U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

|X|               Annual  report  under  section  13 or 15(d) of the  Securities
                  Exchange Act of 1934 for the fiscal year ended  September  30,
                  1998 or


|_|               Transition  report under section 13 or 15(d) of the Securities
                  Exchange Act of 1934 for transition period from to . ---------
                  ---------

Commission file number 0-23153

                                 VOLU-SOL, INC.
                 (Name of small business issuer in its charter)

         UTAH                                                      87-0543981
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

5095 West 2100 South
Salt Lake City, Utah                                                 84120
(Address of principal executive offices)                          (Zip Code)

Issuer's telephone number: (801) 974-9474

Securities  registered  under Section 12(b) of the Act: Name of each exchange on
which registered:
         None                                                          None

Securities  registered  under Section 12(g) of the  Act:Common  Stock $.0001 par
value

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Securities  Exchange  Act  during the past 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

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of the  registrant's  knowledge,  in  definitive  proxy or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [ X ]

Issuer's revenues for the fiscal year ended September 30, 1998 were $514,256.

Registrant's  common  stock  has not  traded  and  there  is no  market  for the
registrant's common stock at this time.

The number of shares of common stock of the Registrant outstanding as of January
12, 1999 was 2,211,407

                     Transitional Small Business Disclosure
                               Format (Check one):
                                  Yes ___ No X


<PAGE>



                                                      PART I

ITEM 1.    BUSINESS

Introduction

         Volu-Sol,  Inc. (the "Company" or "Volu-Sol") was  incorporated in Utah
on July 27,  1995,  as a wholly owned  subsidiary  of Biomune  Systems,  Inc., a
Nevada  corporation  ("Biomune").  The  Company was  organized  to engage in the
business of manufacturing and marketing medical  diagnostic stains and solutions
and related  equipment,  which business  operations were conducted prior to that
time as an  unincorporated  division  of  Biomune  called the  Volu-Sol  Medical
Division.  Biomune purchased the assets comprising the Volu-Sol Medical Division
in December 1991 from Logos Scientific,  Inc. After the Company's incorporation,
Biomune  transferred all of the net assets of the Volu-Sol  Medical  Division to
the Company.  Through fiscal 1995, Volu-Sol operated out of leased facilities in
Henderson,  Nevada.  In October 1995, the Company relocated to West Valley City,
Utah (a  suburb  of Salt  Lake  City,  Utah),  where  it  continues  to have its
manufacturing facility and corporate offices.

         A total of 2,211,407  shares of the  Company's  $.0001 par value Common
Stock were distributed pro rata as a stock dividend to the holders of the Common
Stock of Biomune. As a consequence of the Distribution, the Company ceased to be
a subsidiary  of Biomune and  commenced  operations  as a separate,  independent
company.  The Company  continues to conduct the same  operations it did while it
was a subsidiary of Biomune.

Special Note Regarding Forward-looking Information

         Certain  statements  in  this  Item  1 -  "Business"  and  in  Item 6 -
"Management's   Discussion  and  Analysis  or  Plan  of  Operation"   constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and  Section 21E of the  Exchange  Act.  For this  purpose,  any  statements
contained  herein or  incorporated  herein that are not statements of historical
fact may be  deemed  to be  forward-looking  statements.  Without  limiting  the
foregoing,  the words "believes," "plans," "anticipates,"  "expects" and similar
expressions  are intended to identify  forward-looking  statements.  There are a
number of  important  factors  that could  cause the  results of the  Company to
differ materially from those indicated by such forward-looking statements. These
factors  include  those set forth in "Risk  Factors"  in Item 6 -  "Management's
Discussion and Analysis or Plan of Operation."

Business Strategy

         The Company's  primary business strategy is to capitalize on the global
medical  diagnostic  industry by providing  "building block" stains and reagents
and to grow  through the  selective  acquisition  of  complimentary  businesses,
devices and  product  lines.  The  Company's  strategy  includes  the  following
elements:

         Acquire Complementary  Businesses,  New Products and Technologies.  The
         Company intends to evaluate potential  acquisitions of distributors and
         complementary  products  and  businesses  from  time  to  time  and  to
         consummate   transactions  in  those   situations  where  there  is  an
         appropriate economic and strategic fit.

         Expand  Distribution.  The Company intends to increase its distribution
         base through agreements with independent distributors.

         Develop Broader  Product Lines.  The Company offers over 70 products in
         five major  product lines as well as  instrumentation,  in an effort to
         serve  effectively  a diverse and highly  decentralized  industry.  The
         Company  believes that its many and diverse  products  economically and
         reliably  address the needs of medical  diagnosticians  and  laboratory
         technicians.  Nevertheless,  the  Company  has  determined  that it can
         improve  its  revenue-generating  capacity  by adding  to its  existing
         product line.

         Offer Top Quality  Products.  The Company  constantly  strives to offer
         products with the greatest purity and reliability  possible through its
         quality control system. It intends to continue to assure the quality of
         its product line.

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<PAGE>



         Outsource  Non-Stain  Manufacturing.  To minimize capital  requirements
         associated   with  the  manufacture  of  products  other  than  stains,
         solutions and other chemicals,  the Company intends to continue to take
         advantage of strategic alliances with third-party manufacturers.

         Esprit de Corps.  The Company  seeks to create a team spirit  among its
         employees,  foster awareness of the Company's objectives and strategies
         at all levels within the Company,  and reward  meritorious  performance
         with  compensation  and other  incentives.  The Company  believes  this
         creates  loyalty  to the  Company  and  pride  in its  products,  which
         translates into greater product quality and enhanced customer service.

Business Plan

         The Company  intends to continue to implement its Business  Strategy by
completing a private placement of preferred stock (the "Offering"). The Offering
is intended to provide the Company with gross proceeds of up to $2,400,000.  The
offering  is to  accredited  investors  as that term is  defined  by Rule 501 of
Regulation D, promulgated  under the Securities Act. These proceeds will be used
to  repay  debt to  Biomune  ($372,149  as of the  date of this  report  on Form
10-KSB),  and finance  the  Company's  operations  within the  framework  of the
Business Strategy. The primary focus will be on the acquisition of complimentary
businesses and additional products to expand the current product line. There can
be no  assurance  that  the  Company's  stock  will  become  traded  on the  OTC
Electronic  Bulletin  Board or that if it does become  listed that a market will
develop for such stock. See "Recent Sales of Unregistered Securities."

Research and Development

         The  Company  has  not  invested   material  amounts  in  research  and
development  because of the extent of the product  line  acquired  when  Biomune
purchased  the assets  comprising  the Volu-Sol  business.  The Company does not
presently anticipate making material investments for the foreseeable future.

Dependence on Major Customers

         During the fiscal year ended  September  30, 1998,  sales to Lab Supply
and Infolab,  Inc. accounted for approximately 11.8% and 12.3%, respectively, of
the Company's total revenues.  No other single customer  accounted for more than
10% of the Company's total revenues during fiscal year 1998.

         During the fiscal year ended  September 30, 1997,  sales to Lab Supply,
Infolab,  Inc. and Hardy Diagnostic accounted for approximately 13.5%, 12.7% and
11.4%, respectively, of the Company's  total revenues.  No other single customer
accounted for more than 10% of the Company's  total revenues  during fiscal year
1997.

Employees

         At  September  30, 1998, the Company  had 10 full time  employees.  The
Company will, as needed,  hire additional  employees or sub-contract the balance
of its personnel  requirements  through independent  contractors.  The Company's
manufacturing  operations  do not require  specially-skilled  employees  and the
Company believes that it will be able to satisfy its labor  requirements for the
foreseeable  future.  None  of the  Company's  employees  are  represented  by a
collective  bargaining  arrangement,  and the Company  believes its relationship
with its employees is good.

ITEM 2.           PROPERTIES

         The Company  leases  approximately  11,500  square  feet of  laboratory
facilities at 5095 West 2100 South,  West Valley City, Utah. The leased premises
serve as the Company's  manufacturing,  warehouseing and shipping  facilities as
well as its corporate  headquarters and offices.  Base monthly rent payments are
$4,620.  The monthly  base rent amount is subject to  adjustments  according  to
changes in the Consumer  Price Index.  The  premises  originally  were leased by
Biomune, but Biomune has assigned its rights under the lease to the Company. The
lessor of the Company's  facility is an unaffiliated  third party. The lease was
the product of  arms-length  negotiations.  The lease extends  through  November
2000.  The Company  believes  that its  facilities  will be adequate to meet its
needs at least through fiscal year 1999.

                                        3

<PAGE>




ITEM 3.           LEGAL PROCEEDINGS

         The Company  currently  is not a party to, and none of its  property is
subject to, any pending or threatened legal proceedings which, in the opinion of
management,  are  likely to have a  material  adverse  impact  on the  financial
condition, results of operations or cash flows of the Company.

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

         No matter was  submitted  to a vote of  shareholders  during the fourth
quarter of fiscal year 1998.


                                                      PART II

ITEM 5.           MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                  STOCKHOLDER MATTERS

         Market.  Prior to the  Distribution,  all of the Company's Common Stock
was owned by Biomune  and  consequently  there has never  been a public  trading
market for the Company's  securities.  Although the Company  anticipates  that a
public  market for  over-the-counter  trading of the  Company's  securities  may
develop in the future,  there can be no  assurance  that such a market will ever
develop or that it will be  sustained.  At such  time,  if any,  as the  Company
satisfies applicable entry or listing criteria,  the Company may seek to include
or list its  Common  Stock on the Stock  Market or a  securities  exchange.  The
Company  does not meet  those  listing  qualifications  at this  time.  There is
presently  no market for the  Company's  Common  Stock and there is no assurance
that a market will ever develop. There can be no assurance that the Company will
ever be able to satisfy such criteria or that its  application  for inclusion or
listing on the Nasdaq Stock Market or securities exchange will be accepted.

         Holders. As of December 31, 1998, there were approximately 1,215 record
holders of the Company's Common Stock.

         Dividends.  Since its  incorporation,  the Company has not declared any
dividend on any of its Common Stock. The Company does not anticipate declaring a
dividend on any of its Common  Stock for the  foreseeable  future.  The Series A
Preferred  shares will be entitled to a 10% dividend  annually which may be paid
in cash or additional shares of Preferred Stock at the option of the Company.

         During the fiscal year ended  September  30, 1998 a 10% dividend in the
form of  additional  shares was declared and paid on the  outstanding  shares of
Series A Preferred stock.

         Dilution.  The  Company  has a large  number of shares of Common  Stock
authorized in comparison  to the number of shares  issued and  outstanding.  The
Board of Directors  determines when and under what conditions and at what prices
to issue the stock of the Company.  In addition,  a significant number of shares
of Common  Stock of the Company  are  reserved  for  issuance  upon  exercise of
purchase or conversion  rights. The Company agreed with NASD to issue additional
shares of common stock in connection with the distribution.  The issuance of any
shares,  whether in  connection  with the  Distribution,  new equity  offerings,
acquisitions,  or the  exercise  of option or  conversion  rights will result in
dilution of the equity and voting interests of existing shareholders,  including
those receiving their shares in the Distribution.

         Transfer Agent and Registrar.  The transfer agent and registrar for the
Company's  Common  Stock is American  Stock  Transfer & Trust  Company,  40 Wall
Street, New York City, NY 10005.



                                        4

<PAGE>



Recent Sales of Unregistered Securities

         The  following  information  sets  forth  certain  information  for all
securities  the Company  sold during the past three years  without  registration
under the Securities Act of 1933 (the "Securities Act").

         On July 27, 1995, in connection with the  incorporation  of the Company
as a wholly owned  subsidiary of Biomune,  10,000 shares of the Company's common
stock,  consisting of all of the issued and  outstanding  shares of common stock
prior  to  the  Distribution,   were  issued  to  Biomune.   Such  issuance  was
accomplished  without  registration  under the Securities Act in reliance on the
exemption afforded by Section 4(2) of the Securities Act.

         In February 1997,  Biomune  declared that it would divest itself of the
Company in a  dividend  by which one share of  Volu-Sol  common  stock  would be
issued to each  Biomune  stockholder  of record as of March 5, 1997 for every 10
shares of Biomune  common stock held by such  stockholder.  The  divestiture  of
Volu-Sol was effective as of October 1, 1997. The Company  registered its common
stock as a class under  Section  12(g) of the  Exchange  Act of 1934 by filing a
Form 10 S-B which was  declared  effective  by the SEC  December 1, 1997.  On or
about  February  1, 1998,  the  dividend  shares of Volu-Sol  Common  Stock were
delivered  to Biomune  stockholders  who had been  shareholders  of record as of
March 5, 1997.

         Both the Company  and  Biomune  were  unaware  that NASD had  announced
February  11, 1998 to be the ex- dividend  date for the  spin-off  distribution,
notwithstanding  the fact that Biomune had previously notified NASD and publicly
announced  that  March 5,  1997  would be the ex  dividend  date.  Consequently,
holders of Biomune  common stock as of February  11, 1998 were  informed by NASD
that they would  receive the dividend of one share of Volu-Sol  common stock for
each share of Biomune common stock held by them as of such date.

         After  consultation  with the NASD,  parent of the Nasdaq Stock Market,
Biomune and Volu-Sol agreed to issue additional  shares of Volu-Sol common stock
as part of the  original  dividend  announced  March 5,  1997,  to cover (a) the
dividend in Volu-Sol  that  technically  inured to the benefit of the holders of
the Company's common stock issued between March 5, 1997 and February 11, 1998 by
reason  of the NASD  action;  and (b) short  positions  held by  accounts  which
purchased Biomune common stock after March 5, 1997 and before February 11, 1998,
which were  purchased from accounts not then held in "street name" and which did
not,  therefore,  by  operation  of  Depository  Trust  procedures,  send on the
Volu-Sol  dividend  shares  when  they were  physically  received.  Street  name
accounts were electronically credited with the dividend shares.

         Prior to the  issuance of such  additional  dividend  shares,  Volu-Sol
estimated  that the issued  and  outstanding  common  stock  would be  2,111,216
shares.  Effective  September  30, 1998,  the Company's  issued and  outstanding
common  stock  resulting  from  this  agreement  with the NASD and  Biomune  was
determined to be 2,211,407 shares.

         The Company  has  determined  it will issue up to 12,000  shares of its
Series A  Preferred  to  accredited  investors.  Such  offer and sale is made in
accordance  with  exemptions  under Section 4(2) and 3(b) of the Securities Act,
including  Rule 506 of Regulation D. In fiscal year 1997,  the Company  received
subscriptions  for a total of $900,000 and received payment in cash of $338,904,
in exchange  for which it issued a total of 6,375  shares of Series A Preferred.
Payment of the balance of $900,000  as part of a  subscription  received in 1997
will  be  paid  in  installments  following  the  acceptance  of  the  Company's
securities in the Nasdaq  over-the-counter  electronic  bulletin  board.  During
fiscal year 1998,  the Company  also issued a total of 2,650  shares of Series A
Preferred  Stock for  $312,000  cash and  $163,000 of  services  provided to the
Company by  employees  and  consultants  of the Company,  including  commissions
earned in connection  with the sale of the Series A Preferred to the  accredited
investors  described above. All such shares of Series A Preferred are restricted
shares.

         The Series A Preferred is  convertible  to common stock at the holder's
option into the number of shares of the  Company's  common stock  determined  by
dividing $200.00 plus any accrued and unpaid regular or special  dividends by an
amount  equal to the lesser of (i) the market  price of the common  stock on the
date  of  conversion  less  20%;  or  (ii)  $1.25.  In the  event  of a  merger,
consolidation or sale of all or  substantially  all of the assets of the Company
or a similar business  combination  involving the Company,  all of the shares of
Series A Preferred, at the option of the holder, may

                                        5

<PAGE>



be converted  into the number of shares of common stock into which the shares of
Series  A  Preferred  are  convertible  at the  time  of  the  closing  of  such
transaction.  Based on a conversion  factor of $200/$1.25,  the number of shares
issued  during the last two fiscal  years would be  convertible  into a total of
722,520 shares of common stock as of the date of this Report.

         Notwithstanding  the  conversion  rights of the Series A Preferred,  no
single  holder (or group of affiliated  holders) may convert  shares of Series A
Preferred  into shares of common  stock in an amount  that would  result in such
holder's  aggregate  ownership of shares of common stock  exceeding  4.9% of the
total number of issued and  outstanding  shares of common  stock.  See "Security
Ownership of Certain Beneficial Owners and Management."

         With respect to all of the foregoing offers and sales of restricted and
unregistered  securities by the Company, the Company relied on the provisions of
Sections  3(b)  and  4(2)  of the  Securities  Act  and  rules  and  regulations
promulgated  thereunder,  including,  but not  limited  to Rules  505 and 506 of
Regulation D, in that such  transactions  did not involve any public offering of
securities and were exempt from registration under the Securities Act. The offer
and sale of the securities in each instance was not made by any means of general
solicitation,  the  securities  were  acquired by the  investors  without a view
toward  distribution,  and all  purchasers  represented to the Company that they
were sophisticated and experienced in such transactions and investments and able
to bear the  economic  risk of their  investment.  A legend  was  placed  on the
certificates  and instruments  representing  these  securities  stating that the
securities  evidenced by such  certificates or instruments,  as the case may be,
have  not been  registered  under  the  Securities  Act and  setting  forth  the
restrictions  on their  transfer and sale.  Each  investor also signed a written
agreement that the securities would not be sold without  registration  under the
Securities act or pursuant to an applicable exemption from such registration.

ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         The following  discussion  and analysis  should be read in  conjunction
with  the  Company's  financial  statements  and  the  notes  thereto  contained
elsewhere  in this  report.  The  discussion  of  these  results  should  not be
construed to imply any conclusion that any condition or  circumstance  discussed
herein will necessarily continue in the future.

         When  used  in  this  report,  the  words  "believes,"   "anticipates,"
"expects,"  and similar  expressions  are  intended to identify  forward-looking
statements.  Such statements are subject to certain risks and uncertainties that
could cause actual results to differ  materially from those  projected.  Readers
are cautioned not to place undue reliance on these  forward-looking  statements,
which speak only as of the date hereof.  The Company undertakes no obligation to
publicly  release  the  results  of  any  revisions  to  these   forward-looking
statements that may be made to reflect events or circumstances after the date of
this report, or to reflect the occurrence of unanticipated events.

Results of Operations

Fiscal Year Ended September 30, 1998 Compared to Fiscal Year Ended September 30,
1997

         In the fiscal year ended  September 30, 1998,  the Company had revenues
totaling $514,256 compared to $493,754 for fiscal year ended September 30, 1997.
This increase in revenues is  attributable  to increased sales of reagents and a
price increase implemented in March 1998.

         Cost of goods sold in the fiscal year ended  September 30, 1998 totaled
$399,013  compared to $453,434 for the fiscal year ended September 30, 1997. The
overall  gross  margin for the fiscal  year ended  September  30, 1998 was 22.4%
compared to 8.2 % of revenues  in fiscal year 1997.  This  increase in the gross
margin on sales of stains and  reagents is  attributable  to payment of shipping
charges by  customers  as well as  implementation  of a price  increase in March
1998.  Also,  the  increase in gross margin  results from a continued  effort to
create a leaner production team and better inventory management.

         Selling, general and administrative expenses totaled $804,551 in fiscal
year 1998,  compared to $747,434 in 1997, an overall  increase of $57,117.  This
increase is due to expenses associated with the preparation and filing of the

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registration  statement in  connection  with the  distribution  of shares in the
divestiture  of the  Company by  Biomune.  In  addition,  the  Company  incurred
increased  employee  expenditures in the form of a severance  package granted to
the Company's former President and increased consulting expenses.

         The Company incurred a net loss of $719,781 in 1998,  compared to a net
loss of $719,652 in fiscal year 1997.

Liquidity and Capital Resources

         The Company  currently is unable to finance its operations  solely from
its cash flows from operating activities. From October 1, 1993 through September
30, 1997,  Biomune financed the Company's  operations  through a series of loans
and other  capital  contributions  totaling  approximately  $2,800,000.  Of this
amount, $390,500 is repayable by the Company on demand together with interest at
the rate of 10% per year. The Company has announced its intentions to sell up to
12,000 shares of its Series A Preferred in a private offering ("Offering"),  for
a total of up to  $2,400,000.  The Series A Preferred is  convertible  to common
stock of the Company. The conversion ratio that is the basis for such conversion
is the  lesser of (i) 80% of the  average  closing  bid  price of the  Company's
common  stock for the  three  trading  days  immediately  preceding  the date of
conversion  or (ii)  $1.25 per share.  The  Company  issued a total of  4,515.75
shares of Series A Preferred Stock during the period covered by this Report.

         The Company  intends to use the proceeds  from the sale of the Series A
Preferred to repay its indebtedness to Biomune  ($372,149 as of the date of this
Report),  pay the  expenses  of the offer  and sale of the  stock  and  expenses
incurred  in  the  divestiture  of the  Company,  acquire  yet-to-be  identified
complimentary  businesses or product rights, and supplement working capital. The
Company  believes that cash generated by operations,  together with the proceeds
from  the  sale  of its  securities  will be  sufficient  to  meet  its  capital
requirements for a minimum of twelve months.

         As of September 30, 1998, the Company had cash and cash  equivalents of
$16,411  and a negative  working  capital of  $145,665,  as  compared to cash of
$337,691 and working capital of $38,083 as of September 30, 1997.

         Interest expense  increased from $12,538 in fiscal year 1997 to $34,683
in the fiscal year ended  September 30, 1998.  The $22,145  increase in interest
expense is due to the costs of borrowing from Biomune.

         During fiscal year 1998, the Company's  operating  activities used cash
of $539,337 primarily  provided by the sale of Series A Preferred Stock.  During
the fiscal year ended  September 30, 1997,  the Company's  operating  activities
required cash in the amount of $641,580, which was primarily provided by capital
contributions from Biomune and the sale of Series A Preferred Stock.

         The  Company  presently  has no  credit  facility  with any  commercial
lending institution. In the past, the Company borrowed and received capital from
time to time from Biomune, but the Company has no formal financing  arrangement,
agreement  or  understanding  with  Biomune or any other  party to provide  debt
financing in the future.  It is anticipated that the Company will obtain funding
through the sale of its securities.

         The Company  has agreed to sell its Series A Preferred  shares to raise
funds to finance operations and acquire complimentary  businesses.  There can be
no  assurance  that its  efforts to sell all of the Series A  Preferred  will be
successful  or that  additional  financing  will not be  needed  in the  future.
Although the Company  believes  that the proceeds  from the sale of its Series A
Preferred,  together with revenues from  operations,  will be sufficient to meet
the needs of the Company for the next twelve months,  there is no assurance that
this will be the case. The Company has suffered recurring losses from operations
since its inception.

Recent Accounting Pronouncements

         In September  1997, the Financial  Accounting  Standards Board ("FASB")
issued SFAS No.  130,  "Reporting  Comprehensive  Income"  (SFAS 130).  SFAS 130
requires entities  presenting a complete set of financial  statements to include
details  of   comprehensive   income  that  arise  in  the   reporting   period.
Comprehensive income consists of net earnings or loss for the current period and
other  comprehensive  income,  which  consists of revenue,  expenses,  gains and
losses that bypass the  statement  of earnings  and are  reported  directly in a
separate component of equity. Other

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comprehensive  income includes,  for example,  foreign  currency items,  minimum
pension  liability  adjustments  and  unrealized  gains and  losses  on  certain
investment securities.

         SFAS 130 requires that components of  comprehensive  income be reported
in a financial  statement  that is displayed  with the same  prominence as other
financial  statements.  SFAS 130 is effective for fiscal years  beginning  after
December 15, 1997 and requires  restatement of prior period financial statements
presented  for  comparative  purposes.  Adoption of SFAS 130 is not required for
reporting  on interim  periods  prior to the close of the fiscal year  beginning
after  December 15, 1997.  The Company will adopt SFAS 130  commencing  with the
year ending September 30, 1999.

         During  January  1998,  the  American  Institute  of  Certified  Public
Accountants  ("AICPA") issued Statement of Position 98-5 "Reporting on the Costs
of Start-up  Activities"  ("SOP 98-5). SOP 98-5 becomes effective for all fiscal
years  beginning after December 15, 1998. The Company will adopt SOP 98-5 in its
fiscal year beginning October 1, 1999.

Risk Factors

         This Report contains  forward-looking  statements which may be affected
by,  risks and  uncertainties  including  many that are  outside  the  Company's
control.  The Company's  actual operating  results could differ  materially from
those  anticipated  in these  forward-looking  statements as a result of certain
factors, including those set forth below and elsewhere in this Report.

         Absence of Profitable Operations.  From the Company's  incorporation to
date,  the Company has not  achieved  profitable  operations  and  continues  to
operate at a loss.  The Company's  present  business  strategy is to improve its
profitability  and cash  flows by adding to its  existing  product  line.  While
management  believes the cash generated by operations together with the proceeds
from the sale of Series A preferred  Stock will satisfy the  Company's  ordinary
cash  requirements  for at least 12 months,  there can be no assurance  that the
Company will ever be able to achieve  profitable  operations or that it will not
require  additional  financing to achieve its business plan.  See  "Management's
Discussion and Analysis or Plan of Operation."

         "Going Concern"  Issues.  The financial  statements of the Company have
been  prepared  on the  assumption  that the  Company  will  continue as a going
concern. The Company's product line is limited and it has been necessary to rely
upon loans and capital contributions to sustain operations. Additional financing
is required if the Company is to continue as a going concern. If such additional
funding  is not  obtained,  the  Company  will  be  required  to  scale  back or
discontinue its operations.

         Uncertainty of Future  Financial  Results.  Profitability  depends upon
many  factors,  including the success of the Company's  marketing  program,  the
Company's  ability to identify and obtain the rights to  additional  products to
add to its existing  product line,  expansion of its  distribution  and customer
base,  maintenance  or  reduction  of  expense  levels  and the  success  of the
Company's  business  activities.  The Company (since its  incorporation  in July
1995) has an  accumulated  deficit as of September 30, 1998 of  $3,016,335.  The
Company  anticipates  that it will  continue  to incur  operating  losses in the
future. The Company's ability to achieve profitable  operations will also depend
on its ability to develop and maintain an adequate  marketing  and  distribution
system.  There can be no assurance  that the Company will be able to develop and
maintain adequate  marketing and distribution  resources.  If adequate funds are
not  available,  the Company may be required to materially  curtail or cease its
operations. See "Management's Discussion and Analysis or Plan of Operation."

         Intense  Competition.  The medical  diagnostic  supply and  biochemical
industries,  including those segments devoted to manufacturing  and distributing
laboratory equipment, stain solutions and chemical reagents are characterized by
intense competition.  The Company faces, and will continue to face,  competition
in the stain solution,  reagent and related equipment fields. Many, if not most,
of the  Company's  competitors  and  potential  competitors  are much larger and
consequently  have  greater  access  to  capital  as well as mature  and  highly
sophisticated  distribution  channels.  Some of the Company's larger competitors
are able to manufacture  chemical  products on a much larger scale and therefore
presumably  would be able to take  advantage of economies of scale not presently
enjoyed by the Company.  Moreover,  many of the Company's  competitors  have far
greater name recognition and experience in the medical diagnostic supply

                                        8

<PAGE>



industry.  There can be no assurance that  competition from other companies will
not render the Company's products noncompetitive.

         Uncertainties Related to Ability to License Proprietary Technology. The
Company  historically  has not been involved in research and  development of new
technologies.  Consequently,  the  Company's  success in adding to its  existing
product  line  will  depend on its  ability  to  acquire  or  otherwise  license
competitive  technologies  and products and to operate  without  infringing  the
proprietary rights of others, both in the United States and internationally.  No
assurance  can be given that any licenses  required  from third  parties will be
made  available on terms  acceptable  to the Company,  or at all. If the Company
does  not  obtain  such  licenses,   it  could   encounter   delays  in  product
introductions while it attempts to adopt alternate measures,  or could find that
the  manufacture  or sale of products  requiring  such licenses is not possible.
Litigation may be necessary to defend against claims of infringement, to protect
trade  secrets or know-how  owned by the Company,  or to determine the scope and
validity of the  proprietary  rights of others.  Such  litigation  could have an
adverse and material impact on the Company and its operations.

         Inability to Adequately Protect  Proprietary  Information.  The Company
relies upon unpatented trade secrets and  improvements,  unpatented know how and
continuing  technological  innovation  to develop and maintain  its  competitive
position, which it seeks to protect, in part, by confidentiality agreements with
its employees and  consultants.  There can be no assurance that such  agreements
will not be breached or that they will be  enforceable  by the Company,  or that
the Company's trade secrets and know how will not otherwise be compromised.

         Environmental  Risks.  The  chemical  manufacturing  processes  of  the
Company  involve  the  controlled  use of  hazardous  materials.  The Company is
subject to  federal,  state and local laws and  regulations  governing  the use,
manufacture,  storage, handling and disposal of such materials and certain waste
products.  Although the Company  believes that its activities  currently  comply
with  the  standards  prescribed  by such  laws  and  regulations,  the  risk of
accidental contamination or injury from these materials cannot be eliminated. In
the event of such an accident,  the Company could be held liable for any damages
that result and any such liability could exceed the resources of the Company. In
addition,  there can be no  assurance  that the Company  will not be required to
incur significant costs to comply with environmental laws and regulations in the
future.

         Sufficiency of Marketing and Sales Capabilities.  The Company sells its
products to approximately 85 independent distributors who are free to resell the
products. In order to achieve profitable  operations,  the Company must maintain
its current base of  distributors  and must expand that base in the future.  The
Company's  sales  staff  competes  with  other  companies  that  currently  have
experienced and well funded marketing and sales  operations.  To the extent that
the Company enters into  co-promotion or other marketing and sales  arrangements
with other  companies,  any  revenues  to be  received  by the  Company  will be
dependent  on the  efforts of others,  and there can be no  assurance  that such
efforts will be successful.

         Potential  Product Liability  Exposure and Limited Insurance  Coverage.
The use of any of the Company's  existing or potential products in laboratory or
clinical settings may expose the Company to liability claims. These claims could
be made  directly by persons who assert that  inaccuracies  or  deficiencies  in
their  test  results  were  caused  by  defects  in  the   Company's   products.
Alternatively,  the Company  could be exposed to liability  indirectly  by being
named as a third-party defendant in actions brought against companies or persons
who have  purchased the  Company's  products.  The Company has obtained  limited
product liability  insurance coverage in the amount of $1 million per occurrence
and $2 million in the  aggregate.  The Company  intends to expand its  insurance
coverage  on an  as-needed  basis  as  its  sales  revenue  increases.  However,
insurance coverage is becoming increasingly  expensive,  and no assurance can be
given  that  the  Company  will be  able to  maintain  insurance  coverage  at a
reasonable  cost or in sufficient  amounts to protect the Company against losses
due to liability.  There can also be no assurance  that the Company will be able
to obtain  commercially  reasonable product liability insurance for any products
added to its product line in the future. A successful product liability claim or
series of claims  brought  against  the  Company  could have a material  adverse
effect on its business, financial condition and results of operations.

         Uncertainty  Related to Health Care  Reform  Measures  and  Third-Party
Reimbursement.  Political, economic and regulatory influences are likely to lead
to fundamental change in the health care industry in the United States. Numerous
proposals for comprehensive  reform of the nation's health care system have been
introduced in Congress over

                                        9

<PAGE>



the past years. In addition,  certain states are considering various health care
reform proposals.  The Company  anticipates that Congress and state legislatures
will continue to review and assess  alternative health care delivery systems and
payment  methodologies,  and that  public  debate of these  issues  will  likely
continue in the future. Due to uncertainties  regarding the ultimate features of
reform  initiatives and their enactment and  implementation,  the Company cannot
predict which,  if any,  reforms will be adopted,  when they may be adopted,  or
what impact they may have on the Company.  The Company's  ability to earn profit
from the sale of its  products  may also  depend in part on the  extent to which
reimbursement  for the costs of such products will be available from  government
health   administration   authorities,   private   health   insurers  and  other
organizations.  Third-party  payors are  increasingly  challenging the price and
cost   effectiveness  of  medical  products  and  services,   including  medical
diagnostic  procedures.  There can be no assurance  that adequate  reimbursement
will be available or  sufficient  to allow the Company to sell its products on a
competitive basis.

         Dilution.  A significant number of shares of the Company's Common Stock
are authorized but not issued.  In addition,  there are a substantial  number of
shares of Common Stock of the Company reserved for issuance upon the exercise of
certain options,  warrants and preferred stock conversion  rights. If and to the
extent  such  options,  warrants  or rights  are  exercised,  or if the Board of
Directors  determines to issue  authorized  but  previously  unissued  shares of
Common  Stock  in  connection  with  acquisitions  or other  transactions,  such
issuances  could   substantially   dilute  the  voting  power  of  the  existing
shareholders of the Company.  Furthermore, the possibility of such issuances may
adversely affect the market for the Company's Common Stock, should such a market
ever develop.

Year 2000 Issues

         Since  its  inception,  the  Company  has  attempted  to  make  use  of
increasingly sophisticated computer hardware and software to manage its business
and  operations.  The Company also relies on  third-parties  to  facilitate  its
business including, for example:

         o         contract manufacturers who produce its products;
         o         telecommunications  providers  on whom the Company  must rely
                   for its communications;
         o         public  utilities  which provide  electrical  power and other
                   utilities needed in the Company's operations;
         o         major credit card  companies  that  process  payments for the
                   Company's products;
         o         major shipping  companies through which the Company ships its
                   products;
         o         financial  institutions that provide  commercial  banking and
                   other financial services to the Company.

         Many existing  computer programs use only two digits to identify a year
in the date field and were designed,  developed and modified without considering
the  impact  of the  upcoming  change in the  century.  If not  corrected,  such
computer  applications  could fail or create  erroneous  results by or after the
Year 2000 by erroneously  identifying  the year "00" as 1900,  rather than 2000.
Correcting a Year 2000 problem on a large  mainframe or network  application can
be difficult and expensive.  If a company does not successfully address its Year
2000 issues,  it may face material adverse  consequences.  The Company is in the
process of  insuring  that all of its  internal  computer  systems are Year 2000
compliant.  The Company will assess the readiness of the Company for meeting the
Year 2000 problem.  It is expected that the assessment and remediation,  if any,
of Year 2000  issues  affecting  the  Company's  internal  systems or  products,
including any issues involving  embedded  technology,  will be completed by June
30, 1999 and that the cost to the Company will not be significant.

         With respect to  third-party  providers  whose services are critical to
the  Company,  the Company  intends to monitor the efforts of such  providers as
they become Year 2000 compliant.  The Company is presently not aware of any Year
2000  issues  that have been  encountered  by any such third  party  which could
materially affect the Company's operations. Notwithstanding the foregoing, there
can  be  no  assurance  that  the  Company  will  not   experience   operational
difficulties  as a result of Year 2000  issues,  either  arising out of internal
operations or caused by third-party  service  providers,  which  individually or
collectively  could have a material  adverse  effect on the Company's  business,
financial condition or results of operations.




                                       10

<PAGE>



ITEM 7.  FINANCIAL STATEMENTS

         The Company's  financial  statements and associated notes are set forth
on pages F-1 through F-16.

<TABLE>
<CAPTION>
                                                                                            VOLU-SOL, INC.
                                                                Index to Consolidated Financial Statements

----------------------------------------------------------------------------------------------------------





                                                                                             Page


<S>                                                                                          <C>
Report of Tanner + Co.                                                                        F-2


Report of Arthur Andersen  LLP                                                                F-3


Consolidated balance sheet                                                                    F-4


Consolidated statement of operations                                                          F-5


Consolidated statement of stockholders' equity                                                F-6


Consolidated statement of cash flows                                                          F-7


Notes to consolidated financial statements                                                    F-8



----------------------------------------------------------------------------------------------------------





                                                                                                      F-1
</TABLE>

<PAGE>



                                                    INDEPENDENT AUDITORS' REPORT





To the Board of Directors
and Stockholders of Volu-Sol, Inc.


We have audited the accompanying  consolidated  balance sheet of Volu-Sol,  Inc.
and  subsidiary  (the  Company),  as of  September  30,  1998,  and the  related
consolidated  statements of operations,  stockholders' equity and cash flows for
the  year  then  ended.   These  consolidated   financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Volu-Sol,  Inc. and
subsidiary as of September  30, 1998,  and the results of their  operations  and
their cash flows for the year then ended in conformity  with generally  accepted
accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial  statements,  the Company has incurred recurring operating losses, and
has an accumulated  deficit.  These conditions raise substantial doubt about its
ability to continue  as a going  concern.  Management's  plans  regarding  those
matters also are described in Note 1. The consolidated  financial  statements do
not  include  any  adjustments  that  might  result  form  the  outcome  of this
uncertainty.


TANNER + CO.


Salt Lake City, Utah
December 15, 1998

                                                                             F-2

<PAGE>

                                        REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Volu-sol, Inc.:

We have audited the accompanying statements of operations,  stockholders' equity
and  cash  flows  of  Volu-Sol,   Inc.  ("Volu-Sol"  or  the  "Company"),a  Utah
corporation and formerly wholly owned subsidiary of Biomune  Systems,  Inc., for
the  year  ended  September  30,  1997.  These  financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As discussed in Notes 1 and 11 to the financial  statements,  during the periods
presented,  Volu-Sol  was  operated  as a wholly  owned  subsidiary  of  Biomune
Systems,  Inc.  Certain expenses  presented in the financial  statements are the
result of  allocations  of total  expenses  incurred  by Biomune  systems,  Inc.
Therefore,   the  accompanying  financial  statements  may  not  necessarily  be
indicative  of the financial  condition or the results of operations  that would
have existed if Volu-Sol had been operated as an unaffiliated company.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the results of  operations  and cash flows of Volu-Sol,
Inc.  for the year ended  September  30,  1997,  in  conformity  with  generally
accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial  statements,  the  Company  has  suffered  recurring  losses  from its
operations.  As of September 30, 1997, the Company had an accumulated deficit of
$2,228,838. Recently, the Company has experienced certain technical difficulties
with the operation of its new  hematology  staining  instrument.  Although these
technical  difficulties  appear  to have  been  resolved,  total  sales  of this
instrument  are  significantly  lower  than  expected.  Further,  subsequent  to
September   30,   1997,   the   Company's   worldwide   exclusive   license  and
distributorship may be converted to a nonexclusive licenses and distributorship.
These matters raise substantial doubt about the Company's ability to continue as
a going  concern.  Management's  plans  in  regard  to  these  matters  are also
described in Note 1. The  accompanying  financial  statements do not include any
adjustments that might result from the outcome of this uncertainty.

ARTHUR ANDERSEN LLP

Salt Lake City, Utah
December 5, 1997

                                                                             F-3

<PAGE>

<TABLE>
<CAPTION>

                                                                                            VOLU-SOL, INC.
                                                                                Consolidated Balance Sheet

                                                                                        September 30, 1998
----------------------------------------------------------------------------------------------------------



              Assets

Current Assets:
<S>                                                                                     <C>
     Cash                                                                               $           16,411
     Accounts receivable,  less allowance for
       doubtful accounts of $3,176                                                                  62,708
     Inventories                                                                                   168,571
                                                                                        ------------------

                  Total current assets                                                             247,690

Property and equipment, net                                                                        185,947
Other assets                                                                                        36,464
                                                                                        ------------------

                  Total assets                                                          $          470,101
                                                                                        ------------------

----------------------------------------------------------------------------------------------------------

              Liabilities and Stockholders' Equity

Current liabilities:
     Accounts payable                                                                   $           42,534
     Accrued liabilities                                                                            74,672
     Notes payable                                                                                 276,149
                                                                                        ------------------

                  Total current liabilities                                                        393,355
                                                                                        ------------------

Commitments and contingencies                                                                            -

Stockholders' equity:
     Preferred stock, $.0001 par value; 10,000,000 shares authorized:
       9,395 shares issued and 4,895 shares outstanding (aggregate
       liquidation preference $9,790)                                                            2,033,028
     Common stock, $.0001 par value; 50,000,000 shares authorized,
       2,211,407 shares issued and outstanding                                                         221
     Additional paid-in capital                                                                  1,959,832
     Preferred stock subscriptions receivable                                                     (900,000)
     Accumulated deficit                                                                        (3,016,335)
                                                                                        ------------------

                  Total stockholders' equity                                                        76,746
                                                                                        ------------------

                  Total liabilities and stockholders' equity                            $          470,101
                                                                                        ------------------



----------------------------------------------------------------------------------------------------------


See accompanying notes to consolidated financial statements.
                                                                                                       F-4

</TABLE>
<PAGE>


<TABLE>
<CAPTION>
                                                                                            VOLU-SOL, INC.
                                                                      Consolidated Statement of Operations

                                                                                 Years Ended September 30,
----------------------------------------------------------------------------------------------------------


                                                                             1998              1997
                                                                       -----------------------------------

<S>                                                                    <C>                <C>
Sales                                                                  $         514,256  $        493,754
Cost of goods sold                                                               399,013           453,434
                                                                       -----------------------------------

                  Gross margin                                                   115,243            40,320

Selling, general and administrative expenses                                    (804,551)         (747,434)
                                                                       -----------------------------------

                  Loss from operations                                          (689,308)         (707,114)

Other income (expense):
     Interest income                                                               4,210                 -
     Interest expense                                                            (34,683)          (12,538)
                                                                       -----------------------------------

     Net loss before provision for income taxes                                 (719,781)         (719,652)

Provision for income taxes                                                             -                 -
                                                                       -----------------------------------

                  Net loss                                             $        (719,781) $       (719,652)
                                                                       ===================================

Dividends on Series A preferred stock
                                                                                 (67,716)           (4,000)
                                                                       -----------------------------------

Net loss applicable to common stock                                    $        (787,497) $       (723,652)
                                                                       ===================================

Net loss per common share - basic and diluted                          $            (.36) $           (.34)
                                                                       ===================================




----------------------------------------------------------------------------------------------------------


See accompanying notes to consolidated financial statements.
                                                                                                       F-5
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                                                            VOLU-SOL, INC.
                                                            Consolidated Statement of Stockholders' Equity

                                                                   Years Ended September 30, 1998 and 1997
----------------------------------------------------------------------------------------------------------

                                                                                   Preferred
                                                                     Additional     Stock
                               Preferred Stock       Common Stock      Paid-In  Subscriptions  Accumulated
                            -----------------------------------------
                             Shares     Amount     Shares    Amount    Capital    Receivable     Deficit
                            ------------------------------------------------------------------------------

<S>                         <C>      <C>         <C>        <C>      <C>          <C>         <C>
Balance at October 1, 1996        -  $        -  2,111,216  $    211 $ 1,940,476  $         - $ (1,505,186)

Contributions from Biomune
Systems, Inc.                     -           -          -         -     260,124            -            -

Issuance of preferred stock
  for:
     Cash                     6,375   1,238,904          -         -          -      (900,000)           -
     Commissions                 33       6,650          -         -          -             -            -

Dividends on preferred
stock                             -       4,000          -         -          -             -       (4,000)

Net loss                          -           -          -         -          -             -     (719,652)
                          --------------------------------------------------------------------------------

Balance at September 30,
1997                          6,408   1,249,554  2,111,216       211   2,200,600     (900,000)  (2,228,838)

Additional shares issued
as a result of the
divestiture of the
Company's common stock            -           -    100,191        10         (10)           -            -

Issuance of preferred
  stock for:
     Cash                     1,835     312,000          -         -          -             -            -
     Commissions                800     160,000          -         -          -             -            -
     Settlement of lawsuit       15       3,000          -         -          -             -            -

Dividends on preferred
stock                           337      67,716          -         -          -             -      (67,716)

Accretion of preferred stock      -     240,758          -         -    (240,758)           -            -

Net loss                          -           -          -         -          -             -     (719,781)
                          --------------------------------------------------------------------------------

Balance at September 30,
1998                          9,395 $ 2,033,028  2,211,407 $     221 $ 1,959,832 $   (900,000)$ (3,016,335)
                          ================================================================================



-------------------------------------------------------------------------------------------------------------------


See accompanying notes to consolidated financial statements.
                                                                                                       F-6
</TABLE>

<PAGE>


<TABLE>
<CAPTION>
                                                                                            VOLU-SOL, INC.
                                                                      Consolidated Statement of Cash Flows

                                                                                 Years Ended September 30,
----------------------------------------------------------------------------------------------------------



                                                                             1998              1997
                                                                       -----------------------------------
Cash flows from operating activities:
<S>                                                                    <C>                <C>              
     Net loss                                                          $        (719,781) $       (719,652)
     Adjustments to reconcile net loss to
       net cash used in operating activities:
         Depreciation                                                             80,015            77,576
         Provision for losses on accounts receivable                              (9,824)                -
         Preferred stock issued for services                                     163,000                 -
         (Increase) decrease in:
              Accounts receivable                                                 11,327            10,573
              Inventories                                                        (15,683)          (40,162)
              Other assets                                                       (14,390)          (15,825)
         Increase (decrease) in:
              Accounts payable                                                    (4,432)           (8,124)
              Accrued liabilities                                                (29,569)           54,034
                                                                       -----------------------------------

                      Net cash used in
                      operating activities                                      (539,337)         (641,580)
                                                                       -----------------------------------

Cash flows from investing activities-
     purchase of property and equipment                                           (4,592)           (4,074)
                                                                       -----------------------------------


Cash flows from financing activities:
     Payments on notes payable                                                  (114,351)                -
     Proceeds from sale of preferred stock                                       337,000           320,554
     Proceeds from notes payable                                                       -           390,500
     Capital contributions from Biomune Systems, Inc.,                                 -           260,124
                                                                       -----------------------------------

                      Net cash provided by
                      financing activities                                       222,649           971,178
                                                                       -----------------------------------

                      Net (decrease) increase in cash                           (321,280)          325,524

Cash, beginning of year                                                          337,691            12,167
                                                                       -----------------------------------

Cash, end of year                                                      $          16,411  $        337,691
                                                                       ===================================






----------------------------------------------------------------------------------------------------------


See accompanying notes to consolidated financial statements.
                                                                                                       F-7
</TABLE>

<PAGE>


                                                                  VOLU-SOL, INC.
                                      Notes to Consolidated Financial Statements

                                                     September 30, 1998 and 1997
--------------------------------------------------------------------------------


1.   Summary of Significant Accounting Policies

Organization and Business Activity
The consolidated  financial statements consist of Volu-Sol,  Inc. (the Company),
formerly a wholly owned subsidiary of Biomune Systems, Inc. (Biomune), which was
incorporated  on July  27,  1995 in the  state  of Utah,  and its  wholly  owned
subsidiary,  Volu-Sol Reagents  Corporation,  which was incorporated on March 5,
1998 in the state of Utah.  Prior to its  incorporation,  the  Company  had been
operated as a division of Biomune.

The Company engages in the manufacturing,  marketing and distribution of medical
diagnostic  stains and the marketing and  distribution  of the  Definitive.  The
Definitive  is a  hematology  staining  instrument  that  contains  a  microchip
(proprietary to a third party) that regulates precise stain amounts.

The board of directors of Biomune  approved the divestiture and  distribution of
the Company's  common stock to the Biomune common  stockholders  of record as of
March 5, 1997 (the Distribution). This approval was subject to the completion of
certain definitive agreements. These agreements were finalized in September 1997
and the Company filed a Form 10-SB with the Securities  and Exchange  Commission
on October 1,  1997,  the  effective  date of the  Distribution.  The Form 10-SB
became effective December 1, 1997. Biomune stockholders of record as of March 5,
1997 received one share of Volu-Sol,  Inc.  common stock for every ten shares of
Biomune common stock owned at that date.


Going Concern
The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern.  As of September 30, 1998, the Company
had a deficit  in  working  capital  of  $145,665,  an  accumulated  deficit  of
$3,016,335  and  incurred a loss of $719,781  for the year ended  September  30,
1998. These conditions raise  substantial doubt about the ability of the Company
to continue as a going  concern.  The  financial  statements  do not include any
adjustments that might result from the outcome of this uncertainty.


The  Company's  ability  to  continue  as a  going  concern  is  subject  to the
attainment of profitable  operations or obtaining necessary funding from outside
sources.  Management's plans with respect to this uncertainty  include obtaining
debt or equity funding to finance the Company's operations.  However,  there can
be no assurance they will be successful.


--------------------------------------------------------------------------------

                                                                             F-8

<PAGE>
                                                                  VOLU-SOL, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------

1.   Summary of Significant Accounting Policies Continued

Principles of Consolidation
The consolidated  financial  statements include the accounts of the Company, and
its subsidiary. All significant intercompany balances and transactions have been
eliminated.

Estimates  in  the  Preparation  of  Financial  Statements  The  preparation  of
financial statements in conformity with generally accepted accounting principles
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.


Concentration of Credit Risk
Financial  instruments which potentially subject the Company to concentration of
credit risk consist  primarily  of trade  receivables.  In the normal  course of
business, the Company provides credit terms to its customers.  Accordingly,  the
Company  performs  ongoing  credit  evaluations  of its  customers and maintains
allowances for possible losses which, when realized,  have been within the range
of management's expectations.


The Company  maintains its cash in bank deposit  accounts which,  at times,  may
exceed federally  insured limits.  The Company has not experienced any losses in
such accounts and believes it is not exposed to any  significant  credit risk on
cash and cash equivalents.


Cash and Cash Equivalents
For purposes of the  statement of cash flows,  the Company  considers all highly
liquid  debt  instruments  with a  maturity  of three  months or less to be cash
equivalents.


Inventories
Inventories are recorded at the lower of cost or market,  cost being  determined
on a first-in,  first-out  (FIFO) method.  Substantially,  all items included in
inventory are finished goods.


Sales of the Definitive have been lower than initially  expected by the Company,
as a result,  the Company has written down a portion of the carrying cost of its
Definitive inventory to expected net realizable value.


--------------------------------------------------------------------------------

                                                                             F-9

<PAGE>
                                                                  VOLU-SOL, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------

1.   Summary of Significant Accounting Policies Continued

Property and Equipment
Property  and  equipment  are  stated  at cost  less  accumulated  depreciation.
Depreciation and amortization are determined using the straight-line method over
the  estimated  useful lives of the assets.  Expenditures  for  maintenance  and
repairs are expensed when incurred and  betterments are  capitalized.  Gains and
losses on sale of property and equipment are reflected in operations.


Income Taxes
Deferred  income  taxes are  provided  in amounts  sufficient  to give effect to
temporary  differences between financial and tax reporting,  principally related
to depreciation.

Earnings Per Share
The  computation  of basic  earnings  per common  share is based on the weighted
average number of shares outstanding during each year.

The  computation  of diluted  earnings per common share is based on the weighted
average  number of shares  outstanding  during  the year plus the  common  stock
equivalents  which would arise from the  exercise of stock  options and warrants
outstanding  using the treasury  stock  method and the average  market price per
share during the year.


Warrants  and options  outstanding  have not been  included in the  computations
since any assumption of conversion  would have an antidilutive  effect,  thereby
reducing the net loss per common share.


Common Stock Split
Effective August 14, 1997, the Company completed a forward common stock split of
approximately  211 for 1 to permit the issuance of a sufficient number of shares
to the  stockholders  of record of Biomune as of March 5,  1997.  The  financial
statements  have been  presented as though the stock split took place October 1,
1996.  All share and per share  information  in the  accompanying  statements of
operations  has  been  based on the  outstanding  number  of  shares  issued  in
connection with the Distribution.


Advertising
The Company  expenses  the cost of  advertising  the first time the  advertising
takes  place.  For the  years  ended  September  30,  1998 and 1997  advertising
expenses totaled approximately $18,000 and $50,000, respectively.


--------------------------------------------------------------------------------

                                                                            F-10

<PAGE>
                                                                  VOLU-SOL, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------

1.   Summary of Significant Accounting Policies Continued

Revenue Recognition
Revenue from the sale of the Company's  products, less reserves for returns,  is
recognized upon shipment to the customer.

Reclassifications
Certain  accounts in the 1997 financial  statements  have been  reclassified  to
conform with the current year presentation.


2.   Property and Equipment

Property and equipment consist of the following:


Leasehold improvements                                       $          224,045
Furniture and fixtures                                                  170,939
Equipment                                                                31,721
                                                             ------------------

                                                                        426,705

Accumulated depreciation                                               (240,758)
                                                             ------------------

                                                             $          185,947
                                                             ==================



3.   Notes Payable

Notes  payable  consist  of  several   unsecured  loans  from  Biomune  with  an
outstanding balance totaling $276,149.  These loans bear interest of ten percent
and are due on demand.  The  Company  has  accrued  interest  payable of $11,505
related to these loans as of September  30,  1998,  which is included in accrued
liabilities.

During the year ended  September  30,  1998,  the  Company  recognized  interest
expense of approximately $35,000 related to these loans.


4.   Related Party Transactions

The Company paid a commission  to MK Financial of $55,000 in regards to the sale
of preferred Series A stock. MK Financial is owned by a major shareholder of the
Company.




--------------------------------------------------------------------------------

                                                                            F-11

<PAGE>
                                                                  VOLU-SOL, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------

5.   Income Tax

The benefit for income taxes is different  than amounts  which would be provided
by applying the statutory  federal income tax rate to loss before  provision for
income taxes for the following reasons:


                                                   September 30,
                                        -----------------------------------
                                               1998             1997
                                        -----------------------------------

Federal income tax benefit at
  statutory rate                        $          245,000  $       245,000
Change in valuation allowance                     (245,000)        (245,000)
                                        -----------------------------------

                                        $                -  $             -
                                        ===================================

The  Company has  previously  filed a  consolidated  tax return with its parent,
Biomune.  No tax sharing  agreement  exists between the Company and Biomune.  In
connection  with the  Distribution,  all net operating  loss  carryforwards  and
credit  carryforwards  as of September 30, 1997 remain with Biomune and will not
be available to be utilized by the Company.

Deferred tax assets  (liabilities)  are  comprised of the following at September
30, 1998:

Net operating loss carryforward                             $        245,000
Depreciation and reserves                                             75,000
Valuation allowance                                                 (320,000)
                                                            ----------------

                                                            $              -
                                                            ================

At  September  30,  1998,  the  Company  has net  operating  loss  carryforwards
available to offset future taxable income of approximately $720,000,  which will
begin to expire in 2018. The utilization of the net operating loss carryforwards
is  dependent  upon the tax laws in  effect at the time the net  operating  loss
carryforwards can be utilized.  The Tax Reform Act of 1986 significantly  limits
the annual amount that can be utilized for certain of these  carryforwards  as a
result of the change in ownership.



--------------------------------------------------------------------------------

                                                                            F-12

<PAGE>
                                                                  VOLU-SOL, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------

6.   Lease Obligations

The  Company  leases  facilities  under a  noncancellable  operating  lease that
expires  in  November   2000.   Future   minimum   rental   payments  under  the
non-cancelable  operating  lease as of September 30, 1998 are  approximately  as
follows:


     Year Ending September  30:                                     Amount
                                                              ------------------

                           1999                               $           55,400
                           2000                                           55,400
                           2001                                            9,240
                                                              ------------------

     Total future minimum rental payments                     $          120,040
                                                              ==================

Rent expense related to these non-cancelable  operating leases was approximately
$  60,000  and  $55,000  for the  years  ended  September  30,  1998  and  1997,
respectively.


7.   Supplemental Cash Flow Information

During the year ended September 30, 1998, the Company:

o    Recognized dividends of $67,716 on preferred stock.

o    Increased preferred stock and decreased additional paid-in-capital
     for $240,758 due to accretion.


During fiscal year 1997, the Company  recognized  dividends of $4,000  resulting
from the beneficial  conversion  feature on the Series A preferred stock.  These
dividends increased the recorded amount of the Series A preferred stock.


Actual amounts paid for interest and income taxes are as follows:


                                                    Years Ended
                                                   September 30,
                                        -----------------------------------
                                               1998             1997
                                        -----------------------------------

Interest                                $           34,683  $             -
                                        ===================================

Income taxes                            $                -  $             -
                                        ===================================



--------------------------------------------------------------------------------

                                                                            F-13

<PAGE>
                                                                  VOLU-SOL, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------

8.   Capital Stock

The Company is authorized to issue 50,000,000 shares of common stock, $.0001 par
value per share, and 10,000,000 shares of preferred stock,  $.0001 par value per
share. The Company's board of directors has the authority to amend the Company's
Articles of Incorporation,  without further stockholder  approval,  to designate
and determine,  in whole or in part, the  preferences,  limitations and relative
rights of the preferred  stock before any issuance of the preferred stock and to
create one or more series of preferred stock.


9.   Preferred Stock

Series A
On  September 8, 1997,  the Company  amended its  Articles of  Incorporation  to
create a series of  preferred  stock.  The Series A 10%  Convertible  Non-Voting
Preferred Stock, consists of 20,000 shares with $.0001 par value. This series is
part of the  Company's  10,000,000  authorized  shares of  non-voting  preferred
stock. The Series A Preferred Stock has the following rights and privileges:

     1.   The holders of the shares are entitled to dividends at the rate of ten
          percent  (10%) per annum on the stated value of the Series A Preferred
          Stock (or $200 per share),  payable in cash or in additional shares of
          Series A Preferred  Stock at the discretion of the Board of Directors.
          Dividends are fully  cumulative  and accrue  from the date of original
          issuance.  At September 30, 1998, all dividends  earned have been paid
          through the issuance of additional shares of preferred stock.

     2.   Upon the  liquidation  of the  Company,  the  holders  of the Series A
          Preferred Stock are entitled to receive,  prior to any distribution of
          any assets or surplus  funds to the holders of shares of common  stock
          or any other stock,  an amount equal to $2.00 per share,  plus accrued
          and unpaid regular or special dividends, if any, multiplied by 133%.

     3.   The  shares  are  convertible  at the option of the holder at any time
          subsequent  to  January  1, 1998 into  common  shares,  determined  by
          dividing $200 plus any accrued and unpaid regular or special dividends
          by an amount equal to the lesser of (i) the "Market Price" (defined as
          the average  closing bid price of the  Company's  Common Stock for the
          three trading days  immediately  preceding the  applicable  Conversion
          Date) less 20%; or (ii) $1.25.


--------------------------------------------------------------------------------

                                                                            F-14

<PAGE>
                                                                  VOLU-SOL, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------

9.   Preferred Stock Continued

Series A - Continued

          A single  holder  (or  affiliated  holders)  may not at any time  hold
          shares  of the  Company's  Common  Stock  exceeding  4.9% of the total
          number of issued and  outstanding  shares of Common Stock.  Thus,  any
          holder or group of affiliated  holders will only be allowed to convert
          shares of Series A Preferred  Stock into shares of Common  Stock in an
          amount such that such  holder's  ownership  of shares of Common  Stock
          does not exceed  4.9% of the total  number of issued  and  outstanding
          shares of Common Stock.


     4.   The holders of the shares have no voting rights.


     5.   The  Company  may,  at its  option,  redeem up to 66-2/3% of the total
          number  of  shares  of  Series A  Preferred  Stock.  The  Company  may
          designate a different  and lower  conversion  price and the call price
          for all shares of Series A Preferred  Stock called for  redemption  by
          the Company shall be 133% of the New  Conversion  Price for all shares
          of Series A Preferred Stock called after January 1, 1998.


10.  Major Customers

Sales to major customers which exceeded 10 percent of net sales are as follows:


                                             Years Ended September 30,
                                        -----------------------------------
                                               1998             1997
                                        -----------------------------------

Company A                                     12.3%            12.7%
Company B                                     11.8%            13.5%
Company C                                         -            11.4%




--------------------------------------------------------------------------------

                                                                            F-15

<PAGE>
                                                                  VOLU-SOL, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------

11.  Stock Options and Warrants

Stock Incentive Plan
The Company has adopted the 1997 Volu-Sol,  Inc. Stock Incentive Plan (the "1997
Plan").  The  1997  Plan  was  approved  by  action  of  Biomune,  the  original
stockholder of the Company, in August 1997. Under the 1997 Plan, the Company may
issue stock options,  stock  appreciation  rights,  restricted stock awards, and
other  incentives  to  employees,  officers and directors of the Company and the
award of  nonqualified  stock  options and other awards to employees and certain
non-employees who have important  relationships  with the Company.  Five million
shares are initially available for grant under the 1997 Plan. To date, no awards
of any kind have been made under the 1997 Plan.


Add-on Volu-Sol Options
In connection with the  Distribution of the Company's common stock, the Board of
Directors  of  Biomune  determined  that each  Biomune  stock  option  ("Biomune
Option") would be divided into two separately  exercisable options: an option to
purchase  Biomune common stock and an option to purchase  Volu-Sol  common stock
(the latter being the "Add- on Volu-Sol  Option").  The Add-on Volu-Sol  Options
grant the holder the right to purchase the  Company's  common stock in an amount
that  would  have been  issued in the  Distribution  in respect of the shares of
Biomune common stock subject to the applicable  Biomune Option,  if such Biomune
Option had been exercised in full  immediately  prior to the  Distribution,  and
containing  substantially  equivalent terms as the existing Biomune Option.  The
Add-on  Volu-Sol  Options carry an option  exercise price per share equal to the
price per share of the exercise price under the Biomune Option.


As a result of the foregoing,  certain persons who remain  Biomune  employees or
non-employee  directors  after the  Distribution  and  certain  persons who were
Biomune employees prior to the Distribution but become Volu-Sol  employees after
the Distribution hold both Biomune Options and separate Add-on Volu-Sol Options.
The obligations  with respect to the Biomune Options and Add-on Volu-Sol Options
held by Biomune employees and non-employee  directors following the Distribution
will be  obligations  solely of Biomune.  Volu-Sol has agreed to sell to Biomune
from time to time  shares of  Volu-Sol  common  stock as  necessary  to  satisfy
Biomune's obligations under the Distribution Agreement.  The sales price of such
shares  of  Volu-Sol  common  stock  will be a sum  equal  to the  consideration
received by Biomune in exercise of the related option.


--------------------------------------------------------------------------------

                                                                            F-16

<PAGE>
                                                                  VOLU-SOL, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------

11.  Stock Options and Warrants Continued

Volu-Sol Warrants

Biomune  has  granted  rights to purchase  Biomune  common  stock in the form of
warrants (the "Biomune Warrants").  Under the agreements governing the grant and
exercise of the Biomune Warrants,  Biomune has agreed to issue to the holders of
such rights,  securities  otherwise  issuable with respect to the Biomune common
shares underlying the Biomune Warrants if and to the extent the Biomune Warrants
are exercised.  Consequently,  if the holders of the Biomune  Warrants  exercise
their  rights  thereunder,  Biomune  must  issue to those  holders  one share of
Volu-Sol  common  stock  for each  share  of  Biomune  common  stock  issued  in
connection with such exercise. Volu-Sol has agreed to sell to Biomune the shares
of Volu-Sol  common stock needed to meet this  obligation of Biomune.  The sales
price of such shares of Volu-Sol  common stock will be a sum equal to 10 percent
of the consideration received by Biomune in exercise of the Biomune Warrants.


                                             Number of
                                            Options and        Price Per
                                             Warrants            Share
                                         ----------------------------------
Outstanding at October 1, 1996                           -  $             -
  Granted                                          979,160     1.16 to 5.00
  Expired                                          (82,500)    1.67 to 5.00
                                         ----------------------------------

Outstanding at September 30, 1997                  896,660     1.16 to 5.00
 Expired                                          (369,310)    1.16 to 5.00
                                         ----------------------------------

Outstanding at September 30, 1998                  527,350  $  1.16 to 4.00
                                         ==================================




--------------------------------------------------------------------------------

                                                                            F-17

<PAGE>
                                                                  VOLU-SOL, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------

11.  Stock Options and Warrants Continued

The  following  table  summarizes  information  about stock options and warrants
outstanding at September 30, 1998:

                            Outstanding                      Exercisable
              ------------------------------------------------------------------
                             Weighted
                              Average
                 Number      Remaining    Weighted      Number       Weighted
   Range of    Outstanding  Contractual    Average    Exercisable    Average
   Exercise        at          Life       Exercise         at        Exercise
    Prices      09/30/98      (Years)       Price      09/30/98       Price
--------------------------------------------------------------------------------
$1.16 - 2.38     442,350        1.9        $ 1.53       442,350       $ 1.53
 3.00 - 4.00      85,000        1.2          3.71        85,000         3.71
--------------------------------------------------------------------------------
$1.16 - 4.00     527,350        1.8        $ 1.88       527,350       $ 1.88
================================================================================

12.  Earnings Per Share

The  Financial   Accounting   Standards  Board  issued  Statement  of  Financial
Accounting  Standards No. 128 (SFAS 128)  "Earnings  Per Share," which  requires
companies to present  basic  earnings  per share (EPS) and diluted  earnings per
share, instead of the primary and fully diluted EPS as previously required.  The
new standard  also  requires  additional  informational  disclosures,  and makes
certain  modifications to the previously  applicable EPS calculations defined in
Accounting  Principles  Board No. 15. The new standard is required to be adopted
by all public  companies for reporting  periods  ending after December 15, 1997,
and requires restatements of EPS for all prior periods reported. During the year
ended September 30, 1998, the Company adopted this standard.  Earnings per share
information is as follows:


                                                    Year Ended
                                                   September 30,
                                        -----------------------------------
                                               1998             1997
                                        -----------------------------------

Net loss available to common
  stockholders                          $       (787,497) $      (723,652)
                                        -----------------------------------

Average equivalent shares
  (basic and diluted)                          2,211,000        2,111,000
                                        -----------------------------------

Net loss per share
  (basic and diluted)                   $           (.36) $          (.34)
                                        ===================================


--------------------------------------------------------------------------------

                                                                            F-18

<PAGE>
                                                                  VOLU-SOL, INC.
                                      Notes to Consolidated Financial Statements
                                                                       Continued
--------------------------------------------------------------------------------

13.  Fair Value of Financial Instruments

None of the Company's financial  instruments are held for trading purposes.  The
Company estimates that the fair value of all financial  instruments at September
30, 1998, does not differ  materially from the aggregate  carrying values of its
financial  instruments recorded in the accompanying balance sheet. The estimated
fair value amounts have been  determined by the Company using  available  market
information and appropriate valuation  methodologies.  Considerable judgement is
necessarily  required in  interpreting  market data to develop the  estimates of
fair value, and,  accordingly,  the estimates are not necessarily  indicative of
the amounts that the Company could realize in a current market exchange.


14.  Recent Accounting Pronouncements

The  Financial  Accounting  Standards  Board has issued  Statement  of Financial
Accounting  Standard No. 130,  "Reporting  Comprehensive  Income," Statement No.
131,  "Disclosures about Segments of an Enterprise and Related  Information" and
Statement   No.  132,   "Employers'   Disclosures   about   Pensions  and  Other
Postretirement Benefits." Statements No. 130 and No. 131 are effective for years
beginning  after  December 15, 1997.  Statement  No. 132 is effective  for years
beginning after December 15, 1998. It is not expected that the adoption of these
statements will have a material impact on the Company's financial statements.


During  January 1998,  the American  Institute of Certified  Public  Accountants
("AICPA") issued Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities"  (SOP  98-5).   SOP 98-5  becomes  effective  for all  fiscal  years
beginning after December 15, 1998. The Company will adopt SOP 98-5 in its fiscal
year beginning  October 1, 1999. The Company does not expect the adoption of SOP
98-5 to have a material impact on the Company's financial statements.

--------------------------------------------------------------------------------

                                                                            F-19

<PAGE>



ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

         On October 9, 1998,  the Company and Arthur  Andersen LLP  ("Andersen")
agreed  that  Andersen  would  not  stand  for   appointment  as  the  Company's
independent  public  accountants  in 1998.  On October  15,  1998,  the  Company
appointed Tanner + Co. ("Tanner") to replace Andersen as its independent  public
accountants.

         Until September 30, 1997, the Company was a wholly owned  subsidiary of
Biomune.  Biomune is a public company  having a class of securities,  its common
stock, registered under the Exchange Act. As a result, Biomune is subject to the
reporting  and  other  requirements  of the  Exchange  Act  and  the  rules  and
regulations  promulgated  under the  Exchange  Act.  The Company was divested by
Biomune effective  October 1, 1997. It filed a registration  statement under the
Exchange  Act which was declared  effective or became  effective by operation of
law on December 1, 1997.  Since that time,  the Company has been  subject to the
reporting and other  obligations of public  companies under the Exchange Act and
the  rules  and  regulations  promulgated  thereunder.  Andersen  had  been  the
independent  public  accountants  to Biomune  and  continued  to act in the same
capacity for the Company following the divestiture.

         The  report  of  Andersen  on  the  Company's   consolidated  financial
statements for the years ended  September 30, 1997 and 1996 contained no adverse
opinion or  disclaimer  of  opinion  and was not  qualified  or  modified  as to
uncertainty, audit scope or accounting principle, except that such report on the
consolidated financial statements included an explanatory paragraph with respect
to the Company having  suffered  recurring  losses and other matters which raise
substantial doubt about its ability to continue as a going concern.

         The decision to engage Tanner as the Company's independent auditors was
approved by the unanimous consent of the Company's board of directors.


         In  connection  with the audits for the years ended  September 30, 1997
and 1996, and through October 8, 1998, the Company has had no disagreements with
Andersen  on  any  matter  of  accounting  principles  or  practices,  financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved to the  satisfaction of Andersen would have caused it to make reference
thereto  in its report on the  consolidated  financial  statements  for 1997 and
1996.

         In  connection  with the  change,  Andersen  provided  to the Company a
letter  addressed  to the  Securities  and Exchange  Commission  stating that it
reviewed the disclosure  provided in this Current Report and has no disagreement
with the relevant  portions of this disclosure,  pursuant to the requirements of
Item 304(a)(3) of Regulation S-B. A copy of such letter, dated as of October 15,
1998,  was  filed as an  Exhibit  to the  Company's  Current  Report on Form 8-K
reporting the change of accountants.

         During the years ended September 30, 1997 and 1996, and through October
8,  1998,  there  were  no  other  reportable  events  (as  referenced  in  Item
304(a)(1)(iv) of Regulation S-B).




                                       11

<PAGE>



                                                     PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Executive Officers, Key Employees and Directors

         The  executive  officers and directors of the Company as of January 12,
1999 are as follows:

            Name                             Age         Position

Wilford W. Kirton, III                        38         Chief Executive Officer
Barry Edwards                                 46         Director
Christopher L. Matthews                       44         Director
F. Kenneth Westover                           71         Director




Wilford W. Kirton, III

         Mr.  Kirton  became a director and the Chief  Executive  Officer of the
Company in January 1998. Mr Kirton holds a bachelors degree in Political Science
from the  University of Utah.  Prior to joining the Company,  Mr. Kirton was the
proprietor  and President of Travel  Systems  Network,  a travel agency and tour
operator from 1987 to February 1994. From February 1994 to June 1996, Mr. Kirton
was Vice President of Old Republic Title, a real estate title company. From July
1996 to March 1997, Mr. Kirton was a sales  representative for Schwanns Foods, a
food  distributor  in Utah.  Mr.  Kirton was an officer  of Optim  Nutrition,  a
subsidiary  of Biomune  (former  parent of the  Company),  from March 1997 until
joining the Company in January 1998.

Barry Edwards

         Mr.  Edwards  became a director of the Company in December  1998. He is
the City  Administrator  of Highland,  Utah and has been employed as Director of
Research and Development at Kiva, a software company, since February 1998. Prior
to joining Kiva, Mr.  Edwards worked as the City Manager of Belmont,  California
for three years and was the City  Administrator  of Ridgecrest,  California.  He
received a BS in Political Science and a Masters of Public  Administration (MPA)
from Brigham Young University.

Christopher L. Matthews

         Mr.  Mathews  became a director  of the Company in  December  1998.  He
received  his BS in Finance and his MBA degree from the  University  of Utah and
was the  Director  of Asset  Services  for CB  Richard  Ellis,  a New York Stock
Exchange company that provides commercial real estate services  worldwide.  From
1990 to 1997,  Mr.  Matthews was  principal of Chris  Matthews &  Associates,  a
boutique  leasing and  property  management  services  company  specializing  in
institutionally-owned  distressed  properties.  From  1981 to  1990 he was  Vice
President of Asset  Management  for the Denver region of Equitable  Real Estate,
where he had responsibility for a portfolio of commercial  properties located in
the Intermountain West, valued at $900,000,000.

Ken Westover

         Mr.  Westover  became a director of the Company in December 1998. He is
the owner of Westover & Associates,  a  manufacturing  representative  for floor
coverings,  a firm he  founded  in 1984.  Prior to  founding  his own firm,  Mr.
Westover was a factory  representative for O'Brien Corporation from 1962 to 1971
and for Hollytex  Carpet Mills from 1971 to 1984. He received his  undergraduate
degree  from LDS  Business  College  in Salt  Lake  City and also  attended  the
University of Utah and Brigham Young University.


                                       12

<PAGE>



         None of the  Company's  executive  officers or directors are related to
any other executive officer or director of the Company.

Section 16(a) Beneficial Ownership Reporting Compliance

         Section  16(a) of the  Securities  Exchange  Act of 1934  requires  the
Company's officers,  directors and persons who beneficially own more than 10% of
a  registered  class of the  Company's  equity  securities  to file  reports  of
ownership and changes in ownership with the Securities and Exchange  Commission.
Officers, directors and greater than 10% shareholders are required by regulation
of the Securities and Exchange  Commission to furnish the Company with copies of
all Section 16(a) forms they file.

         Based  solely upon its review of the copies of such forms  furnished to
it, and representations  made by certain persons subject to this obligation that
such filings were not required to be made, the Company believes that all reports
required to be filed by these  individuals  and persons under Section 16(a) were
filed in a timely manner and the Company is not aware of any transactions in its
outstanding securities by or on behalf of any director, executive officer or 10%
holder,  which would require the filing of any report  pursuant to Section 16(a)
during the fiscal year ended  September  30,  1998,  that was not filed with the
Commission.


ITEM 10.          EXECUTIVE COMPENSATION

         No  executive  officer  or  employee  of the  Company is paid more than
$100,000 per year in salary and benefits. The Company's Chief Executive Officer,
Wilford W. Kirton, III, receives an annual salary of $72,000.

Director Compensation

         Members of the Board of  Directors  will be voting on the  compensation
for  meetings  and  other  services  performed  by the  members  of the board of
directors.











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                                       13

<PAGE>



ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information regarding beneficial
ownership  of the  Company's  common  stock  (i) by each  person  (or  group  of
affiliated persons) who owns beneficially more than 5% of the outstanding shares
of common  stock,  (ii) by each  director  and Named  Executive  Officer  of the
Company, and (iii) by all of the directors and executive officers of the Company
as a group.

<TABLE>
<CAPTION>

Name and Address                            Shares of Common Stock
of Beneficial Owner (1)                     Beneficially Owned (2)              Percentage of Class
-----------------------                     ---------------------------         -------------------

<S>                                                     <C>                              <C>  
Cygni S A (3)                                           392,308                          13.4%
C/O Soreq Inc.
620 Wilson Ave Ste 501
Toronto Ontario Canada
M3K 1Z3

Leviticus Trust (4)                                     238,918                           8.9%
821 Northpoint Drive
Salt Lake City, UT 84103

Wilford W. Kirton III (5)                                 2,032                             *
(Chief Executive Officer, Director)

Barry Edwards, Director (5)                              22,000                             *
9914 N. 4500 W.
Cedar Hills, Utah  84062

Chris Matthews (5)                                       22,000                             *
956 East Sunburst Lane
Alpine, Utah 84004

Ken Westover (5)                                         58,000                           2.1%
1697 E. 6550 S.
Salt Lake City, Utah  84121

All executive officers and                               82,032                           3.1%
directors as a group (4 persons)

</TABLE>


         (1) Unless  otherwise  indicated,  such person's address is the same as
the Company's address.

         (2)      A person is deemed to be the  beneficial  owner of  securities
                  that can be acquired  by such  person  within 60 days from the
                  date of this Report upon the  exercise of options or warrants.
                  Each beneficial  owner's percentage of ownership is determined
                  by assuming that options or warrants or convertible  preferred
                  stock  held by such  person  (but not those  held by any other
                  person) and exercisable or convertible within 60 days from the
                  date of this Report have been fully  exercised  or  converted.
                  Unless otherwise noted, the Company believes the persons named
                  in this table will  possess sole voting and  investment  power
                  with  respect  to all  shares of common  stock  shown as being
                  beneficially  owned.   Percentages  are  calculated  based  on
                  2,681,169 shares of common stock  outstanding (as adjusted for
                  additional  shares  deemed  to be  beneficially  owned by such
                  shareholder).

         (3)      Cygni S A owns  152,308  shares of common  stock  directly and
                  1,500  shares of Series A  Preferred,  convertible  to 240,000
                  shares of common stock.

                                       14

<PAGE>



         (4)      The  Leviticus  Trust  owns  238,918  shares of  Common  Stock
                  directly.   The  Leviticus  Trust  is  an  irrevocable   trust
                  established for the benefit of its sole  beneficiary,  Genesis
                  Investment  Corporation,   a  Utah  corporation  ("GIC").  The
                  directors  and  executive  officers  of GIC are  Jacob  "Jack"
                  Solomon,  President,  Royden G.  Derrick,  Vice  President and
                  Secretary,  and Edna Ennise Richardson,  Sam Pekeles and Jerry
                  Pekeles,  directors.  The  beneficial  owners  of GIC  are the
                  Solomon  family.  The trustee of the Leviticus Trust is Robert
                  Pomerantz, an individual residing in New York. The trustee has
                  the power to vote and to  dispose  of the  shares  held by the
                  Leviticus Trust,  consistent with the terms and subject to the
                  conditions of the Trust Declaration establishing the trust.

         (5)      All shares  shown are  issuable  upon  conversion  of Series A
                  Preferred held by such person as of the date of this Report.

         Except for the  matters  described  herein,  there are no  arrangements
known to the Company,  the operation of which may, at a subsequent date,  result
in a change of ownership or control of the Company.


ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company has agreed to indemnify  each of its directors and officers
to the fullest extent  permitted by the Revised Utah Business  Corporation  Act.
The Company has supplemented its cash flow from operations by borrowing from its
former parent,  Biomune. As of the date of this Report, the Company owes Biomune
a total of $372,149.  These  amounts are due on demand and bear  interest at the
rate of 10% per annum.


                                                      PART IV

ITEM 13.          EXHIBITS AND REPORTS ON FORM 8-K

         The  following  exhibits  are filed  herewith  or are  incorporated  by
reference to exhibits previously filed with the Commission:

(a)      Exhibits

Exhibit Number    Title of Document

         3.01              Articles  of  Incorporation  and  Amendments  thereto
                           (incorporated   by   reference   to   the   Company's
                           Registration Statement and Amendments thereto on Form
                           10-SB, effective December 1, 1997).

         3.02              Bylaws  (incorporated  by reference to the  Company's
                           Registration  Statement  on Form  10-  SB,  effective
                           December 1, 1997).

         10.01             Distribution and Separation  Agreement  (incorporated
                           by reference to the Company's  Registration Statement
                           and  Amendments  thereto  on  Form  10-SB,  effective
                           December 1, 1997).

         10.02             1997   Stock   Incentive   Plan   of   the   Company,
                           (incorporated   by   reference   to   the   Company's
                           Registration Statement and Amendments thereto on Form
                           10-SB, effective December 1, 1997).

         10.03             1997  Transition Plan  (incorporated  by reference to
                           the Company's  Registration  Statement and Amendments
                           thereto on Form 10-SB, effective December 1, 1997).


                                       15

<PAGE>



         10.04             Securities   Purchase  Agreement  for  $1,200,000  of
                           Series A Preferred Stock  (incorporated  by reference
                           to   the   Company's   Registration   Statement   and
                           Amendments thereto on Form 10- SB, effective December
                           1, 1997).

         27                Financial Data Schedule.

(b)      Reports on Form 8-K

         On October 6, 1998,  the Company filed a Current  Report on Form 8-K to
report its agreement with Nasdaq regarding the issuance of additional  shares as
part of the divestiture of the Company from Biomune.

         On October 15, 1998,  the Company filed a Current Report on From 8-K to
report the change of its independent public accountants. See Item 8, above.






















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                                       16

<PAGE>


                                   SIGNATURES

In accordance  with Section 13 and/or 15(d) of the Securities  Exchange Act, the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                                                     Volu-Sol, Inc.


                                 By: /s/ Wilford W. Kirton, III
                                 ------------------------------
                                 Wilford W. Kirton, III, Chief Executive Officer

                             Dated: January 12, 1999

In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the  registrant and in the capacities and on the
dates indicated.

Signature                          Title                        Date



/s/ Wilford W. Kirton, III         Director, Chairman, and      January 12, 1999
--------------------------         Chief Executive Officer
Wilford W. Kirton, III                      



/s/ Barry Edwards                  Director                     January 12, 1999
--------------------------
Barry Edwards


/s/ Chris Matthews                 Director                     January 12, 1999
--------------------------
Chris Matthews


/s/ Ken Westover                   Director                     January 12, 1999
--------------------------
Ken Westover

/s/ Michael G. Acton               Acting Principal             January 13, 1999
--------------------------         Accounting Officer
Michael G. Acton                        

G:\KRP\volusol\10KSB\10k98#3.wpd

                                       17

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