<PAGE>   1
                                   FORM 10-QSB

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

       [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
               For the quarterly period ended September 30, 1997

                                       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 0-28782
                         ------------------------------

                             NEOTHERAPEUTICS, INC.
             (Exact name of Registrant as specified in its charter)

                  DELAWARE                                       93-0979187
           (State or other jurisdiction                        (I.R.S. Employer
        of incorporation or organization)                    Identification No.)

            157 TECHNOLOGY DRIVE
             IRVINE, CALIFORNIA                                     92618
   (Address of principal executive offices                       (Zip Code)

Registrant's telephone number, including area code:            (714) 788-6700

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 [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
Common stock as of the latest practicable date:


                  Class                         Outstanding at October 27, 1997
        -----------------------------           -------------------------------
        Common Stock, $.001 par value                      5,465,807


<PAGE>   2
                              NEOTHERAPEUTICS, INC.
                        (A Development-Stage Enterprise)

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>

PART I.    FINANCIAL INFORMATION                                                Page No.
                                                                                --------
<S>                                                                             <C>

ITEM 1.  FINANCIAL STATEMENTS
        Statement regarding financial information...................................3

        Condensed Consolidated Balance Sheets as of September 30, 1997 and
             December 31, 1996......................................................4

        Condensed Consolidated Statements of Operations for the three months
             ended September 30, 1997 and 1996......................................5

        Condensed Consolidated Statements of Operations for the nine months ended
           September 30, 1997 and 1996 and for the period from inception (June
           15, 1987) to September 30, 1997..........................................6

        Condensed Consolidated Statements of Cash Flows for the nine months ended
           September 30, 1997 and 1996 and for the period from inception (June
           15, 1987) to September 30, 1997..........................................7

        Notes to Condensed Consolidated Financial Statements........................9


ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
           FINANCIAL POSITION......................................................12


PART II.    OTHER INFORMATION......................................................16


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.........................................16
</TABLE>



                                       2

<PAGE>   3
                              NEOTHERAPEUTICS, INC.
                        (A Development Stage Enterprise)

                                   FORM 10-QSB

                    FOR THE QUARTER ENDED SEPTEMBER 30, 1997

                          PART I. FINANCIAL INFORMATION


                          ITEM 1. FINANCIAL STATEMENTS

                    STATEMENT REGARDING FINANCIAL INFORMATION

The financial statements included herein have been prepared by NeoTherapeutics,
Inc. (the "Company"), without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information normally included in
the financial statements prepared in accordance with generally accepted
accounting principles has been condensed or omitted pursuant to such rules and
regulations. However, the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that the
financial statements 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 December 31, 1996 as filed with the Securities and Exchange
Commission.


                                       3

<PAGE>   4
                     NEOTHERAPEUTICS, INC. AND SUBSIDIARIES
                        (A Development-Stage Enterprise)

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    SEPTEMBER 30, 1997 AND DECEMBER 31, 1996


<TABLE>
<CAPTION>
                                                                     September 30,      December 31,
ASSETS                                                                    1997              1996
                                                                     ------------       ------------
<S>                                                                  <C>                <C>         
CURRENT ASSETS:                                                      (Unaudited)
    Cash and cash equivalents                                        $    981,932       $  9,995,062
    Marketable securities and short-term investments                    8,462,130          5,702,114
    Other receivables, principally investment interest                    184,434            163,988
    Prepaid expenses and refundable deposits                              131,370            239,171
                                                                     ------------       ------------
        Total current assets                                            9,759,866         16,100,335
                                                                     ------------       ------------

PROPERTY AND EQUIPMENT, at cost:
    Equipment                                                           1,658,361            158,396
    Leasehold improvements                                              1,645,913                  -
    Construction in progress                                                    -             33,076
    Accumulated depreciation and amortization                            (176,813)           (58,963)
                                                                     ------------       ------------
        Property and equipment, net                                     3,127,461            132,509
                                                                     ------------       ------------

OTHER ASSETS:
    Marketable securities                                               1,747,773          1,746,432
    Deferred charges and deposits                                         268,443                  -
                                                                     ------------       ------------
        Total other assets                                              2,016,216          1,746,432
                                                                     ------------       ------------

        TOTAL ASSETS                                                 $ 14,903,543       $ 17,979,276
                                                                     ============       ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
    Line of credit note payable to bank                              $    550,000       $          -
    Accounts payable and accrued expenses                                 577,302            262,604
    Accrued payroll and related taxes                                      65,654            331,175
    Employee expense reimbursement                                              -             82,717
    Accrued interest to related parties                                         -            122,396
    Notes payable to related parties                                      558,304            558,304

    Current portion of installment note payable                            93,033                  -
                                                                     ------------       ------------
        Total current liabilities                                       1,844,293          1,357,196

INSTALLMENT NOTE PAYABLE, net
    of current portion                                                    200,930                  -
                                                                     ------------       ------------
                                                                        2,045,223          1,357,196
                                                                     ------------       ------------

STOCKHOLDERS' EQUITY:
    Common stock, no par value, 25,000,000 shares authorized:
    Issued and outstanding, 5,465,807 and 5,361,807 shares
      at September 30, 1997 and December 31, 1996, respectively        23,188,363         23,125,763
    Deficit accumulated during the development stage                  (10,347,372)        (6,503,683)
    Unrealized gains on available-for-sale securities                      17,329                  -
                                                                     ------------       ------------
        Total stockholders' equity                                     12,858,320         16,622,080
                                                                     ------------       ------------
        TOTAL LIABILITIES AND
        STOCKHOLDERS' EQUITY                                         $ 14,903,543       $ 17,979,276
                                                                     ============       ============
</TABLE>



              The accompanying notes are an integral part of these
                     condensed consolidated balance sheets.


                                       4

<PAGE>   5
                     NEOTHERAPEUTICS, INC. AND SUBSIDIARIES
                        (A Development-Stage Enterprise)

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
             FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996



<TABLE>
<CAPTION>
                                              Three Months     Three Months
                                                  Ended            Ended
                                              September 30,    September 30,
                                                  1997              1996
                                             -----------       -----------
                                              (Unaudited)       (Unaudited)
<S>                                          <C>               <C>        
REVENUES                                     $         -       $         -
                                             -----------       -----------

OPERATING EXPENSES:
   Research and development                    1,372,040           122,261
   General and administration                    604,782           148,143
                                             -----------       -----------

               Total operating expenses        1,976,822           270,404
                                             -----------       -----------

               LOSS FROM OPERATIONS           (1,976,822)         (270,404)
                                             -----------       -----------

OTHER INCOME (EXPENSE):
   Interest income (expense), net                165,291           (12,125)
   Other income (expense), net                    (1,599)           22,482
                                             -----------       -----------

         Total other income                      163,692            10,357
                                             -----------       -----------

         NET LOSS                            $(1,813,130)      $  (260,047)
                                             ===========       ===========

NET LOSS PER SHARE                           $     (0.33)      $     (0.09)
                                             ===========       ===========

Weighted Average Shares Outstanding            5,433,194         2,757,459
                                             ===========       ===========
</TABLE>



              The accompanying notes are an integral part of these
                       condensed consolidated statements.


                                       5

<PAGE>   6
                     NEOTHERAPEUTICS, INC. AND SUBSIDIARIES
                        (A Development-Stage Enterprise)

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
                          AND 1996 AND THE PERIOD FROM
                 INCEPTION (JUNE 15, 1987) TO SEPTEMBER 30, 1997



<TABLE>
<CAPTION>
                                                Nine Months        Nine Months      Inception
                                                   Ended             Ended            Through
                                               September 30,      September 30,     September 30,
                                                    1997              1996              1997
                                                 -----------       -----------       ------------
                                                 (Unaudited)       (Unaudited)       (Unaudited)
<S>                                              <C>               <C>               <C>         
REVENUES, from grants                            $         -       $         -       $    497,128
                                                 -----------       -----------       ------------


OPERATING EXPENSES:
   Research and development                        2,757,061           204,898          5,723,873
   General and administration                      1,673,103           308,566          5,102,209
                                                 -----------       -----------       ------------

         Total operating expenses                  4,430,164           513,464         10,826,082
                                                 -----------       -----------       ------------

         LOSS FROM OPERATIONS                     (4,430,164)         (513,464)       (10,328,954)
                                                 -----------       -----------       ------------

OTHER INCOME (EXPENSE):
   Interest income (expense), net                    579,720           (38,119)           375,527
   Other income                                        6,755            20,837             55,054
                                                 -----------       -----------       ------------

               Total other income (expense)          586,475           (17,282)           430,581
                                                 -----------       -----------       ------------


         NET LOSS                                $(3,843,689)      $  (530,746)      $ (9,898,373)
                                                 ===========       ===========       ============ 

NET LOSS PER SHARE                                 $   (0.71)      $     (0.22)
                                                 ===========       ===========

Weighted Average Shares Outstanding                5,397,698         2,430,510
                                                 ===========       ===========
</TABLE>



              The accompanying notes are an integral part of these
                       condensed consolidated statements.


                                       6

<PAGE>   7

                     NEOTHERAPEUTICS, INC. AND SUBSIDIARIES
                        (A Development-Stage Enterprise)

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
       AND THE PERIOD FROM INCEPTION (JUNE 15, 1987) TO SEPTEMBER 30, 1997


<TABLE>
<CAPTION>
                                                                                  Period from
                                              Nine Months       Nine Months       Inception
                                                  Ended            Ended           Through
                                              September 30,     September 30,    September 30,
                                                   1997            1996             1997
                                               -----------       ---------       ----------- 
                                               (Unaudited)      (Unaudited)      (Unaudited)
<S>                                            <C>               <C>             <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)                                     $(3,843,689)      $(530,746)      $(9,898,372)
Adjustments to reconcile net loss to net
 cash used in operating activities
   Depreciation and amortization                   117,850           4,163           302,302
   Issuance of common stock for services            60,000         103,950           268,950
   Amortization of deferred compensation                 -               -            93,749
   Compensation expense for extension of
     Debt Conversion Agreements, net                     -               -           503,147
   Gain on sale of assets                                -               -            (5,299)
   Increase in other receivables                   (21,787)        (46,000)         (185,529)
   Increase in prepaid expenses, deferred
     charges and refundable deposits              (160,642)       (228,820)         (349,810)
   Increase (decrease) in accounts
     payable and accrued expenses                  314,698         (13,290)          654,685
   Increase (decrease) in accrued payroll
     and related taxes                            (265,521)         98,388           704,348
   Increase (decrease) in employee
     expense reimbursement and  accrued
     interest to related parties                  (205,113)         36,321           383,121
                                               -----------       ---------       -----------
   Net cash used in operating activities        (4,004,204)       (576,034)       (7,528,708)
                                               -----------       ---------       -----------
</TABLE>





                                       7

<PAGE>   8
                     NEOTHERAPEUTICS, INC. AND SUBSIDIARIES
                        (A Development-Stage Enterprise)

           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)


<TABLE>
<CAPTION>
                                                                                    Period from
                                                  Nine Months       Nine Months     Inception
                                                    Ended             Ended          Through
                                                 September 30,     September 30,   September 30,
                                                     1997             1996              1997
                                                 -----------       ----------       -----------
                                                 (Unaudited)       (Unaudited)      (Unaudited)
<S>                                              <C>               <C>             <C>         
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of property and equipment           (3,112,802)        (29,875)        (3,384,577)
    Proceeds from sale of equipment                        -               -             29,665
    Purchases of marketable securities
      and short-term investments, net             (2,742,687)              -        (10,191,233)
    Payment of organization costs                          -               -            (66,093)
    Issuance of notes receivable                           -               -            100,000
                                                 -----------       ---------       ------------

    Net cash used in investing
      activities                                  (5,855,489)        (29,875)       (13,512,238)
                                                 -----------       ---------       ------------
CASH FLOWS FROM FINANCING
  ACTIVITIES:
    Proceeds from common stock issuance
      including Revenue Participation Units
      converted to common stock                        2,600         633,624         20,220,403
    Issuance of Line of Credit note payable
      to bank                                        550,000               -            550,000
    Issuance of installment note payable             293,963               -            293,963
    Proceeds from notes payable to
      related parties, net                                 -               -            757,900
    Cash at acquisition                                    -               -            200,612
                                                 -----------       ---------       ------------


    Net cash provided by financing
      activities                                     846,563         633,624         22,022,878
                                                 -----------       ---------       ------------

    Net increase (decrease) in cash               (9,013,130)         27,715            981,932

    Cash, beginning of period                      9,995,062             859                  -
                                                 -----------       ---------       ------------

    Cash, end of period                          $   981,932       $  28,574       $    981,932
                                                 ===========       =========       ============
</TABLE>



              The accompanying notes are an integral part of these
                       condensed consolidated statements.


                                       8

<PAGE>   9
                     NEOTHERAPEUTICS, INC. AND SUBSIDIARIES
                        (A Development-Stage Enterprise)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 1997
                                   (Unaudited)


1.     Summary of Significant Accounting Policies

a.   Organization and Nature of Business

        In the opinion of the Company's management, the accompanying unaudited
condensed consolidated financial statements include all adjustments (which
consist only of normal recurring adjustments) necessary for a fair presentation
of its consolidated financial position at September 30, 1997 and consolidated
results of operations and cash flows for the periods presented. Although the
Company believes that the disclosures in these financial statements are adequate
to make the information presented not misleading, certain information and
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted and
should be read in conjunction with the Company's audited financial statements
included in the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996 as filed with the Securities and Exchange Commission.
Results of operations for the nine months ended September 30, 1997 are not
necessarily indicative of results to be expected for the full year.

        NeoTherapeutics, Inc. (the "Company") was incorporated in Colorado as
Americus Funding Corporation ("AFC") in December 1987. In August 1996, AFC
changed its name to "NeoTherapeutics, Inc." In June 1997, the stockholders
approved the reincorporation of NeoTherapeutics as a Delaware corporation. Its
wholly-owned subsidiary, Advanced ImmunoTherapeutics, Inc. ("AIT"), was
incorporated in California in June 1987. In July 1989, AIT completed an
agreement with the Company, which provided for AIT to become a wholly-owned
subsidiary of AFC in a transaction accounted for as a reverse acquisition. In
April 1997, the Company established NeoTherapeutics, GmbH, a wholly-owned
subsidiary in Switzerland, for the purpose of conducting future licensing and
other related activities in the international market. All references to the
"Company" hereinafter refer to NeoTherapeutics and its subsidiaries as a
consolidated entity.

        The Company is a development-stage biopharmaceutical enterprise engaged
in the discovery and development of novel therapeutic drugs intended to treat
neurodegenerative diseases and conditions such as memory deficits associated
with Alzheimer's disease and aging, stroke, spinal cord injuries and Parkinson's
disease.

b.     Principles of Consolidation

        The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.


                                       9

<PAGE>   10
                     NEOTHERAPEUTICS, INC. AND SUBSIDIARIES
                        (A Development-Stage Enterprise)

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

c.     Marketable Securities and Short Term Investments

        The Company accounts for investments in marketable securities under
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The statement requires
investments in debt and equity securities to be classified among three
categories as follows: Held-to-maturity, trading and available-for-sale. As of
September 30, 1997, securities held by the Company were classified as
"held-to-maturity" and "available-for-sale." Securities held-to-maturity are
stated at cost, adjusted for amortization of premiums and accretion of
discounts, which are recognized as adjustments to interest income on investment
securities. A valuation allowance is not established to recognize temporary
market value fluctuations as the Company has the intent and ability to hold
these investments until maturity. Available-for-sale securities are carried at
fair value, with unrealized gains and losses, net of income taxes, if any,
reported as a separate component of shareholders' equity. Short-term investments
consist of commercial paper and equivalent corporate obligations and are stated
at amortized cost with respect to held-to-maturity investments, and at fair
value with respect to investments classified as available-for-sale securities.

d.   Debt

        During August 1997, the Company established a line of credit with its
bank. Borrowings under the line of credit are secured by a marketable security
instrument having a face value of $1.75 million at maturity in December 1998, at
which time the Company is required to replace the collateral or repay any
outstanding borrowings. Interest is payable monthly at the bank's prime rate. At
September 30, 1997, the Company had borrowed $550,000 under the line of credit.

        In September 1997, the Company funded the premium for a three year
insurance policy through the vendor's borrowing affiliate. The loan is payable
through August 2000 in monthly installments of $9,475, including principal and
8.2% interest.

e.     Net Loss Per Share

        Net loss per share is calculated using the weighted average number of
shares outstanding for the period. Common equivalent shares are excluded from
the computation as their effect is antidilutive except that, pursuant to the
Securities and Exchange Commission ("SEC") Staff Accounting Bulletins, common
and common equivalent shares (stock options, warrants and RPU's converted to
common stock in July 1996) issued during the period commencing 12 months prior
to the initial filing of a proposed public offering at prices below the public
offering price have been included in the calculation as if they were outstanding
for all periods presented (using the treasury stock method for stock options and
warrants at the estimated initial public offering price).

      f.     Research and Development

        All costs related to research and development activities are treated as
expenses in the period incurred.



                                       10

<PAGE>   11
                     NEOTHERAPEUTICS, INC. AND SUBSIDIARIES
                        (A Development-Stage Enterprise)

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

      g.      New Pronouncements

        Effective January 1, 1997, the Company adopted SFAS No. 128, "Earnings
per Share." The statement requires, at a minimum, new calculations of earnings
per share and disclosures. The Company has reviewed the provisions of SFAS No.
128 and has determined that adoption of this pronouncement had no material
effect on the Company's reporting of its results of operations.

2. Commitments and Contingencies

Facility leases:

        During June 1997, the Company relocated to a new facility which it
leases from a property developer under a non-cancelable operating lease expiring
in June 2004. The lease contains two five year options to renew at the fair
value rates in effect at that time. Minimum monthly rents under this lease range
from $38,800 to $47,600 through its term. The total minimum commitment under the
new facility lease aggregates approximately $3.6 million through June 2004.

University Research Grants:

          The Company has committed an aggregate of $425,200 to several
universities to conduct general scientific research programs and to provide for
a two year Fellowship Grant. During the nine month period ended September 30,
1997, the Company paid or accrued $250,000 towards the grants, thereby reducing
the remaining commitment to $175,200 at September 30, 1997.

3. Stock Options and Warrants:

          Stock option activities for the nine month period ended September 30,
1997 were as follows:


<TABLE>
<CAPTION>
                                                       Option Price
                                         Shares          per Share
                                         ------          ---------
<S>                                    <C>            <C>
Outstanding at December 31, 1996        270,173       $0.025-$3.75
Granted                                 327,000         3.88-12.88
Exercised                              (104,000)             0.025
Expired                                       -                  -
                                       --------       -------------
Outstanding at September 30, 1997       493,173       $0.025-$12.88
                                       ========       =============
</TABLE>


        Options granted to consultants consist of options that vest both
immediately and upon the occurrence of certain events as specified in the
related agreements.


                                       11

<PAGE>   12

I
TEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND 
        FINANCIAL POSITION

PRELIMINARY NOTE REGARDING FORWARD LOOKING STATEMENTS

        This Quarterly Report on Form 10-QSB contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The Company's actual results may differ
materially from the results projected in the forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed below under "Factors Affecting Future Operating Results."

RESULTS OF OPERATIONS

Overview:

        From the inception of the Company in 1987 through September 30, 1997,
the Company incurred a cumulative net loss of approximately $9.9 million. The
Company expects its operating expenses to increase over the next several years
as it continues to expand its research and development and commercialization
activities and operations. The Company expects to incur significant additional
operating losses for at least the next several years unless such operating
losses are offset, if at all, by licensing revenues under strategic alliances
with larger pharmaceutical companies which the Company is currently seeking.

Three Months Ended September 30, 1997 Compared to Three Months Ended September
30, 1996:

        There were no revenues during the three months ended September 30, 1997
or the three months ended September 30, 1996.

        Research and development expenses increased approximately $1,249,800 or
1,022% from the same period in 1996. Research and development activities were
restricted in the prior period due to the lack of available funds. Current
period increases were due primarily to personnel additions, salary increases,
consulting fees, research grants made by the Company, facilities rent and costs
and expenses associated with the conduct of clinical trials. The Company expects
its research and development expenses to continue to increase in absolute
dollars as it expands its laboratories in its new facility and increases its
product development and clinical trial activities.

        General and administrative expenses increased approximately $456,600 or
308% from the same period in 1996 due to the addition of personnel, salary
increases, insurance, professional and consulting fees, travel and facilities
rent in the current period. General and administrative expenses in the prior
period were significantly lower due to the lack of funds. The Company expects
general and administrative expenses to increase in future periods in support of
the expected increases in both research and development activities as well as
sales and marketing activities should the Company successfully bring one or more
of its products to market. Net interest income increased by approximately
$177,400 due to interest income from higher cash balances resulting from the
investments of unallocated proceeds from the Company's public offering in
September, 1996. The Company expects its interest earnings to decrease over the
next year due to the use of its funds in current operations.



                                       12

<PAGE>   13
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
1996:

        There were no revenues during the nine months ended September 30, 1997
or the nine months ended September 30, 1996.

        Research and development expenses for the nine months ended September
30, 1997 increased by approximately $2,552,200 or 1,246%. Research and
development expenses were restricted in the prior period due to lack of
available funds. Substantially all categories of research and development
increased during the current period including, but not limited to, additional
personnel, salary increases, rent as the Company consolidated its laboratories
into one location, consulting fees, license fees and expenses associated with
the conduct of clinical trials. Research and development expenses are expected
to increase in future periods as the Company continues to expand its
laboratories in its new facility and increase its product development and
clinical trial activities.

        General and administrative expenses for the nine months ended September
30, 1997 increased by approximately $1,364,500 or 442% from the same period in
1996 due to the addition of personnel, salary increases, insurance, professional
and consulting fees, commissions, travel and facilities rent in the current
period, whereas for a major portion of the prior period, the Company operated
from the Chief Executive Officer's residence on a rent-free basis with very
limited administrative and technical staff. The Company expects general and
administrative expenses to increase in future periods in support of the expected
increases in both research and development activities as well as sales and
marketing activities should the Company successfully bring one or more of its
products to market. Net interest income increased by approximately $617,800 due
to interest income from higher cash balances resulting from the investments of
unallocated proceeds from its public offering consummated during October,
1996. The Company expects its interest earnings to decrease in future periods
due to the use of its funds in current operations.

LIQUIDITY AND CAPITAL RESOURCES:

        From inception through September 30, 1997, the Company financed its
operations primarily through grants, sales of equity securities, borrowings and
deferred payment of salaries and other expenses from related parties. On
September 26, 1996, the Company effected the public sale of 2,500,000 units of
its common stock and attached warrants. Each unit consisted of one share of
common stock and one warrant to purchase one share of common stock. The closing
took place on October 1, 1996, and on that date, the Company realized net cash
proceeds of approximately $17,363,000 from the sale. On October 11, 1996, the
underwriter of the public offering exercised an option to purchase an additional
200,000 units resulting in net proceeds of approximately $1,389,000 to the
Company. Expenses directly related to the public offering of units were
approximately $576,000, and have been offset in stockholders' equity against the
common stock proceeds of the offering.

        At September 30, 1997, working capital amounted to approximately $7.9
million. This amount included cash and cash equivalents of approximately $1.0
million and marketable securities and short-term investments of approximately
$8.5 million. In comparison, at December 31, 1996, the Company had working
capital of $14.7 million, which included cash and cash equivalents of
approximately $10 million and marketable securities and short-term investments
of approximately $5.7 million. The $6.8 million decrease in working capital
during the nine months is attributable primarily to (1) investments in property
and equipment of $3.1 million with (2) the balance expended to fund the
operating loss for the nine months ended September 30, 1997.




                                       13

<PAGE>   14
        The Company is in the development stage devoting substantially all of
its efforts to research and development. During its development stage, the
Company has incurred cumulative losses of approximately $9.9 million through
September 30, 1997, and expects to incur substantial losses over the next
several years. In addition to the funds derived from its public offering, the
Company will require substantial additional funds in order to complete the
research and development activities currently contemplated and to commercialize
its proposed products. The Company's future capital requirements and
availability of capital will depend upon many factors, including continued
scientific progress in research and development programs, the scope and results
of preclinical studies and clinical trials, the time and costs involved in
obtaining regulatory approvals, the cost involved in filing, prosecuting and
enforcing patent claims, competing technological developments, the cost of
manufacturing scale-up, the cost of commercialization activities and other
factors which may not be within the Company's control. While the Company
believes that its existing capital resources will be adequate to fund its
capital needs for at least 12 months, the Company also believes that ultimately
it will require substantial additional funds in order to complete the research
and development activities currently contemplated and to commercialize its
proposed products.

        Without additional funding, the Company may be required to delay, reduce
the scope or eliminate one or more of its research and development projects, or
obtain funds through arrangements with collaborative partners or others which
may require the Company to relinquish rights to certain technologies, product
candidates or products that the Company would otherwise seek to develop or
commercialize on its own.

FACTORS AFFECTING FUTURE OPERATING RESULTS:

        The future operating results of the Company are highly uncertain, and
the following factors should be carefully reviewed in addition to the other
information contained in this quarterly report on Form 10-QSB:

        The Company has incurred losses in every year of its existence and
expects to continue to incur significant operating losses for the next several
years. The Company has never generated revenues from product sales and there is
no assurance that revenue from product sales will ever be achieved. In addition,
there is no assurance that any of the Company's proprietary products will ever
be successfully developed, receive and maintain require governmental regulatory
approvals, become commercially viable or achieve market acceptance.

       The Company has no experience in manufacturing, procuring products in
commercial quantities or marketing, and only limited experience in negotiating,
setting up or maintaining strategic relationships and conducting clinical trials
or other late stage phases of the regulatory approval process, and there is no
assurance that the Company will successfully engage in any of these activities.

        The Company's need for additional funding is expected to be substantial
and will be determined by the progress and cost of the development and
commercialization of its products and other activities. The Company believes
that its existing capital resources will be sufficient to satisfy its current
and projected funding requirements for at least the next twelve months. However,
if the Company experiences unanticipated cash requirements during the interim
period, the Company could require additional funds sooner. The source,
availability, and terms of such funds have not been determined. Although funds
may be received from the sale of equity securities or the exercise of
outstanding warrants and options to acquire common stock of the Company, there
is no assurance any such funding will occur.

        Factors impacting the future success of the Company include, among other
things, the ability to develop products which will be safe and effective in
treating neurological diseases and the ability to obtain government approval.



                                       14

<PAGE>   15
        The Company faces numerous other risks in the operation of its business,
including, but not limited to, protecting its proprietary technology and trade
secrets and not infringing those of others; attaining a competitive advantage;
entering into agreements with others to source, manufacture, market and sell its
products; attracting and retaining key personnel in research and development,
manufacturing, marketing, sales and other operational areas; managing growth, if
any; and avoiding potential claims by others in such areas as product liability
and environmental matters.

        The above factors are not intended to be inclusive. A more comprehensive
list of factors which could affect the Company's future operating results can be
found in the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996, under the caption "Business-Risk Factors." Failure to
satisfactorily achieve any of the Company's objectives or avoid any of the above
or other risks would likely have a material adverse effect on the Company's
business and results of operations.


                                       15

<PAGE>   16


 
                          PART II. OTHER INFORMATION


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8K

(a)      Exhibits

        27.  Financial Data Schedule

(b)      Reports on Form 8-K.

        None



                                       16

<PAGE>   17

                                   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.



                                       NEOTHERAPEUTICS, INC.



Date:  November 13, 1997               By  /s/ Alvin J. Glasky
                                          ----------------------------------
                                          Alvin J. Glasky, Ph.D., President


Date:  November 13, 1997               By /s/ Samuel Gulko
                                          ----------------------------------
                                          Samuel Gulko, Chief Finanacial Officer


                                       17

<PAGE>   18


                           Exhibit Index

(a)      Exhibits

        27.  Financial Data Schedule



                                       18





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<FISCAL-YEAR-END>                          DEC-31-1996
<PERIOD-START>                             JAN-01-1997
<PERIOD-END>                               SEP-30-1997
<CASH>                                         981,932
<SECURITIES>                                 8,462,130
<RECEIVABLES>                                  184,434
<ALLOWANCES>                                         0
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<PP&E>                                       3,304,274
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