<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-QSB

[X]      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
For the quarterly period ended           December 31, 1999
                               -------------------------------------------

                                       OR

[  ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the transition period from                   to
                               ------------------   -----------------

Commission file number                       1-7335
                        --------------------------------------------------------

                               LEE PHARMACEUTICALS
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

        California                                 95-2680312
--------------------------------        -------------------------------------
(State or other jurisdiction of        (I.R.S. Employer Identification No.)
 incorporation or organization)

            1444 Santa Anita Avenue, South El Monte, California 91733
--------------------------------------------------------------------------------
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (626) 442-3141
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

                                      N / A
--------------------------------------------------------------------------------
      (Former name, former address and former fiscal year, if changed since
                                  last report)

         As of December 31, 1999, there were outstanding 4,135,162 shares of
common stock of the registrant.

         Transitional Small Business Disclosure Format (check one):
Yes            No     X
   ----------    -----------

<PAGE>

                               LEE PHARMACEUTICALS
                                  BALANCE SHEET
                                DECEMBER 31, 1999
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
                        ASSETS
<S>                                                                        <C>                 <C>
Cash                                                                                           $           6

Accounts and notes receivable (net of allowances: $157)                                                  988

Due from related party                                                                                   204

Inventories:
     Raw materials                                                         $       1,752
     Work in process                                                                 197
     Finished goods                                                                  458
                                                                           -------------
     Total inventories                                                                                 2,407

Other current assets                                                                                     409
                                                                                               -------------
     Total current assets                                                                              4,014

Property, plant and equipment (less
     accumulated depreciation and
     amortization: $6,211)                                                                               498

Goodwill and other assets, (net of
     accumulated amortization: $6,892)                                                                 3,622
                                                                                               -------------

        TOTAL                                                                                  $       8,134
                                                                                               =============


</TABLE>

                       See notes to financial statements.


<PAGE>


                               LEE PHARMACEUTICALS
                                  BALANCE SHEET
                                DECEMBER 31, 1999
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>

         LIABILITIES
<S>                                                                                          <C>
Bank overdraft                                                                               $           127
Note payable to bank                                                                                   1,647
Current portion - notes payable, other                                                                 1,571
Current portion - note payable related party                                                             525
Accounts payable                                                                                       1,083
Other accrued liabilities                                                                                710
Environmental cleanup liability                                                                          366
Due to related parties                                                                                   659
Deferred income                                                                                           60
                                                                                             ---------------

         Total current liabilities                                                                     6,748
                                                                                             ---------------

Long-term notes payable to related parties                                                             2,582
                                                                                             ---------------

Long-term notes payable, other                                                                         1,053
                                                                                             ---------------

Environmental cleanup liability - Casmalia Site                                                          374
                                                                                             ---------------


         COMMITMENTS AND CONTINGENCIES

         STOCKHOLDERS' DEFICIENCY

Common stock, $.10 par value; authorized, 7,500,00 shares;
   issued and outstanding, 4,135,162 shares                                                              413

Additional paid-in capital                                                                             4,222

Accumulated deficit                                                                                   (7,258)
                                                                                             ---------------

         Total stockholders' deficiency                                                               (2,623)
                                                                                             ---------------

                  TOTAL                                                                      $         8,134
                                                                                             ===============


</TABLE>

                       See notes to financial statements.


<PAGE>


                               LEE PHARMACEUTICALS

                            STATEMENTS OF OPERATIONS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                                       FOR THE THREE MONTHS
                                                                                        ENDED DECEMBER 31,
                                                                                      1999              1998
                                                                                  -------------    -------------
                                                                                   (UNAUDITED)       (UNAUDITED)
<S>                                                                               <C>             <C>
Gross revenues                                                                    $      2,537     $      2,133
Less:    Sales returns                                                                    (193)            (127)
         Cash discounts and others                                                         (22)             (16)
                                                                                  ------------     ------------

Net revenues                                                                             2,322            1,990
                                                                                  ------------     ------------
Costs and expenses:

       Cost of sales                                                                     1,068              936
       Selling and advertising expense                                                     732              719
       General and administrative expense                                                  305              303
       Interest expense                                                                    216              188
                                                                                  ------------     ------------

Total costs and expenses                                                                 2,321            2,146
                                                                                  ------------     ------------

Income (loss) from operations                                                                1             (156)

Other income                                                                                17               15
                                                                                  ------------     ------------
Net income (loss) before extraordinary item                                                 18             (141)

Extraordinary loss related to Casmalia Disposal Site cleanup                                 -             (374)
                                                                                  ------------     ------------

Net income (loss)                                                                  $        18     $       (515)
                                                                                   ===========     ============

Per share:

       Basic income (loss) per share before extraordinary loss                     $       .00     $       (.03)
       Extraordinary loss                                                                    -             (.09)
                                                                                  ------------     ------------
       Basic income (loss)                                                         $       .00     $       (.12)
                                                                                   ===========     ============


                       See notes to financial statements.

</TABLE>


<PAGE>
                               LEE PHARMACEUTICALS
                            STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                      FOR THE THREE MONTHS
                                                                                       ENDED DECEMBER 31,
                                                                                      1999              1998
                                                                                ----------------  ---------------
                                                                                    (UNAUDITED)    (UNAUDITED)
<S>                                                                             <C>               <C>
Cash flows from operating activities:
   Net income (loss)..........................................................    $          18    $        (515)
     Loss from extraordinary item.............................................                -              374
                                                                                  -------------    -------------
   Net income (loss) before extraordinary item................................               18             (141)
                                                                                  -------------    -------------
   Adjustments to reconcile net income (loss) to net
    cash provided by operating activities:
   Depreciation...............................................................               35               33
   Amortization of intangibles................................................              220              209
   (Decrease) in deferred income..............................................              (16)             (16)
   (Gain) on disposal of property, plant, and equipment.......................                -                -
Change in operating assets and liabilities:
   (Increase) decrease in accounts receivable.................................              (95)             216
   Decrease (increase) in due from related party..............................                1              (18)
   (Increase) in inventories .................................................              (76)            (181)
   Decrease (increase) in other current assets................................               45              (97)
   (Decrease) increase in accounts payable....................................               (6)             185
   Increase in due to related party...........................................               54               58
   Increase in notes payable, other...........................................              220              740
   Increase (decrease) in other accrued liabilities...........................               54              (34)
   (Decrease) in accrued royalties............................................              (26)            (295)
                                                                                  -------------    -------------
   Total adjustments..........................................................              410              800
                                                                                  -------------    -------------
     Net cash provided by operating activities................................              428              659
                                                                                  -------------    -------------

Cash flows from investing activities:
   Additions to property, plant, and equipment................................             (106)             (21)
   Proceeds from sale of equipment............................................                -                -
   Acquisition of product brands..............................................             (140)            (930)
                                                                                  -------------    -------------
     Net cash (used in) investing activities..................................             (246)            (951)
                                                                                  -------------    -------------

Cash flows from financing activities:

   (Payments on) bank loans...................................................               (6)              (2)
   (Payments on) proceeds from notes payable, other...........................             (209)             326
   Increase (decrease) in bank overdraft......................................               35              (51)
                                                                                  -------------    -------------
     Net cash (used in) provided by financing activities......................             (180)             273
                                                                                  --------------   -------------

Net increase (decrease) in cash...............................................                2              (19)
Cash, beginning of year.......................................................                4               42
                                                                                  -------------    -------------

Cash, end of period...........................................................    $           6    $          23
                                                                                  =============    =============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the year for:
   Interest...................................................................    $         174    $         148
                                                                                  =============    =============

Acquisition of product brands:
   Fair value of assets acquired..............................................    $         340    $       1,015
   Fair value of liabilities incurred.........................................             (200)             (85)
                                                                                   -------------   -------------
     Net cash payments........................................................    $         140    $         930
                                                                                  =============    =============
</TABLE>
                       See notes to financial statements.
<PAGE>

   NOTES TO FINANCIAL INFORMATION

1. Basis of presentation:

   The accompanying balance sheet as of December 31, 1999, and the statements
   of operations and cash flows for the periods ended December 31, 1999, and
   1998, have not been audited by independent accountants but reflect all
   adjustments, consisting of any normal recurring adjustments, which are, in
   the opinion of management, necessary to a fair statement of the results for
   such periods. The results of operations for the three months ended December
   31, 1999, are not necessarily indicative of results to be expected for the
   year ending September 30, 2000.

   Certain information and footnote disclosure normally included in financial
   statements prepared in accordance with generally accepted accounting
   principles have been omitted pursuant to the requirements of the Securities
   and Exchange Commission, although the Company believes that the disclosures
   included in these financial statements are adequate to make the information
   not misleading.

   The financial statements should be read in conjunction with the financial
   statements and notes thereto included in the Company's annual report on
   Form 10-KSB for the fiscal year ended September 30, 1999.

   The Company is involved in various matters involving environmental cleanup
   issues. SEE "Item 2. Management's Discussion and Analysis or Plan of
   Operations" herein and Note 10 of Notes to Financial Statements included in
   the Company's Form 10-KSB for the fiscal year ended September 30, 1999. The
   ultimate outcome of these matters cannot presently be determined.
   Environmental expenditures that relate to an existing condition caused by
   past operations, and which do not contribute to current or future revenue
   generation, are expensed. The Company's proportionate share of the
   liabilities are recorded when environmental remediation and/or cleanups are
   probable, and the costs can be reasonably estimated.

2. Basic income (loss) per share:

   Basic income (loss) per share is based on the weighted average number of
   shares of common stock outstanding during the periods presented. Common
   stock equivalents (common stock options) are not included in the
   calculation for the three months ended December 31, 1999 because the effect
   was immaterial. Common stock equivalents were not included in the loss for
   the three months ended December 31, 1998 because their effect on basic loss
   per share is anti-dilutive. The weighted average number of shares was
   4,135,162 for all periods presented.

3. Note payable to bank:

   Effective April 26, 1996, the Company renewed its real estate loan with the
   bank. The note payable to the bank, secured by deed on land and building,
   requires a monthly payment of $4,200, including interest at the bank's
   reference rate plus 4%, maturing March 2001. At December 31, 1999, the
   interest rate was 12.5%. The note is guaranteed by the former Chairman of
   the Company and the Company's President.

4. Line of credit:

   Effective May 21, 1998, the Company renewed its accounts receivable
   financing, maturing May 2000, whereby 75% of the eligible domestic accounts
   receivable, not to exceed the greater of $1,100,000 or $1,100,000 less
   amounts advanced on inventory, can be advanced. The agreement is renewable
   for successive one year periods thereafter. Also, the agreement requires
   minimum monthly interest of $3,000 with an interest rate of 5% above Bank
   of America's prime rate. The financing agreement includes a $400,000 term
   loan on inventory which is incorporated in the working capital line of
   credit above. This term loan requires monthly payments of $11,110 with an
   interest rate of 6% above Bank of America's prime rate. Additionally, there
   is a separate $440,000 term loan on the Company's equipment. This financing
   is secured by a security interest in all of the Company's assets and
   requires monthly payments of $11,800 including interest at Bank of
   America's prime rate plus 6%.

   On October 29, 1999, the Company and it's asset based financing lender
   mutually agreed to modify the Loan and Security Agreement whereby the
   maximum revolving advance was increased to $1,400,000 from $1,100,000 based
   on domestic accounts receivable. All other terms and conditions of the
   Agreement remain unchanged.
<PAGE>
5. Acquisitions:

   On October 1, 1998, the Company purchased certain assets of the
   Cheracol-Registered Trademark- cough syrup, Comhist-Registered Trademark-
   decongestant tablets and Entuss-Registered Trademark- expectorant product
   lines from Roberts Pharmaceutical Corporation for $684,934. The Company
   remitted $600,000 at closing and is required to make monthly payments of
   $3,538, plus interest at prime, commencing January 1, 1999, and ending
   November 1, 2000. In addition, the Company purchased certain inventory for
   $150,800 for which the Company is required to make monthly payments of
   $6,283, plus interest at prime, commencing January 1, 1999, and ending
   November 1, 2000.

   On December 1, 1998, the Company purchased certain assets of seven
   over-the-counter products from Numark Laboratories, Inc. for $430,000. The
   Company remitted the full $430,000 at closing.

   On April 23, 1999, the Company purchased certain assets of the Lady
   Esther-Registered Trademark- facial cream and powder product line from
   Numark Laboratories, Inc. for $220,000. The Company remitted $220,000 at
   closing. In addition, the Company purchased certain inventory for $169,000.

   On June 29, 1999, the Company purchased certain assets of the
   Take-Off-Registered Trademark-, pre-moistened makeup remover cloths product
   line from Premier Consumer Products, Inc. and Advanced Polymer Systems, Inc.
   for $1,000,000. The Company remitted $200,000 at closing and is required to
   make monthly payments of $32,000 plus interest at prime commencing September
   15, 1999 and ending September 15, 2001. In addition, the Company purchased
   certain inventory for approximately $70,000.

   On November 15, 1999, the Company purchased certain assets of product
   lines from U.S. Dermatologics, Inc. which includes Cope-Registered
   Trademark-, a tension headache relief tablet, and Astring-o-Sol-Registered
   Trademark-, a concentrated mouthwash, for $400,000. The Company has
   remitted $200,000 at closing and is required to make twenty-four equal
   monthly installments of $8,000 plus interest at a rate equal to the
   highest prime rate (published in the Wall Street Journal) during the
   preceding month commencing January 25, 2000 and ending on December 25,
   2001, and a final payment of all remaining principal due on January 25,
   2002. Included in the above purchase price was certain inventories valued
   at approximately $60,000.

ITEM 2.

   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

   MATERIAL CHANGES IN RESULTS OF OPERATIONS
   THREE MONTHS ENDED DECEMBER 31, 1999, AND DECEMBER 31, 1998

   Gross revenues for the three months ended December 31, 1999, were
   $2,537,000, an increase of approximately $404,000 or 19% from the
   comparable three months period ended December 31, 1998. The increase in
   gross revenues was due to the added volume generated from the
   Lee-Registered Trademark-Lip-Ex-TM- lip balm line plus the recently
   acquired brands such as: Take-Off-Registered Trademark-, Lady
   Esther-Registered Trademark-, and seven items purchased from Numark
   Laboratories, Inc. These newly acquired brand acquisitions accounted for
   approximately $425,000 or 17% of the Company's total gross revenues. The
   increase in gross revenues was somewhat offset by the reduced sales of the
   nail category products, certain over-the-counter items and depilatories.

   Net revenues increased approximately $332,000 or 17% for the three months
   ended December 31, 1999, as compared to the three months ended December 31,
   1998. The change in net revenues was due to the same explanations discussed
   above. The Company's sales returns increased approximately $66,000 or 52%
   when comparing the three months ended December 31, 1999 and 1998. The
   increase was a result of higher product returns related to prescription
   drug items.

   Cost of sales as a percentage of gross revenues was 42% for the three
   months ended December 31, 1999, compared to 44% for the comparative three
   months period ended December 31, 1998. The lower cost of sales percentage
   was due to a favorable product mix along with longer and more efficient
   production runs.

   Selling and advertising expenses increased $13,000 or 2% when comparing the
   three months ended December 31, 1999, with the three months ended December
   31, 1998. The increase in expenses
<PAGE>
   was mainly due to the following factors; 1) increased amortization expense
   ($33,500), the result of recent brand acquisitions, 2) additional
   cooperative advertising ($48,000), and 3) higher freight costs
   ($47,000). The above increases were offset by decreases in royalty
   expense ($82,000) due to the expiration of the write-off period, lower
   consultant fees ($14,000), and insurance expense ($9,600).

   General and administrative expenses increased $2,000 when comparing the
   three months ended December 31, 1999, with the three months ended December
   31, 1998.

   Interest expense increased $28,000 or 15% when comparing the three months
   ended December 31, 1999, with the three months ended December 31, 1998. The
   increase was due to increased borrowing from the Company's asset based
   financing lender and additional liability commitments as a result of recent
   brand acquisitions. Also, contributing to the increase was a higher prime
   interest rate, 8.5% versus 7.75%, at December 31, 1999 and December 31,
   1998, respectively.

   LIQUIDITY AND CAPITAL RESOURCES

   During the three months ended December 31, 1999, working capital was a
   negative $2,734,000 compared with a negative $2,409,000 as of September
   30,1999. The ratio of current assets to current liabilities was .6 to 1 at
   December 31, 1999, and September 30, 1999. The increase in the Company's
   negative working capital was due to an increase in borrowing on notes
   payable, and increases in notes payable to its asset based financing
   lender.

   The Company has an accumulated deficit of $7,258,000. The Company's past
   recurring losses and the nominal profit from operations in fiscal 1997 and
   the first quarter of fiscal 2000, and inability to generate sufficient cash
   flow from normal operations to meet its obligations as they come due raise
   substantial doubt about the Company's ability to continue as a going
   concern. The Company's ability to continue in existence is dependent upon
   future developments, including retaining current financing and achieving a
   level of profitable operations sufficient to enable it to meet its
   obligations as they become due.

   YEAR 2000 READINESS

   Most companies have computer systems that use two digits to identify a year
   in the date field (e.g. "99" for 1999). These systems must be modified to
   handle turn-of-the century calculations. If not corrected, systems failures
   or miscalculations could occur, potentially causing disruptions of
   operations, including, among other things, the inability to process
   transactions, send invoices, or engage in other normal business activities.
   This creates potential risk for all companies, even if their own computer
   systems are Year 2000 compliant.

   In 1998, the Company initiated a comprehensive review of its computer
   systems to identify processes that could be adversely affected by Year 2000
   issues. In addition, the Company identified computer application systems
   that required modification or replacement. The Company communicated with
   suppliers, vendors, and lenders to determine the extent to which those
   companies are addressing Year 2000 compliance issues.

   The Company currently estimates that the total cost for the Year 2000
   project will be approximately $100,000. During fiscal year 1999, the
   Company incurred approximately $73,000 for charges related to its Year 2000
   remediation effort. The remediation costs include internal labor costs, as
   well as fees and expenses paid to outside contractors specifically
   associated with programming and purchased hardware and upgraded software.
   The Company incurred approximately $13,000 in Year 2000 modication expenses
   during the quarter ended December 31, 1999.

   As of the date of this report, the Company has not experienced any material
   Year 2000 related problems. Based on currently available information,
   management does not believe that the Year 2000 matters discussed above will
   have a material adverse impact on the Company's financial condition or
   results of operations; however, because of the uncertainties in this area,
   no assurances can be given in this regard.

   ENVIRONMENTAL MATTERS

   The Company owns a manufacturing facility located in South El Monte,
   California. The California Regional Water Quality Control Board (The
   "RWQCB") ordered the Company in 1988 and 1989 to
<PAGE>

   investigate the contamination on its property (relating to soil and
   groundwater contamination). The Company engaged a consultant who performed
   tests and reported to the then Chairman of the Company. The Company
   resisted further work on its property until the property upgradient was
   tested in greater detail since two "apparent source" lots had not been
   tested. On August 12, 1991, the RWQCB issued a "Cleanup and Abatement
   Order" directing the Company to conduct further testing and cleanup the
   site. In October 1991, the Company received from an environmental
   consulting firm an estimate of $465,200 for investigation and cleanup
   costs. The Company believed that this estimate was inconclusive and
   overstated the contamination levels. The Company believes that
   subsequent investigations will support the Company's conclusions about
   that estimate. The Company did not complete the testing for the reasons
   listed above as well as "financial constraints". In June 1992 the RWQCB
   requested that the EPA evaluate the contamination and take appropriate
   action. At the EPA's request, Ecology & Environment, Inc. conducted an
   investigation of soil and groundwater on the Company's property. Ecology &
   Environment Inc.'s Final Site Assessment Report, which was submitted to the
   EPA in June 1994, did not rule out the possibility that some of the
   contamination originated on-site, and resulted from either past or current
   operations on the property. The Company may be liable for all or part of
   the costs of remediating the contamination on its property. The EPA has
   not taken any further action in this matter, but may do so in the future.

   The Company and nearby property owners, in consort with their comprehensive
   general liability (CGL) carriers, have engaged a consultant to perform a site
   investigation with respect to soil and shallow groundwater contamination over
   the entire city block. The CGL carriers provided $290,000 in funding which
   paid for the $220,000 study, $20,000 in legal fees for project oversight,
   and a $50,000 balance in the operating fund. Earlier the Company had accrued
   $87,500 as its proportionate share of the earlier quote of $175,000. Since
   that time, the overall scope of the project was increased to $205,000 plus
   $15,000 for waste water disposal, bringing the total to the above listed
   $220,000. The $87,500 accrual was not spent on this project (as the entire
   cost was borne by the CGL carriers), but remains on the books as an accrual
   against the cost of remediation of the same site that was included in the
   study.

   The tenants of nearby properties upgradient have sued the Company alleging
   that hazardous materials from the Company's property caused contamination
   on the properties leased by the tenants. The case name is DEL RAY
   INDUSTRIAL ENTERPRISES, INC. v. ROBERT MALONE, ET AL., Los Angeles County
   Superior Court, Northwest District, commenced August 21, 1991. In this
   action, the plaintiff alleges environmental contamination by defendants of
   its property, and seeks a court order preventing further contamination and
   monetary damages. The Company does not believe there is any basis for the
   allegations and is vigorously defending the lawsuit.

   The Company's South El Monte manufacturing facility is also located over a
   large area of possibly contaminated regional groundwater which is part of
   the San Gabriel Valley Superfund site. The Company has been notified that
   it is a potentially responsible party ("PRP") for the contamination. In
   1995, the Company was informed that the EPA estimated the cleanup costs for
   the South El Monte's portion of the San Gabriel Valley Superfund site to be
   $30 million. The Company's potential share of such amount has not been
   determined. Superfund PRPs are jointly and severally liable for superfund
   site costs, and are responsible for negotiating among themselves the
   allocation of the costs based on, among other things, the outcome of
   environmental investigation.

   In August 1995 the Company was informed that the EPA entered into an
   Administrative Order of Consent with Cardinal Industrial Finishes
   ("Cardinal") for a PRP lead remedial investigation and feasibility study
   (the "Study") which, the EPA states, will both characterize the extent of
   groundwater contamination in South El Monte and analyze alternatives to
   control the spread of contamination. The Company and others have entered
   into the South El Monte Operable Unit Site Participation Agreement with
   Cardinal pursuant to which, among other things, Cardinal will contract with
   an environmental firm to conduct the Study. The Study has been completed.
   The Company's share of the cost of the Study is currently $15,000 and was
   accrued for in the financial statements as of September 30, 1995. The South
   El Monte Operable Unit (SEMOU) participants developed four remedial
   alternatives. The capital cost of the four alternatives range from $0 (no
   action) up to $3.49 million. The estimated annual operating cost of the
   four alternatives range from $0 (no action) to $770,300. Over a 30-year
   period, the total cost of the four alternatives range from $0 (no action)
   up to $13.05 million. The EPA prefers an alternative which estimates the
   capital cost up to $3.08 million, the annual operating cost at $.48
   million, and the 30-year period total cost up to approximately $9.09
   million. The selection of the actual alternative implemented is subject to
   public comment. At the present time, the Company does not know what its
   share of the cost may be, if any. Therefore, no additional accrual has been
   recognized as a liability on the Company's books.

<PAGE>

   The City of South El Monte, the city in which the Company has its
   manufacturing facility, is located in the San Gabriel Valley. The San
   Gabriel Valley has been declared a Superfund site. The 1995 Water Quality
   Control Plan issued by the California Regional Water Quality Control Board
   states that the primary groundwater basin pollutants in the San Gabriel
   Valley are volatile organic compounds from industry, nitrates from
   subsurface sewage disposal and past agricultural activities. In addition,
   the Plan noted that hundreds of underground storage tanks leaking gasoline
   and other toxic chemicals have existed in the San Gabriel Valley. The
   California Department of Toxic Substance Control have declared large areas
   of the San Gabriel Valley to be environmentally hazardous and subject to
   cleanup work.

   The Company believes the City of South El Monte does not appear to be
   located over any of the major plumes. However, the EPA recently announced
   it is studying the possibility that, although the vadose soil and
   groundwater, while presenting cleanup problems, there may be a
   contamination by DNAPs (dense non-aqueous phase liquids), i.e., "sinkers",
   usually chlorinated organic cleaning solvents. The EPA has proposed to
   drill six "deep wells" throughout the City of South El Monte at an
   estimated cost of $1,400,000. The EPA is conferring with SEMPOA (South El
   Monte Property Owners Association) as to cost sharing on this project.
   SEMPOA has obtained much lower preliminary cost estimates. The outcome cost
   and exact scope of this are unclear at this time.

   The Company and other property owners engaged Geomatrix Consultants, Inc.,
   to do a survey of vadose soil and shallow groundwater in the "hot spots"
   detected in the previous studies. Geomatrix issued a report dated December
   1, 1997 (the "Report"), on the impact of volatile organic compounds on the
   soil and groundwater at the Lidcombe and Santa Anita Avenue site located in
   South El Monte, California (which includes the Company's facilities). The
   Report indicated generally low concentrations of tetrachloroethene,
   trichloaethene and trichloroethane in the groundwater of the upgradient
   neighbor. The Report was submitted to the RWQCB for its comments and
   response. A meeting with the parties and RWQCB was held on February 10,
   1998. The RWQCB had advised companies that vadose soil contamination is
   minimal and requires no further action. However, there is an area of
   shallow groundwater which has a higher than desired level of chlorinated
   solvents, and the RWQCB requested a proposed work plan be submitted by
   Geomatrix. Geomatrix has submitted a "Focused Feasibility Study" which
   concludes that there are five possible methods for cleanup. The most
   expensive are for a pump and sewer remediation which would cost between
   $1,406,000 and $1,687,000. The Company is actively exploring the less
   expensive alternative remediation methods, of which the two proposed
   alternatives range in cost between $985,000 and $1,284,000. Accordingly,
   the Company has taken the average of the two amounts ($985,000 and
   $1,284,000) as the total amount of estimated cost. Since there are four
   economic entities involved, the Company's best estimate at this time, in
   their judgment, would be that their forecasted share would be 25% or
   $284,000 less the liability already recognized on the books of $162,000
   thereby requiring an additional $122,000 liability. Accordingly, the
   Company recorded an additional accrual of $122,000 in the third quarter of
   fiscal 1998. The $122,000 accrual is in addition to the $79,000 accrual for
   the Monterey Site as will be explained in the following paragraph. The
   $79,000 accrual, in the third quarter of fiscal 1998, related to the
   Monterey Site is not included in the $284,000 figure above. No assurances
   can be given that any of the alternative remediation methods will be
   feasible or that the actual cost to the Company of the remediation will not
   exceed the amount of the Company's current accruals of $284,000 (which
   includes the $122,000 charge to income in the third quarter of fiscal
   1998).

   Without any prior correspondence or inkling of the Company's potential
   liability, the EPA has recently informed the Company that the Company may
   have potential liability for the ongoing remediation of Operating
   Industries, Inc. (as they have gone out of business) Landfill Superfund
   Site in Monterey Park, California (the "Monterey Site"). The Monterey Site
   is a 190 acre landfill that operated from 1948 to 1984, in which the
   Company disposed of non toxic pH balanced waste water on six occasions
   between 1974 and 1978. Over 4,000 companies have been identified as having
   contributed waste to the Monterey Site. The EPA has offered to settle the
   Company's potential liability with respect to the Monterey Site for a cost
   to the Company of $79,233. The Company accrued a $79,000 charge in the
   third quarter of fiscal 1998 with respect to this possible liability. The
   Company has elected to file for relief from these obligations under the
   financial hardship option in the EPA's response form.

   The Company has been notified by the EPA that the Company may have
   potential liability for waste material it disposed of at the Casmalia
   Disposal Site ("Site") located on a 252-acre parcel in Santa Barbara
   County, California. The Site was operational from 1973 to 1989 and over
   10,000 separate

<PAGE>

   parties disposed of waste there. The EPA stated that federal, state and
   local governmental agencies along with the numerous private entities that
   used the Site for waste disposal will be expected to pay their share as part
   of this settlement. The U.S. EPA is also pursuing the owner(s)/operator(s) of
   the Site to pay for Site remediation. The EPA has a settlement offer to the
   Company with respect to the Site for a cost of $373,950. The Company accrued
   a $374,000 charge in the first quarter of fiscal 1999 with respect to this
   possible liability. The Company has elected to file for relief from these
   obligations under the financial hardships option in the EPA's response form.

   The total amount of environmental investigation and cleanup costs that the
   Company may incur with respect to the foregoing is not known at this time.
   However, based upon information available to the Company at this time, the
   Company has expensed since 1988 a total of $860,000, of which $89,000 were
   legal fees, exclusive of legal fees expended in connection with the SEC
   environmental investigation. The actual costs could differ materially from
   the amounts expensed for environmental investigation and cleanup costs to
   date.

<PAGE>

                           PART II - OTHER INFORMATION

Item 1.       Legal Proceedings

The information set forth under Part I, Item 2, "Management's Discussion and
Analysis or Plan of Operations - Environmental Matters" is incorporated herein
by reference. SEE ALSO "Legal Proceedings" in the Company's Form 10-KSB for the
fiscal year ended September 30, 1999.

Item 6.       The following exhibits are filed herewith:

              10.1    Promissory note evidencing advance made to the Registrant

              10.2    Modification of loan and security agreement dated
                      October 29, 1999, between Lee Pharmaceuticals and Finova
                      Capital Corporation (formerly Preferred Business Credit,
                      Inc.) regarding a revolving credit facility financing

              10.3    Modification of secured (by inventory) promissory note
                      dated October 29, 1999, between Lee Pharmaceuticals and
                      Finova Capital Corporation (formerly Preferred Business
                      Credit, Inc.)

              10.4    Modification of secured (by equipment) promissory note
                      dated October 29, 1999, between Lee Pharmaceuticals and
                      Finova Capital Corporation (formerly Preferred Business
                      Credit, Inc.)

               27     -    Financial Data Schedule

              The following exhibits have previously been filed by the Company:

               3.1    -    Articles of Incorporation, as amended  (1)

               3.4    -    By-laws, as amended December 20, 1977  (2)

               3.5    -    Amendment of By-laws effective March 14, 1978  (2)

               3.6    -    Amendment to By-laws effective November 1, 1980  (3)

              (1)     Filed as an Exhibit of the same number with the Company's
                      Form S-1 Registration Statement filed with the Securities
                      and Exchange Commission on February 5, 1973, (Registrant
                      No. 2-47005), and incorporated herein by reference.

              (2)     Filed as Exhibits 3.4 and 3.5 with the Company's
                      Form 10-K Annual Report for the fiscal year ended
                      September 30, 1978, filed with the Securities and Exchange
                      Commission and incorporated herein by reference.

              (3)     Filed as an Exhibit of the same number with the Company's
                      Form 10-K Annual Report for the fiscal year ended
                      September 30, 1979, filed with the Securities and Exchange
                      Commission and incorporated herein by reference.


<PAGE>


                                   SIGNATURES

   In accordance with the requirements of the Securities Exchange Acts of 1934,
   the registrant has caused this report to be signed on its behalf by the
   undersigned thereunto duly authorized.

                                                   LEE PHARMACEUTICALS
                                                   -------------------
                                                       (Registrant)



  Date:     February 9, 2000                    /s/ RONALD G. LEE
         ----------------------          --------------------------------------
                                                   Ronald G. Lee
                                          Chairman of the Board, President and
                                         Chief Financial and Accounting Officer