<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          M a r c h  3 1,  1 9 9 8
                               -----------------------------------------------

          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 - 7 3 3 5
                       -------------------------------------------------------

                         L E E  P H A R M A C E U T I C A L S
------------------------------------------------------------------------------
     (Exact name of small business issuer as specified in its charter)

     C a l i f o r n i a                           9 5 - 2 6 8 0 3 1 2
-------------------------------           ------------------------------------
(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)

     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 March 31, 1998, 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
                                   MARCH 31, 1998
                               (DOLLARS IN THOUSANDS)
                                    (UNAUDITED)

<TABLE>
<CAPTION>

                    ASSETS
<S>                                                          <C>        <C>
Cash                                                                    $   26

Accounts and notes receivable (net of allowances: $179)                    864
Due from related party                                                     213
Inventories:
  Raw materials                                              $1,591
  Work in process                                               277
  Finished goods                                                289
                                                             ------
  Total inventories                                                      2,157

Other current assets                                                       691
                                                                        ------
  Total current assets                                                   3,951

Property, plant and equipment (less
  accumulated depreciation and
  amortization: $6,140)                                                    498

Goodwill and other assets (net of
  accumulated amortization: $5,347)                                      2,397
                                                                        ------
  TOTAL                                                                 $6,846
                                                                        ------

</TABLE>

                         See notes to financial statements.

<PAGE>

                                                                   Form 10-QSB

                                LEE PHARMACEUTICALS 
                                   BALANCE SHEET
                                   MARCH 31, 1998
                               (DOLLARS IN THOUSANDS)
                                    (UNAUDITED)

<TABLE>
<CAPTION>

                    LIABILITIES
<S>                                                                      <C>
Bank overdraft                                                          $  119
Note payable to bank                                                         8
Notes payable, other                                                       918
Current portion - royalty agreements                                       416
Current portion - note payable related party                               315
Accounts payable                                                           827
Other accrued liabilities                                                  678
Due to related parties                                                     445
Deferred income                                                             65
                                                                       -------
  Total current liabilities                                              3,791
                                                                       -------

Long-term notes payable to related parties                               3,000
                                                                       -------

Long-term notes payable, other                                           1,037
                                                                       -------

Long-term notes payable to bank                                            243
                                                                       -------

Long-term payable-royalty agreements, less current portion $416             41
                                                                       -------

Deferred income                                                            109
                                                                       -------


     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                                                     (6,010)
                                                                       -------

     Total stockholders' deficiency                                     (1,375)
                                                                       -------

         TOTAL                                                         $ 6,846
                                                                       -------
                                                                       -------

</TABLE>

                         See notes to financial statements.

<PAGE>

                                                                   Form 10-QSB

                                LEE PHARMACEUTICALS

                              STATEMENTS OF OPERATIONS
                  (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                             For the Three Months        For the Six Months
                                                Ended March 31,            Ended March 31,

                                             1998          1997          1998           1997
                                          -----------   -----------   -----------    -----------
                                          (UNAUDITED)   (UNAUDITED)   (UNAUDITED)    (UNAUDITED)
<S>                                       <C>           <C>           <C>            <C>
Gross revenues                              $2,215         $2,453         $4,851         $4,445
Less:     Sales returns                       (197)          (126)          (357)          (345)
          Cash discounts and others            (18)           (38)           (41)           (65)
                                            ------         ------         ------         ------
Net revenues                                 2,000          2,289          4,453          4,035
                                            ------         ------         ------         ------
Costs and expenses:

     Cost of sales                             857            997          1,880          1,764
     Selling and advertising expense           859            826          1,789          1,539
     General and administrative expense        575            458          1,084            800
                                            ------         ------         ------         ------
Total costs and expenses                     2,291          2,281          4,753          4,103
                                            ------         ------         ------         ------
(Loss) income from operations                 (291)             8           (300)           (68)

Other income (loss)                             18            (13)            36             46
                                            ------         ------         ------         ------
Net loss                                    $ (273)        $   (5)        $ (264)        $  (22)
                                            ------         ------         ------         ------
Per share:

     Net loss                               $ (.06)        $  .00         $ (.06)        $  .00
                                            ------         ------         ------         ------
</TABLE>

                         See notes to financial statements.

<PAGE>

                                                                   Form 10-QSB

                                LEE PHARMACEUTICALS 
                              STATEMENTS OF CASH FLOWS
                               (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                             FOR THE SIX MONTHS 
                                                               ENDED MARCH 31,

                                                             1998         1997
                                                         -----------  -----------
                                                         (UNAUDITED)  (UNAUDITED)
<S>                                                      <C>           <C>
Cash flows from operating activities:
     Net (loss)...........................................  $(264)     $   (22)
     Adjustments to reconcile net income (loss) to net
      cash provided by operating activities:
     Depreciation.........................................     57           54
     Amortization of intangibles..........................    477          684
     (Decrease) in deferred income........................    (33)         (33)
     (Gain) on disposal of property, plant, and equipment.     (4)         (13)
Change in operating assets and liabilities:
     Decrease in accounts receivable......................    439            6
     (Increase) in due from related party.................   (105)         (21)
     (Increase) in inventories............................   (177)        (225)
     Decrease in other current assets.....................    481           24
     (Decrease) in accounts payable.......................   (194)        (253)
     Increase (decrease) in accounts payable related
      party...............................................    100          (57)
     (Decrease) increase in notes payable, other..........    (64)         273
     Increase in other accrued liabilities................    270          421
     (Decrease) in accrued royalties......................   (709)         (76)
                                                            -----      -------
     Total adjustments....................................    538          784
                                                            -----      -------
         Net cash provided by operating activities........    274          762
                                                            -----      -------
Cash flows from investing activities:
     Additions to property, plant, and equipment..........    (38)         (76)
     Proceeds from sale of equipment......................      4           13
     Acquisition of product brands........................    (70)      (1,092)
                                                            -----      -------
         Net cash (used in) investing activities..........   (104)      (1,155)
                                                            -----      -------
Cash flows from financing activities:
     (Payments on) bank loans.............................   (136)         (61)
     (Payments on) proceeds from notes payable to related 
       party..............................................    (64)          80
     Proceeds from notes payable, other...................    200          703
     (Decrease) in long-term royalty agreements...........    (80)        (330)
     (Decrease) increase in bank overdraft................    (90)           2
                                                            -----      -------
         Net cash (used in) provided by financing
          activities......................................   (170)         394
                                                            -----      -------
Net Increase in cash......................................      0            1
Cash, beginning of year...................................     26           13
                                                            -----      -------
Cash, end of period.......................................  $  26      $    14
                                                            -----      -------
                                                            -----      -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the year for:
     Interest.............................................  $ 249      $   258
                                                            -----      -------
                                                            -----      -------
Acquisition of product brands:
     Fair value of assets acquired........................  $  70      $ 1,497
     Fair value of liabilities incurred...................             $   405
                                                            -----      -------
         Net cash payments................................  $  70      $ 1,092
                                                            -----      -------
                                                            -----      -------
</TABLE>
                          See notes to financial statements.

<PAGE>

                                                                   Form 10-QSB

     NOTES TO FINANCIAL INFORMATION
     
1.   Basis of presentation:

     The accompanying balance sheet as of March 31, 1998, and the statements of
     operations and cash flows for the periods ended March 31, 1998, and 1997,
     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 six months ended March 31,
     1998, are not necessarily indicative of results to be expected for the year
     ending September 30, 1998.

     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, 1997.

     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, 1997.  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.   Continued existence:

     The accompanying financial statements have been prepared assuming that the
     Company will continue as a going concern.  The Company's recurring past
     losses from operations, its first quarter nominal profit, and inability to
     generate sufficient cash flow from normal operations raise substantial
     doubt about its ability to continue as a going concern.  The financial
     statements do not include any adjustments to reflect the possible future
     effects on the recoverability and classification of assets or the amounts
     and classification of liabilities that may result from the possible
     inability of the Company to continue as a going concern.

3.   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.

4.   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 March 31, 1998, the
     interest rate was 12.5%.  The note is guaranteed by the former Chairman of
     the Company and the Company's President.

5.   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%.

<PAGE>

                                                                   Form 10-QSB

6.   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 during the payment period.  The
     highest prime rate was 8.25% on March 31, 1998.

     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 $19,752 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.

     On September 8, 1997, the Company purchased certain assets of the
     Klutch-Registered Trademark- denture adhesive powder line from I. Putnam,
     Inc. for $320,000.  The Company remitted $225,000 at closing and is
     required to make one payment of $7,000 plus interest, and eleven equal
     monthly payments of $8,000, plus interest at the prime rate.  In addition,
     the Company purchased certain inventories from I. Putnam, Inc. for $51,063
     at closing.

     On February 17, 1998, the Company purchased certain assets of the
     Painalay-Registered Trademark- throat spray line from Medtech Inc. for
     $70,000.  The Company is required to make five payments of $14,000 each
     plus interest at 10% starting 61 days after the close.  In addition, the
     Company purchased for cash inventory valued at $27,764.

ITEM 2.

     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

     MATERIAL CHANGES IN RESULTS OF OPERATIONS
     THREE MONTHS ENDED MARCH 31, 1998, AND MARCH 31, 1997

     Gross revenues for the three months ended March 31, 1998, were $2,215,000,
     a decrease of approximately $238,000 or 10% from the comparable three
     months ended March 31, 1997.  The decrease in gross revenues was due to the
     decline in volume generated from the nail products and the 28 items
     including ointments, nutritional supplements, vitamins, analgesics, and
     various over-the-counter brands which were acquired in October 1996.  On
     the other hand, the above decreases in sales volume were partially offset
     by increases in sales revenues in the depilatory category plus the added
     sales of the newly acquired Klutch-Registered Trademark- brand and newly
     launched in-house product Lee-Registered Trademark- Lip-Ex-TM-, lip balm.

     Net revenues decreased approximately $289,000 or 13% for the three months
     ended March 31, 1998, as compared to the three months ended March 31, 1997.
     The change in net revenues was due to the same explanation of the decrease
     in gross revenues discussed above.  In addition, the sales returns
     increased $71,000 or 56% when comparing the three months ended March 31,
     1998, and 1997.  The higher sales returns during the current quarter are
     attributable to the higher than normal level of returns related to the
     depilatory category plus other over-the-counter products.

     Cost of sales as a percentage of gross revenues was 39% for the quarter
     ended March 31, 1998, compared to 41% for the quarter ended March 31, 1997.
     The cost of sales percentage was slightly lower due to benefits achieved
     from the production learning curve, associated with the previously acquired
     brands, increased production runs, and favorable product mix.

     Selling and advertising expenses increased $33,000 or 4% when comparing the
     three months ended March 31, 1998, with the three months ended March 31,
     1997.  The higher expenses were mainly due to the following factors:  1) an
     increase in the amortization expense (approximately $10,000), 2) an
     increase in salaries and wages plus related fringe benefits ($84,000) as a
     result of new hires which included the addition of two outside salesmen,
     and higher related travel and entertainment expenses, 3) higher promotional
     allowance expense awarded to a key customer, and 4) higher product samples
     expense related to the new brand acquisitions.  The above increased
     expenses were partially offset by a decrease in the cooperative advertising
     costs.

<PAGE>

                                                                   Form 10-QSB

     General and administrative expenses increased $117,000 or 26% when
     comparing the three months ended March 31, 1998, with the three months
     ended March 31, 1997.  The increase in expenses was mainly due to the
     following factors:  1) increased salary and wages plus fringe benefits, 2)
     addition of three new hires, 3) higher travel and entertainment expense,
     and 4) increased legal expenses regarding patent and trademark services
     ($10,000) and brand acquisitions, etc.

     MATERIAL CHANGES IN RESULTS OF OPERATIONS
     SIX MONTHS ENDED MARCH 31, 1998, AND MARCH 31, 1997

     Gross revenues for the six months ended March 31, 1998, were $4,851,000, an
     increase of approximately $406,000 or 9% from the comparable six months
     period ended March 31, 1997.  The increase in gross revenues was due to the
     volume generated from the recently acquired brand Aquafilter-Registered
     Trademark-, newly acquired brand Klutch-Registered Trademark-, and the
     depilatory category.  The above increased sales volume was partially offset
     by reduced sales revenues of the nail category products.

     Net revenues for the six months ended March 31, 1998, were $4,453,000, an
     increase of $418,000 or 10% from the comparable six months ended March 31,
     1997.  The sales returns were slightly higher ($12,000 or 3.5%) during the
     six months period ended March 31, 1998, versus March 31, 1997.  This was
     the result of lower nail extender product returns during this period and a
     higher level of returns related to the depilatory category.

     Cost of sales as a percentage of gross revenues for the six months ended
     March 31, 1998, as compared to the six months ended March 31, 1997, was 39%
     versus 40% respectively.  The lower cost of sales percentage for the six
     months ended March 31, 1998, compared to March 31, 1997, is due to the
     reasons explained above regarding the material changes of the three months
     period ended March 31, 1998, and 1997.

     Selling and advertising expenses increased $250,000 or 16% when comparing
     the six months ended March 31, 1998, with the six months ended March 31,
     1997.  The increased expenses were basically due to;  1) an increase in the
     amortization expense, 2) an increase in salaries and wages plus fringe
     benefits, the result of new hires which includes two outside salesmen, and
     higher related travel and entertainment expenses, 3) higher manufacture
     representative commissions, 4) higher product samples expense related to
     the new brand acquisitions, and 5) increased freight costs.  The
     aforementioned increased expenses were offset, in part, by a decrease in
     the cooperative advertising costs.

     General and administrative expenses increased $284,000 or 36% when
     comparing the six months ended March 31, 1998, with the six months ended
     March 31, 1997.  This significant increase was principally due to the same
     factors outlined above when comparing the three months ended March 31,
     1998, versus the comparable period ended March 31, 1997, plus slightly
     higher supplies and printing costs.

     LIQUIDITY AND CAPITAL RESOURCES

     During the three months ended March 31, 1998, working capital increased to
     $160,000 from $114,000 at September 30, 1997.  The ratio of current assets
     to current liabilities was 1.0 to 1 at March 31, 1998, and September 30,
     1997.  The increase in working capital of $46,000 ($160,000 - $114,000) was
     basically due to an increase in inventories and decreases in accounts
     payable (improved timely vendor payments) and accrued royalties (payment
     after fiscal year end of minimum royalties due as of September 30, 1997).

     The Company has an accumulated deficit of $6,010,000.  The Company's past
     recurring losses and first quarter nominal profit 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
     retaining current financing and achieving a level of profitable operations
     sufficient to enable it to meet its obligations as they become due.

<PAGE>

                                                                   Form 10-QSB

     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 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 carriers (CGL), have engaged a consultant to perform a
     site investigation with respect to soil and shallow groundwater
     contamination over the entire city block.  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.  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
     but the final program has not been reported.  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 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 

<PAGE>

                                                                   Form 10-QSB

     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, which is due on June 15, 1998.  Until the work plan is
     available, no determination can be made as to what, if any, cleanup will be
     required by the Company or what, if any, additional environmental costs the
     Company may incur.  The Company is optimistic that since the sources and
     location of these chemicals are upgradient from the Company facilities, as
     shown by the most recent testing done in 1997, the cleanup of those sources
     may materially reduce any cleanup costs of the Company, an engineering
     position that the Company has maintained for years.

     The Company continues to seek reimbursement from various CGL carriers,
     although 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.

     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 a total of $261,000, of which $126,000 were legal
     fees, since 1991 for environmental investigation and cleanup costs.  The
     actual costs could differ materially from the amounts expensed for
     environmental investigation and cleanup costs to date.

     As previously reported, the Securities and Exchange Commission (the 
     "Commission") had been conducting a formal investigation of the Company 
     concerning certain matters, including the Company's disclosure of its 
     environmental liabilities.  The Company, Dr. Henry L. Lee, a director of 
     the Company, Ronald G. Lee, the President, Chairman and a director of 
     the Company, and Michael L. Agresti, the Vice President-Finance, 
     Treasurer and Secretary of the Company, without admitting or denying the 
     Commission's findings, consented to the entry of an Order directing the 
     Company and Messrs. Henry Lee, Ronald Lee, and Agresti to cease and 
     desist from violating and causing violations of the antifraud, 
     reporting, record-keeping and internal control provisions of the 
     Securities Exchange Act of 1934.  The Order also suspends Mr. Agresti 
     from practicing before the Commission as an accountant, with a right to 
     reapply after three years.

<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.

Item 4.   Submission of Matters to a Vote of Security Holders

The Annual Meeting of Stockholders of the registrant occurred on March 10, 1998.
At that meeting, the following directors were elected:

<TABLE>
<CAPTION>

                                                  VOTES
                                         -------------------------
     Director                            FOR              WITHHELD
                                         ---              --------
     <S>                                 <C>              <C>
     Dr. Henry L. Lee                    3,354,556        216,411
     Ronald G. Lee                       3,368,254        202,713
     William M. Caldwell IV              3,370,324        200,643

</TABLE>

<TABLE>
<CAPTION>

                                                             VOTES
                                          --------------------------------------
                                          FOR               AGAINST      ABSTAIN
                                          ---               -------      -------
<S>                                       <C>               <C>          <C>
The appointment of George Brenner, CPA
  as independent auditor                  3,459,131         47,730       64,106

</TABLE>

Item 6.   Exhibits

          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>

                                     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: May 12, 1998                             Ronald G. Lee
          --------------                     ---------------------------
                                                    Ronald G. Lee
                                             President (Chief Executive Officer 
                                             and Chief Financial Officer)