<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

 X      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---     EXCHANGE ACT OF 1934

        For the quarterly period ended June 30, 1999

___     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:  0-21134

                                  PROCEPT, INC.
             ------------------------------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<CAPTION>
                      DELAWARE                                                       04-2893483
                      --------                                                       ----------
   <S>                                                                           <C>
         (STATE OR OTHER JURISDICTION OF                                         (I.R.S.  EMPLOYER
         INCORPORATION OR ORGANIZATION)                                          IDENTIFICATION NO.)

   840 MEMORIAL DRIVE, CAMBRIDGE, MASSACHUSETTS                                         02139
   --------------------------------------------                                         -----
     (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                                         (ZIP CODE)
</TABLE>

Registrant's telephone number, including area code:  (617) 491-1100

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

                                  YES_X_      NO___

Number of shares outstanding of each of the issuer's classes of common stock, as
of latest practicable date.

<TABLE>
<CAPTION>
            CLASS                             OUTSTANDING AS OF JULY 28,1999
            -----                             ------------------------------
<S>                                                   <C>
Common Stock, $.01 par value                          14,053,095
</TABLE>


                        Exhibit Index Appears on Page 20
<PAGE>

                                  PROCEPT, INC.

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                   PAGE NO.
                                                                                                   --------
<S>      <C>         <C>                                                                               <C>
PART I - FINANCIAL INFORMATION

         Item 1.     Financial Statements

                     Balance Sheets                                                                     3

                           June 30, 1999 and December 31, 1998

                     Statements of Operations                                                           4

                           Three months and six months ended June 30, 1999 and 1998

                     Statements of Cash Flows                                                           5

                           Six months ended June 30, 1999 and 1998

                     Notes to Financial Statements                                                      6

         Item 2.     Management's Discussion and Analysis of Financial                                 12
                     Condition and Results of Operations

         Item 3.     Quantitative and Qualitative Disclosure About Market Risk                         16



PART II - OTHER INFORMATION

         Item 1.     Legal Proceedings                                                                 17

         Item 2.     Changes in Securities                                                             17

         Item 4.     Submission of Matters to a Vote of Security Holders                               18

         Item 5.     Other Information                                                                 18

         Item 6.     Exhibits and Reports on Form 8-K                                                  18



SIGNATURES                                                                                             19

EXHIBIT INDEX                                                                                          20
</TABLE>


                                       2
<PAGE>

PART I.       FINANCIAL INFORMATION

ITEM 1.       FINANCIAL STATEMENTS

                                  PROCEPT, INC.

                                 BALANCE SHEETS
                                   (Unaudited)

<TABLE>
<CAPTION>
ASSETS                                                                          JUNE 30, 1999  DECEMBER 31, 1998
                                                                                -------------  -----------------
<S>                                                                              <C>             <C>
Current assets:
    Cash and cash equivalents                                                    $  4,670,145    $  2,885,165
    Marketable securities                                                           1,000,000       2,003,755
    Investment in Aquila                                                              324,138         568,988
    Prepaid expenses and other current assets                                         309,054         182,925
                                                                                 ------------    ------------
       Total current assets                                                         6,303,337       5,640,833
                                                                                 ------------    ------------

Property and equipment, net                                                            99,605         180,452
Deferred charges                                                                         --           176,025
Deposits                                                                                7,150         190,615
                                                                                 ------------    ------------
       Total assets                                                              $  6,410,092    $  6,187,925
                                                                                 ============    ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                                             $    502,144    $    268,815
    Notes payable to related party                                                    200,000            --
    Accrued compensation                                                              319,911          54,511
    Accrued acquisition costs                                                         366,759            --
    Other current liabilities                                                         259,790         282,479
    Current portion of capital lease obligations                                        4,599            --
                                                                                 ------------    ------------
       Total current liabilities                                                    1,653,203         605,805
                                                                                 ------------    ------------
Deferred rent                                                                         137,121         185,615
Capital lease obligations                                                              16,859            --
                                                                                 ------------    ------------
       Total liabilities                                                            1,807,183         791,420
                                                                                 ------------    ------------

Commitments and contingencies
Shareholders' equity:
    Preferred stock, par value $.01 per share; 1,000,000 shares authorized:
       Series A, 0 and 1 share(s) designated at June 30, 1999
       and December 31, 1998; 0 shares issued and outstanding at
       June 30, 1999 and December 31, 1998                                               --              --
    Common stock, $.01 par value; 30,000,000 shares authorized;
       14,043,095 and 3,001,832 shares issued at June 30, 1999 and
       December 31, 1998, respectively                                                140,432          30,018
    Additional paid-in capital                                                     81,079,510      70,458,992
    Deferred compensation                                                             (75,733)        (88,716)
    Accumulated deficit                                                           (76,542,511)    (65,264,520)
    Accumulated other comprehensive income                                             13,068         272,588
    Treasury stock, at cost; 1,186 shares at June 30, 1999 and
       December 31, 1998, respectively                                                (11,857)        (11,857)
                                                                                 ------------    ------------
       Total shareholders' equity                                                   4,602,909       5,396,505
                                                                                 ------------    ------------
       Total liabilities and shareholders' equity                                $  6,410,092    $  6,187,925
                                                                                 ============    ============
</TABLE>

    The accompanying notes are an integral part of the financial statements.


                                       3
<PAGE>

                                  PROCEPT, INC.

                            STATEMENTS OF OPERATIONS

                                   (Unaudited)

<TABLE>
<CAPTION>
                                          THREE MONTHS ENDED JUNE 30,     SIX MONTHS ENDED JUNE 30,
                                         ----------------------------    ----------------------------
                                             1999            1998          1999            1998
                                         ------------    ------------    ------------    ------------
<S>                                      <C>             <C>             <C>             <C>
Revenues:
     Research and development revenue
        under collaborative agreements
        from related party               $       --      $       --      $       --      $    109,375
     Interest income                           73,527          75,840         155,380          80,499
                                         ------------    ------------    ------------    ------------
              Total revenues             $     73,527    $     75,840         155,380         189,874
                                         ------------    ------------    ------------    ------------

Costs and expenses:
     Research and development                 364,737         522,061         584,230       1,335,298
     General and administrative               487,907         450,838         977,988         973,100
     Charge for purchased in-process
         research and development                --              --         9,405,671            --
     Restructuring                               --              --              --           225,000
     Other (income) expense, net                7,419           3,884         (35,973)          4,108
                                         ------------    ------------    ------------    ------------
              Total costs and expenses        860,063         976,783      10,931,916       2,537,506
                                         ------------    ------------    ------------    ------------

Net loss                                 $   (786,536)   $   (900,943)   $(10,776,536)   $ (2,347,632)
                                         ------------    ------------    ------------    ------------

Less:  Incremental charge associated
       with the conversion of the
       minority interest in a
       subsidiary, net                        501,455            --           501,455            --
                                         ------------    ------------    ------------    ------------

Net loss available to common
     shareholders                        $ (1,287,991)   $   (900,943)   $(11,277,991)   $ (2,347,632)
                                         ============    ============    ============    ============

Basic and diluted net loss per
     common share                        $      (0.12)   $      (0.32)   $      (1.54)   $      (1.40)
                                         ============    ============    ============    ============

Weighted average number of
     common shares outstanding
     -- basic and diluted                  10,946,591       2,813,717       7,333,035       1,681,807
                                         ============    ============    ============    ============
</TABLE>

    The accompanying notes are an integral part of the financial statements.


                                       4
<PAGE>

                                  PROCEPT, INC.

                            STATEMENTS OF CASH FLOWS

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                          SIX MONTHS ENDED JUNE 30,
                                                                        ---------------------------
                                                                            1999           1998
                                                                        ------------    ------------
<S>                                                                     <C>             <C>
Cash flows from operating activities:
     Net loss                                                           $(10,776,536)   $ (2,347,632)
     Adjustments to reconcile net loss to net cash
       used in operating activities:
         Depreciation and amortization                                        76,279         369,067
         Gain on sale of equipment                                           (24,550)       (152,589)
         Charge for purchased in-process research and development          9,405,671              --
         Compensatory stock and stock option expense                          95,923           7,164
         Savings and Retirement Plan stock contribution                           --          43,238
     Changes in operating assets and liabilities, net of acquisition:
         Accounts receivable                                                      --          97,340
         Prepaid expense and other current assets                            (98,058)         34,317
         Deposits                                                            183,465              --
         Accounts payable                                                   (212,205)       (736,645)
         Accrued compensation                                                (25,028)       (136,160)
         Deferred rent                                                       (48,494)        (26,854)
         Other current liabilities                                          (660,537)         98,286
         Other non-current liabilities                                          --           (96,875)
                                                                        ------------    ------------
                  Net cash used in operating activities                   (2,084,070)     (2,847,343)
                                                                        ------------    ------------
Cash flows from investing activities:
     Capital expenditures                                                         --        (319,669)
     Proceeds from sale of equipment                                          29,119         240,874
     Proceeds from maturity of marketable securities                         989,086              --
     Cash acquired in the acquisition of Pacific Pharmaceuticals           2,750,097              --
                                                                        ------------    ------------
                  Net cash (used in) provided by investing activities      3,768,302         (78,795)
                                                                        ------------    ------------
Cash flows from financing activities:
     Payment of note payable                                                 (85,000)             --
     Principal payments on capital lease                                      (1,752)        (20,231)
     Proceeds for the exercise of common stock warrant                       187,500              --
     Proceeds from private placement of common stock                              --       9,802,500
     Expenses from private placement of common stock                              --      (1,602,851)
                                                                        ------------    ------------
                  Net cash (used in) provided by financing activities        100,748       8,179,418
                                                                        ------------    ------------
Net change in cash and cash equivalents                                    1,784,980       5,253,280
Cash and cash equivalents at beginning of period                           2,885,165         535,242
                                                                        ------------    ------------
Cash and cash equivalents at end of period                              $  4,670,145    $  5,788,522
                                                                        ============    ============
Supplement disclosures and non-cash transactions:
     Cash paid for interest                                             $        970    $      4,472
                                                                        ============    ============
     Stock options issued for consulting services                       $         --    $     25,164
                                                                        ============    ============
     Savings and Retirement Plan stock contribution                     $         --    $     43,238
                                                                        ============    ============
     Common stock issued to acquire Pacific Pharmaceuticals             $  3,766,913    $         --
                                                                        ============    ============
     Common stock issued to acquire minority interest in subsidiary     $  4,160,363    $         --
                                                                        ============    ============
     Common stock options issued to acquire Pacific Pharmaceuticals     $    965,835    $         --
                                                                        ============    ============
     Common stock issued to pay off loans                               $    441,870    $         --
                                                                        ============    ============
     Common stock issued for services                                   $     35,000    $         --
                                                                        ============    ============
     Common stock issued in settlement of legal action                  $    135,002    $         --
                                                                        ============    ============
</TABLE>

    The accompanying notes are an integral part of the financial statements.


                                       5
<PAGE>

                          NOTES TO FINANCIAL STATEMENTS

1.       BASIS OF PRESENTATION

NATURE OF BUSINESS

Procept, Inc. ("Procept" or the "Company"), located in Cambridge, MA, is a
biopharmaceutical company currently engaged in the development and
commercialization of novel drugs with a product portfolio focused on infectious
diseases and oncology. As discussed more fully in Note 7, on March 17, 1999,
Procept consummated its merger with Pacific Pharmaceuticals, Inc. ("Pacific") in
which Pacific became a subsidiary of Procept. The combined company has three
compounds in human clinical trials, two of which have substantial government
funding and support. Procept is continuing its search to acquire or in-license
additional drug development candidates to broaden its drug development pipeline
and position itself as a successful biopharmaceutical development company.

The Company is subject to risks common to companies in the biotechnology
industry including, but not limited to, development by the Company or its
competitors of new technological innovations, dependence on key personnel,
protection of proprietary technology, compliance with FDA government regulations
and the ability to obtain financing.

PLAN OF OPERATIONS

Since its inception in 1985, Procept has devoted its principal efforts to drug
discovery and research. The Company is now devoting its principal efforts to
drug development, human clinical trials, partnership commercialization, and
in-licensing efforts.

Procept has generated no revenue from product sales, has not been profitable
since inception, and has incurred an accumulated deficit of $76.5 million
through June 30, 1999. Losses have resulted principally from costs incurred in
research and development activities related to the Company's efforts to develop
drug candidates and from the associated administrative costs. The Company
expects to incur significant additional operating losses over the next several
years and expects cumulative losses to increase substantially due to preclinical
and clinical testing, and development of marketing, sales and production
capabilities. Procept's future plans will focus on drug development rather than
research. The Company is seeking strategic partnering opportunities for its lead
compounds to accelerate revenue and minimize the investment required for
marketing, sales and production capabilities.

The Company expects that its current funds and interest income will be
sufficient to fund Procept's operations through June 2000. Although management
continues to pursue additional funding arrangements and/or strategic partnering,
there can be no assurance that additional funding will be available from any of
these sources or, if available, will be available on acceptable or affordable
terms. If the Company is unable to enter into an additional corporate
collaboration(s) that produce revenue for the Company, or secure additional
financing, the Company's financial condition will be adversely affected.

The accompanying financial statements for the three- and six-month periods ended
June 30, 1999 and 1998 are unaudited and have been prepared by the Company in
accordance with generally accepted accounting principles. These interim
financial statements, in the opinion of management, reflect all adjustments
(consisting only of normal


                                       6
<PAGE>

                         NOTES TO FINANCIAL STATEMENTS


recurring accruals) necessary for a fair presentation of the results for the
interim periods ended June 30, 1999 and 1998. The results of operations for the
interim periods are not necessarily indicative of the results of operations to
be expected for the fiscal year. These interim financial statements should be
read in conjunction with the audited financial statements for the year ended
December 31, 1998 which are contained in the Company's 1998 Annual Report on
Form 10-K.

2.       SHAREHOLDERS' EQUITY

On December 31, 1998, the Company had a total of 3,001,832 shares of common
stock outstanding. During the six months ending June 30, 1999, the Company
issued 11,041,263 new shares of common stock. These issuances resulted from the
acquisition of Pacific Pharmaceuticals, Inc. ("Pacific") and contractual
obligations associated with the 1998 subscription agreements entered into in
connection with the Company's 1998 private placement (the "1998 Subscription
Agreements") in which the Company raised $8.3 million, net. The following
section summarizes the recent issuances of the Company's common stock.

On March 15, 1999, the Company issued 36,785 shares of its common stock to
Commonwealth Associates in connection with the settlement of the litigation
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. On the same date, the Company issued 2,724 shares of its
common stock to The Harvard School of Dental Medicine as partial satisfaction of
certain contractual obligations of Pacific.

On March 17, 1999, Pacific was merged with, and became a wholly owned subsidiary
of, the Company. In connection with the merger, each share of Pacific common
stock (including preferred stock on an as converted basis) was converted into
approximately 0.11 shares of Procept common stock or a total of 2,755,000
Procept shares; an additional 414,584 Procept shares were issued to holders of
Pacific's preferred stock, for a total of 3,169,584 shares (of which 1,558,587
shares issued in the merger to holders of Pacific preferred stock were
accompanied by certain contractual rights similar to those held by purchasers in
Procept's 1998 private placement). The Company also issued 88,374 shares of its
common stock in exchange for the cancellation of certain indebtedness of
Pacific.

The issuance of common stock in connection with the Pacific merger was a
dilutive issuance under the terms of the 1998 Subscription Agreements. As a
result, on March 17, 1999 pursuant to anti-dilution provisions of the 1998
Subscription Agreements, the Company issued 1,005,058 shares of its common stock
to purchasers in the 1998 private placement and certain other stockholders with
identical contractual rights. In addition, the exercise price of the Company's
Class C Warrants issued in the 1998 private placement was reduced from $5.00 to
$3.67 as a result of the dilutive issuance.

On April 9, 1999, pursuant to the contractual reset provision contained in the
1998 Subscription Agreements, the Company issued 3,885,851 shares of its common
stock to the purchasers in the 1998 private placement and certain other
stockholders with identical contractual rights.


                                       7
<PAGE>

                         NOTES TO FINANCIAL STATEMENTS


On May 18, 1999, the Company issued 51,087 shares of its common stock in
connection with the exercise of a common stock warrant.

On June 22, 1999, the Company issued 16,500 shares of its common stock as
bonuses to certain employees. In addition, on June 22, 1999, the Company issued
11,725 of its common stock as partial satisfaction of certain financial
obligations.

On June 30, 1999, the Company issued 2,773,575 shares of its common stock and
924,525 Class D Warrants to purchase common stock to convert the minority
interest in its majority owned subsidiary BG Development Corp. ("BGDC"),
thereby eliminating a $6.5 million obligation while obtaining 100% ownership
in BGDC. The 2,773,575 common shares issued in the conversion were valued at
$2.11 per share. The shares have contractual rights identical to those held
by purchasers in Procept's 1998 private placement. The Class D Warrants
exercisable for an aggregate of 924,525 shares of the Company's common stock
at $2.11 per share expire June 30, 2004. The total value of the shares plus
the warrants (utilizing the Black-Scholes valuation method), minus the book
value of the minority interest in BGDC resulted in an incremental charge
against earnings of $501,000 during the period. This issuance was a dilutive
event under the terms of the Class C Warrant Agreement. Accordingly the
exercise price of each Class C Warrant was reduced from $3.67 to $3.28.

3.       RESEARCH COLLABORATIONS

In January 1996, Procept entered into a Sponsored Research Agreement with
VacTex, Inc. ("VacTex"). Under the Sponsored Research Agreement, Procept
conducted specified research tasks on behalf of VacTex for which Procept
received a combination of cash and equity in VacTex based on the number of
full-time equivalent employees of Procept engaged in the research, but subject
to maximum cash and stock limits. At December 31, 1997, the Company's investment
in VacTex was accounted for under the cost method since it was a restricted
security, it did not have a readily determinable fair value and Procept owned
less than twenty percent of VacTex.

On April 13, 1998, Aquila Biopharmaceuticals, Inc. ("Aquila") acquired VacTex.
The Company's investment in VacTex of 300,000 shares of common stock was
converted to 113,674 shares of Aquila common stock and $128,501 principal amount
of 7% debentures. On July 15, 1999, the Company redeemed the Aquila 7%
debentures. The Company received $139,758 representing the principal and accrued
interest due at the time of redemption. As a result, the Company is accounting
for its investment in Aquila under Statement of Financial Accounting Standards
("SFAS") 115, "Accounting for Certain Investments in Debt and Equity Securities"
as an available for sale security and marked it to market by recognizing an
accumulated unrealized net gain of $13,068 as part of Shareholders' Equity,
based on Aquila's common stock closing price on June 30, 1999.

4.       RESTRUCTURING

In January 1998, the Company terminated work on all research programs and
underwent a significant downsizing, reducing its staff to 10 people. Due to the
restructuring and focus on the clinical development of PRO 2000 Gel, the Company
has sold and plans to continue to sell most of its research equipment. For the
six months ended June 30,


                                       8
<PAGE>

                         NOTES TO FINANCIAL STATEMENTS


1999, the Company received approximately $29,000 from the sale of equipment and
has recorded a gain of approximately $25,000 in other expenses.

5.       BASIC AND DILUTED NET (LOSS) PER COMMON SHARE

In the quarter ended December 31, 1997, the Company adopted SFAS 128, "Earnings
Per Share," which modifies the way in which earnings per share ("EPS") is
calculated and disclosed. Basic EPS excludes dilution and is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted EPS is based upon the
weighted average number of common shares outstanding during the period plus the
additional weighted average common equivalent shares during the period. Common
equivalent shares are not included in the per share calculations where the
effect of their inclusion would be anti-dilutive. Common equivalent shares
result from the assumed exercises of outstanding stock options and warrants, the
proceeds of which are then assumed to have been used to repurchase outstanding
stock options using the treasury stock method. For the three- and six-month
periods ended June 30, 1999, there were no dilutive securities.

6.       COMPREHENSIVE INCOME

Effective January 1, 1998, the Company adopted SFAS 130, "Reporting
Comprehensive Income." This statement requires changes in comprehensive income
to be shown in a financial statement that is displayed with the same prominence
as other financial statements. The Company has adopted SFAS 130 in the
accompanying financial statements and will provide such information annually in
its Statement of Shareholders' Equity and in a footnote disclosure for interim
periods. Accumulated other comprehensive income is calculated as follows:

<TABLE>
<CAPTION>
                                                    Three Months Ended                    Six Months Ended
                                                         June 30,                             June 30,
                                               -----------------------------     -----------------------------
                                                   1999             1998               1999              1998
                                               -------------     -----------     ---------------     --------
     <S>                                          <C>             <C>              <C>                <C>
     Net loss                                     $(786,536)      $(900,943)       $(10,776,536)      $(2,347,632)
     Change in unrealized gain
              on investments                        (51,543)        304,568            (259,520)          304,568

     Comprehensive loss                           $(838,079)      $(596,375)       $(11,036,056)      $(2,043,064)
                                                  ==========      ==========       =============      ============

     Unrealized gain on investments:

         Balance at December 31, 1998                                                    $     272,588
         Change during the six months ended June 30, 1999                                     (259,520)
                                                                                        --------------
     Balance at June 30, 1999                                                            $      13,068
                                                                                         =============
</TABLE>


                                       9
<PAGE>

                         NOTES TO FINANCIAL STATEMENTS


7.       ACQUISITION OF PACIFIC PHARMACEUTICALS, INC.

On December 10, 1998, Procept entered into a definitive Agreement and Plan of
Merger (the "Merger Agreement") to acquire Pacific Pharmaceuticals, Inc.
("Pacific"), a Delaware corporation engaged in the development of cancer
therapies, based in San Diego, California, through a merger of a wholly owned
subsidiary of Procept with and into Pacific. The acquisition of Pacific
Pharmaceuticals closed on March 17, 1999.

The acquisition of Pacific was accounted for under the purchase accounting
method. The aggregate purchase price of $3.8 million, plus estimated acquisition
costs of $1.5 million, assumed liabilities (including a $200,000 note payable to
a significant shareholder of the Company) of $5.7 million and $1.0 million for
the value of the stock options and warrants being issued to the Pacific
shareholders were allocated to the acquired tangible and intangible assets based
on their estimated respective fair values. Approximately $9.4 million of the
purchase price has been allocated to in-process research and development and
expensed in the quarter ended March 31, 1999. The charge for in-process research
and development represents the value assigned to Pacific's programs that are
still in the development stage and for which there is no alternative future use.
The value assigned to these programs has been developed by determining the fair
value of these programs, as provided by an independent valuation of the Pacific
business.

The valuation methodology was based on estimated discounted cash flows. Recent
Securities and Exchange Commission ("SEC") guidelines on valuation methodologies
for in-process research and development are still evolving. The amount written
off may be subject to adjustment as the SEC continues to focus on accounting for
acquired in-process research and development.

Pursuant to the Merger Agreement, each share of Pacific common stock (including
preferred stock on an as converted basis into common stock) converted into
approximately 0.11 shares of Procept common stock or a total of 2,755,000
Procept shares and an additional 414,584 Procept shares were issued to holders
of Pacific's preferred stock for a total of 3,169,584 Procept shares (of which
1,558,587 shares of Procept common stock issued in the merger to holders of
Pacific preferred stock were accompanied by certain contractual rights identical
to contractual rights held by purchasers in Procept's 1998 private placements).
In addition, Procept exchanged all Pacific's outstanding warrant, unit purchase
option and stock option obligations into approximately 1,773,078 like
instruments of Procept. Procept also assumed an approximately $6.5 million, net
obligation (payable in cash or common stock of Procept, at the sole option of
the Company) of Pacific's subsidiary, BG Development Corp. ("BGDC"). On June 30,
1999, the Company issued 2,773,575 shares of its common stock and 924,525 Class
D Warrants to convert the obligations to the minority shareholders of BGDC. The
shares have contractual rights identical to those held by purchasers in
Procept's 1998 private placement. The Class D Warrants are exercisable for an
aggregate of 924,525 shares of the Company's common stock at $2.11 per share
and expire on June 30, 2004. As a result of the merger with Pacific, Procept
also issued approximately 1,005,058 shares of its common stock to purchasers in
Procept's 1998 private placement and certain other stockholders pursuant to
certain contractual anti-dilution rights.


                                       10
<PAGE>

                         NOTES TO FINANCIAL STATEMENTS


PRO FORMA RESULTS OF OPERATION

The following unaudited pro forma results of operations for the six months ended
June 30, 1999 and 1998 give effect to the Company's acquisition of Pacific as if
the transaction had occurred at the beginning of each period. The pro forma
results of operation exclude the charge for in-process research and development
of $9.4 million that was recorded with the acquisition in 1999, and do not
purport to reflect what the Company's results of operations actually would have
been if the acquisition had occurred as of the beginning of the periods, or what
such results will be for any future period. The financial data are based upon
financial assumptions that the Company believes are reasonable and should be
read in conjunction with the consolidated financial statements and accompanying
notes thereto included elsewhere in this report.

<TABLE>
<CAPTION>
                                           Pro Forma Results for the
                                           Six Months Ended June 30,
                                   ----------------------------------------
                                     1999                           1998
                                   -----------                  -----------
   <S>                             <C>                          <C>
   Revenues                           $193,258                     $289,814
   Net loss                        $(2,180,182)                 $(4,361,513)
   Basic and diluted net loss
        per common share                $(0.29)                      $(1.98)
</TABLE>

8.       NEW ACCOUNTING STANDARDS

In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133." SFAS 137 amends SFAS 133, Accounting
for Derivative Instruments and Hedging Activities, which was issued in June 1998
and was to be effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. SFAS 137 defers the effective date of SFAS 133 to June 15, 2000.
Earlier application is permitted. SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
While management has not determined the impact of the new standard, it is not
expected to be material to the Company.

In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Accounting for the Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5
requires all costs of start-up activities (as defined by SOP 98-5) to be
expensed as incurred. This statement has no impact on the Company.


                                       11
<PAGE>



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

OVERVIEW

Procept, Inc. ("Procept" or the "Company") is currently engaged in the
development and commercialization of novel drugs with a product portfolio
focused on infectious diseases and oncology. This includes three compounds in
human clinical trials that may be candidates for accelerated regulatory
approval. On March 17, 1999, Procept consummated its merger with Pacific
Pharmaceuticals, Inc. ("Pacific") in which Pacific became a subsidiary of
Procept. Procept is also continuing its search to acquire or in-license new drug
development candidates to broaden its drug development pipeline and position
itself as a successful biopharmaceutical development company.

PRO 2000 GEL is a vaginal, topical microbicide designed to provide protection
against human immunodeficiency virus ("HIV") infection and other sexually
transmitted diseases ("STDs"). PRO 2000 Gel was recently shown to protect female
monkeys from infection by an AIDS-causing virus. In earlier studies, PRO 2000
Gel protected mice from genital herpes simplex virus type 2 ("HSV-2") infection.
Laboratory studies have also shown that the product is active against CHLAMYDIA
TRACHOMATIS and NEISSERIA GONORRHEA, two other important STD pathogens. Two
Phase I clinical trials, completed in 1997, showed that daily intravaginal doses
of 4% PRO 2000 Gel are safe and well tolerated in healthy, sexually abstinent
women. A larger safety study to evaluate the safety and acceptability of PRO
2000 Gel in healthy, sexually active women and in HIV-infected women is
scheduled to begin shortly in the United States and South Africa, with support
from the National Institute of Allergy and Infectious Diseases ("NIAID"), a unit
of the National Institutes of Health ("NIH").

In 1998, the National Cancer Institute ("NCI") of the NIH and Pacific, Procept's
subsidiary, signed a Cooperative Research and Development Agreement ("CRADA") to
further the Phase I and Phase II development of the proprietary chemosensitizing
agent O(6)-BENZYLGUANINE ("BG"). Pacific's collaborators believe that BG may be
capable of destroying the resistance of cancer cells to a class of
chemotherapeutic agents known as O(6)-alkylating agents, currently used to treat
various cancers such as brain, melanoma and lymphoma. BG may also enable the use
of these agents in other cancers previously thought to be unresponsive, such as
colon, lung, and breast, which may expand their utility and effectiveness to
provide treatment to a broad patient base. Multiple Phase I human clinical
trials are nearing completion in different cancer types including brain and
colon cancer. Upon completion, the Company and the NCI intend to initiate
several Phase II efficacy studies in several cancer indications.

Procept's photodynamic therapy compound, BORONATED PROTOPORPHYRIN ("BOPP"), is
currently completing a Phase I study in brain cancer patients at the Royal
Melbourne Hospital, Australia under a United States Investigational New Drug
Application filed with the Food and Drug Administration in March 1998. One of
the world's experts in photodynamic therapy ("PDT") for the treatment of brain
cancer, Dr. Andrew Kaye, is overseeing the clinical trials. PDT may be suitable
for use in a variety of disorders including cancers and pre-cancerous conditions
such as Barrett's esophagus and cervical dysplasia. Light is used to activate a
photosensitizing drug selective to tumor cells, resulting


                                       12

<PAGE>

in tumor cell death. The Company believes that BOPP's apparent degree of
selectivity to tumor cells and cell killing capabilities are a potential
competitive advantage against other PDT compounds.

RESULTS OF OPERATIONS

Since its inception in 1985, Procept has devoted its principal efforts to drug
discovery and research. Procept has generated no revenues from product sales,
has not been profitable since inception, and has incurred an accumulated deficit
of $76.5 million through June 30, 1999. The Company is dependent upon research
and development collaborations, equity financing and interest on invested funds
to provide the working capital required to pursue its intended business
activities. Losses have resulted principally from costs incurred in research and
development activities related to the Company's efforts to develop drug
candidates and from the associated administrative costs required to support
these efforts. The Company expects to incur significant additional operating
losses over the next several years due to its ongoing development efforts and
expanded preclinical and clinical testings. The Company's potential for future
profitability is dependent on its ability to effectively develop its current
pharmaceutical compounds and in-license and develop new pharmaceutical products,
as well as obtain regulatory approvals and adequate financing for such products.
Future profitability will require that the Company establish agreements for
product development, commercialization and sales of its products with corporate
sponsors.

THREE MONTHS ENDED JUNE 30, 1999 AND 1998

The Company's total revenue declined to $73,000 in the second quarter of 1999
from $76,000 for the comparable period of 1998. The $2,000 (2.6%) decrease
resulted primarily from lower interest income earned on invested cash balances.
The Company's cash balances available for investment decreased to $5.7 million
as of June 30, 1999 from $5.8 million as of June 30, 1998.

The Company's total operating expenses decreased $117,000 (12.0%) to $860,000 in
the second quarter of 1999 from $977,000 for the comparable period of 1998.
Research and development expenses decreased to $365,000 in the second quarter of
1999 from $522,000 for the same period of 1998. The $157,000 (30.0%) decrease
was due to lower research expenditures resulting from discontinued research
programs that offset additional development costs associated with the Company's
three ongoing programs in clinical trials. General and administrative expenses
increased to $488,000 in the second quarter of 1999 from $451,000 in the
comparable period of 1998. The $37,000 (8.2%) increase resulted from additional
professional services expenditures relating to corporate development activities
during the quarter. Interest expense increased to $8,000 in the second quarter
of 1999 from $4,000 in the second quarter of 1998. The $4,000 (100.0%) increase
resulted from additional interest expense incurred relating to the Notes Payable
assumed by the Company as part of the acquisition of Pacific. On June 30, 1999
the Company converted the minority interest in its majority owned subsidiary, BG
Development Corporation ("BGDC"). The Company issued 2,773,575 common shares and
924,525 Class D Warrants to convert the minority interest. The conversion of the
minority interest resulted in an incremental charge of $501,000 during the
quarter ended June 30, 1999.


                                       13
<PAGE>

SIX MONTHS ENDED JUNE 30, 1999 AND 1998

The Company's total revenues decreased to $155,000 in the first half of 1999
from $190,000 during the comparable period of 1998. The $35,000 (18.4%) decrease
resulted primarily from the expiration of the Sponsored Research Agreement with
VacTex, Inc. Interest income increased to 155,000 in the first half of 1999 from
$80,000 for the comparable period of 1998. The $75,000 (93.8%) increase in
interest income resulted from additional cash balances available for investment
during the first half of 1999.

The Company's total operating expenses increased to $10,932,000 in the first
half of 1999 from $2,537,000 for the comparable period in 1998. The $8,395,000
(330.9%) increase primarily resulted from an in-process research and development
charge of $9,406,000 associated with the acquisition of Pacific. Without this
charge, total operating expenses decreased $1,011,000 (39.9%) to $1,526,000 in
the first half of 1999 from $2,537,000 for the comparable period of 1998.
Research and development expenses decreased to $584,000 in the first half of
1999 from $1,335,000 in the comparable period of 1998. The $751,000 (56.3%)
decrease was due primarily to a decrease in personnel in the Company's research
and development organization and their related costs. In January of 1998 the
Company terminated work on all research programs and underwent a significant
downsizing, reducing its staff to 10 people. General and administrative expenses
increased to $978,000 in the first half of 1999 from $973,000 in the same
period of 1998. The $5,000 (0.5%) increase resulted primarily from increased
corporate development activity. Other income of $36,000 recorded during the
first half of 1999 resulted primarily from a gain on sale of research and
development equipment and supplies. Due to the restructuring and focus on the
development of PRO 2000 Gel, the Company has sold or plans to continue to sell
most of its research and development equipment. On June 30, 1999 the Company
converted the minority interest in its majority owned subsidiary, BGDC. The
Company issued 2,773,575 common shares and 924,525 Class D Warrants to convert
the minority interest. The purchase of the minority interest resulted in an
incremental charge of $501,000 during the first half of 1999.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1999, the Company's aggregate cash, cash equivalents and marketable
securities were $6.0 million, a net increase of $0.5 million since December 31,
1998. The increase in cash is primarily attributable to the acquisition of
Pacific which resulted in a cash infusion of $2.8 million, offset by $2.1
million cash used in operations and $0.2 million of unrealized losses on
securities available for sale. Included in cash is $29,000 from the sale of
research and development equipment. Due to Procept's focus on the clinical
development, the Company plans to continue to sell most of its research
equipment.

On March 17, 1999, Procept completed the acquisition of Pacific, a public
research and development company engaged in the development of cancer therapies.
Each of Pacific's shares of common stock (including preferred stock on an as
converted basis into common stock) converted into approximately 0.11 shares of
Procept common stock or a total of 2,755,000 Procept shares. An additional
414,584 shares of Procept common stock were issued in the merger to the holders
of Pacific's preferred stock as a result of certain contractual rights identical
to contractual rights held by purchasers in Procept's 1998 private placement. In
addition, Procept agreed to exchange all of Pacific's outstanding warrant, unit
purchase option and stock option obligations into like instruments of Procept.
Procept


                                       14
<PAGE>

also assumed an approximately $6.5 million, net obligation (payable in cash or
common stock of Procept, at the option of the Company) of Pacific's subsidiary,
BGDC. On June 30, 1999, the Company issued 2,773,575 common shares and 924,525
Class D Warrants to convert the minority interest in BGDC. The shares have
contractual rights identical to those held by purchasers in Procept's 1998
private placement. The Class D Warrants are exercisable for an aggregate of
924,525 shares of the Company's common stock at $2.11 per share and expire on
June 30, 2004. The conversion eliminated the net obligation of BGDC.

The Company expects that its current funds and interest income will be
sufficient to fund Procept's operations through June 2000. Although management
continues to pursue additional funding arrangements, no assurance can be given
that such financing will be available to the Company. If the Company is unable
to enter into an additional corporate collaboration(s) that produce revenue for
the Company, or secure additional financing, the Company's financial condition
will be adversely affected. If additional funds are raised by issuing equity
securities, further dilution to existing shareholders will result and future
investors may be granted rights superior to those of existing shareholders.

The Company's expectations regarding its rate of spending and the sufficiency of
its cash resources over future periods are forward-looking statements. The rate
of spending and sufficiency of such resources will be affected by numerous
factors including the rate of planned and unplanned expenditures by the Company
and the execution of new collaboration agreements for the Company's research and
development programs. Other important factors that may affect achieving the
Company's strategic goals and other forward-looking statements are set forth in
Exhibit 99.1 of the Company's 1998 Annual Report on Form 10-K.

The Company's working capital and other cash needs will depend heavily on the
success of the Company's clinical trials and the rate of acquisition of new
products and technologies. Success in early-stage clinical trials or acquisition
of new products and technologies would lead to an increase in working capital
requirements. The Company's actual cash requirements may vary materially from
those now planned because of the results of research and development, clinical
trials, product testing, relationships with strategic partners, acquisition of
new products and technologies, changes in the focus and direction of the
Company's research and development programs, competitive and technological
advances, the process of obtaining United States Food and Drug Administration or
other regulatory approvals and other factors.

NEW ACCOUNTING STANDARDS

In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133." SFAS 137 amends SFAS 133, Accounting
for Derivative Instruments and Hedging Activities, which was issued in June 1998
and was to be effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. SFAS 137 defers the effective date of SFAS 133 to June 15, 2000.
Earlier application is permitted. SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
While management has not determined the impact of the new standard, it is not
expected to be material to the Company.


                                       15
<PAGE>

In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Accounting for the Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5
requires all costs of start-up activities (as defined by SOP 98-5) to be
expensed as incurred. This statement has no impact on the Company.

YEAR 2000

The Company has completed its assessment of the potential impact of the year
2000 on its information technology and non-information technology systems. The
year 2000 problem is the result of computer programs being written using two
digits (rather than four) to define the applicable year. Any of the Company's
programs or systems that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000, which could result in a
miscalculation or system failures. Based on the Company's assessment, there is
no year 2000 impact on Procept's information technology systems. Operating
systems and applications used by the Company are year 2000 compliant. At this
time, the Company is not aware of any year 2000 issues relating to its third
party vendors. The Company has replaced several non-information technology
systems and believes that it is now year 2000 compliant. The cost of year 2000
compliant non-technology information systems was approximately $8,000. The
Company's most critical uncertainty relates to its third parties' information
technology systems not being year 2000 compliant. This may result in inaccurate
information from banks, government agencies, contracted research organizations,
vendors, etc. The Company believes it has in place an adequate internal control
structure to handle these issues if they were to occur.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

In January 1997, the Securities and Exchange Commission issued Financial
Reporting Release 48 ("FRR 48"), "Disclosure of Accounting Policies for
Derivative Financial Instruments and Derivative Commodity Instruments, and
Disclosure of Quantitative and Qualitative Information About Market Risk
Inherent in Derivative Financial Instruments, Other Financial Instruments and
Derivative Commodity Instruments." FRR 48 requires disclosure of qualitative and
quantitative information about market risk inherent in derivative financial
instruments, other financial instruments, and derivative commodity instruments
beyond those already required under generally accepted accounting principals.
The Company is not a party to any of the instruments discussed in FRR 48 and
considers its market risk to be minimal.


                                       16
<PAGE>

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

On February 22, 1999, Christopher R. Richied ("Richied") filed a Complaint with
the United States District Court for the Southern District of New York naming
Pacific Pharmaceuticals, Inc. ("Pacific") and Binary Therapeutics Inc.,
("Binary"), both subsidiaries of the Company, as defendants (the "Complaint").
The Complaint alleges that Pacific and Binary breached obligations to Richied
under certain consulting agreements. In the Complaint, Richied seeks
approximately $40,000 in cash and an indeterminate amount based upon the value
of certain equity components of the consulting agreement. The Company's answer
to the Complaint was filed on August 9, 1999. Based on facts alleged in the
Complaint, the Company does not believe this action will have a material adverse
effect on the Company's business, even in the event of a decision by the court
in the plaintiff's favor or other conclusion of the litigation in a manner
adverse to Pacific and Binary.

ITEM 2.  CHANGE IN SECURITIES.

On June 22, 1999, the Company issued 11,765 shares of the Company's Common Stock
to Oscar Gruss & Son Incorporated as partial payment of the fee due for
investment banking services rendered to the Company in connection with the
acquisition of Pacific Pharmaceuticals, Inc.

On June 30, 1999, pursuant to Subscription Agreements, the Company issued an
aggregate of 2,773,575 shares of Common Stock and Class D Warrants, exercisable
for an aggregate of 924,525 shares of the Company's Common Stock at $2.11 per
share and expiring June 30, 2004, to the holders of all of the outstanding
capital stock of BG Development Corp. ("BGDC") not held by the Company. The
Company's securities were issued in exchange for an aggregate of 1,467,500
outstanding shares of BGDC Series A Convertible Preferred Stock and, as a result
of the exchange, BGDC became a wholly-owned subsidiary of the Company.

On July 13, 1999, the Company issued a warrant to Wound Healing of Oklahoma,
exercisable for 11,500 shares of the Company's Common Stock at $2.11 per share,
expiring June 30, 2004, in exchange for the agreement by Wound Healing of
Oklahoma to terminate the obligations of Pacific Pharmaceuticals under the
License Agreement dated May 8, 1996.

All of the above issuances were exempt from registration pursuant to Section
4(2) of the Securities Act of 1933, as amended.


                                       17
<PAGE>

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

The Company held its annual meeting of stockholders on Friday, June 11, 1999.
The following tabulates the results of the proposals submitted to a vote of the
stockholders.

<TABLE>
<CAPTION>
                                                              Votes Cast          Abstentions and
                                        Votes Cast For    Against Or Withheld    Broker Non-votes
                                        --------------    -------------------    ----------------
<S>  <C>                                    <C>                <C>                    <C>
1)   Election of Directors

         John F. Dee                         7,277,284          15,583                   0
         Zola P. Horovitz, Ph.D.             7,276,620          16,247                   0
         Max Link, Ph.D.                     7,276,620          16,247                   0
         Mark C. Rogers, M.D.                7,276,620          16,247                   0
         Nigel J. Rulewski                   7,277,284          15,583                   0
         Elliott H. Vernon                   7,277,284          15,583                   0
         Michael S. Weiss                    7,276,620          16,247                   0

2)   Proposal to approve an amendment to
     Procept's 1998 Equity Incentive Plan
     (the "Equity Plan") increasing the
     aggregate number of shares of common
     stock reserved for issuance under the
     Equity Plan by 3,300,000 from
     1,500,000 to 4,800,000                 18,416,378         139,915                2,589
</TABLE>

ITEM 5.  OTHER INFORMATION.

None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

         (a)      EXHIBITS.

                  4.1     Warrant Certificate for 11,500 shares of Common Stock
                          dated July 13, 1999 issued to Wound Healing of
                          Oklahoma. Filed herewith.

                  4.2     Form of Class D Warrant Certificate, including
                          Schedule of Holders. Filed herewith.

                  10.1    1998 Equity Incentive Plan, as amended through June
                          11, 1999. Filed herewith.

                  10.2    Subscription Agreement, dated as of June 30, 1999,
                          including Schedule of Purchasers. Filed herewith.

                  10.3    Executive Employment Agreement between the Company and
                          John F. Dee dated as of February 4, 1998. Filed
                          herewith.

                  27.1    Financial Data Schedule. Filed herewith.

        (B)     REPORTS ON FORM 8-K.

                  None.


                                       18
<PAGE>

                                   SIGNATURES

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

                                     PROCEPT, INC.

                                     (Registrant)

Date:  August 12, 1999               by:   /s/ JOHN F. DEE
                                           ---------------
                                           John F. Dee
                                           President and Chief Executive Officer


                                           /s/ MICHAEL E. FITZGERALD
                                           -------------------------------------
                                           Michael E. Fitzgerald
                                           Vice President, Finance
                                           Chief Financial Officer


                                       19
<PAGE>

                                  EXHIBIT INDEX

         Exhibit
         Number       Description
         -------      -----------

           4.1        Warrant Certificate for 11,500 shares of Common Stock
                      dated July 13, 1999 issued to Wound Healing of Oklahoma.
                      Filed herewith.

           4.2        Form of Class D Warrant Certificate, including Schedule of
                      Holders. Filed herewith.

           10.1       1998 Equity Incentive Plan, as amended through June 11,
                      1999. Filed herewith.

           10.2       Subscription Agreement, dated as of June 30, 1999,
                      including Schedule of Purchasers. Filed herewith.

           10.3       Executive Employment Agreement between the Company and
                      John F. Dee dated as of February 4, 1998. Filed herewith.

           27.1       Financial Data Schedule. Filed herewith.


                                       20