<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


                                  FORM 10-QSB


[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
    ACT OF 1934
For the quarterly period ended               December 31, 1996
                               ------------------------------------------------
                                      OR

[  ]TRANSITION REPORT PURSUANT TO 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 incorporation                (I.R.S. Employer
            or organization)                                Identification No.)

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

                                (818) 442-3141                             
-------------------------------------------------------------------------------
             (Registrant's telephone number, including area code)

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

    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 preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes  X    No  
   -----    -----

    As of December 31, 1996, there were outstanding 4,135,162 shares of common
stock of the registrant.

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

                                                                   Form 10-QSB

                              LEE PHARMACEUTICALS 
                                 BALANCE SHEET
                               DECEMBER 31, 1996
                             (DOLLARS IN THOUSANDS)
                                  (UNAUDITED)


                 ASSETS
Cash                                                                   $    52

Accounts and notes receivable (net of allowances: $445)                    795
Due from related party                                                      91
Inventories:
    Raw materials                                         $  1,598
    Work in process                                            279
    Finished goods                                             797
                                                          --------
    Total inventories                                                    2,674

Other current assets                                                     1,158
                                                                       -------
    Total current assets                                                 4,770

Property, plant and equipment (less
 accumulated depreciation and
 amortization: $6,010)                                                     553

Goodwill and other assets, net of
 accumulated amortization                                                3,659
                                                                       -------

    TOTAL                                                              $ 8,982
                                                                       -------
                                                                       -------


                       See notes to financial statements.
<PAGE>

                                                                   Form 10-QSB

                                 LEE PHARMACEUTICALS 
                                    BALANCE SHEET
                                  DECEMBER 31, 1996
                                (DOLLARS IN THOUSANDS)
                                     (UNAUDITED)
    LIABILITIES

Bank overdraft                                                         $   170
Note payable to bank                                                         8
Notes payable, other                                                       721
Current portion - royalty agreements                                       660
Current portion - note payable related party                               100
Accounts payable                                                         1,548
Other accrued liabilities                                                  997
Due to related parties                                                     368
Deferred income                                                             65
                                                                       -------

  Total current liabilities                                              4,637
                                                                       -------

Long-term notes payable to related parties                               3,220
                                                                       -------

Long-term notes payable, other                                           1,129
                                                                       -------

Long-term notes payable to bank                                            346
                                                                       -------

Long-term payable-royalty agreements, less current portion $660            616
                                                                       -------

Deferred income                                                            191
                                                                       -------

    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                                                     (5,792)
                                                                       -------

  Total stockholders' deficiency                                        (1,157)
                                                                       -------

    TOTAL                                                              $ 8,982
                                                                       -------
                                                                       -------
                                                                       
                          See notes to financial statements. 
<PAGE>

                                                                   Form 10-QSB

                                 LEE PHARMACEUTICALS

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


                                                       FOR THE THREE MONTHS
                                                        ENDED DECEMBER 31,

                                                         1996          1995
                                                     -----------    ----------
                                                     (UNAUDITED)    (UNAUDITED)

Gross revenues                                       $    1,992     $    1,970
Less:  Sales returns                                       (219)          (167)
       Cash discounts and others                            (27)           (18)
                                                     -----------    ----------

Net revenues                                              1,746          1,785
                                                     -----------    ----------

Costs and expenses:

  Cost of sales                                             767            729
  Selling and advertising expense                           713            774
  General and administrative expense                        342            347
                                                     -----------    ----------

Total costs and expenses                                  1,822          1,850
                                                     -----------    ----------

Loss from operations                                        (76)           (65)

Other income                                                 59             16
                                                     -----------    ----------

Net loss                                             $      (17)    $      (49)
                                                     -----------    ----------
                                                     -----------    ----------

Per share:

  Net loss                                           $     (.00)    $     (.01)
                                                     -----------    ----------
                                                     -----------    ----------

                        See notes to financial statements. 
<PAGE>

                                                                   Form 10-QSB

                                 LEE PHARMACEUTICALS 
                               STATEMENTS OF CASH FLOWS
                                (DOLLARS IN THOUSANDS)

                                                       FOR THE THREE MONTHS 
                                                         ENDED DECEMBER 31,

                                                        1996           1995
                                                     -----------    ----------
                                                     (UNAUDITED)    (UNAUDITED)

Cash flows from operating activities:
  Net (loss).......................................  $      (17)    $      (49)
                                                     -----------    ----------
  Adjustments to reconcile net loss to net
   cash provided by operating activities:
  Depreciation.....................................          28             48
  Amortization of intangibles......................         327             68
  (Decrease) in deferred income....................         (16)           (16)
  (Gain) on disposal of property, plant, and 
   equipment.......................................         (43)            --
Change in operating assets and liabilities:
  Decrease in accounts receivable..................         317            118
  (Increase) in due from related party.............         (18)            --
  (Increase) in inventories........................        (376)           (31)
  (Increase) in other current assets...............          (8)           (47)
  (Decrease) in accounts payable...................         (96)            (5)
  Increase (decrease) in accounts payable 
   related party...................................          50           (235)
  Increase in notes payable, other.................          12             79
  Increase in other accrued liabilities............         398            105
  (Decrease) in accrued royalties..................         (76)            --
                                                     -----------    ----------
  Total adjustments................................         499             84
                                                     -----------    ----------
    Net cash provided by operating activities......         482             35
                                                     -----------    ----------

Cash flows from investing activities:
  Additions to property, plant, and equipment......         (10)            (9)
  Proceeds from sale of equipment..................          43             --
  Acquisition of product brands....................      (1,188)           (29)
                                                     -----------    ----------
    Net cash (used in) investing activities........      (1,155)           (38)
                                                     -----------    ----------

Cash flows from financing activities:
  (Payments on) bank loans.........................         (31)            --
  (Payments on) notes payable to related party.....         (19)           (53) 
  Proceeds from notes payable, other...............         829             --
  (Decrease) in long-term royalty agreements.......        (165)            --
  Increase in bank overdraft.......................          98             --
                                                     -----------    ----------
    Net cash provided by (used in) financing 
     activities....................................         712            (53)
                                                     -----------    ----------

Net Increase (decrease) in cash....................          39            (56)
Cash, beginning of year............................          13            123
                                                     -----------    ----------

Cash, end of period................................  $       52     $       67
                                                     -----------    ----------
                                                     -----------    ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the year for:
  Interest ........................................  $       93     $       57
                                                     -----------    ----------
                                                     -----------    ----------

Acquisition of product brands:
  Fair value of assets acquired....................       1,670             29
  Fair value of liabilities incurred...............  $     (482)            --
                                                     -----------    ----------
    Net cash payments..............................  $    1,188             29
                                                     -----------    ----------
                                                     -----------    ----------

                          See notes to financial statements. 
<PAGE>

                                                                   Form 10-QSB

    NOTES TO FINANCIAL INFORMATION

1.  Basis of presentation:

    The accompanying balance sheet as of December 31, 1996, and the statements
    of operations and cash flows for the periods ended December 31, 1996, and
    1995, 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, 1996, are not necessarily indicative of results to be expected
    for the year ending September 30, 1997.

    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, 1996.

    The Company is involved in various matters involving environmental cleanup
    issues.  SEE "Item 2. Management's Discussion and Analysis or Plan of
    Operations" and Note 10 of Notes to Financial Statements included in the
    Company's Form 10-KSB for the fiscal year ended September 30, 1996.  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.  Net loss per share:

    Net 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 these calculations
    where their effect on net 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 Bank of
    America's base rate plus 4%, maturing March 2001.  At December 31, 1996,
    the interest rate was 12.25%.  The note is guaranteed by the former
    Chairman of the Company and the Company's President.

4.  Line of credit:

    In May 1996, the Company obtained $1,000,000 of financing, in the form of a
    revolving credit facility.  The financing is secured by accounts
    receivable, equipment, inventories and certain other assets.  It is a two
    year agreement, maturing May 1998, and will automatically continue
    thereafter until either party terminates on a 90 day prior written notice. 
    The loan and security agreement is subject to a minimum interest of $3,000
    per month. The loan bears interest at Bank of America's prime plus 8%.

5.  Acquisitions:

    On October 16, 1996, the Company purchased certain assets from Lactona
    Corporation for $175,000 plus inventory valued at approximately $30,000. 
    The Company remitted $75,000 at closing.  Payments of $3,000, including
    interest, are due the 16th of each month starting November 1996 and ending
    September 1999 and any remaining amount on October 16, 1999.  Interest is
    to be computed at the highest prime rate for the period, currently 8.25%.
<PAGE>

                                                                   Form 10-QSB

    On October 21, 1996, the Company purchased certain assets from Roberts
    Laboratories, Inc. for $1,168,089.  The Company remitted $100,000 at
    closing.  Payments of $19,751.85 are due on the first of each month
    starting November 1, 1996, and ending on October 1, 2000.  Any remaining
    unpaid balance is due on November 1, 2000.  Interest shall be paid at the
    highest prime rate during the preceding month.  At the closing, a $50,000
    down payment was made toward the purchase of inventory.  The balance,
    approximately $70,000, is due 30 days after receipt of the inventory.

ITEM 2.

    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

    MATERIAL CHANGES IN RESULTS OF OPERATIONS
    THREE MONTHS ENDED DECEMBER 31, 1996, AND DECEMBER 31, 1995

    Gross revenues increased $22,000 from $1,970,000 in the quarter ended
    December 31, 1995, to $1,992,000 in the quarter ended December 31, 1996. 
    The Company's gross revenues from nail products have continued to decline,
    primarily due to customers discontinuance of several of the nail extender
    SKU's (stock keeping units).  In addition, sales returns from this category
    have increased.  The aforementioned lower gross revenues has been more than
    offset by the new brand acquisitions.  The Company completed two
    acquisitions in October 1996.  These acquisitions are discussed in Note 6
    above.  Also, the acquisition of Aquafilter in September 1996 contributed
    positively to the higher sales volume.  The Aquafilter line of disposable
    cigarette filters generated in excess of $235,000 of gross revenues.

    Net revenues declined by approximately $39,000 or 2% for the three months
    ended December 31, 1996, as compared to the three months ended December 31,
    1995.  The change in net revenues was due to the same reasons discussed
    above regarding gross revenues.  In addition, the sales returns increased
    $52,000 or 31% when comparing the three months ended December 31, 1996, and
    1995.  The higher sales returns during the current quarter was the result
    of returns related to the various nail products.  This was due to the
    continued customer consolidations by the retailer industry, and changes in
    the retailers planogram with fewer SKU's of the Company's product being
    carried.  The Company's percentage of sales returns to gross sales varies
    from quarter to quarter, but the overall average is approximately 8 - 12%.

    Cost of sales was 39% of gross revenues for the quarter ended December 31,
    1996, compared to 37% for the quarter ended December 31, 1995.  The
    percentage was slightly higher due to the non-recurring start-up costs
    associated with the internal production of the recent brand acquisitions
    previously discussed as well as the non-recurring freight charges regarding
    the transporting of the inventory and equipment related to the acquired
    brands.

    Selling and advertising expenses declined $61,000 or 8% when comparing the
    three months ended December 31, 1996, with the three months ended December
    31, 1995.  The reduction of expenses were mainly due to the following
    factors; (1) lower salary and wages and related fringe benefits, (2) less
    commission expense due to a decrease in the commission rate and a
    structural change in responsibility from actual geography (geographic
    territory) to specific accounts in that geography, and (3) decline in
    royalty expense due to reduced sales revenues of certain product brands. 
    The previously mentioned reduced expenses were slightly offset by an
    increase in amortization costs because of the recent acquisitions; one
    brand in late September 1996 and two brands in October 1996.

    General and administrative expenses decreased when comparing the quarters
    ended December 31, 1996, and 1995.  The nominal decrease was approximately
    $5,000 or 1%.

    LIQUIDITY AND CAPITAL RESOURCES

    During the three months ended December 31, 1996, working capital declined
    to $133,000 from $395,000 at September 30, 1996.  The ratio of current
    assets to current liabilities was 1.03 to 1 at December 31, 1996, and 1.09
    to 1 at September 30, 1996.  The decrease in working capital of $262,000
    was primarily due to an increase in current liabilities of $386,000 related
    to the accrued liabilities of the unpaid product brand acquisitions.
<PAGE>

                                                                   Form 10-QSB

    The Company has an accumulated deficit of $5,792,000.  The Company's
    recurring losses from operations and inability to generate sufficient cash
    flow from normal operations to meet its obligations as they came 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 obtaining additional financing and achieving
    a level of profitable operations sufficient to enable it to meet its
    obligations as they become due.

    ENVIRONMENTAL MATTERS

    The Company owns a manufacturing facility located in South El Monte,
    California.  The California Regional Water Quality Control Board (The
    "RWQCB"), has alleged that the soil and shallow groundwater at the site are
    contaminated.  On August 12, 1991, the Board issued a "Cleanup and
    Abatement Order" directing the Company to conduct further testing and
    cleanup the site.  The Company did not complete the testing, and 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 onsite, and resulted from either
    past or current operations on the property.  While the Company may be
    liable for all or part of the costs of remediating the contamination on its
    property, the remediation cost is not known at this time.  The EPA has not
    taken any further action in this matter, but may do so in the future.

    The Company and nearby property owners are in the process of engaging a
    consultant to perform a site investigation with respect to soil and shallow
    groundwater contamination.  Based upon proposals received to date, the
    Company currently estimates the cost to perform the site investigation to
    be $175,000.  Accordingly, while recognizing it may be jointly and
    severally liable for the entire cost, the financial statements as of
    September 30, 1995, recognized the proportionate amount ($87,500) which the
    Company believes is its liability for a site investigation.

    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.  The
    cost of cleanup of the groundwater is not known at this time.  In September
    1992, EPA announced that the levels of contamination in the Whittier
    Narrows area of the Superfund site were sufficiently low and that it was
    not planning a cleanup at this time, but rather would continue to monitor
    the groundwater for an indefinite period.  The Company's property is
    adjacent to the Whittier Narrows area.  Except as described above, it is
    not clear what action the EPA will take with respect to the Company's
    property.

    In August 1995, the Company was informed that the EPA entered into an
    Administrative Order on 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 is anticipated to
    take eighteen to twenty-four months.  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 City of South El Monte, the city in which the Company has it's
    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 
<PAGE>

                                                                   Form 10-QSB

    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 Securities and Exchange Commission has issued a formal order of
    investigation concerning certain matters, including the Company's
    environmental liabilities.  The Company is cooperating with the
    investigation.

    The Company has been seeking reimbursement of cleanup costs from its
    insurance carriers.  One carrier has paid certain amounts towards cleanup
    costs that may be incurred and legal fees actually incurred.  The Company
    continues to seek reimbursement from other carriers, although no such
    payments have been received or agreed to, and there can be no assurances
    that any such payments will be received.  Some carriers have denied
    liability for costs, based on their review and analysis of the insurance
    policies, the history of the site, the nature of the claims, and current
    court decisions in such cases.

    Currently, the Company does not have any reliable information on the likely
    cleanup costs of its property.  Thus, it cannot determine the extent, if
    any, of its share of liability for any such cleanup costs.
<PAGE>

                                                                   Form 10-QSB

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, 1996.

Item 6.  Exhibits

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)

         27   -    Financial Data Schedule

         (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>

                                                                   Form 10-QSB

                                      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 6, 1997                        /s/ Ronald G. Lee  
       -----------------                     ------------------------
                                                    Ronald G. Lee
                                                      President



Date:   February 6, 1997                      /s/  Michael L. Agresti
       -----------------                     ------------------------
                                                Michael L. Agresti
                                             Vice President - Finance