."

         During the quarter ended March 31, 2001, the Company incurred operating
expenses of $317,199, a 44.6% decrease over operating expenses of $572,734 in
the quarter ended March 31, 2000. This decrease in expenses was primarily due to
reduction in personnel, travel and entertainment expenses, sales and marketing
expenses relating to the Company's moisturizer and sunscreen brand, Lyphazome(R)
and the new skin care brand, Celazome(R).

         During the six months ended March 31, 2001, the Company incurred a net
loss of $469,395 on revenues of $382,261, compared to a net loss of $830,245 on
revenues of $567,294 for the comparable period ended March 31, 2000. This
decrease in net losses from the prior year's six months ended March 31, 2000, is
attributable primarily to a 46.3% overall reduction in operating expenses. The
decrease in revenues from the prior year's six months ended March 31, 200, was a
result, primarily, of the Company's European licensee in Switzerland
transitioning its sunscreen production to a non-Lyphazome technology process.

         During the quarter ended March 31, 2001, the Company incurred interest
expense of $77,763, a 27.7% increase over interest expense of $60,910 for the
quarter ended March 31, 2000. Interest expense for the six months ended March
31, 2001 was $160,806, representing a 57.4% increase over interest expense of
$102,188 for the six months ended March 31, 2000. This increase in interest
expense is associated with the secured line of credit arrangement and the
unsecured loan with Mr. Joseph S. Schuchert, Jr. SEE "LIQUIDITY AND CAPITAL
RESOURCES."

         LIQUIDITY AND CAPITAL RESOURCES

         From inception through the quarter ended June 30, 1994, the Company's
principal sources of working capital were derived from a series of private
financing transactions and an initial public offering in 1990. As a result of
the Company's declining equity and assets, the Company's securities were
delisted from The NASDAQ SmallCap MarketSM during May 1994 and the securities
have since traded on the less liquid market of the OTC Bulletin Board.


                                       10
<PAGE>

         During the period from the quarter ended June 30, 1994 throughout the
bankruptcy proceedings, the Company's operations were funded primarily through
sales of products and from royalties, as well as the sale of 25,000,000 shares
(pre-split) of the Company's Common Stock to its then Chief Executive Officer at
a purchase price of $250,000 in December 1995. Since emerging from bankruptcy,
the Company's primary source of working capital have been sales revenues, short
term advances from the Company's then Chief Executive Officer and proceeds of
$2.5 million generated from a private placement offering in July 1997.

        As a result of such significant increase in marketing costs and legal
fees, which were not offset by sales revenues, the Company had substantially
utilized its working capital resources by December 1998. In order to provide
working capital, the Company entered into a secured credit arrangement with Mr.
Schuchert as of December 31, 1998. The Credit Agreement (the "Credit Agreement")
provides for a secured line of credit of up to $1,500,000, the principal and
unpaid interest of which was due on December 31, 2000, 180 days from written
demand of Mr. Schuchert as lender or upon an event of default under the
agreement. (SEE "ITEM 3, DEFAULTS UPON SENIOR SECURITIES.") As of May 9, 2001,
Mr. Schuchert has not called the credit agreement on the Company, but is under
no obligation to do so. The line of credit bears interest at an adjustable
monthly rate equal to the greater of (i) the prime rate quoted in the WALL
STREET JOURNAL, plus 1 1/2% or (ii) 9%, which is payable monthly or may be
accrued. The facility is secured by all of the assets of the Company (subject to
any existing liens). The facility is subject to the Company satisfying certain
agreed upon quarterly operating budget guidelines. As of May 9, 2001, the
Company had $1,500,000 outstanding under this facility plus accrued interest of
$340,027 as of April 30, 2001. The proceeds of the loan have been utilized to
fund operations and to pay legal fees in connection with the Dermik lawsuit
which was settled in March 1999. Under the terms of the warrant granted in
connection with the Credit Agreement, Mr. Schuchert is entitled to purchase 1.6
shares of Common Stock for each dollar advanced under the facility and 1.6
shares of Common Stock for each dollar of accrued interest that is unpaid when
due under the facility at an exercise price of $.65 per share with an expiration
date of December 31, 2003. As of May 9, 2001, Mr. Schuchert is entitled to
purchase an aggregate of 2,944,043 shares of Common Stock upon the exercise of
such warrant.

        As of March 31, 2001, the Company had a working capital deficit of
$3,097,996, a decrease in working capital of $459,634 from the level of working
capital deficit, of $2,638,362 as of September 30, 2000. The decrease in working
capital is primarily attributable to operating expenses not offset by sales
revenues, accrued interest on the Credit Agreement, plus estimated accrued
interest on the unsecured loan from Mr. Schuchert and additional inventory
reserves for expired products.

         Since October 1999, the Company has substantially relied upon advances
by Mr. Schuchert, a Director of the Company, to provide working capital to fund
operations. Mr. Schuchert made the advances as an additional unsecured loan, the
terms of which have not been finalized. As of May 9, 2001, the outstanding
principal balance of this unsecured loan was $1,211,500 plus estimated accrued
interest of $146,686 as of April 30, 2001. As of May 9, 2001 the Company's cash
position was $5,594. Given the limited financial resources of the Company, the
Company is continuing to reduce operating expenses. In addition, the Company is
continuing


                                       11
<PAGE>

to de-emphasize building an internal sales infrastructure and is concentrating
its efforts on establishing partnerships and/or joint ventures with sales
channels that do not require up front investment or overhead expense. Among
others, these relationships may include commission only sales personnel and
E-Commerce marketing partners. Based upon the Company's current budget
guidelines, management believes that the Company has sufficient capital to
enable the Company to meet its anticipated operating expenses through May 18,
2001. The Company is in discussions with Mr. Schuchert regarding funding the
Company's near term cash needs. However, no agreement has been reached and Mr.
Schuchert is not obligated to provide such financing. If the Company does not
secure additional financing from Mr. Schuchert in the very near term, the
Company will not be able to continue as a going concern and will suspend
operations.

         In light of the Company's limited capital resources, the Company has
reduced operations and cut expenses to the greatest extent possible while
continuing to service its existing business. Nevertheless, the Company currently
has a minimum monthly overhead of $55,000. Although Mr. Schuchert has
historically funded the Company's operating cash shortfalls he is not obligated
to do so and has not provided any additional funding to the Company since
January 2001. Since that date, the Company has had sufficient revenues to fund
its operating cash needs, although there can be no assurance that they will
continue to be sufficient.

         In August 2000, Spirig AG informed the Company that it would begin
transitioning its sunscreen to a non-LyphaZome technology. The transition will
begin subsequent to fiscal year ending September 30, 2000 and will be completed
by March 22, 2003, the expiration of Spirig AG's contract. The Company has
agreed to accept a fee from Spirig AG based on sales of the non-LyphaZome
sunscreens. This fee is in lieu of the normal licensing fee. At this point, the
Company is unable to quantify its projected loss of revenue from the Spirig AG
contract. To offset the potential revenue decreases from Spirig AG, the Company
is negotiating with a number of new international licensee/distributor
candidates. In October 2000, Quinoderm, Ltd. signed a licensee agreement with
the Company to distribute products in the United Kingdom and Ireland markets. In
addition, in April 2001, Huey Shyua International Enterprise Co., Ltd. has
signed a distribution agreement with the Company to distribute Celazome(R)
products in the Taiwan market.

         EFFECTS OF INFLATION

         The Company does not expect inflation to materially effect its results
of operations, however, it does expect that its operating costs and the cost of
capital equipment to be acquired in the future may be subject to general
economic and inflationary pressures.


                                       12
<PAGE>

PART II.          OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS

         None

ITEM 2.           CHANGES IN SECURITIES

         None

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES

         As described under "Management's Discussion and Analysis of Financial
Condition and Results of Operations/Liquidity and Capital Resources" the
Company's line of credit with Mr. Schuchert matured on December 31, 2000. The
Company was not in a financial position to make the payment of $1,782,184 in
principal and interest due on that date. The line of credit is secured by a lien
on substantially all the assets of the Company. Mr. Schuchert has not taken
action to enforce his rights under the agreement which evidence the line of
credit, although there can be no assurance that he will not do so.

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

         None

ITEM 5.           OTHER INFORMATION

         (a)      CHANGE IN OFFICERS

         Mr. Gerald T. Simmons resigned from his position as Chief Executive
Officer and President on November 30, 2000. Mr. Simmons did not receive a
severance arrangement. Effective February 1, 2001 the Board of Directors of the
Company appointed Mr. Christopher J. Whitaker who is Vice President of
Operations to Interim Chief Executive Officer and Mr. Francis J. Werner who is
Director of Finance and Administration to Interim Chief Financial Officer.

         (b)      GENERAL

         PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT

         When used in this Quarterly Report on Form 10-QSB, the words "may",
"will", "expect", "anticipate", "continue", "estimate", "intend", and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 regarding events, conditions and financial
trends which may affect the Company's future plans of operations, business
strategy, operating results and financial position. Such statements are not
guarantees of future performance and are


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<PAGE>

subject to risks and uncertainties and actual results may differ from those
included within the forward-looking statements (which differences may be
material) as a result of various factors. Such factors include, among others:
(i) the Company's ability to obtain additional sources of capital to fund
continuing operations in the immediate term; (ii) the Company's ability to
retain existing or obtain additional licensees who act as distributors of its
products; (iii) the Company's ability to obtain additional patent protection for
its encapsulation technology; and (iv) other economic, competitive and
governmental factors affecting the Company's operations, market, products and
services. Additional factors are described in the Company's other public reports
and filings with the Securities and Exchange Commission. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date made. The Company undertakes no obligation to publicly
release the result of any revision of these forward-looking statements to
reflect events or circumstances after the date they are made or to reflect the
occurrence of unanticipated events.

ITEM 6.             EXHIBITS AND REPORTS ON FORM 8-K

           (a)      Exhibits:

           None

           (b)      Reports on Form 8-K:

           None.


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<PAGE>

                         FOUNTAIN PHARMACEUTICALS, INC.

                                   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.

                                        FOUNTAIN PHARMACEUTICALS, INC.



Dated:  May 15, 2001                    /s/ CHRISTOPHER J. WHITAKER
                                        ----------------------------------------
                                        CHRISTOPHER J. WHITAKER
                                        Interim Chief Executive Officer and
                                        Vice President of Operations


                                        /s/ FRANCIS J. WERNER
                                        ----------------------------------------
                                        FRANCIS J. WERNER
                                        Interim Chief Financial Officer and
                                        Director of Finance and Administration




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