<PAGE>   1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 20-F

(Mark One)

               / /    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

                                              OR

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

For the fiscal year ended December 31, 1998

                                              OR

               / /    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                      SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _________________

Commission file number 0-29574

                                  ALTAREX CORP.
             (Exact name of Registrant as specified in its charter)

                           Province of Alberta, Canada
                 (Jurisdiction of incorporation or organization)

 Campus Tower, Suite 300, 8625 - 112 Street, Edmonton, Alberta, Canada, T6G 1K8
                    (Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:


           Title of each Class         Name of each exchange on which registered

                  None
--------------------------------------------------------------------------------

Securities registered or to be registered pursuant to Section 12(g) of the Act:

                         Common Shares without par value
                                (Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:

                                      None
                                (Title of Class)
<PAGE>   2
Number of outstanding shares of each of the Company's classes of capital or
common stock as of June 1, 1999: 55,612,613 Common Shares

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


Yes   X   No
     ---     ---

Indicate by check mark which financial statement item the registrant has elected
to follow.

Item 17   X    Item 18
         ---           ---

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

Yes        No
    ---       ---
<PAGE>   3
                                      TABLE OF CONTENTS

<TABLE>
<S>                                                                           <C>
GLOSSARY OF TERMS .........................................................   vi

PART I ....................................................................    1
ITEM 1 - DESCRIPTION OF THE BUSINESS ......................................    1
      Overview ............................................................    1
      Corporate Structure .................................................    2
      History .............................................................    2
      Business Strategy ...................................................    3
      Plan of Operation For Fiscal 1999 ...................................    4
      Market for Cancer Therapeutics ......................................    4
      Approaches to Cancer Therapy ........................................    5
      The Company's AIT(R) Technology .....................................    7
      The Company's Products ..............................................   10
      Regulatory Approval Process .........................................   15
      Strategic Alliances and License Agreements ..........................   18
      Manufacturing .......................................................   22
      Human Resources .....................................................   22
      Competition .........................................................   22
      Proprietary Protection ..............................................   23
      Clinical Advisory Board .............................................   25
      Risk Factors ........................................................   26

ITEM 2 - DESCRIPTION OF PROPERTY ..........................................   36

ITEM 3 - LEGAL PROCEEDINGS ................................................   37

ITEM 4 - CONTROL OF REGISTRANT ............................................   39

ITEM 5 - NATURE OF TRADING MARKET .........................................   40

ITEM 6 - EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING
      SECURITY HOLDERS ....................................................   41

ITEM 7 - TAXATION .........................................................   43

ITEM 8 - SELECTED FINANCIAL DATA ..........................................   51

ITEM 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS .................................   52
      Overview ............................................................   52
      Acquisition and Amalgamation ........................................   53
      Results of Operations ...............................................   53
      Quantitative and Qualitative Disclosures About Market Risk ..........   55
      Foreign Currency Exposure ...........................................   55
</TABLE>

                                        i
<PAGE>   4
<TABLE>
<S>                                                                           <C>
      Impact of the Year 2000 Issue .......................................   55
      Liquidity and Capital Resources .....................................   56

ITEM 9A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK ................................................................   58

ITEM 10 - DIRECTORS AND OFFICERS OF REGISTRANT AS OF JUNE 1, 1999 .........   59

ITEM 11 - COMPENSATION OF DIRECTORS AND OFFICERS ..........................   61
      Compensation of Executive Officers ..................................   61
      Stock Options .......................................................   63
      Compensation of Directors ...........................................   64

ITEM 12 - OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR
      SUBSIDIARIES ........................................................   65

ITEM 13 - INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS ..................   66

PART II ...................................................................   67
ITEM 14 -  DESCRIPTION OF SECURITIES TO BE REGISTERED .....................   67

PART III ..................................................................   67
ITEM 15 -  DEFAULTS UPON SENIOR SECURITIES ................................   67
ITEM 16 -  CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR
      REGISTERED SECURITIES ...............................................   67

PART IV ...................................................................   67
ITEM 17 - FINANCIAL STATEMENTS ............................................   67
ITEM 18 - FINANCIAL STATEMENTS ............................................   68
ITEM 19 - FINANCIAL STATEMENTS AND EXHIBITS ...............................   68

SIGNATURE .................................................................   69
</TABLE>


                                              ii
<PAGE>   5
                    Note Regarding Forward Looking Statements

Certain statements in this document constitute forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the company, or industry results, to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
the current litigation between the Company and Biomira Inc.; the Company's
dependence on licensed technology; the Company's history of operating losses and
uncertainty of future profitability; uncertainty of access to capital; the
Company's dependence on strategic partners and key personnel; uncertainty of the
regulatory approval for the Company's products; competition and the risk
associated with new products. See "Item 1.
Description of the Business - Risk Factors."

                            Exchange Rate Information

In this Registration Statement, unless otherwise specified, all monetary amounts
are expressed in Canadian dollars ("$" or "cdn. $"). The following table sets
out the exchange rates, based on the noon buying rates in New York City for
cable transfers in foreign currencies as certified for customs purposes by The
Federal Reserve Bank of New York, for the conversion of Canadian dollars into
United States dollars in effect at the end of the following periods, and the
average exchange rates (based on the average of the exchange rates on the last
day of each month in such periods) and the range of high and low exchange rates
for such periods.

<TABLE>
<CAPTION>
                                         U.S. Dollars Per Canadian Dollar
                                  ----------------------------------------------
                                              YEAR ENDED DECEMBER 31,
                                   1998      1997      1996      1995      1994
                                  -----     -----     -----     -----     ------
<S>                               <C>       <C>       <C>       <C>       <C>
End of Period ................     .6504    0.698     0.730     0.732     0.7128
High for the period ..........     .7092    0.748     0.751     0.752     0.7632
Low for the period ...........     .6341    0.695     0.723     0.702     0.7103
Average for the period .......     .6740    0.722     0.732     0.730     0.73
</TABLE>


                                       iii
<PAGE>   6
The information set forth in this Registration Statement is as at December 31,
1998 unless an earlier or later date is indicated. On June 1, 1999, the noon
rate of exchange, as reported by the Federal Reserve Bank of New York for the
conversion of United States dollars into Canadian dollars, as U.S. $.6743 U.S.
$1.00 = Cdn. $1.4830.


                                       iv
<PAGE>   7
GLOSSARY OF TERMS


<TABLE>
<S>                                 <C>
Adjuvant:                           An immunogenic substance administered with a
                                    vaccine to increase the immune response.

Amino Acids:                        The basic molecules that form proteins.

Antibody:                           A protein agent developed in response to, and
                                    binding specifically with, an antigen.

Anti-idiotype Induction             An immunotherapeutic antibody approach that
Therapy or AIT(R) Technology        induces the human immune system to produce its
or AIT(R):                          own anti-tumor response through several immune
                                    pathways.

Anti-idiotype Cascade or            An in vivo immune response characterized by
Network:                            antibodies to antibodies resulting in antigen mimics
                                    and secondarily by native antibodies reactive to the
                                    same antigen as the antibody inducing the cascade.

Antigen:                            A substance which elicits a specific immune
                                    response.

Ascites-derived material:           Obtained from the fluid of the abdominal cavity of
                                    mice that have been implanted with cells that secrete
                                    the desired substance (antibody).

B-cell:                             A form of immune cell that produces
                                    antibodies and is a precursor to a plasma
                                    cell.

Cell culture-derived material:      Obtained from the secretion of cells grown in
                                    artificial media, often in flasks or tanks.

Cellular response:                  An immune system response mediated by immune
                                    cells, often cytotoxic and antigen specific.

current Good Manufacturing          Government promulgated guidelines governing the
Practices or cGMP:                  manufacture of human and animal drugs and
                                    biologicals.
</TABLE>


                                        v
<PAGE>   8
<TABLE>
<S>                                 <C>
Chemotherapy or                     Generally, the use of drugs in the treatment of
chemotherapeutic:                   disease.  Specifically the use of cytotoxic drugs to
                                    treat cancer.

Cytokine:                           Low molecular weight proteins that can either
                                    stimulate or inhibit the proliferation or function of
                                    immune cells.

Cytotoxic T-cells:                  Immune system cells capable of killing other cells.

Epitope:                            Specific region on an antigen which is recognized by
                                    a specific antibody or T-cell.

European Medicines                  The agency responsible for drug product approval in
Evaluation Agency or                the European Economic Community.
EMEA:

First line chemotherapy             The administration of one or more of a combination
(in ovarian cancer):                of chemotherapeutic agents usually consisting of a
                                    platinum-based drug and paclitaxel.

Gene:                               The basic unit of heredity. Genes are
                                    nucleic acid sequences encoding specific
                                    proteins that occupy a specific location on
                                    a chromosome and are self-producing,
                                    submicroscopic structures capable under
                                    certain circumstances of giving rise to a
                                    new character.

Health Protection Branch or         The government department responsible for
HPB:                                supervising the drug development and approval
                                    process in Canada.

Humoral response:                   An immune response mediated by antibodies in the
                                    blood.

Hybridoma cells:                    Any continuously growing cell line generated by
                                    the fusion of a myeloma cell and a normal cell
                                    and capable of producing antibodies.

Immunogenicity:                     The degree to which an antigen is capable of eliciting
                                    an immune response.
</TABLE>


                                       vi
<PAGE>   9
<TABLE>
<S>                                 <C>
Immunotherapy:                      A therapeutic approach to treat diseases by
                                    modifying the immune response against the disease.

Immunological tolerance:            Characteristic state in which the immune system is
                                    rendered unresponsive to an antigen that, under
                                    other conditions, would provoke an immune
                                    response.

Investigational New Drug            An application to the FDA or other regulatory
Application or IND:                 bodies, which is submitted for approval prior to
                                    beginning clinical trials.

IV infusion:                        Administration of a medication directly into a vein.

In vitro:                           Studies or phenomena which take place outside the
                                    body.

In vivo:                            Studies or phenomena which take place in the body.

Master Cell Bank or MCB:            A well characterized stock containing specific
                                    hybridoma cells that are used in the manufacture of
                                    antibodies.

Master Working Cell Bank:           "Manufacturer's" or "Master" Working Cell Bank,
                                    often referred to as the "Working Cell Bank" (WCB):
                                    a bank derived from the Master Cell Bank which acts
                                    as the starting source for (antibody) bioproduction.

Monoclonal antibody or              Antibody produced by hybridoma cells, which is
MAb:                                homogeneous in structure and specificity.

MUC1:                               A mucinous antigen associated with breast and other
                                    cancers.

Multi-epitopic                      response: Immune response to an antigen that
                                    is directed to multiple regions on the
                                    antigen recognized by antibodies or T-cells.

Multiple myeloma:                   A haematologic malignancy or blood cancer
                                    related to leukemia and lymphoma characterized
                                    by over-production of abnormal plasma cells in
                                    the bone marrow.
</TABLE>


                                       vii
<PAGE>   10
<TABLE>
<S>                                 <C>
Murine:                             Of mouse origin.

Myeloma cell:                       An immortal tumor cell originating or derived
                                    from the bone marrow.

New Drug Application or             A document submitted to the FDA or other
NDA:                                regulatory bodies containing all the pre-clinical and
                                    clinical data collected on a drug to obtain approval
                                    for marketing.

New Drug Submission or              A document submitted to the HPB which is the
NDS:                                Canadian counterpart to the NDA.

Peptide:                            A molecule containing several amino acids linked
                                    together.

Pharmacodynamic:                    The biological response to a drug.

Pharmacokinetic:                    The description of absorption, distribution,
                                    metabolism and excretion of drugs by the body.

Plasma cell:                        A mature B-cell.

Potentially pivotal:                A term used to describe clinical trials that
                                    would form the basis for a submission seeking
                                    marketing approval from regulatory authorities
                                    if the statistical goals of the trial are met.

Primary end point:                  The primary clinical outcome which forms the a priori
                                    basis of the statistical hypothesis (including sample
                                    size estimation) of a well controlled clinical trial.  A
                                    fully successful study confirms a treatment effect of
                                    the magnitude sufficient to provide a statistically
                                    significant demonstration of the "primary end point"
                                    for regulatory approval of a product.

Product License Application         The application submitted to the FDA to qualify
or PLA:                             biological drug products for sale in the United States.

PSA:                                An antigen associated with prostate cancer.
</TABLE>


                                      viii
<PAGE>   11
<TABLE>
<S>                                 <C>
Sera:                               The fluid component of blood after separation of
                                    cellular components.

Secondary end point:                Secondary clinical or biological outcomes that
                                    can be assessed in analysis of a clinical trial.
                                    Although supportive and potentially important,
                                    these endpoints are not the a priori primary
                                    experimental question proposed for a clinical
                                    protocol.

Second-line chemotherapy            Any one of a combination of drugs consisting of
(in ovarian cancer):                Paclitaxel, Etoposide, CAP (cyclophosphamide,
                                    adriamycin, cis-platin) or HCAP
                                    (hexamethylmelamine and CAP) or other drugs
                                    administered into patients, who are either
                                    partial or non-responders to first line
                                    chemotherapy.

Surrogate endpoint:                 A laboratory or physical sign that is used
                                    in clinical trials as a substitute for a
                                    clinically meaningful endpoint that is a
                                    direct measure of how a patient feels,
                                    functions, or survives and that is
                                    reasonably likely to predict the effect of
                                    therapy.

Surrogate marker:                   A laboratory measurement of biological
                                    activity within the body that indirectly
                                    indicates the effect of treatment on disease
                                    state.

T-cell:                             A form of immune cell that mediates humoral
                                    and cellular immune responses.

Tumor:                              An abnormal proliferation of malignant cells.

Tumor antigen or tumor              An antigen that is predominantly expressed in tumor
associated antigen or TAA:          tissues and may be released into the blood stream in
                                    association with the tumor.

Tumor marker:                       A biological product (protein or other) that
                                    is expressed on tumor cells and secreted
                                    usually into the serum, such that presence
                                    or activity of the tumor can be measured
                                    indirectly through measurement of the
                                    marker.

United States Food and Drug         The regulatory body that oversees the drug
Administration or FDA:              development and approval process in the United
                                    States.
</TABLE>


                                       ix
<PAGE>   12
                                     PART I

ITEM 1 - DESCRIPTION OF THE BUSINESS

OVERVIEW

AltaRex is a development stage biotechnology company focused on the research,
development and commercialization of unique antibody-based immunotherapeutics
for the treatment of certain late-stage cancers. The Company's products are
based on its unique proprietary platform technology, Anti-idiotype Induction
Therapy or AIT(R) Technology. Based upon research and clinical studies to date,
AltaRex believes that its AIT(R) Technology enhances the ability of the human
immune system to produce its own anti-tumor response. The Company has filed five
patent applications for its AIT(R) Technology in the United States. Four of
these patents have been or will be the subject of international patent
applications. See "- Proprietary Protection" and "Legal Proceedings".

AltaRex's products are modified murine monoclonal antibodies or MAbs developed
by the Company's scientists or licensed to the Company. The Company believes
that these MAbs may be used effectively to complement and/or supplement
conventional cancer therapies.

OvaRex(TM) MAb, the Company's lead product, targets a tumor associated antigen
known as CA 125 which has been found to be over-expressed in the majority of
ovarian (and certain other) cancer patients. The Company believes that when
administered to patients in low dosages by IV infusion OvaRex(TM) MAb acts by
inducing or amplifying, through multiple mechanisms, the body's immune response
against ovarian cancer. In the first quarter of 1997, the Company initiated a
potentially pivotal North American Phase IIb clinical trial with OvaRex(TM) MAb
in Canada with time to disease progression as the primary end point.
Administration of the drug to patients in the United States under this trial
began in the second quarter of 1998. This placebo controlled trial will enroll
280 patients by late 1999 and is expected to be completed in 2001 for primary
analysis. A second potentially pivotal Phase IIb clinical trial was initiated in
December 1998 also with time to disease progression as its primary end point,
and will address an ovarian cancer patient population with a more advanced stage
of disease than the initial Phase IIb trial. This placebo controlled trial will
enroll 102 patients in the United States and is also scheduled for completion by
2001. AltaRex is also conducting open Phase II trials in the United States and
Canada. In consultation with regulatory authorities, the Company is generating
cell culture-derived antibody which will be studied in comparability trials with
the Company's current ascites-derived materials.

The Company has received Orphan Drug status and Fast Track designation from the
FDA for OvaRex(TM) MAb. Orphan Drug status and Fast Track designation, as well
as

                                        1
<PAGE>   13
the applicability of certain provisions of the FDA Modernization Act of 1997
("FDAMA") relating to surrogate measures of efficacy form the Company's
regulatory approval strategy in the United States. The Company's Phase IIb
trials each have primary end points of time to disease progression as well as
secondary end points, including survival and quality of life, any of which can
form the basis for regulatory approval. See "- The Company's Products".

AltaRex is also developing additional antibody-based immunotherapeutics from its
AIT(R) Technology platform for the treatment of tumors expressing the MUC1
(BrevaRex(TM) MAb), PSA (ProstaRex(TM) MAb) and CA19.9 (GivaRex(TM) MAb) tumor
associated antigens. The Company commenced a Phase I clinical trial of
BrevaRex(TM) MAb in December 1998.

On May 12, 1999, the Company entered into two equity investment agreements (the
"Equity Investment Agreements") and an option agreement (the "Purdue Option")
with Purdue Pharma L.P. and certain of its associated entities (together,
"Purdue").

Pursuant to the Purdue Option, the Company granted to Purdue the option to
acquire worldwide exclusive rights to license and commercialize OvaRex(TM) MAb
and BrevaRex(TM) MAb. The Purdue Option may be exercised by Purdue at any time
up to and including November 12, 1999. During this period, the Company has
agreed not to discuss or negotiate with other parties with respect to the rights
which are the subject of the Purdue Option. In the event that Purdue exercises
the Purdue Option, Purdue has agreed to assume certain research and development
expenses of the Company, make certain additional payments to the Company upon
the Company's achieving certain milestones and to make various royalty payments
to the Company based upon sales of the Company's products.

CORPORATE STRUCTURE

AltaRex Corp. ("AltaRex" or the "Company") was established on May 31, 1997 under
the laws of the Province of Alberta by the amalgamation of AltaRex Corp.
(formerly known as Allrich Energy Group Inc. ("Allrich")) and AltaRex Inc. Prior
to such amalgamation, Allrich, an inactive public company, acquired all of the
outstanding shares of AltaRex Inc. resulting in AltaRex Inc.'s shareholders
holding a controlling interest in Allrich. On June 27, 1997 articles of
amendment were filed to provide that meetings of shareholders may be held at any
place within Canada and the United States. The registered office of AltaRex is
located at Campus Tower, Suite 300, 8625 - 112 Street, Edmonton, Alberta T6G
2E1. The principal business and administrative offices of AltaRex are located at
Suite 125, 303 Wyman Street, Waltham, Massachusetts 02451.

AltaRex US, Corp. ("AltaRex US"), the Company's only subsidiary, was
incorporated under the laws of the State of Delaware and is wholly-owned by the
Company.

                                        2
<PAGE>   14
With offices located in Waltham, Massachusetts, AltaRex US directs the business
development, clinical, regulatory, development, manufacturing and investor
relations efforts of the Company.

HISTORY

AltaRex was founded in November 1995 by Dr. Antoine Noujaim and a team of
collaborators to commence a business engaged in the discovery and development of
anti-cancer immunotherapeutics. Prior to founding AltaRex, Dr. Noujaim was
President of Biomira Research Inc. ("Biomira Research"), a wholly-owned
subsidiary of Biomira Inc. ("Biomira"). The Company believes that in 1995
Biomira decided to discontinue funding the operations of Biomira Research. Dr.
Noujaim and other collaborators believed that the B43 antibody research project
undertaken by Biomira Research (known as the OvaRex(TM) MAb Program) had the
potential to be further developed into a commercial product. As a result, in
November 1995, AltaRex acquired certain components of the OvaRex(TM) MAb Program
and the OvaRex(TM) MAb tradename and trademark from Biomira and Biomira Research
and entered into an exclusive licensing agreement with Biomira pursuant to which
it acquired the exclusive worldwide right to use, develop, manufacture and
commercialize (for anti- idiotype induction therapy applications) products based
on the B43 antibody. See "Strategic Alliances and License Agreements - Biomira
License Agreement" and "Legal Proceedings".

BUSINESS STRATEGY

The Company's strategy is to focus its antibody development expertise to produce
unique, patent protected, antibody-based immunotherapeutics based on its AIT(R)
Technology platform for commercialization primarily by pharmaceutical partners.
The key elements of the Company's strategy are to:

         -        Focus exclusively on antibodies for immunotherapy;

         -        Access research regarding antibodies and disease targets from
                  key academic institutions, particularly in Canada and the
                  United States;

         -        Employ the AIT(R) Technology and related proprietary
                  technology of the Company to generate highly specific immune
                  responses to MAbs associated with TAAs;

         -        Coordinate further research and conduct preclinical and
                  clinical trials to enable the Company to pursue regulatory
                  approval for the products and to build value for strategic
                  partnering; and

                                        3
<PAGE>   15
         -        Realize value through strategic partnerships with
                  pharmaceutical companies.

The Company believes that this strategy will enable it to achieve the
patent-protected commercialization of antibody-based immunotherapeutics to treat
various cancers and other disease areas including autoimmune and infectious
diseases.

PLAN OF OPERATION FOR FISCAL 1999

AltaRex's plan of operation for the year ending December 31, 1999 is to continue
to develop and conduct clinical trials for antibody-based immunotherapy
products. During this period, the Company plans to complete enrollment in the
first OvaRex(TM) MAb Phase IIb clinical trial in North America and to achieve
significant progress in enrolling patients in the second Phase IIb clinical
trial. The Company also intends to substantially complete the OvaRex(TM) MAb
open Phase II trials in the United States and Canada and the BrevaRex(TM) MAb
Phase I clinical trial in the United States. Additionally, the Company plans to
continue product development programs for ProstaRex(TM) MAb and GivaRex(TM) MAb
by conducting further exploratory research.
See "- Regulatory Approval Process".

In cooperation with Lonza Biologics plc ("Lonza Biologics"), the Company is in
the process of scaling-up commercial production of cell culture-derived antibody
to be used in comparability testing with the Company's current ascites-derived
material. The Company is also working with Lonza Biologics to begin scaling-up
its BrevaRex(TM) MAb cell culture material to a commercial level. Scaling-up
production of these antibodies will enable the Company to further pursue
regulatory approval and commercialization of the Company's products. Such
regulatory approval and commercialization is dependent upon the ability of the
Company to achieve such production. See "- Risk Factors".

MARKET FOR CANCER THERAPEUTICS

Cancer is a disease characterized by uncontrolled growth and spread of abnormal
cells. The disease is believed to occur as a result of a number of factors such
as genetic predisposition and external (chemicals, radiation) and internal
(immune status, hormones) causes.

Overall, the annual costs for cancer in the Untied States are estimated at U.S.
$107 billion which includes U.S. $37 billion for direct medical costs, U.S. $11
billion for morbidity costs (loss of productivity) and U.S. $59 billion for
mortality cases. The world market for cancer therapeutics was U.S. $11.7 billion
in 1997 and is expected to reach U.S. $14.7 billion by 2000. (SCRIP Reports -
The Complete Guide to Cancer - Second Edition, 1998). North America
(predominantly the United States) represents 47% of the worldwide anti-cancer
drug market.

                                        4
<PAGE>   16
The majority of cancer patients are people over the age of 65 and it is
anticipated that as the population continues to age, cancer treatment will
likely become the single largest health care expenditure in the United States
and other industrialized nations (Frost and Sullivan, World Cancer Therapeutic
Markets, August 1996).

APPROACHES TO CANCER THERAPY

Conventional approaches for the treatment of cancer have been based on a
combination of surgery, radiation and chemotherapy. Despite increasing resources
to develop new therapies for cancer, survival rates for cancer patients have not
materially improved over the last 15 years (American Cancer Society, 1998 Cancer
Facts & Figures). This ongoing inability to significantly improve survival or
quality of life for cancer patients creates a compelling need for alternative
medical strategies.

The potential market for antibody-based therapies in the management of advanced
cancer has rapidly expanded, as evidenced by the acceptance of IDEC
Pharmaceuticals Corp.'s ("IDEC") Rituxan(R) (rituximab) for the treatment of
non- Hodgkin's lymphoma and the recent FDA approval of Genentech Inc.'s
("Genentech") Herceptin(R) (trastuzumab) for the treatment of certain breast
cancers.

Immunotherapeutic Approaches to Cancer

The immunological approach to cancer therapy is based on the principle that the
human immune system is capable of recognizing and eliminating cancer cells. In
cancer patients, the immune system has failed, for unknown reasons, to respond
to the presence of cancer cells. Immunotherapeutic approaches attempt to
stimulate and enhance an anti-cancer response by the patient's own immune
system.

The immunotherapeutic approach has inherent advantages in comparison to current
conventional treatment practices, which are often radical in nature and
associated with severe side effects and toxicity, thereby compromising the
patient's quality of life. In addition, tumors treated conventionally often
re-emerge in more aggressive and treatment-resistant forms. Immunotherapy, which
can be utilized in combination with conventional treatments or as a single
treatment, can be substantially less toxic than chemotherapy and therefore may
improve the patient's quality of life.

There are currently four widely accepted immunological approaches to cancer
therapy. They can be classified as either tumor associated antigen dependent
(e.g., passive immunization or active specific immunization) or independent
(e.g., adoptive cell-based or non-specific). The primary difference between
immunotherapeutic approaches is the method in which the immune system is
stimulated and the nature of the subsequent immune responses.

Conventional Immunotherapeutic Approaches

                                        5
<PAGE>   17
Independent Immunological Approaches

Adoptive Immunotherapy

This form of therapy consists of the separation and stimulation of T-cells, then
exposing those cells to immunostimulates in vitro in order to augment the immune
system's response to tumor cells. The treated cells are then expanded in numbers
and reinjected into patients. Each patient serves as the donor and recipient of
his or her own T-cells. While efforts are being conducted to make this therapy
more effective, wide application remains difficult due to the individual nature
of the treatment.

Non-Specific Immunotherapy

In general, this approach may be described as a method by which the immune
system is non-specifically stimulated in order to destroy the tumor. The
principal approach has been through the use of cytokines; however, while
effective in some indications, side effects have limited their use.

TAA Immunological Approaches

Tumor associated antigens or TAAs are located on the surface of cancer cells,
circulate in a patient's blood or sera and are associated with the presence of
specific cancer types. The antigens have single or multiple binding sites or
epitopes. There are two types of TAA immunotherapy, passive and active specific.

Passive Immunization

This approach consists of the administration of certain immune molecules, such
as antibodies, to patients who do not produce them on their own. These
antibodies are generally administered in large quantities and, while targeting
the cancer cells, can also be designed to act on other cell types and molecules
which are necessary for tumor growth. For example, antibodies can be designed to
affect the tumor's blood supply, thereby inhibiting the tumor's expansion.
Alternatively, certain antibodies can act directly on the tumor by activating a
cellular system to attack the tumor after the antibody is attached to it. The
underlying assumption is that the antibody will recognize and bind to a
cancer-specific antigen which is not expressed on normal cells. Unfortunately,
some of the cancer antigens are also found on normal cells, which might also be
damaged at the same time.

Active Specific Immunization

Vaccines that are based on this therapeutic approach usually involve the
immunization of patients with irradiated tumor cells expressing a specific
antigen or

                                        6
<PAGE>   18
by combining the antigen itself with an appropriate carrier molecule and
administering it together with an adjuvant. Modern variations to this technique,
include anti-idiotype antibody therapy, which consists of the formation and
selection of an antigen mimic in the form of an antibody that is administered in
the manner described above. While this technology holds promise, the development
of an effective vaccine is highly dependent on the accurate pre-selection of the
antigen or antigen mimic.

AltaRex's Anti-Idiotype Induction Therapy

The Company believes its AIT(R) approach to immunotherapy is fundamentally
different from the conventional approaches to immunotherapy described above.
AIT(R) Technology involves the development of a murine antibody specific to a
tumor associated antigen. This antibody is subsequently modified by a
proprietary technique and, after appropriate processing, is injected by IV
infusion into a patient. This results in the formation of a complex between the
antibody and the patient's own circulating tumor antigens. The tumor antigen is
thereby targeted for an immune response. Multiple immunological pathways are
then invoked. Mechanistic studies have demonstrated the induction of the
anti-idiotype network or cascade and, more particularly, of a reconformation of
the TAA presentation and humoral and cellular response to multiple epitopes of
the TAA. It is the Company's belief that this in turn results in an immune
response having unique characteristics, mobilizing both cellular and humoral
pathways against the TAA and the tumor cells, triggered by a tumor antigen
specific modified murine monoclonal antibody.

THE COMPANY'S AIT(R) TECHNOLOGY

Overview

The development of the Company's AIT(R) Technology and related products has been
facilitated by advances in the field of oncology that have demonstrated the
existence of cellular components known as tumor associated antigens.

The AIT(R) Technology is the process by which the Company produces, selects,
modifies and administers unique murine MAbs that can selectively bind to TAAs
that are highly associated with certain types of cancers. The Company has found
that the selective binding of MAbs to TAAs can induce a number of specific
anti-tumor immune responses in a cancer patient.

The Company believes that it has developed a method to isolate groups of TAAs
associated with specific cancers. The Company develops murine MAbs having a high
degree of specificity to a particular TAA. The Company has shown that the MAb
B43, the primary component of OvaRex(TM) MAb, has a high degree of specificity
to the TAA CA 125, an antigen over-expressed by the majority of ovarian cancer

                                        7
<PAGE>   19
patients. The Company has developed murine MAbs that have specificity for TAAs
associated with seven of the ten most lethal forms of cancer in the United
States.

The Company believes that its AIT(R) approach to immunotherapy may provide the
following advantages over conventional approaches to immunotherapy:

         -        The AIT(R) immunotherapeutic induction approach uses a foreign
                  (murine) antibody to a single epitope of a multi-epitopic TAA
                  that induces the immune system to mount its own generalized
                  anti-tumor response to multiple epitopes of the TAA. The
                  technology mobilizes an immune response that is not restricted
                  by selection of idiotype or vaccine fragment;

         -        The AIT(R) immunotherapeutic approach has demonstrated the
                  stimulation of both a humoral and cellular immune response;

         -        The AIT(R) immunotherapeutic approach utilizes low dose and
                  intravenous infusion of antibody, minimizing the risk of
                  toxicity and lowering the cost of the product and the
                  treatment; and

         -        The use of a murine MAb induces a potent immune response that
                  would not be seen with humanized antibodies.

The AIT(R) Technology is the subject of several patent applications filed by the
Company with the United States and other patent agencies around the world. See
"Proprietary Protection". The Company's lead product, OvaRex(TM) MAb," is based
on a murine MAb that was licensed to the Company from Biomira. See "- The
Company's Products - OvaRex(TM) MAb", "- Strategic Alliances and License
Agreements - Biomira License Agreement" and "Legal Proceedings". AltaRex may
license or develop (as it has for BrevaRex(TM), GivaRex(TM), and ProstaRex(TM)
MAbs) other MAbs for future AIT(R) products.

The Company has not completed the clinical trials necessary to confirm the
efficacy of its AIT(R) Technology. As a result, while the preliminary results
from other trials on its OvaRex(TM) MAb product are encouraging, there can be no
assurance that the Company's products will demonstrate sufficient therapeutic
benefit in the treatment of cancer patients that would lead to obtaining
regulatory approval. See "Risk Factors - Uncertainty Associated with Preclinical
and Clinical Testing".

Mechanism of Action of the AIT(R) Technology

The mechanism of action of the Company's AIT(R) Technology is based on what the
Company believes is the ability of the human immune system to generate a tumor
specific immune response to MAbs associated with specific TAAs.  The Company

                                        8
<PAGE>   20
believes that certain murine MAbs may, upon administration to a cancer patient,
induce both a humoral and a cellular response by the patient's immune system.

There are four basic steps in the AIT(R) Technology process:





Step 1 - Identification of the Tumor Associated Antigen

AltaRex has isolated specific antigens that have a high association with
particular cancers. To date, TAAs have been identified and isolated for ovarian,
breast, prostate, lung, pancreatic, colorectal and stomach cancers.

Step 2 - Development of the Monoclonal Antibody (Ab1)

AltaRex uses the identified antigens to develop a murine MAb known as Ab1. This
MAb is used to elicit an immune response.

Step 3 - Modification of Ab1 Monoclonal Antibody

Using the Company's proprietary technology, antibodies from step two are
modified to increase the degree to which the antibody is capable of eliciting an
immune response. This process results in a modified murine MAb (Ab1) that is
ready for use.

Step 4 - Initiation of the AIT(R) Induced Response

The Company believes that administration of the modified murine MAb into the
patient initiates a cascade characterized by at least three major events. The
uniqueness of the AIT(R) Technology may be attributed, in part, to these three
different mechanisms by which the antibody may exert its influence on tumor
cells. These mechanisms have been elucidated by the Company's detailed analysis
of the anti- idiotype network or cascade. In the first instance, the Ab1
antibody induces the production of an anti-idiotype network or cascade of
antibodies. Second, the immunogenicity of the antibody leads to a cellular
immune response. Finally, and most importantly, administration of the antibody
results in the formation of a TAA antibody complex in the blood, and a novel
presentation of the TAA to the immune system inducing a multi-epitopic response
to the TAA. The result of this cascade of events is a tumor specific humoral and
cellular response capable of killing cancer cells.

                                        9
<PAGE>   21
THE COMPANY'S PRODUCTS

AltaRex has selected four tumor associated antigens for its initial therapeutic
product development. The first and most advanced of these product candidates is
OvaRex(TM) MAb (MAb B43.13) for the treatment of patients with tumors expressing
CA 125. Other products in development include BrevaRex(TM) MAb (for tumors
expressing MUC1), ProstaRex(TM) MAb (for tumors expressing PSA) and GivaRex(TM)
MAb (for tumors expressing CA 19.9). The following chart sets forth the current
development status of the Company's products.

          [GRAPH WHICH ILLUSTRATES THE STAGE OF DEVELOPMENT OF EACH OF
               THE COMPANY'S PRINCIPAL PRODUCTS IN DEVELOPMENT.]


OvaRex(TM) MAb

Overview

In the United States, Canada and Europe, ovarian cancer causes more deaths than
any other cancer of the female reproductive tract. It is estimated that in the
United States more than 25,400 new cases of ovarian cancer will be diagnosed and
more than 14,000 women will die from this disease annually (American Cancer
Society, 1998 Cancer Facts & Figures).

Although detection of ovarian cancer at an early stage is now associated with an
improved chance for curative treatment, survival figures have not changed
significantly over the past 15 years. This is partially due to a lack of
efficient diagnostic methods or markers for routine tests that could increase
the number of patients diagnosed at the early stage of their disease.
Consequently, in approximately three-quarters of diagnosed patients, the tumor
has already progressed to an advanced stage (Stage III or IV), making treatment
more difficult. Of these Stage III and IV patients, more than 80% express the
tumor associated antigen CA 125.

                                       10
<PAGE>   22
Patients diagnosed with advanced ovarian cancer usually demonstrate a survival
time of less than two years (Hoskins et al., Journal of Clinical Oncology,
October 1992).

Prior to 1995, a research program for OvaRex(TM) MAb was initiated at Biomira
Research. In November 1995, the Company acquired from Biomira certain assets and
licensed certain technologies, including the antibody B43, which is utilized in
OvaRex(TM) MAb. Under the terms of a license agreement with Biomira, the Company
has a license to, among other things, use the antibody B43 in connection with
the development of anti-idiotype induction therapy products and applications.
See "Strategic Alliances and License Agreements - Biomira License Agreement" and
"Legal Proceedings".

OvaRex(TM) MAb uses a murine MAb having a high degree of specificity to a TAA
(CA 125) over-expressed by the majority of ovarian cancer patients. The Company
believes that the product acts as an immunotherapeutic agent by inducing or
amplifying the human body's immune response against ovarian cancer. This
response is characterized by a cascade of events involving the production of
specific antibodies and cytotoxic T-cells in the body which target the tumor
cells. The Company believes that this combination of a humoral and cellular
immune response accounts for the observed improvement in the clinical outcome of
patients receiving the OvaRex(TM) MAb.

OvaRex(TM) MAb Regulatory Approval Strategy

AltaRex has received Orphan Drug status from the FDA for OvaRex(TM) MAb for the
treatment of ovarian cancer which may result in seven years of market
exclusivity provided that the Company continues to meet certain conditions
established by the FDA. See "- Regulatory Approval Process - Orphan Drug
Status".

Generally, the FDA approves the marketing of a drug based on adequate and well-
controlled trials. The FDA also has regulations which are intended to expedite
the development, evaluation and marketing of a new drug used for the treatment
of serious diseases for which there is no other satisfactory treatment. In
appropriate circumstances, the FDA may, in its discretion, approve the marketing
of a drug based on one adequate and well-controlled trial, if supported by
information from other related adequate and well-controlled studies or if the
trial is a single multi-centre trial. Fast Track designation makes a product
eligible for consideration for a number of programs, including meeting with the
FDA to discuss research protocol design and the possibility that the marketing
of the product may be approved immediately after the conclusion of Phase II
studies. As a result of FDAMA, obtaining Fast Track designation from the FDA can
result in approval based on a surrogate endpoint that is reasonably likely to
predict clinical benefit. Such approval may be subject to the requirements that
the sponsor conduct appropriate post approval studies and submit

                                       11
<PAGE>   23
all promotional materials related to the Fast Track product at several different
points in time.

The Company has received a letter from the FDA dated December 17, 1998 stating
that its Request for Fast Track designation has been reviewed and, subject to
the Company continuing to meet certain criteria, the FDA has designated
OvaRex(TM) MAb as a Fast Track Development program (for the effect of OvaRex(TM)
MAb in delaying time to recurrence in patients with Stage III or IV ovarian
cancer who have undergone standard treatment, surgery and chemotherapy, and have
minimal or no evidence of disease).

As part of the Company's regulatory approval strategy, it is conducting two
potentially pivotal Phase IIb trials based on the surrogate endpoint of time to
disease relapse. The Company has also initiated open Phase II trials that are
underway in the United States and Canada with ovarian cancer patient populations
that have already experienced disease relapse. The Company intends to treat
300-500 patients with OvaRex(TM) MAb (or an earlier radiolabelled imaging
product) prior to submission for approval by the FDA and other regulatory
agencies. The Company is also working with Lonza Biologics to scale-up cell
culture-based OvaRex(TM) MAb antibody that is expected to be studied in
comparability trials with the Company's current ascites-derived antibody
material. Scaling-up production of cell culture- derived materials will enable
the Company to further pursue regulatory approval and commercialization of
OvaRex(TM) MAb. See "- Risk Factors - Reliance on Strategic Relationships".

Clinical Experience with OvaRex(TM) MAb

An earlier formulation of OvaRex(TM) MAb was administered to more than 200
patients for imaging purposes. Of the patients that received the imaging
antibody, about 50% were evaluated for an immunological response to OvaRex(TM)
MAb. The principal investigators observed that following the administration of
the imaging antibody, particularly in those patients who received more than one
dose, the patients developed a clinical response to treatment characterized by
what appeared to be unusually long survival times.

A subsequent retrospective statistical analysis, initially prepared by an
independent statistician at the University of Dortmund in Germany, identified a
statistically significant treatment effect in the survival time of patients
receiving the earlier OvaRex(TM) MAb, when compared to a historical control
group treated with conventional chemotherapy. An additional independent analysis
by a statistician at the University of Western Ontario in Canada was undertaken
with almost identical results. The following graph illustrates the adjusted
survival curves. In this Cox Statistical Analysis, the median length of survival
was 30 months for the group treated with conventional chemotherapy and 59 months
for the group that received

                                       12
<PAGE>   24
the earlier formulation of OvaRex(TM) MAb. Additionally, the five year survival
rates as determined by this analysis were 11.4% for the chemotherapy group and
40.7% for the group that received the earlier formulation of OvaRex(TM) MAb.

Cox Statistical Analysis is a statistical method of comparing two different
populations with respect to the length of survival of patients who received a
drug with those who did not, while balancing the effect of other parameters that
can also affect survival.


         [GRAPH WHICH PLOTS THE SURVIVAL CURVES OF PATIENTS TREATED WITH
           MAB B43 AND WITH CHEMOTHERAPY OVER A SEVEN YEAR INTERVAL]




Current Trials with OvaRex(TM) MAb

Based on the encouraging results obtained in the early retrospective analysis
and a substantial body of evidence supporting the retrospective analysis based
on immunological laboratory research, the Company has initiated a prospective
multi-centre Phase IIb North American clinical trial with ovarian cancer
patients to definitively evaluate the clinical utility of OvaRex(TM) MAb. In
Canada, the Company received approval from the HPB on October 1, 1996 to conduct
the Phase IIb clinical

                                       13
<PAGE>   25
trial. Patient enrollment commenced in a number of major cancer centres in
Canada in early 1997. In the United States, the Company received Orphan Drug
status for the OvaRex(TM) MAb drug on November 26, 1996 and received approval
from the FDA on May 23, 1997 to proceed with the Phase IIb trial. The first
patient was treated in April 1998. In 1998, the FDA approved the combination of
the Canadian and United States clinical trials into one combined, placebo
controlled, and potentially pivotal, trial that will recruit 280 patients of
which 259 patients have been enrolled as of June 11, 1999. This trial is
expected to be completed with respect to the primary endpoint in 2001.

The Company has also initiated a second potentially pivotal Phase IIb trial in
the United States with an ovarian cancer patient population with more advanced
disease. In November 1998, the Company passed the 30 day FDA Investigational New
Drug Amendment waiting period and in December 1998 began recruiting centres for
this 102 patient, randomized, controlled and multi-centre clinical trial. As of
June 11, 1999, 20 patients have been enrolled in centres in the United States in
this clinical trial. This trial is currently scheduled for completion in 2001.

The Company is also conducting additional open Phase II trials in relapsed
ovarian cancer patients in Canada and the U.S. As of June 11, 1999, the open
Phase II trial under way in Vancouver has enrolled 12 of the intended 14
patients.

BrevaRex(TM) MAb

The Company is developing a cancer immunotherapeutic based on the AIT(R)
Technology for the treatment of MUC1 expressing cancers including multiple
myeloma, lung and prostate cancer. This tumor marker, also known as CA15.3, is
mutated in 100% of individuals with multiple myeloma (Treon et. al., Blood,
1999).

Multiple myeloma is a rarely curable disease that was previously considered to
be a bone cancer. It is actually a haematological malignancy related to
leukemias and lymphomas. It accounts for about 10% of all hematologic cancers.
It was estimated that approximately 14,000 new cases would be diagnosed in the
United States in 1998 with a total of about 11,300 deaths. (American Cancer
Society, 1998 Cancer Facts & Figures). A steady increase in incidence of the
disease has been noted over the past 30 years. Although multiple myeloma is
sensitive to chemotherapy, with a median survival of three to four years, most
patients are not cured and eventually succumb to their disease.

Multiple myeloma cells express tumor associated antigens that are ideal targets
for immunotherapy. One such antigen is the core protein of MUC1. The ability of
an antibody to bind to MUC1 is largely dependent on the extent of "mutation" of
the antigen. In contrast to breast and certain other more common cancers, MUC1
in

                                       14
<PAGE>   26
multiple myeloma patients is highly mutated in virtually every patient, thereby
making antibody therapy targeting the core peptide more accessible.

The combination of MUC1 antigen target and the nature of the disease in question
(i.e. a discrete population for whom there is currently no curative alternative)
makes multiple myeloma ideally suited for AltaRex's development strategy. The
Company will apply for Orphan Drug status for BrevaRex(TM) MAb and should be in
a position to petition for Fast Track designation using time to disease
progression as a surrogate end point.

The Company filed an Investigational New Drug Application or IND in late October
1998 to initiate a BrevaRex(TM) MAb Phase I clinical trial. In this trial, the
Company intends to monitor safety and surrogate markers of immunological effect.
As of June 11, 1999, the Company has enrolled 8 of the intended 15 patients in
this trial. The Company also intends to initiate a safety/efficacy trial in
multiple myeloma patients in the first half of 2000.

Other AIT(R) Technology Indications and Products

In addition to ovarian cancer and multiple myeloma, OvaRex(TM) MAb and
BrevaRex(TM) MAb may have applicability to other tumors expressing the target
antigens. In the case of OvaRex(TM) MAb, this would include endometrial, breast
and non-small cell lung cancer and in respect of BrevaRex(TM) MAb would include
breast, prostate and non-small cell lung cancer. The Company believes that a
strategic partner may wish to pursue these other potentially more lucrative, but
difficult to study, disease targets. The Company has commenced further
exploratory research and early preclinical work on two additional antibodies
specific to the tumor associated antigens PSA and CA19.9 for two other potential
products, ProstaRex(TM) MAb and GivaRex(TM) MAb, respectively.

A component of the Company's strategy is to continue to engage in research
activities and to develop new technologies for antibody-based immunotherapeutics
to treat diseases in addition to cancer. The Company has early work under way in
autoimmune diseases and infectious diseases and the Company also believes its
AIT(R) approach could be applicable to other diseases.

REGULATORY APPROVAL PROCESS

Regulatory Requirements

Regulations imposed by governmental authorities in Canada and the United States,
as well as their counterparts in other countries, are a significant factor in
the conduct of the research, development, manufacturing and eventual marketing
activities for the Company's proposed products. In Canada, these activities are
regulated by the Food

                                       15
<PAGE>   27
and Drug Act (Canada) and the rules and regulations promulgated thereunder,
which are enforced by the Therapeutic Products Programme of the Health
Protection Branch of Health Canada. Drugs and biological products are subject to
rigorous regulation by the FDA in the United States and by the European
Medicines Evaluation Agency or EMEA in Europe. The regulatory processes in
Canada, the United States and Europe follow similar essential steps although
timing and results may be different.

The regulatory process for the development and approval of a new drug includes
the conduct of pre-clinical and clinical trials. The duration of those trials
and number of subjects required to meet the requirements of the various
authorities may vary according to, among other things, the disease studied, the
seriousness of the side effects, whether there is any current or conventional
therapy, the size of the target population, and the nature of the proposed
treatment.

Pre-Clinical Evaluation

The purpose of pre-clinical evaluation is essentially to determine the safety,
pharmacokinetics and efficacy of a new drug in animals before it is administered
to humans. The data collected during pre-clinical studies must be presented in
the form of an IND application to the regulatory authorities in the country
where clinical trials will be conducted. In the United States, unless otherwise
notified, clinical trials may begin 30 days after the IND application is filed,
whereas in Canada, clinical trials may not begin until 60 days after the
application is submitted and upon receipt of a "no objection" letter.

Clinical Trials

Phase I Clinical Trials

Phase I clinical trials are commonly performed in healthy human subjects or,
more rarely, in selected patients with the targeted disease or disorder. The
objective of these trials is to study the pharmacokinetics and pharmacodynamics
of the drug, as well as the toxicity of the treatment and the patient's
tolerance to it. Data regarding the absorption, distribution, metabolism and
excretion of the drug is also compiled in Phase I clinical trials.

Phase II Clinical Trials

In Phase II clinical trials, preliminary evidence is sought regarding the
pharmacological effects of the drug and the desired therapeutic efficacy with a
small number of patients with the targeted disease. At this stage, efforts are
made to evaluate the effects of various dosages and to establish an optimal
dosage level and dosage schedule. Additional safety data may also be compiled
from these trials.

                                       16
<PAGE>   28
Phase IIb (sometimes called Phase II/III) trials can be undertaken for serious
or fatal diseases and consist of well-controlled trials to evaluate efficacy
(and safety) in patients with the disease or condition to be treated, diagnosed
or prevented which may be deemed to be pivotol. Phase IIb trials can lead to
expedited review and accelerated approval by the FDA of the product for
commercial sale conditional upon the completion of subsequent Phase III
post-market information studies. Phase IIb trials incorporate certain design and
control features of Phase III trials. If data collected from Phase IIb trials is
statistically significant, authorization for accelerated approval may be sought
from the FDA.

Phase III Clinical Trials

The Phase III clinical development program generally consists of expanded,
large-scale studies of patients with the targeted disease or disorder so as to
obtain definitive statistical evidence of the efficacy and safety of the
proposed product and dosing regimen in comparison with standard therapy.

After an appropriate analysis, the HPB, FDA or EMEA may interrupt clinical
trials at any stage if the drug has a clear efficacy advantage or,
alternatively, if the health of the subjects is threatened or the side effects
are not compensated for by the drug's benefits.

Regulatory Approval

Once Phase III clinical trials have been completed, the applicant will compile
all results, as well as all information concerning the product and its
composition, synthesis, manufacture, packaging and labelling methods, for the
purpose of obtaining approval to market the product. This application is known
as a New Drug Application or NDA or either a Biologics License Application or
BLA for a well- characterized biologic, such as a monoclonal antibody, or a
combination of a Product License Application or PLA and an Establishment License
Application or ELA for all other biologicals in the United States and as a New
Drug Submission or NDS in Canada. Government authorities may require that
additional trials be performed after the product is marketed to assess its
long-term effects.

Since drug manufacturing is also regulated, the applicant is required to ensure
that it complies with cGMP's, which are quality standards that require the
control of production activities, raw-material procurement, complaint
management, product recalls, labelling and promotional material. In addition to
these standards, which are common to all drugs, certain biologics are subject to
ELA's and lot by lot release agreed by FDA to ensure batch to batch
comparability.

In certain circumstances, the FDA may expedite the development, evaluation and
marketing of new drugs used for the treatment of serious diseases for which
there is

                                       17
<PAGE>   29
no other satisfactory treatment by granting such programs a Fast Track
designation. See "- The Company's Products - OvaRex(TM) MAb".

Orphan Drug Status

Orphan Drug designation is designed to facilitate the introduction of drugs into
the market in the United States for use in treating rare diseases or conditions.
The disease must affect fewer than 200,000 patients in the United States. Upon
obtaining marketing approval for the drug, the FDA will grant a period of seven
years during which no approval will be given to a subsequent sponsor of the same
drug product for the same indication. The only exception to this is if a
competitor can show superiority of a second product which generally requires a
head to head comparison. Written application for Orphan Drug status must be
submitted to the Office of Orphan Drug Products Development of the FDA and must
include documentation supporting the request for the particular indication.
Orphan Drug designation also allows the manufacturer to apply for grants from
the United States government to help defray the cost of the clinical testing of
the drug in the United States and may allow for faster review of pending United
States patent applications filed with the United States Patent and Trademark
Office.

AltaRex has received Orphan Drug status for OvaRex(TM) MAb for ovarian cancer
and expects to file similar applications for its other antibodies. See "- The
Company's Products - OvaRex(TM) MAb- OvaRex(TM) MAb Regulatory Approval
Strategy".

STRATEGIC ALLIANCES AND LICENSE AGREEMENTS

As part of its business strategy the Company plans to license the products it
develops to strategic partners. These partners would participate in the later
stage clinical development as required by the FDA, HPB, EMEA and other
international drug regulatory agencies. The partners would then have the
opportunity to market the Company's products in return for payment to the
Company of up-front licensing fees, milestone payments and royalties. The major
objectives in seeking to license products to strategic partners include:

         -        Minimizing development expenditures through cost sharing
                  programs;

         -        Arranging for access to the resources and experience of large
                  multinational pharmaceutical corporations; and

         -        Maximizing long term revenue streams from royalties on the
                  sale of the Company's products.

The Company has no current plans for developing in-house manufacturing (beyond
the pilot phase), marketing or sales capabilities. The Company believes that the

                                       18
<PAGE>   30
biopharmaceutical industry has adequate manufacturing, marketing and sales
capacity, which the Company believes it may access through contractual or
partnership arrangements.

The Company's current alliances and collaborative partnerships are described
below.

Purdue Pharma L.P.

On May 12, 1999, the Company entered into two equity investment agreements (the
"Equity Investment Agreements") and an option agreement (the "Purdue Option")
with Purdue Pharma L.P. and certain of its associated entities (together,
"Purdue").

Pursuant to the Equity Investment Agreements, Purdue, through two associated
entities, purchased 10,000,000 Common Shares in the public offering conducted by
the Company ("Public Offering") of the Company's Common Shares for an aggregate
Purchase Price of $5.0 million on June 1, 1999.

Pursuant to the Purdue Option, the Company granted to Purdue the option to
acquire worldwide exclusive rights to license and commercialize OvaRex(TM) MAb
and BrevaRex(TM) MAb. The Purdue Option may be exercised by Purdue at any time
up to and including November 12, 1999. During this period, the Company has
agreed not to discuss or negotiate with other parties with respect to the rights
which are the subject of the Purdue Option. In the event that Purdue exercises
the Purdue Option, Purdue has agreed to assume certain research and development
expenses of the Company, make certain additional payments to the Company upon
the Company's achieving certain milestones and to make various royalty payments
to the Company based upon sales of the Company's products.

The aggregate amount of the payments to be made by Purdue pursuant to the
arrangements described above (excluding royalty payments), could exceed U.S.
$100 million over a period of three years, assuming all milestones are achieved
(including receipt of applicable regulatory approvals).

Draximage Inc.

The Company is a party to an alliance agreement with Frosst Radiopharmaceuticals
(a division of Merck Frosst Canada Inc.) dated February 20, 1996 and assigned to
Draximage Inc. ("Draximage"), a wholly owned subsidiary of Draxis Health Inc.
("Draxis Health"), by agreement dated August 1, 1997 (the "Draxis Alliance
Agreement"). Under the Draxis Alliance Agreement, the Company and Draximage have
agreed to collaborate on the manufacture of pilot and scale-up batches of
OvaRex(TM) MAb. Draximage has agreed to manufacture (fill/finish) vials of
OvaRex(TM) MAb for clinical trials at a fixed price per vial and may have
certain contingent rights with respect to the manufacture and/or marketing of
the OvaRex(TM)

                                       19
<PAGE>   31
MAb drug for commercial purposes. There are various conditions to be fulfilled
by the parties before such manufacturing and/or marketing can commence.

University of Alberta & Noujaim Institute

In 1998, the Company entered into a collaborative research agreement (the "NI
Research Agreement") with the University of Alberta and its Noujaim Institute
for Pharmaceutical Oncology Research (the "Noujaim Institute") which expires in
March, 2000. Under the NI Research Agreement the Noujaim Institute performs
research on behalf of and at the direction of the Company in the development of
tumor binding agents and therapeutic compositions. During the term of the NI
Research Agreement the Company compensates the University for services rendered
in an amount not to exceed $300,000 per year. The Company will also owe to the
University a royalty of one percent on any net sales (as defined in the NI
Research Agreement) derived from a prostate cancer immunotherapeutic composition
developed under the NI Research Agreement.

Alberta Heritage Foundation Agreement

The Alberta Heritage Foundation for Medical Research ("AHFMR") is a foundation
established by the Government of the Province of Alberta to support medical
research in the Province of Alberta. The AHFMR contributed $500,000 to the
funding of the current Canadian Phase IIb trial of OvaRex(TM) MAb pursuant to an
agreement dated March 1, 1997 (the "AHFMR Agreement"). Commencing upon 12 months
following the earlier of the regulatory approval of OvaRex(TM) MAb and March 1,
2001 the Company shall pay to AHFMR on an annual basis an amount equal to the
lesser of 5% of the gross product sales (as defined in the AHFMR Agreement)
received from commercialization of OvaRex(TM) MAb and $100,000. Total payments
by the Company under the AHFMR Agreement shall not exceed $1 million. In
addition, in connection with AHFMR Agreement the Company granted to the AHFMR
warrants to purchase 41,667 Common Shares at an exercise price of $12.00 per
share which expire on March 1, 2000.

Biomira License Agreement

The Company holds an exclusive worldwide license from Biomira for the use of the
murine working hybridoma cell bank and murine antibody MAb B43 (the "B43
Technology") for all anti-idiotype induction applications and products, as well
as for the use of such related experimental and clinical data for anti-idiotype
induction applications and products until November 30, 2010. MAb B43 is the
functional component of the OvaRex(TM) MAb product.

                                       20
<PAGE>   32
The Company obtained the license from Biomira pursuant to a license agreement
dated November 24, 1995 (the "Biomira License Agreement"). Under the terms of
the Biomira License Agreement:

         -        The Company paid an up-front fee of $150,000;

         -        The Company agreed to use its best efforts to commercialize
                  the B43 Technology;

         -        The Company agreed to spend a minimum of $3,000,000 to develop
                  the B43 Technology from December 1, 1995 to December 1, 1999;
                  and

         -        The Company agreed to pay a royalty to Biomira on the sale of
                  any products developed using the B43 Technology at various
                  rates as set out in the Biomira License Agreement for a period
                  of ten years from December 1, 1995 to November 30, 2005.

The Biomira License Agreement only pertains to the products that will
potentially use MAb B43 or a derivative thereof. Products developed by the
Company which do not incorporate the B43 Technology are not subject to the
Biomira License Agreement.

Under certain funding arrangements (the "ISTC Funding Arrangements") between
Biomira and the Minister of Industry, Science and Technology Canada ("ISTC"),
Biomira is required to obtain the consent of ISTC to any license relating to
technology developed pursuant to the ISTC Funding Arrangements, including the
B43 Technology. The Company understands that Biomira has failed to obtain such
consent with respect to the license of the B43 Technology granted to the Company
under the Biomira License Agreement. In the past, the Company has had
discussions with ISTC and Biomira in this regard. In the event of a breach of a
term or condition of the ISTC Funding Arrangements, ISTC may direct Biomira to
transfer to ISTC clear title to, among other things, the B43 Technology. In such
event, the Company may need to obtain a license from ISTC to use the B43
Technology which may affect the Company's rights granted under the Biomira
License Agreement. To the knowledge of the Company, ISTC has not, to date, taken
any such action. See "- Risk Factors Reliance on Strategic Relationships" and "-
Risk Factors - Proprietary Rights and Patent Protection".

Biomira has given the Company written notice alleging that the Company is in
default of certain reporting obligations under the Biomira License Agreement and
that Biomira would terminate such agreement on June 1, 1999 unless such alleged
defaults were fully cured on or before such date. As of the date of this
document, Biomira has not given any notice to the Company of termination of the
Biomira License Agreement. Biomira had previously given notice to the Company on
March 16, 1999 of the alleged default and that such agreement would terminate on
April 15,

                                       21
<PAGE>   33
1999. The Company believes that it has taken all such actions to ensure that it
is currently in compliance with all of the terms of the Biomira License
Agreement and intends to take all such actions as may be necessary to prevent
any attempt by Biomira to terminate the Biomira License Agreement.

Biomira and the Company are currently engaged in respective legal actions
against each other, including an action by the Company relating to the Biomira
License Agreement. See "- Legal Proceedings".

Canada-Israel Industrial Research and Development Foundation

The Company is a party to a co-operation and project funding agreement with each
of the Canada-Israel Industrial Research and Development Foundation and Orgenics
Ltd. (the "Canada-Israel Agreement") dated February 3, 1997. A total of $300,000
in funding is available to the Company under the Canada-Israel Agreement over
the three year term. The Company has received $100,000 in funding to date under
the Canada-Israel Agreement, all in 1997. The Company is not currently
conducting research pursuant to the contract. The funds are re-payable pursuant
to a royalty based upon gross sales (as defined in the Canada-Israel Agreement)
of products relating to research conducted thereunder. The research conducted
under the Canada-Israel Agreement does not relate to the Company's AIT(R)
Technology-related products.

MANUFACTURING

The Company does not currently manufacture any of its products and it has no
immediate plans to establish manufacturing facilities for commercial production
of its therapeutic products. Instead, the Company's strategy, beyond the pilot
phase, is to manufacture and commercialize its products through strategic
alliances and licensing agreements with major pharmaceutical companies.

HUMAN RESOURCES

As at May 31, 1999, the Company had 35 employees, 20 of whom were located at the
Company's locations in Edmonton, Alberta and 15 of whom were located at the
Company's executive office in Waltham, Massachusetts. There were 20 employees
working in research and development and 15 working in administration and
corporate affairs. Four of the research and development employees hold Ph.D.s
and two are M.D.s.

None of the employees are governed by a collective bargaining agreement. The
Company believes that working relationships with its employees are excellent.

COMPETITION

                                       22
<PAGE>   34
The biopharmaceutical industry is intensely competitive. Many companies,
including other biopharmaceutical companies and biotechnology companies, are
actively engaged in activities similar to those of the Company, including
research and development of drugs for the treatment of cancer. More
specifically, competitors for the development of new therapeutic products to
treat cancer focus on MAb based cancer therapeutics, cancer vaccines and other
approaches that are based on either stimulation of the body's own immune
response or on MAbs. Many of these companies have substantially greater
financial and other resources, larger research and development capabilities and
more extensive marketing and manufacturing organizations than the Company. In
addition, some such companies have considerable experience in pre-clinical
testing, clinical trials and other regulatory approval procedures. There are
also academic institutions, governmental agencies and other research
organizations which are conducting research in areas in which the Company is
working; they may also market commercial products, either on their own or
through collaborative efforts.

The Company expects to encounter significant competition for the pharmaceutical
products it plans to develop. Companies that complete clinical trials, obtain
required regulatory approvals and commence commercial sales of their products
before their competitors may achieve a significant competitive advantage. In
addition, certain pharmaceutical and biotechnology firms, including major
pharmaceutical companies and specialized structure-based drug design companies,
have announced efforts in the field of immunological therapy that exploit the
presence of TAAs, and the Company is aware that other companies or institutions
are pursuing development of new drugs and technologies directly targeted at
applications for which the Company is developing its biopharmaceutical products.

Based on its review of the industry, the Company is not aware of any other
company that is focusing on anti-idiotype induction therapy as practiced by the
Company. There are a number of companies however, that focus on the broader use
of antibodies to treat various diseases. These companies include Centocor Inc.,
Coulter Pharmaceuticals Inc., Genentech, IDEC, Medarex Inc. and Immunex Corp,
among others. The Company expects that its platform AIT(R) Technology will
attract significant additional competitors over time. In order to compete
successfully, the Company's goal is to develop proprietary positions in patented
drugs for therapeutic markets which have not been satisfactorily addressed by
conventional research strategies and, in the process, extend its expertise in
biopharmaceutical products design. See "Risk Factors - Competition".

PROPRIETARY PROTECTION

The Company vigorously pursues a policy of seeking patent protection to preserve
its proprietary technology and its right to capitalize on the results of its
research and development activities and, to the extent it may be necessary or
advisable, to exclude

                                       23
<PAGE>   35
others from appropriating its proprietary technology. The Company also relies
upon trade secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain its competitive position. The Company
plans to prosecute and defend its intellectual property, including any patents
that may issue, and proprietary technology. The Company regularly searches for
third-party patents in its fields of endeavor, both to shape its own patent
strategy as effectively as possible and to identify licensing opportunities.

Patents

In general, the Company pursues a policy of obtaining patent protection both in
the United States and in selected foreign countries for subject matter
considered patentable and important to its business. In addition, a portion of
the Company's proprietary position is based upon technology and products the
Company has licensed from others, including MAb B43 that binds to an ovarian
cancer antigen, and was licensed from Biomira under the Biomaria License
Agreement. This license agreement generally requires the Company to pay
royalties upon commercialization of products covered by the licensed technology.

The Company owns five pending United States patent applications for its
therapeutic products and processes. Worldwide, the Company owns three pending
international applications and 15 pending national applications covering the
same technology. These patent applications cover various aspects of the
Company's core technology, products, processes, and the methods for their
production and use. These patent applications include both broad and specific
claims to various tumor therapies. The Company will continue to aggressively
protect its technology with new patent filings with the intent of further
extending its patent coverage.

Biomira has recently commenced a legal action against, among others, the Company
seeking, among other things, an order stating that Biomira is the sole owner of
an invention disclosed in a PCT application filed by the Company in respect of,
among other things, the Company's lead product and an injunction prohibiting the
Company from using the invention referred to therein. See "Risk Factors-Biomira
Litigation" and "Legal Proceedings".

Trademarks and Trade Names

The Company also relies upon trademarks and tradenames to protect its
technology. The Company has a registered trademark for its AIT(R) mark in the
United States and Canada and owns a Canadian registration for the trade-mark
IRT(R) . As well, the Company has pending applications to register trademarks in
various countries for the AltaRex name as well as for the brand names
(OvaRex(TM), BrevaRex(TM), GivaRex(TM), and ProstaRex(TM) MAb) relating to its
developing products.

                                       24
<PAGE>   36
Trade Secrets

The Company also relies in part on trade secrets, unpatented know-how and
continuing technological advancements to maintain its competitive position. It
is the practice of the Company to enter into confidentiality agreements with
employees, consultants and corporate sponsors. There can be no assurance,
however, that these measures will prevent the unauthorized disclosure or use of
the Company's trade secrets and know-how.

CLINICAL ADVISORY BOARD

The Company maintains a Clinical Advisory Board (the "Advisory Board") composed
of outside internationally recognized clinicians and scientists. The Advisory
Board meets periodically to review the operational aspects of the Company's
clinical program and make appropriate recommendations with regard to the
perceived trends and direction of other companies. The members of the Advisory
Board have no rights to the Company's technology and each member has signed a
confidentiality agreement with the Company. Advisory Board members receive an
honorarium of U.S. $15,000 per year. The current composition of the Advisory
Board is:


<TABLE>
<CAPTION>
Name                                        Institution
----                                        -----------
<S>                                         <C>
Robert Ozols, M.D., Ph. D.                  Fox Chase Cancer Center, United States

Roger Cohen, M.D.                           University of Virginia, United States

Richard Margolese, M.D.                     McGill University, Canada

Daniel Von Hoff, M.D.                       Cancer Therapy and Research Center, United States,

James Holland, M.D.                         Mount Sinai School of Medicine, New York, United
                                            States.
</TABLE>

ROBERT OZOLS, M.D. AND PH.D is Senior Vice President for Medical Science at Fox
Chase Cancer Center, Philadelphia. Dr. Ozol serves as Chairman of the Advisory
Board and is also Medical Director at the Hospital of the Fox Chase Cancer
Center and Professor of Medicine at Temple University. He is currently serving
on the Oncologic Drugs Advisory Committee of the FDA. The recipient of the 1990
Cancer Research Award from the Milken Medical Foundation, Dr. Ozols has also
been elected to the American Society for Clinical Investigation. Dr. Ozols
received his medical degree and a Ph.D. in Biochemistry at the University of
Rochester in New York.

ROGER COHEN, M.D. is Associate Professor at the University of Virginia,
Department of Medicine, Division of Haematology-Oncology and Director of the
Clinical Trials Office. Dr. Cohen is also currently an advisor and consultant to
the FDA at the Center for Biologics Evaluation and Research. Dr. Cohen received
his medical degree

                                       25
<PAGE>   37
at Harvard Medical School and is the recipient of several awards including the
FDA Special Recognition Award.

RICHARD MARGOLESE, M.D. is a Professor in the Department of Oncology, and
Herbert Black Chair in Surgical Oncology, McGill University. Dr. Margolese is
also Associate Director of Research at Lady Davis Institute, past President of
the National Cancer Institute of Canada and past Co-Chairman of the Management
Committee of the Canadian Breast Cancer Research Initiative. Dr. Margolese
received his medical degree at McGill University and was awarded the Order of
Canada in 1997 - Canada's highest honour for lifetime achievement.

DANIEL VON HOFF, M.D. is Director of the Institute for Drug Development at the
Cancer Therapy and Research Center in San Antonio, Texas. Dr. Von Hoff is
President-Elect of the American Association for Cancer Research and recipient of
the Richard and Hinda Rosenthal Award for clinical investigation. He is also a
Professor for the Department of Cellular and Structural Biology and a Clinical
Professor in the Division of Medical Oncology at The University of Texas Health
Science Center. Dr. Von Hoff received his medical degree from Columbia College
of Physicians and Surgeons in New York.

JAMES HOLLAND, M.D. is Distinguished Professor of Neoplastic Diseases,
Department of Medicine, Mount Sinai School of Medicine, New York. Dr. Holland
holds both a Medical Doctorate degree from Columbia University and a Doctor of
Science degree from State University of New York. He is past-President of both
the American Society of Clinical Oncology and the American Association of Cancer
Research and has contributed to over 590 scientific publications.

RISK FACTORS

The following risk factors and other information included in this document
should be carefully considered. The risks and uncertainties described below are
not the only ones the Company faces. Additional risks and uncertainties not
presently known to the Company or that the Company currently deems immaterial
also may impair its business operations. If any of the following risks actually
occur, the Company's business, financial condition and operating results could
be materially adversely affected.

Biomira Litigation

On February 26, 1999, Biomira commenced legal action in the Province of Alberta
against AltaRex, the founder of AltaRex and certain other individuals affiliated
with AltaRex, claiming ownership of an invention disclosed in an international
patent application filed by AltaRex relating to certain aspects of AltaRex's
core technology, products, processes and their production. In the action,
Biomira is seeking, among

                                       26
<PAGE>   38
other things, a court order declaring that it is the sole owner of the invention
and related intellectual property rights therein, including the patent
application, an injunction prohibiting AltaRex from using the invention, and
damages in the amount of $200,000,000. In response to Biomira's action, the
Corporation filed a statement of defense with the court on April 21, 1999. See
Item 3 - "Legal Proceedings". Although there can be no assurance that Biomira's
legal action will not be successful, AltaRex believes that Biomira's claims are
without merit and intends to defend against such action.

If Biomira is successful in its action against the Company, the ability of the
Company to develop and commercialize its existing products and future products
based upon the invention described in the patent application referred to above,
including, in particular, its OvaRex(TM) MAb lead product, may be materially and
adversely affected and could be fully lost. In any event, this litigation will,
if it proceeds to trial, require the court to consider complicated scientific
evidentiary matters (such as the point at which significant discoveries were
made) and questions as to the contractual interpretation of the Biomira License
Agreement. It is not possible to predict the court's position or disposition in
these and other matters. In addition, even if successful at trial, this
litigation will result in significant expense to the Company.

Possible Expiration or Termination of License Agreement for MAb B43; Loss of
Exclusivity

In 1995, the Company licensed the B43 Technology from Biomira, including the
antibody MAb B43, which is utilized in OvaRex(TM) MAb. The Biomira License
Agreement requires that the Company use its best efforts to commercialize the
B43 Technology and to spend certain minimum amounts to develop the B43
Technology between 1995 and 1999. Biomira provided the Company with written
notice alleging that the Company was in default of certain reporting obligations
under the Biomira License Agreement and that Biomira would terminate such
agreement on June 1, 1999 unless such alleged defaults were fully cured on or
before such date. As of the date of this document, Biomira has not given any
notice of termination of the Biomira License Agreement. Biomira had previously
given notice to the Company on March 16, 1999 of the alleged default and that
such agreement would terminate on April 15, 1999. Although the Company believes
it is currently in compliance with all of the terms of the Biomira License
Agreement, there can be no assurance that the Company will be able to continue
to meet the obligations of the Biomira License Agreement. Should the Company's
rights under the Biomira License Agreement be terminated or cease to be
exclusive, Biomira may elect to license the B43 Technology to competitors of the
Company. Although the Company believes that it would have a competitive
advantage over other potential competitors based on its lead time in the
regulatory process, termination of the Biomira License Agreement or the loss of
exclusivity to the B43 Technology could have a material adverse effect on the
Company's business, its results of operations, its financial condition and its
ability to market and develop commercially viable products based on the B43
Technology.

                                       27
<PAGE>   39
Pursuant to the ISTC Funding Arrangement, Biomira is required to obtain the
consent of ISTC to any license relating to technology developed pursuant to the
ISTC Funding Arrangements, including the B43 Technology. See "- Strategic
Alliances and License Agreements - Biomira License Agreement". The Company
understands that Biomira has failed to obtain such consent with respect to the
license of the B43 Technology granted to the Company under the Biomira License
Agreement. In the past, in this regard, the Company has had discussions with
ISTC and Biomira. In the event of a breach of a term or condition of the ISTC
Funding Arrangements, ISTC may direct Biomira to transfer to ISTC clear title to
the B43 Technology. In such event, the Company may need to obtain a license from
ISTC to use the B43 Technology which may affect or result in the loss of the
Company's rights to the B43 Technology. To the knowledge of the Company, ISTC
has not, to date, taken any such action.

In addition, the Biomira License Agreement expires November 30, 2010, unless the
parties mutually agree in writing to renew the Biomira License Agreement. If at
that time the Company cannot successfully renew the Biomira License Agreement on
terms acceptable to the Company, the Company may be subject to competition from
others to whom Biomira would be free to license the Technology. Consequently,
the loss of such exclusive Biomira License Agreement or renewal of the Biomira
License Agreement on different terms may adversely affect the revenues, if any,
from the sale of products that use the Technology. The termination of, or loss
of exclusivity of, the Biomira License Agreement could have a material adverse
affect on the Company's business, results of operations and financial condition.
In light of the current litigation involving Biomira and the Company, the
Company considers the mutual agreement of the parties to renew the Biomira
License Agreement to be unlikely.

Reliance on Strategic Relationships

The Company's future success is dependent on the development and maintenance of
strategic relationships. The Company intends to seek to enter into strategic
relationships with strategic partners to participate in and finance the later
stage clinical development of products as required by the FDA, HPB, EMEA and
other international drug regulatory agencies. The Company expects that its
strategic partners would then have the opportunity to market the Company's
products in return for payment to the Company of up-front licensing fees,
milestone payments, royalties or previously agreed upon transfer prices on the
sale of such products.

The Company has entered into the Purdue Option which grants to Purdue the option
to acquire exclusive worldwide rights to license and commercialize OvaRex(TM)
MAb and BrevaRex(TM) MAb. See "- Description of the Business - Strategic
Alliances and License Agreement - Purdue Pharma L.P". If Purdue does not
exercise the Purdue Option or the Company fails to enter into alternative
strategic relationship on terms favourable to the Company or if Purdue or other
strategic partners fail to effectively

                                       28
<PAGE>   40
complete the clinical trials, the regulatory approval of OvaRex(TM) MAb or
BrevaRex(TM) MAb may be delayed and such delay may have a materially adverse
effect on the Company's results of operations and business. The Company also
intends to rely on Purdue to market OvaRex(TM) MAb and BrevaRex(TM) MAb. If
Purdue exercises the Purdue Option but fails to, or if the Company fails to
enter into alternative strategic partnerships or if its alternative strategic
partners fail to, effectively market OvaRex(TM) MAb or BrevaRex(TM) MAb, the
Company may lose the opportunity to successfully commercialize these products.
There can be no assurance that Purdue will exercise the Purdue Option or that
the Company will be able to enter into alternative strategic partnerships on
terms that are acceptable to the Company.

The Company does not manufacture its own antibodies but has, and will seek to
enter into, agreements with third parties to manufacture its antibodies.
Pursuant to the Draximage Alliance Agreement, Draximage will fill/finish
OvaRex(TM) MAb vials for clinical trials and may have certain contingent rights
with respect to the manufacture and/or marketing of the OvaRex(TM) MAb drug for
commercial purposes. In addition, the Company is working with other vendors to
fill/finish OvaRex(TM) MAb vials. The Company has an agreement with Lonza
Biologics to scale-up cell culture-derived material to the commercial level.
Similarly the Company is working with other vendors to begin the scale-up
processes for cell culture BrevaRex(TM) MAb and to fill/finish BrevaRex(TM) MAb
vials. If these contract suppliers fail to perform under the terms of the
agreement, the Company may incur significant costs and risks.


Scaling-up production of cell culture-derived materials will enable the Company
to further pursue regulatory approval and commercialization of OvaRex(TM) MAb.
Such regulatory approval and commercialization is dependant upon the Company's
ability to achieve such production.

The Company also relies on a number of alliances and collaborative partnerships
for the development of its products. There is no guarantee that these
relationships will continue or result in any successful developments.

Uncertainty Associated with Preclinical and Clinical Testing

Before obtaining regulatory approvals for the commercial sale of any of the
Company's potential new products, the products will be subjected to extensive
preclinical and clinical testing to demonstrate their safety and efficacy in
humans. Results of the initial preclinical and clinical testing of products
under development by the Company are not necessarily indicative of results that
will be obtained from subsequent or more extensive preclinical and clinical
testing. Furthermore, there can be no assurance that clinical trials of products
under development will be completed or will demonstrate the safety and efficacy
of such products at all or to the extent necessary to obtain regulatory
approvals. Companies in the biotechnology industry

                                       29
<PAGE>   41
have suffered significant setbacks in advanced clinical trials, even after
achieving promising results in earlier trials. The failure to adequately
demonstrate the safety and efficacy of a therapeutic product under development
could delay or prevent regulatory approval of such product.

The rate of completion of clinical trials depends on, among other factors, the
enrollment of patients. Patient accrual is a function of many factors, including
the size of the patient population, the proximity of patients to clinical sites,
the eligibility criteria for the study and the existence of competitive clinical
trials. Delays in planned patient enrollment in the Company's current clinical
trials or future clinical trials may result in increased costs, program delays,
or both.

Lack of Product Revenues; History of Losses

To date, the Company has not recorded any revenues from the sale of
biopharmaceutical products and there can be no assurance that significant
additional losses will not occur in the near future or that the Company will be
profitable in the future. The Company has accumulated net losses of
approximately $20.2 million to December 31, 1998. The Company anticipates that
its operating expenses and capital expenditures will increase significantly in
1999 and in subsequent years as it adds the personnel and facilities associated
with advancing products throughout development, clinical trials and
commercialization. The amounts and timing of expenditures will depend on the
progress of ongoing research and development, the results of preclinical testing
and clinical trials, the rate at which operating losses are incurred, the
execution of any development and licensing agreements with strategic partners,
the Company's development of additional products, the FDA, HPB, EMEA and other
regulatory processes and other factors, many of which are beyond the Company's
control.

The Company does not expect to receive revenues from commercial sales of its new
products for several years, if at all. The Company expects to continue to incur
losses unless and until such time as strategic alliance payments, product sales
and royalty payments generate sufficient revenues to fund its continuing
operations. The ability of the Company to achieve profitability in subsequent
years depends upon, among other things, successfully completing product
development efforts and obtaining regulatory approval for its lead clinical
products. The development of the Company's products will require the commitment
of substantial resources to conduct the time-consuming development of products
to meet market and regulatory requirements and to establish strategic
relationships for production capabilities. There can be no assurance that the
Company will generate any revenues or achieve profitability.

The Company has two licensing agreements that require payments of royalties
based on the gross revenue of the OvaRex(TM) MAb. On the successful
commercialization of

                                       30
<PAGE>   42
OvaRex(TM) MAb, the Company will be required to pay royalties from the gross
revenue received by the Company on the sale of this product. There can be no
assurance that the Company will generate sufficient revenues from the sale of
OvaRex(TM) MAb to achieve profitability.

The Company anticipates that, based on its current operating plan, its existing
cash reserves are sufficient to meet its planned cash requirements into the
first half of 2000. Beyond that, the Company intends to rely on cash, if any,
generated from operations, licensing revenues and collaborative agreements,
which will be highly dependent on the Company's successful development and
commercialization of its clinical products. There can be no assurance that these
products will be successfully developed or commercialized or that the underlying
assumed levels of expenses will prove to be accurate.

Capital Requirements

Based on its current operating plan, the Company estimates that its net
expenditures for 1999 will significantly exceed that of 1998. The Company's
future capital requirements, however, will depend on many factors, including
continued scientific progress in its product discovery and development program,
progress in its pre-clinical and clinical evaluation of product candidates, time
and expense associated with filing, prosecuting and enforcing its patent claims
and costs associated with obtaining regulatory approvals. In order to meet such
capital requirements, the Company will consider contract fees, collaborative
research and development arrangements, and additional public or private
financing (including the issuance of additional equity securities) to fund all
or a part of particular programs. There can be no assurance that additional
funding will be available or, if available, that it will be available on
acceptable terms. If adequate funds are not available, the Company may have to
reduce substantially or eliminate expenditures for research and development,
testing, production and marketing of its proposed products, or obtain funds
through arrangements with corporate partners that require the Company to
relinquish rights to certain of its technologies or products. The ability of the
Company to arrange such financing in the future will depend in part upon the
prevailing capital market conditions as well as the business performance of the
Company. Further, there can be no assurance that the Company will be able to
raise additional capital if its capital resources are exhausted. There can be no
assurance that the Company will be successful in its efforts to arrange
additional financing if needed or that any such additional financing will be
available on terms satisfactory to the Company.

Key Personnel

The Company is highly dependent on its senior officers, scientific personnel,
consultants and management staff, the loss of whose services might significantly

                                       31
<PAGE>   43
delay or prevent the Company's achievement of its scientific or business
objectives. Competition among biotechnology and biopharmaceutical companies for
qualified employees is intense, and the ability to retain and attract qualified
individuals is critical to the Company's success. There can be no assurance that
the Company will be able to attract and retain such individuals currently or in
the future on acceptable terms, or at all, and the failure to do so would have a
material adverse effect on the Company's business, financial condition and
results of operations.

Regulatory Environment; No Assurance of Product Approval

The FDA, HPB, EMEA and comparable agencies in foreign countries impose
substantial requirements on biotechnology and pharmaceutical companies prior to
the introduction of therapeutic products. These requirements include lengthy and
detailed laboratory and clinical testing procedures, sampling activities and
other costly and time-consuming procedures, together which involve the
expenditure of substantial resources. Satisfaction of these requirements
typically takes a number of years and varies substantially based on the type,
complexity and novelty of the pharmaceutical product.

Any future FDA, HPB, EMEA or other governmental approval of products developed
by the Company may entail limitations on the indicated uses for which such
products may be marketed. Approved products may be subject to additional testing
and surveillance programs as required by regulatory agencies. In addition,
product approvals may be withdrawn or limited for noncompliance with regulatory
standards or the occurrence of unforeseen problems following initial marketing.

The effect of governmental regulation may be to delay marketing the Company's
products for a considerable period of time, to impose costly requirements on the
Company's activities or to provide a competitive advantage to other companies
that compete with the Company. Adverse clinical results could have a negative
impact on the regulatory process and timing. A delay in obtaining or failure to
obtain regulatory approvals could adversely affect the marketing of the
Company's products and the Company's liquidity and capital resources. In
addition, future legislation or administrative action may result in governmental
regulations adverse to the Company. The extent of potentially adverse
governmental regulation that might arise from future legislation or
administrative action cannot be predicted.

To date, the Company has submitted INDs to the HPB and FDA for OvaRex(TM) MAb
and BrevaRex(TM) MAb products, but has not submitted such documentation for
other products currently under development. There can be no assurance that the
Company will obtain regulatory approval to commercialize OvaRex(TM) MAb and
BrevaRex(TM) MAb, or that it will be in a position to file the regulatory
applications for its future products.

                                       32
<PAGE>   44
Competition

Technological competition in the pharmaceutical industry is intense. There are
many companies and institutions, both public and private, including
pharmaceutical companies, chemical companies, specialized biotechnology
companies and research, government or academic institutions, that are engaged in
developing synthetic pharmaceuticals and biotechnological products for human
therapeutic applications, including the applications targeted by the Company.
The Company may have to compete with these competitors to develop products aimed
at treating similar conditions. Many of these competitors have substantially
greater resources than the Company. There can be no assurance that developments
by others will not render the Company's products or technologies non-competitive
or adversely affect the commitment of the Company's commercial collaborators to
the Company's programs.

The pharmaceutical industry is also characterized by extensive research efforts
and rapid technological change. Competition can be expected to increase as
technological advances are made and commercial applications for
biopharmaceutical products increase. Competitors of the Company may use
different technologies or approaches to develop products similar to products
which the Company is seeking to develop, or may develop new or enhanced products
for processes that may be more effective, less expensive, safer or more readily
available before the Company obtains approval of its products. There can be no
assurance that the Company's products will compete successfully or that research
and development will not render the Company's products obsolete or uneconomical.

Proprietary Rights and Patent Protection

Due to the length of time and expense associated with bringing new products
through development and the governmental approval process to the marketplace,
the pharmaceutical industry has traditionally placed considerable importance on
obtaining and maintaining patent and trade secret protection for significant new
technologies, products and processes.

The patent protection afforded to biotechnology and pharmaceutical firms is
uncertain and involves many complex legal, scientific and factual questions.
There is no clear law or policy involving the breadth of claims allowed in such
cases, or the degree of protection afforded under patents. These issues are
further complicated in this field by the abundance of publications and/or prior
art, including publications by the Company. Thus, while the Company believes
that its proprietary information is protected to the fullest extent practicable,
there can be no assurance that (i) any patents will be issued to the Company in
any or all appropriate jurisdictions, (ii) litigation will not be commenced
seeking to challenge the Company's patent protection or that such challenges
will not be successful, (iii) processes or products of the Company do not or
will not infringe upon the patents of third parties, or (iv) the

                                       33
<PAGE>   45
scope of patents that may be issued to the Company will successfully prevent
third parties from developing similar and competitive products. It is not
possible to predict how any patent litigation will affect the Company's efforts
to develop, manufacture or market its products. The cost of litigation to uphold
the validity and prevent infringement of any patents issued to the Company may
be significant. See "- Biomira Litigation" and "Item 3 - Legal Proceedings".

The products developed by the Company also incorporate technology and processes
that will not be protected by any patent and are capable of being duplicated or
improved upon by competitors. Accordingly, the Company may be vulnerable to
competitors, which develop competing technology, whether independently or as a
result of acquiring access to the proprietary products and trade secrets of the
Company. In addition, the Company may be required to obtain licenses under
patents or other proprietary rights of third parties. No assurance can be given
that any licenses required under such patents or proprietary rights will be
available on terms acceptable to the Company. If the Company does not obtain
such licenses, it could encounter delays in introducing one or more of its
products to the market while it attempts to design around such patents, or could
find that the development, manufacture or sale of products requiring such
licenses could be foreclosed.

There can be no assurance that the Company's patent applications will mature
into issued patents, or will afford legal protection against competitors, or
will provide significant proprietary protection or competitive advantage. In
addition, there can be no assurance that the Company's patents will not be held
invalid or unenforceable by a court, infringed or circumvented by others or that
others will not obtain patents that the Company would need to license or
circumvent. Competitors or potential competitors may have filed patent
applications or received patents, and may obtain additional patents and
proprietary rights relating to the products or processes competitive with those
of the Company.

Manufacturing and Marketing

The Company has limited experience in manufacturing pharmaceuticals. The Company
intends to rely primarily on contract manufacturers to produce antibodies,
adjuvants and other components of its products for research and development,
preclinical and clinical trial purposes. The Company's products have never been
manufactured on a commercial scale, and there can be no assurance that such
products can be manufactured at a cost or in quantities necessary to make them
commercially viable. There can be no assurance that third party manufacturers
will be able to meet the Company's needs with respect to timing, quantity or
quality. If the Company is unable to contract for a sufficient supply of
required products and substances on acceptable terms, or if it should encounter
delays or difficulties in its relationships with manufacturers, the Company's
preclinical and clinical testing would be delayed, thereby delaying the
submission of products for regulatory

                                       34
<PAGE>   46
approval or the market introduction and subsequent sales of such products. Any
such delay may have a material adverse effect on the Company's business,
financial condition and results of operations. Moreover, contract manufacturers
that the Company may use must continually adhere to current Good Manufacturing
Practices regulations enforced by the FDA through its facilities inspection
program. If the facilities of such manufacturers cannot pass a pre-approval
plant inspection, the FDA premarket approval of the Company's products will not
be granted.

The Company currently has no sales, marketing or distribution experience. The
Company intends to rely on its current and future strategic partners, to market
its products; however, there can be no assurance that such corporate partners
have effective sales forces and distribution systems. If the Company is unable
to maintain or establish such relationships and is required to market any of its
products directly, the Company will have to develop a marketing and sales force
with technical expertise and with supporting distribution capabilities. There
can be no assurance that the Company will be able to maintain or establish such
relationships with third parties or develop in-house sales and distribution
capabilities. To the extent that the Company depends on its strategic partners
or third parties for marketing and distribution, any revenues received by the
Company will depend upon the efforts of such strategic partners or third
parties, and there can be no assurance that such efforts will be successful.

There can be no assurance that any products successfully developed by the
Company, if approved for marketing, will ever achieve market acceptance. The
Company's products, if successfully developed, will compete with a number of
traditional drugs and therapies manufactured and marketed by major
pharmaceutical and other biotechnology companies, as well as new products
currently under development by such companies and others. The degree of market
acceptance of any products developed by the Company will depend on the clinical
efficacy and safety of the product candidates, their potential advantage over
alternative treatment methods and reimbursement policies of government and
third-party payors. There can be no assurance that physicians, patients or the
medical community in general will accept and utilize any products that may be
developed by the Company, and the lack of such market acceptance would have a
material adverse effect on the Company's business, financial condition and
results of operations.

Product Liability and Insurance

The testing, marketing, sale and use of products under development by the
Company may entail risk of product liability. Such risk exists in human clinical
trials and even with respect to those products that receive regulatory approval
for commercial sale. There can be no assurance that the Company can avoid
significant product liability exposure. The Company currently has in place
product liability insurance for its biopharmaceutical products and expects that
as it expands, it will require additional

                                       35
<PAGE>   47
insurance. There can be no assurance that it will be able to obtain appropriate
levels of product liability insurance prior to any sale of its biopharmaceutical
products. An inability to obtain insurance on economically feasible terms or to
otherwise protect against potential product liability claims could inhibit or
prevent the commercialization of products developed by the Company. The
obligation to pay any product liability claim or recall a product could have a
material adverse effect on the business, financial condition and future
prospects of the Company.

Unstable Share Price

Market prices for securities of biotechnology companies generally, and of common
shares in particular, are volatile. Factors such as announcements (publicly made
or at scientific conferences) of technological innovations, new commercial
products, patents, the development of proprietary rights by the Company or
others, results of clinical trials, regulatory actions, publications, quarterly
financial results or public concern over the safety of biotechnological
products, future sales of Common Shares by the Company or by its current
shareholders and other factors could have a significant effect on the market
price of the Common Shares of the Company.

No Assurance of Successful Development

Prospects for companies in the biotechnology industry generally may be regarded
as uncertain given the nature of the industry and, accordingly, investments in
biotechnology companies should be regarded as highly speculative. The Company's
realization of its long-term potential will be dependent upon the successful
development and commercialization of products currently under development. There
can be no assurance that these products will be delivered successfully or
receive regulatory approval. The new products of the Company are currently in
the research and development stages, the riskiest stages for a company in the
biotechnology industry. There can be no assurance that the research and
development programs conducted by the Company will result in commercially viable
products. To achieve profitable operations the Company, alone or with others,
must successfully develop, introduce and market its products. To obtain
regulatory approvals for the products being developed and to achieve commercial
success, human clinical trials must demonstrate that the products are safe for
human use and that they show efficacy. Unsatisfactory results obtained from a
particular study relating to a program may cause the Company to abandon its
commitment to that program. No assurances can be provided that any future animal
or human test, if undertaken, will yield favourable results.


ITEM 2 - DESCRIPTION OF PROPERTY

LEASED PROPERTIES

                                       36
<PAGE>   48
AltaRex's Canadian office is located at Campus Tower, Suite 300, 8625 - 112
Street, Edmonton, Alberta, Canada T6G 1K8. Its research and development facility
is located at 1134 Dentistry Pharmacy Building, University of Alberta, Edmonton,
Alberta T6G 2N8. The Company's U.S. office is located at Suite 125, 303 Wyman
Street, Waltham, Massachusetts 02451. All of the above premises are leased by
AltaRex.

The Canadian leases are each for a term of five years, with the Campus Tower
lease terminating on December 30, 2001, the Dentistry Pharmacy lease
terminating on July 31, 2002 and the U.S. lease is for a three-year term,
terminating on March 31, 2001. The total lease costs under such leases for the
Company were approximately $280,000 for the fiscal year ended December 31, 1998
and are expected to be approximately $280,000 for the fiscal years ending
December 31, 1999 and 2000.

In January 1999, the Company entered into a letter of intent for the lease of
approximately 25,000 square feet of laboratory and office facilities in Waltham,
Massachusetts. The facilities are expected to be available on or about December
1, 1999. If leased as proposed, the initial term would extend until March 31,
2007 and the expected annual lease cost to the Company would be approximately
$1.3 million plus operating expenses. The Company anticipates that it will move
its laboratory operations to Waltham by the end of 1999.

ITEM 3 - LEGAL PROCEEDINGS

THE BIOMIRA CLAIM

       On February 26, 1999, Biomira commenced legal action (the "Biomira
Claim") in the Province of Alberta against the Company and the founder of
AltaRex and certain other individuals affiliated with AltaRex (the "Individual
Defendants"), claiming ownership of an invention (the "Invention") disclosed in
an international patent application entitled "Method and Composition for
Reconforming Multi-Epitopic Antigens to Initiate an Immune Response" (the
"Multi-Epitopic Patent Application") and filed by AltaRex relating to certain
aspects of AltaRex's core technology, products, processes and their production.
In the action, Biomira is seeking, among other things, a court order declaring
that it is the sole owner of the invention and related intellectual property
rights therein, including the Multi-Epitopic Patent Application, an injunction
prohibiting AltaRex from using the invention, and damages in the amount of
$200,000,000. The Biomira Claim alleges that the Individual Defendants owed
fiduciary duties and/or duties of confidence to Biomira arising out of such
individuals' affiliation with Biomira prior to the formation of AltaRex and that
the Individual Defendants have breached those duties by causing the
Multi-Epitopic Patent Application to be filed for AltaRex's benefit. In
addition, the Biomira Claim alleges that the Company intentionally or
negligently induced the Individual Defendants to breach such alleged duties. On
March 16, 1999, the Company demanded further particulars from Biomira with
respect to the allegations

                                       37
<PAGE>   49
made in its legal action against the Company on the basis that such action fails
to disclose sufficient information with respect to claims made by Biomira in its
action so as to enable the Company to properly defend the action. On April 7,
1999, Biomira responded to the Company's request by refusing to provide further
particulars with respect to its claims. On April 15, 1999, the Court of Queen's
Bench of Alberta refused to grant a motion by the Company to require Biomira to
provide such further particulars.

       On April 21, 1999, the Company filed its statement of defence to the
Biomira Claim. In its statement of defence, the Company denies all of the
allegations contained in the Biomira Claim. In particular, the Company maintains
that (i) the Invention was entirely conceived, fashioned and developed by the
Individual Defendants, who are fully and properly disclosed as the "inventors"
of the Multi-Epitopic Patent Application, (ii) the Invention was arrived at by
the Individual Defendants in all material respects while in the employ of and
under obligation to AltaRex and not in any material respect in the course of
work by any of them for Biomira or an affiliate thereof, (iii) it was at all
material times agreed and understood by Biomira that, pursuant to certain
previously agreed principles, the Biomira License Agreement and the license
granted thereunder, the Individual Defendants and AltaRex were authorized,
enabled and licensed from and after the commencement of operations of AltaRex on
December 1, 1995 to proceed and continue with research, development and product
creation for the sole benefit of the Company and not for that of Biomira, and
(iv) neither AltaRex nor any of the Individual Defendants acted in breach of any
obligations to or entitlements of Biomira. Alternatively, the Company maintains
that if Biomira has any claim whatsoever to the Multi-Epitopic Patent
Application, the Biomira License Agreement grants to the Company an exclusive,
world-wide license to the Invention and all related rights and entitlements and,
accordingly, Biomira is precluded from asserting the purported entitlements
alleged in the Biomira Claim.

       Although there can be no assurance that Biomira will not be successful in
the Biomira Claim and neither Biomira nor the Company has had an opportunity to
request production of documents or to discover the other party, management of
the Company believes that the Biomira claim is without merit. The Company
intends to vigorously defend the Biomira Claim. See "Risk Factors - Biomira
Litigation".

       If Biomira is successful in its action against the Company, the ability
of the Company to develop and commercialize its existing products and future
products based upon the invention described in the patent application referred
to above, including, in particular, its OvaRex(TM) MAb lead product, may be
materially and adversely affected and could be fully lost. In any event, this
litigation will, if it proceeds to trial, require the court to consider
complicated scientific evidentiary matters (such as the point at which
significant discoveries were made) and questions as to the contractual
interpretation of the Biomira License Agreement. It is not possible to predict
the court's position or disposition in these and other matters. In addition,
even if successful at trial, this litigation will result in significant expense
to the Company.

                                       38
<PAGE>   50
THE ALTAREX CLAIM

       On March 16, 1999, the Company commenced legal action (the "AltaRex
Claim") in the Province of Alberta against Biomira seeking a declaration of the
court that, among other things, (i) Biomira is in breach of the Biomira License
Agreement and the Asset Purchase Agreement, (ii) the Company has the exclusive
worldwide right and license to use the B43 Technology to develop, commercialize,
manufacture, use and sell products based upon such technology (including
OvaRex(TM) MAb), (iii) the Company has the exclusive right under the Biomira
License Agreement to develop, commercialize, use and sell all AIT(R) Technology
applications, (iv) as a result of its breaches of the Biomira License Agreement,
Biomira is not entitled to any rights under the Biomira License Agreement, and
(v) the terms of the Biomira License Agreement prohibit Biomira from bringing
the Biomira Claim. In addition, the Company is seeking an injunction prohibiting
Biomira from pursuing its legal action against the Company and damages in an
amount to be proven at trial.

       On March 31, 1999, Biomira filed a statement of defence in respect of the
AltaRex Claim. In its statement of defence, Biomira denies the allegations
contained in the AltaRex Claim. In particular, Biomira maintains that (i) there
were not any agreed principles between Biomira and AltaRex and their respective
representatives in addition to those set forth in the Biomira License Agreement
and the Asset Purchase Agreement, (ii) Biomira has not breached the Biomira
License Agreement, and (iii) the Biomira License Agreement does not grant to
AltaRex the exclusive right to develop, commercialize, use and sell all AIT(R)
Technology applications.

       Neither Biomira nor the Company has had an opportunity to request
production of documents or to discover the other party in connection with the
AltaRex Claim.

OTHER

       Except for non-material legal proceedings against it in the normal course
of its operations, the Company is not aware of any other material existing or
pending legal proceedings against it.

ITEM 4 - CONTROL OF REGISTRANT

Insofar as it is aware, the Company is not directly or indirectly owned or
controlled by another corporation(s) or by the provincial government of Alberta,
the federal government of Canada or any foreign government.

To the knowledge of the Company, no person of record owns beneficially, directly
or indirectly, more than 10% of the issued and outstanding Common Shares of the
Company as at June 1, 1999, except as set out below:

                                       39
<PAGE>   51
<TABLE>
<CAPTION>
                             IDENTITY OF PERSON OR
TITLE OF CLASS                       GROUP                       AMOUNT OWNED                     PERCENT OF CLASS
--------------                       -----                       ------------                     ----------------
<S>                          <C>                            <C>                                   <C>
Common Shares                Investissements
                             BioCapital Societe en
                             Commandite                     7,168,000 Common Shares                     12.9%

Common Shares                The Business
                             Development Bank of
                             Canada                         6,000,000 Common Shares                     10.8%


Common Shares                Purdue(1)                      10,000,000 Common Shares                    18.0%

Common Shares                Directors and Officers         6,577,733 Common Shares                     11.8%
</TABLE>

Notes:

(1)    Banela Corporation ("Banela") and East Hudson Inc. ("EHI") each purchased
       5,000,000 Common Shares pursuant to the Equity Investment Agreements. See
       "Item 1 - Business Strategic Alliances and License Agreements - Purdue
       Pharma L.P." Each of Banela and EHI is an associate of Purdue Pharma L.P.



ITEM 5 - NATURE OF TRADING MARKET

The Common Shares of the Company were listed and posted for trading on The
Alberta Stock Exchange on June 7, 1994 and on The Toronto Stock Exchange on
December 20, 1996. The Company's shares were subsequently voluntarily delisted
on the Alberta Stock Exchange on February 2, 1997.

All trading prior to December 12, 1995 occurred while the Company was still a
junior capital pool company pursuant to Alberta Securities Commission Policy
4.11 (the "Policy"). The Common Shares of the Company were suspended from
trading from December 12, 1995 to August 1, 1996 for failure by the Company to
complete a "Major Transaction" pursuant to the Policy. Trading in the Company's
common shares was reinstated on August 2, 1996 after the Company completed
certain transactions which collectively constituted its Major Transaction under
the Policy.

The following table sets forth the reported high and low sale prices of the
Common Shares of the Company as reported by The Alberta Stock Exchange from
January 1, 1996 to February 2, 1997 and by The Toronto Stock Exchange from
December 20, 1996 to June 1, 1999. Price range information set out below has
been adjusted to reflect the four-for-one consolidation of the Company's Common
Shares that occurred in November 1996. On May 7, 1999 and June 1, 1999, the
Company sold an aggregate of 39,100,000 Common Shares for an aggregate purchase
price of $19,550,000 in a public offering outside the U.S.

                                       40
<PAGE>   52
<TABLE>
<CAPTION>
  Period                                                      Price Range
                                                         High              Low
                                                         ----              ---
<S>                                                      <C>               <C>
1st Quarter, 1996                                          Trading Suspended

2nd Quarter, 1996                                          Trading Suspended

3rd Quarter, 1996                                         7                5

4th Quarter, 1996                                         8.08             6

1st Quarter, 1997                                         7                5

2nd Quarter, 1997                                         5.5              3.4

3rd Quarter, 1997                                         4.3              2.5

4th Quarter, 1997                                         3.8              2.1

1st Quarter, 1998                                         3.25             2.25

2nd Quarter, 1998                                         2.54             1.01

3rd Quarter, 1998                                         1.92              .71

4th Quarter, 1998                                          .85              .42

1st Quarter, 1999                                          .74              .42

2nd Quarter, 1999
(Through June 1, 1999)                                    1.38              .42
                                                          ----              ---
</TABLE>

The closing price of the Common Shares of the Company on The Toronto Stock
Exchange on June 1, 1999 was $.90 per Common Share.


The Company's shares are not listed on any exchange in the United States. At
June 14, 1999, approximately 5.3% of the outstanding shares of the Company are
held of record by 13 persons resident in the United States.

ITEM 6 - EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

There are no laws, governmental decrees or regulations in Canada that restrict
the export or import of capital or which affect the remittance of dividends,
interest or other payments to non-resident holders of the Company's Shares,
other than specific

                                       41
<PAGE>   53
embargoes enacted by regulations under the United Nations Act (Canada) and
withholding tax requirements.  See "Item 7.  Taxation."

There are no limitations under the laws of Canada or the Province of Alberta, or
in the Articles of Amalgamation of the Company, with respect to the right of
non-resident or foreign owners to hold or vote the Common Shares of the Company
other than those imposed by the Investment Canada Act (Canada) (the "Investment
Act").

The following summarizes the principal features of the Investment Act for
non-residents other than WTO investors (defined in section 14.1(b) of the
Investment Act as being individual investors who are nationals of, or have the
right of permanent residence in, a Member of the World Trade Organization and
corporate investors who are either WTO investor-controlled in fact, or
two-thirds of whose board of directors is comprised of any combination of
Canadians and WTO investors) who propose to acquire Common Shares of the
Company.

The Investment Act prohibits implementation of a reviewable investment by an
individual, government (or agency thereof), company, partnership, trust or joint
venture which is not a "Canadian" (as defined in the Investment Act (a
"non-Canadian")) or a WTO investor, unless after review the minister responsible
for the Investment Act (the "Minister") is satisfied that the investment is
likely to be of net benefit to Canada. A reviewable investment under the
Investment act is characterized as an investment for control of a Canadian
business with assets valued at $5,000,000 or more, or in the case where the
total assets of the Canadian business are less than half of the total assets
acquired, the Canadian business assets are $50,000,000 or more. Notwithstanding
the above limits, an investment can become a reviewable investment if an order
for review is made by the Federal cabinet on the grounds that the investment is
related to Canada's cultural heritage or national identity.

An investment in Common Shares of the Company by a WTO investor would only be
reviewable under the Investment Act if it was an investment to acquire control
of the Company and the value of the assets of the Company equals or exceeds an
amount determined annually by the Minister pursuant to a formula specified in
the Investment Act ($184,000,000 for 1998).

A non-Canadian, whether a WTO investor or otherwise, would acquire control of
the Company for the purposes of the Investment Act if he acquired a majority of
the Common Shares of the Company. The acquisition of less than a majority, but
one-third or more, of the Common Shares of the Company would be presumed to be
an acquisition of control of the Company unless it could be established that the
Company was not controlled in fact by the acquirer through the ownership of
Common Shares.

                                       42
<PAGE>   54
Certain transactions in relation to Common Shares of the Company would be exempt
from the Investment Act, including:

       (a)    the acquisition of Shares by a person in the ordinary course of
              the person's business as a trader or dealer in securities;

       (b)    the acquisition of control of the Company in connection with the
              realization of security granted for a loan or other financial
              assistance and not for any purpose related to the provisions of
              the Investment Act; and

       (c)    the acquisition of control of the Company by reason of an
              amalgamation, merger, consolidation or corporate reorganization
              following which the ultimate direct or indirect control in fact of
              the Company, through the ownership of voting interests, remains
              unchanged.

The Investment Act further contains provisions which require notification to be
given under the Investment Act in the circumstances where a "non-Canadian" (as
defined in the Investment Act) acquires control of the Company notwithstanding
that such investment is not a reviewable investment as described above.

In addition to the foregoing, certain transactions involving the Company and its
security holders may be subject to notification and review under the Competition
Act (Canada). In general, in order for a transaction to be notifiable, the
parties together with their affiliates (defined to include parent, subsidiary
and sister companies) must have assets in Canada or gross revenues from sales
in, from or into Canada that exceed $400,000,000. Assuming this threshold is
met, additional thresholds based on the type of transaction must be met before
notification is required. If a transaction is ultimately notifiable, the parties
must provide the Commissioner of Competition (the "Commissioner") with detailed
information about the transaction and the parties, and observe a waiting period
prior to closing the transaction. However, in the event that the Commissioner
determines that a proposed transaction may result in a substantial lessening of
competition, the Commissioner may bring a proceeding before the Competition
Tribunal to enjoin the transaction or to seek other remedies.

ITEM 7 - TAXATION

The following is a general summary only and should not be considered as income
tax advice or relied upon for tax planning purposes.

Certain Canadian Federal Income Tax Consequences

The following is a general summary of certain Canadian federal income tax
considerations generally applicable to a holder of the Company's Shares who is
not a resident of Canada for the purposes of the Income Tax Act (Canada) (the
"Act"). The

                                       43
<PAGE>   55
discussion does not address all potentially relevant federal income tax matters
and it does not address consequences peculiar to persons subject to special
provisions of federal income tax law.

The summary is based on the current provisions of the Act and the regulations
thereunder and the Company's understanding of the current administrative
practices published by, and press announcements released by Revenue Canada. This
summary takes into account proposals to amend the Act announced prior to the
date hereof (although no assurances can be given that such changes will be
enacted in the form presented or at all), but does not otherwise take into
account or anticipate any other changes in law, whether by judicial,
governmental or legislative action or decision nor does it take into account any
provincial, territorial, local or foreign tax considerations. Accordingly,
holders and prospective holders of the Company's Shares should consult their own
tax advisors about the federal, provincial, territorial, local and foreign tax
consequences of purchasing, owning and disposing of such shares.

The Act provides in subsection 212(2) that dividends and other distributions
which are deemed to be dividends and which are paid or credited or are deemed to
be paid or credited by a Canadian resident company to a non-resident of Canada
shall be subject to non-resident withholding tax equal to 25 percent of the
gross amount of the dividend or deemed dividend.

Subsections 2(3) and 115(1) of the Act provide that a non-resident person is
subject to tax in Canada at the rates generally applicable to residents of
Canada on any "taxable capital gain" arising on the disposition of the shares of
a company which are listed on a prescribed stock exchange if such non-resident,
together with persons with whom he does not deal at arm's length, owned 25
percent or more of the issued shares of any class of the capital stock of the
Company at any time in the five years immediately preceding the date of
disposition of the shares. Subsections 2(3) and 115(1) also provide that a
non-resident person is subject to tax in Canada on taxable capital gains arising
on the disposition of shares that constitute capital property used in carrying
on a business in Canada. The taxable portion of a capital gain is equal to
three-quarters of the amount by which the proceeds of disposition of such
shares, net of any reasonable costs associated with the disposition of such
shares, exceeds the adjusted cost base to the holder of the shares.

Provisions in the Act relating to dividend and deemed dividend payments and
gains realized by non-residents of Canada who are residents of the United States
are subject to the Canada-United States Income Tax Convention (1980), as amended
(the "1980 Convention").

Article X of the 1980 Convention provides that for 1997 and subsequent taxation
years pursuant to the Third Protocol to the 1980 Convention the rate of Canadian

                                       44
<PAGE>   56
non-resident withholding tax on dividends paid to a U.S. company that
beneficially owns at least 10 percent of the voting stock of the Company shall
not exceed 5 percent of the dividends. Otherwise, and except in the case of
dividends received by a resident of the United States who carries on business in
Canada through a Canadian permanent establishment and the shares in respect of
which the dividends are paid are effectively connected with that permanent
establishment, the rate of non-resident withholding shall not exceed 15 percent
of the dividend. Where the dividends are received by a United States person
carrying on business in Canada through a Canadian permanent establishment and
the shares in respect of which the dividends are paid are effectively connected
with that permanent establishment the dividends are generally subject to
Canadian tax as business profits, generally without limitation under the 1980
Convention.

Article XIII of the 1980 Convention provides that gains realized by a United
States resident on the disposition of shares of a Canadian company may not
generally be taxed in Canada unless the value of those shares is derived
principally from real property situated in Canada or the shares form part of the
business property of a permanent establishment which the United States
shareholder has or had in Canada within the 12 month period preceding the date
of disposition. Canada also retains the right to tax gains on property owned at
the time of departure from Canada if it is sold by a person (other than a trust)
who was not during the 120 month period immediately preceding the sale a
resident in Canada for more than 60 months, subject to certain restrictions.

Certain United States Federal Income Tax Consequences

The following is a general discussion of certain possible United States federal
income tax consequences, under current law, generally applicable to a U.S.
Holder (as defined below) of the Company's Shares. This discussion does not
address all potentially relevant federal income tax matters and it does not
address consequences peculiar to persons subject to special provisions of
federal income tax law, such as those described below as excluded from the
definition of a U.S. Holder. In addition, this discussion does not cover any
state, local or foreign tax consequences. (See "Taxation - Certain Canadian
Federal Income Tax Consequences" above.)

The following discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations, published Internal Revenue Service
("IRS") rulings, published administrative positions of the IRS and court
decisions that are currently applicable, any or all of which could be materially
and adversely changed, possibly on a retroactive basis, at any time. This
discussion does not consider the potential effects, both adverse and beneficial,
of any recently proposed legislation which, if enacted, could be applied,
possibly on a retroactive basis, at any time. This discussion is for general
information only and it is not intended to be, nor should it be construed to be,
legal or tax advice to any holder or

                                       45
<PAGE>   57
prospective holder of the Company's Shares and no opinion or representation with
respect to the United States federal income tax consequences to any such holder
or prospective holder is made. Accordingly, holders and prospective holders of
the Company's Shares should consult their own tax advisors about the federal,
state, local, and foreign tax consequences of purchasing, owning and disposing
of the Company's Shares.

Holders

As used herein, a "U.S. Holder" means a holder of the Company's Shares who is a
citizen or individual resident of the United States, a corporation or
partnership created or organized in or under the laws of the United States or of
any political subdivision thereof, a trust if a court within the United States
is able to exercise primary supervision over the administration of the trust and
one or more United States persons have the authority to control all substantial
decisions of the trust, or an estate whose income is taxable in the United
States irrespective of source. This summary does not address the tax
consequences to, and U.S. Holder does not include, persons subject to specific
provisions of federal income tax law, such as tax-exempt organizations,
qualified retirement plans, individual retirement accounts and other
tax-deferred accounts, financial institutions, insurance companies, real estate
investment trusts, regulated investment companies, broker-dealers, nonresident
alien individuals, persons or entities that have a "functional currency" other
than the U.S. dollar, shareholders who hold the Company's Shares as part of a
straddle, hedging or a conversion transaction, and shareholders who acquired
their stock through the exercise of employee stock options or otherwise as
compensation for services. This summary is limited to U.S. Holders who own the
Company's Shares as capital assets. This summary does not address the
consequences to a person or entity holding an interest in a shareholder or the
consequences to a person of the ownership, exercise or disposition of any
options, warrants or other rights to acquire the Company's Shares.

Distributions on the Company's Shares

U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to the Company's Shares are required to include in gross income for
United States federal income tax purposes the gross amount of such distributions
equal to the U.S. dollar value of such dividends on the date of receipt (based
on the exchange rate on such date) to the extent that the Company has current or
accumulated earnings and profits, without reduction for any Canadian income tax
withheld from such distributions. Such Canadian tax withheld may be credited,
subject to certain limitations, against the U.S. Holder's United States federal
income tax liability or, alternatively, may be deducted in computing the U.S.
Holder's United States federal taxable income by those who itemize deductions.
(See more detailed discussion at "Foreign Tax Credit" below.) To the extent that
distributions exceed current or accumulated earnings and profits of the Company,
they will be treated first as a return of capital up to the U.S. Holder's
adjusted basis in the Company's Shares, and thereafter as gain from the sale or
exchange of the Company's Shares. Preferential tax rates for long-term capital
gains are applicable to a U.S. Holder which is an

                                       46
<PAGE>   58
individual, estate or trust. There are currently no preferential tax rates for
long-term capital gains for a U.S. Holder which is a corporation.

In the case of foreign currency received as a dividend that is not converted by
the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have
a tax basis in the foreign currency equal to its U.S. dollar value on the date
of receipt. Generally any gain or loss recognized upon a subsequent sale or
other disposition of the foreign currency, including the exchange for U.S.
dollars, will be ordinary income or loss. However, an individual whose realized
gain does not exceed $200 will not recognize that gain, to the extent that there
are no expenses associated with the transaction that meet the requirement for
deductibility as a trade or business expense (other than travel expenses in
connection with a business trip) or as an expense for the production of income.

Dividends paid on the Company's Shares will not generally be eligible for the
dividends received deduction provided to corporations receiving dividends from
certain United States corporations. A U.S. Holder which is a corporation may,
under certain circumstances, be entitled to a 70 percent deduction in respect of
the United States source portion of dividends received from the Company (unless
the Company qualifies as a "foreign personal holding company" or a "passive
foreign investment company," as defined below) if such U.S. Holder owns shares
representing at least 10 percent of the voting power and value of the Company.
The availability of this deduction is subject to several complex limitations
which are beyond the scope of this discussion.

Under current temporary Treasury Regulations, dividends paid on the Company's
Shares, if any, generally will not be subject to information reporting and
generally will not be subject to U.S. backup withholding tax. However, dividends
paid, and the proceeds of a sale of the Company's Shares, in the U.S. through a
U.S. or U.S. related paying agent (including a broker) will be subject to U.S.
information reporting requirements and may also be subject to the 31 percent
U.S. backup withholding tax, unless the paying agent is furnished with a duly
completed and signed Form W-9. Any amounts withheld under the U.S. backup
withholding rules will be allowed as a refund or a credit against the U.S.
Holder's U.S. federal income tax liability, provided the required information is
furnished to the IRS. It should be noted, however, that under new Treasury
Regulations which are scheduled to become effective on January 1, 2001, and
which are only to be applied prospectively, any dividends paid on the Company's
Shares will be subject to information reporting and potential 31 percent U.S.
backup withholding tax.

Foreign Tax Credit

A U.S. Holder who pays (or has withheld from distributions) Canadian income tax
with respect to the ownership of the Company's Shares may be entitled, at the
option

                                       47
<PAGE>   59
of the U.S. Holder, to either a deduction or a tax credit for such foreign tax
paid or withheld. Generally, it will be more advantageous to claim a credit
because a credit reduces United States federal income taxes on a
dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income
subject to tax. This election is made on a year-by-year basis and applies to all
foreign taxes paid by (or withheld from) the U.S. Holder during that year. There
are significant and complex limitations which apply to the credit, among which
is the general limitation that the credit cannot exceed the proportionate share
of the U.S. Holder's United States income tax liability that the U.S. Holder's
foreign source taxable income bears to his or its worldwide taxable income. In
the determination of the application of this limitation, the various items of
income and deduction must be classified into foreign and domestic sources.
Complex rules govern this classification process. In addition, this limitation
is calculated separately with respect to specific classes of income such as
"passive income," "high withholding tax interest," "financial services income,"
"shipping income," and certain other classifications of income. Dividends
distributed by the Company will generally constitute "passive income" or, in the
case of certain U.S. Holders, "financial services income" for these purposes.
The availability of the foreign tax credit and the application of the
limitations on the credit are fact specific, and holders and prospective holders
of the Company's Shares should consult their own tax advisors regarding their
individual circumstances.

Disposition of Company's Shares

A U.S. Holder will recognize gain or loss upon the sale of the Company's Shares
equal to the difference, if any, between (i) the amount of cash plus the fair
market value of any property received, and (ii) the shareholder's tax basis in
the Company's Shares. This gain or loss will be capital gain or loss if the
Company's Shares are a capital asset in the hands of the U.S. Holder, which will
be a short-term or long-term capital gain or loss depending upon the holding
period of the U.S. Holder. Gains and losses are netted and combined according to
special rules in arriving at the overall capital gain or loss for a particular
tax year. Deductions for net capital losses are subject to significant
limitations. For U.S. Holders which are individuals, any unused portion of such
net capital loss may be carried over to be used in later tax years until such
net capital loss is thereby exhausted. For U.S. Holders that are corporations
(other than corporations subject to Subchapter S of the Code), an unused net
capital loss may be carried back three years from the loss year and carried
forward five years from the loss year to be offset against capital gains until
such net capital loss is thereby exhausted.

Other Considerations

In the following circumstances, the above sections of this discussion may not
describe the United States federal income tax consequences resulting from the
holding and disposition of the Company's Shares:

                                       48
<PAGE>   60
Foreign Personal Holding Company

If at any time during a taxable year more than 50 percent of the total combined
voting power or the total value of the Company's outstanding shares is owned,
directly or indirectly, by five or fewer individuals who are citizens or
residents of the United States and 60 percent or more of the Company's gross
income for such year was derived from certain passive sources (e.g., from
dividends received from its subsidiaries), the Company may be treated as a
"foreign personal holding company." In that event, U.S. Holders that hold the
Company's Shares would be required to include in gross income for such year
their allocable portions of such passive income to the extent the Company does
not actually distribute such income.

Foreign Investment Company

If (i) 50 percent or more of the combined voting power or total value of the
Company's Shares are held, directly or indirectly, by citizens or residents of
the United States, United States domestic partnerships or corporations, or
estates or trusts other than foreign estates or trusts (as defined by the Code
Section 7701(a)(31)), and (ii) the Company is found to be engaged primarily in
the business of investing, reinvesting, or trading in securities, commodities,
or any interest therein, then it is possible that the Company may be treated as
a "foreign investment company" as defined in Section 1246 of the Code, causing
all or part of any gain realized by a U.S. Holder selling or exchanging the
Company's Shares to be treated as ordinary income rather than capital gain.

Passive Foreign Investment Company

As a foreign corporation with U.S. Holders, the Company could potentially be
treated as a passive foreign investment company ("PFIC"), as defined in Section
1296 of the Code, depending upon the percentage of the Company's income which is
passive, or the percentage of the Company's assets which is producing passive
income. U.S. Holders owning shares of a PFIC are subject to an additional tax
and to an interest charge based on the value of deferral of tax for the period
during which the shares of the PFIC are owned, in addition to treatment of gain
realized on the disposition of shares of the PFIC as ordinary income rather than
capital gain. However, if the U.S. Holder makes a timely election to treat a
PFIC as a qualified electing fund ("QEF") with respect to such shareholder's
interest therein, the above-described rules generally will not apply. Instead,
the electing U.S. Holder would include annually in his gross income his pro rata
share of the PFIC's ordinary earnings and net capital gain regardless of whether
such income or gain was actually distributed. A U.S. Holder of a QEF can,
however, elect to defer the payment of United States federal income tax on such
income inclusions. In addition, taxpayers owning (actually or constructively)
marketable stock in a PFIC will be permitted to elect to mark that stock to
market annually, rather than be subject to the excess-


                                       49
<PAGE>   61
distribution regime of Section 1291 of the Code. Amounts included in or deducted
from income under this regime (and actual gains and losses realized upon
disposition, subject to certain limitations) will be treated as ordinary.
Special rules apply to U.S. Holders who own their interests in a PFIC through
intermediate entities or persons.

The Company believes that it was not a PFIC for its fiscal years ended December
31, 1997 and 1998. The Company may have been a PFIC in earlier fiscal years and
may become a PFIC in its current and subsequent fiscal years. If in its current
or in a subsequent year the Company concludes that it is a PFIC, it intends to
make information available to enable a U.S. Holder to make a QEF election in
that year. There can be no assurance that the Company's determination concerning
PFIC status will not be challenged by the IRS, or that it will be able to
satisfy the record keeping requirements which are imposed on QEF's.

Controlled Foreign Company

If more than 50 percent of the voting power of all classes of stock or the total
value of the stock of the Company is owned, directly or indirectly, by citizens
or residents of the United States, United States domestic partnerships and
corporations or estates or trusts other than foreign estates or trusts, each of
whom owns 10 percent or more of the total combined voting power of all classes
of stock of the Company ("United States shareholder"), the Company could be
treated as a "controlled foreign corporation" under Subpart F of the Code (a
"CFC"). This classification would effect many complex tax results one of which
is the inclusion in the gross income of United States shareholders of certain
income of a CFC. The United States generally taxes United States shareholders of
a CFC currently on their pro rata shares of the subpart F income of the CFC. In
effect, the Code treats those United States shareholders as having received a
current distribution out of the CFC's subpart F income. Such shareholders also
are subject to current U.S. tax on their pro rata shares of the CFC's earnings
which are invested in U.S. property. The foreign tax credit may reduce the U.S.
tax on these amounts. In addition, under Section 1248 of the Code, gain from the
sale or exchange of stock by a holder of Shares of the Company who is or was a
United States shareholder at any time during the five year period ending with
the sale or exchange is treated as ordinary dividend income to the extent of
earnings and profits of the Company attributable to the stock sold or exchanged.
Note that the overlap between the PFIC and CFC rules generally will be
eliminated for 10-percent United States shareholders of a CFC. Where a foreign
corporation is both a PFIC and a CFC, the Code generally will treat the foreign
corporation as a non-PFIC with respect to 10-percent United States shareholders
of the CFC. Special rules are provided for stock held by PFIC shareholders
subject to the rules applicable to non-qualified funds. Because of the
complexity of Subpart


                                       50
<PAGE>   62
F, and because it is not clear that Subpart F would apply to the holders of
Shares of the Company, a more detailed review of these rules is outside of the
scope of this discussion.

ITEM 8 - SELECTED FINANCIAL DATA

The following table presents selected financial data for the Company which are
for the periods indicated below and which are derived from the Consolidated
Financial Statements of the Company and are prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP"). These
principles, as applied to the Company, do not differ materially from those
accounting principles and requirements of the Securities and Exchange Commission
in the United States ("U.S. GAAP") except as disclosed in Note 8 to the
Company's Consolidated Financial Statements. All figures are in Canadian funds.
The selected financial data should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations. To date, the
Company has not generated sufficient cash flow from operations to fund ongoing
operational requirements and cash commitments. The Company has financed its
operations principally through the sale of its equity securities and its ability
to continue operations is dependent on the ability of the Registrant to obtain
additional financing. See "Item 9 Management's Discussion and Analysis of
Financial Condition and Results of Operations."


<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31

                                              1998               1997               1996
                                              ----               ----               ----
                                               ($)                ($)                ($)
<S>                                       <C>                <C>                <C>
     INCOME STATEMENT DATA

     Revenues ..........................    1,013,742          1,619,836             88,257
     Expenses
         Research and development ......    9,433,681          4,733,918          1,720,031
         General and administration ....    4,695,990          1,563,555            540,285
                                          -----------        -----------        -----------
     Net loss ..........................  (13,115,929)        (4,677,637)        (2,172,059)
     Net loss per common share..........        (0.79)             (0.29)             (0.24)
</TABLE>


                                       51
<PAGE>   63
<TABLE>
<CAPTION>
                                                 AS AT DECEMBER 31

                                                1998           1997
                                                ----           ----
                                                 ($)            ($)
<S>                                          <C>            <C>
     BALANCE SHEET DATA

     Total assets.....................       15,159,774     27,299,744
     Shareholders' equity.............       12,646,840     25,708,769
</TABLE>

The Company has paid no dividends on its shares since incorporation and does not
anticipate doing so for the foreseeable future. The declaration of dividends on
the Common Shares of the Company is within the discretion of the Company's board
of directors and will depend upon, among other factors, earnings, capital
requirements, and the operating and financial condition of the Company.

ITEM 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion and analysis explains trends in the Company's financial
condition and results of operation for the years ending December 31, 1998, 1997
and 1996. This discussion and analysis of the results of operations and
financial condition of the Company should be read in conjunction with the
financial statements and the related notes included elsewhere in this Annual
Report. The financial statements have been prepared by management in accordance
with accounting principles generally accepted in Canada which conform to
accounting principles in the United States, except as described in Note 8 to the
financial statements.

OVERVIEW

The Company's business is the research, development and commercialization of
biopharmaceutical products for the therapy of cancer. Substantially all of the
Company's products are subject to regulation by the HPB in Canada, the FDA in
the United States, the EMEA in Europe and similar agencies in other countries.
None of the Company's products have been approved to date. The Company has not
been profitable since its inception and expects to continue to incur substantial
losses in continuing the research, development and clinical trials of its
products. The Company does not expect to generate significant revenues until
such time as and unless its cancer therapeutic products are approved by the
various regulatory agencies and become commercially viable.


                                       52
<PAGE>   64
ACQUISITION AND AMALGAMATION

Effective July 17, 1996, the Company (at that time known as Allrich Energy Group
Inc.) acquired all of the outstanding shares of AltaRex Inc. for a purchase
price satisfied through the issue of 7.5 million Common Shares of the Company.
These Common Shares gave AltaRex Inc.'s shareholders a controlling interest in
the Company and effectively constituted a reverse take-over of the Company by
the shareholders of AltaRex Inc. The Company, at the time of acquisition, was an
inactive public company. The purpose of the acquisition was to realize funds
associated with a private placement and special warrant offering that were
completed at that time and to provide future access to public market funding.
Effective May 31, 1997, the Company amalgamated with AltaRex Inc. and continued
under the name of AltaRex Corp.

RESULTS OF OPERATIONS

The Company, through its predecessor AltaRex Inc., commenced operations on
December 1, 1995 and completed its first full year of operations on December 31,
1996. As of December 31, 1998, the Company had incurred cumulative losses of
$20.2 million. This related to losses of $13.1 million, $4.7 million, and $2.2
million, respectively, for the years ended December 31, 1998, 1997 and 1996 and
a loss of $0.2 million for the one month ended December 31, 1995. These
increasing losses are due to the increased cost of clinical and product
development activities and supporting efforts in product commercialization.
Costs for research and development and supporting activities are expected to
increase as the Company pursues its development, clinical trials and
commercialization programs prior to receiving regulatory approvals and the
successful introduction of the Company's products.

Year ended December 31, 1998 compared to year ended December 31, 1997.

Revenues

Revenues for the year ended December 31, 1998 decreased by $0.61 million, from
$1.62 million in 1997 to $1.01 million in 1998. Interest income increased by
$0.06 million, from $0.90 million in 1997 to $0.96 million in 1998, due to
higher effective interest rates on short-term investments in 1998. Research
contract revenue decreased by $0.63 million, from $0.68 million to $0.05 million
in 1998, due to the completion of government research contracts in late 1997 and
early 1998.

Expenses

Expenses for the year ended December 31, 1998 increased by $7.83 million, from
$6.30 million in 1997 to $14.13 million in 1998. Research and development
expenses increased by $4.70 million, from $4.73 million in 1997 to $9.43 million
in 1998. This


                                       53
<PAGE>   65
increase is due to the expansion and progress of the Company's clinical trial
program for OvaRex(TM) MAb, which involved the consolidation of the Company's
Phase II clinical trial commenced in Canada in 1997 with its United States Phase
IIb clinical trial initiated in 1998 to form a potentially pivotal Phase IIb
North American trial. The increase is also due to the costs related to
production of antibody for clinical trial purposes.

General and administrative expenses increased by $3.13 million, from $1.56
million in 1997 to $4.69 million in 1998. This increase is due to the addition
of key management personnel in 1998, the establishment of an office in the
United States in May 1998 and the relocation of certain personnel to such
office, as well as the related support costs for increasing research and
development activities and patent and corporate development activities.

The Company anticipates that the level of spending in research and development
will continue to increase significantly in the near future as the Company's
OvaRex(TM) MAb, BrevaRex(TM) MAb and other programs enter into further research
and development activities, including but not limited to cell culture-derived
material production, clinical trials and submissions for regulatory approvals.
This will also result in an increase in general and administrative expenses to
support the growth in the Company's research, clinical and business development
programs. The actual levels of research and development and general and
administrative expenditures are dependent on the cash resources available to the
Company and the extent to which the Company is successful in contracting with
strategic partners to finance and commercialize its products. See " - Liquidity
and Capital Resources".

Year ended December 31, 1997 compared to year ended December 31, 1996

Revenues

Revenues for the year ended December 31, 1997 increased by $1.53 million, from
$0.09 million in 1996 to $1.62 million in 1997. Interest income increased by
$0.84 million, from $0.06 million in 1996 to $0.90 million in 1997, due to
higher average balances in short-term investments resulting from funds raised in
the $27.7 million public share offering completed in December 1996. Research
contract revenue increased by $0.67 million, from $0.01 million in 1996 to $0.68
million in 1997, and relates to two government research contracts undertaken by
the Company.

Expenses

Expenses for the year ended December 31, 1997 increased by $4.04 million, from
$2.26 million in 1996 to $6.30 million in 1997. Research and development
expenses increased by $3.01 million, from $1.72 million in 1996 to $4.73 million
in 1997. This increase reflects the cost of supporting a higher level of
activity in research, product


                                       54
<PAGE>   66
development and clinical trials, including increased staffing and research
supplies and the costs of managing clinical trials. Clinical trial activity
included the commencement of a Phase II clinical trial of the Company's lead
product OvaRex(TM) MAb in Canada, as well as the preparation for a Phase IIb
clinical trial in the United States.

General and administrative expenses for the year ending December 31, 1997
increased by $1.02 million, from $0.54 million in 1996 to $1.56 million in 1997.
This increase is due to the support required of the Company's growth in its
research and development programs, its business development activities and the
costs related to the maintenance of a publicly-traded company, including
increased staffing.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At December 31, 1998, the Company has cash and short-term investments of $12.8
million. Included in this balance are short-term financial instruments with a
carrying value, including accrued interest, of $12.3 million, consisting of
obligations of Canadian federal and provincial governments, as well as corporate
obligations. These instruments carry maturities of six months or less and their
carrying value approximates fair value. These instruments have a weighted
average interest rate of 5.07%. The Company purchases such financial instruments
for investment purposes only and not for trading or speculative purposes.

The Company's risks relative to these securities are credit risk and interest
rate risk. Regarding credit risk, the Company mitigates such risk by investing
only in federal or provincial government securities or investment grade
corporate obligations in the form of commercial paper or bankers' acceptances.
Regarding interest rate risk, exposure results from changes in short-term
interest rates or early redemption of securities. These risks are mitigated by
the short-term nature of the portfolio.

FOREIGN CURRENCY EXPOSURE

To date, exposure to foreign currency fluctuations has not had a material effect
on the Company's operations. Upon the opening of a U.S. office in Waltham,
Massachusetts, the establishment of significant operations there and the
conducting of clinical trials in the United States, the Company's risk of
foreign currency exposure will increase as a potentially significant portion of
its transactions will be denominated in U.S. dollars. The Company does not
currently engage in hedging or other activities to control the risk of foreign
currency exposure, but will continue to monitor the situation and may do so in
the future as conditions warrant.

IMPACT OF THE YEAR 2000 ISSUE


                                       55
<PAGE>   67
The Year 2000 issue is the result of computer programs being written using two
rather than four digits to define the applicable year. Computer programs that
have time sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system failure or
miscalculations, causing disruptions in operations.

In 1998, the Company developed, and is in the process of completing, a
comprehensive plan for the assessment of the impact of, and the necessary
remediation plans related to, the Year 2000 issue. The Company's plan includes
the review, assessment and testing of internal systems and equipment, the review
of Year 2000 compliance and readiness of vendors and suppliers to the Company
and the development of contingency plans for all mission critical systems and
risks. The design and execution of the plan is the responsibility of the Chief
Financial Officer and involves personnel from throughout the Company.

The Company has completed its inventory of all equipment and software
applications it uses throughout its offices and labs and is in the process of
testing such equipment and software. The Company has identified all key vendors
and suppliers and is currently in communication with them regarding Year 2000
readiness. Confirmation of Year 2000 compliance has been obtained from the
Company's payroll and accounting systems suppliers and banking and investment
management service providers. The Company is continuing its review and
assessment of Year 2000 readiness with contract research organizations and other
suppliers and service providers involved in the Company's clinical development
programs. Alternative suppliers and service providers and appropriate back-up of
data and information will be provided to mitigate any potential losses or delays
due to the Year 2000 issue. The Company specifies the need for Year 2000
compliance in all significant new contractual relationships.

Management of the Company believes that the review, assessment and testing and
the completion of any necessary changes will be completed by September, 1999.
The Company's expected aggregate expenditures related to the Year 2000
compliance is expected to be less than $100,000. These expenditures will be
incurred and paid in 1999 and the first half of 2000.

LIQUIDITY AND CAPITAL RESOURCES

Cash and short-term investments totalled $12.8 million at December 31, 1998.
Since its inception, the Company has financed its operations primarily through
private placements and public offerings of equity securities, amounting to $32.9
million, and interest income on invested balances, amounting to $1.9 million.
The Company currently has no contributing cash flows from operations. As a
result, the Company relies on external sources of financing such as the issue of
equity or debt securities, the exercise of warrants and investment income.


                                       56
<PAGE>   68
The Company's net cash used in operating activities amounted to $11.4 million,
$4.0 million and $2.2 million for the years ended December 31, 1998, 1997 and
1996, respectively, and resulted primarily from the Company's net operating
losses. The Company's net cash used in investing activities amounted to $0.6
million, $1.5 million and $0.1 million for the years ended December 31, 1998,
1997 and 1996, respectively, and resulted primarily from the purchase of capital
assets used in the Company's business.

On May 7, 1999, the Company closed the sale of 28.51 million shares for gross
proceeds of $14.3 million. On June 1, 1999, the Company closed the sale of the
remaining 5.49 million shares available under the offering plus an additional
5.1 million shares pursuant to the exercise of an overallotment option granted
to the agents. Gross proceeds raised on June 1, 1999 amounted to $5.3 million.
Total gross proceeds raised under this offering amounted to $19.6 million. Net
proceeds after deduction of agent fees and commissions amounted to $18.2
million.

The Company expects to incur substantial and increasing research and development
expenses, including expenses related to preclinical studies, clinical trials,
manufacturing and commercialization activities, and supporting general and
administrative expenses. The Company believes that the net proceeds of its
Public Offering (described in "Item 1 - Description of the Business - Strategic
Alliances and License Agreements), together with its available cash, and
interest earned thereon, should be sufficient to finance its operations and
capital needs through the first half of the year 2000, while maintaining
sufficient cash reserves. The Company's funding needs may vary depending on a
number of factors including progress of the Company's research and development
programs, the number and breadth of these programs, the results of preclinical
studies and clinical trials, the cost, timing and outcome of the regulatory
process, the establishment of collaborations, the cost of preparing, filing,
prosecuting, maintaining, defending and enforcing patent claims, the status of
competitive products and the availability of other financing.

The Company may need to raise substantial additional capital to fund its
operations in the future. The Company may seek such additional funding through
public or private equity or debt financings from time to time, as market
conditions permit, or through collaborative arrangements. The ability of the
Company to access the capital markets or to enlist strategic partners is
substantially dependent on the progress of its research and development programs
and regulatory approval of its products. There can be no assurance that
additional financing will be available on acceptable terms, if at all. If
adequate funds are not available, the Company may be required to delay, reduce
the scope of, or eliminate one or more of its research and development programs.

If the Purdue Option is exercised, Purdue has agreed to assume certain
historical and future costs and expenses incurred by the Company in connection
with the research


                                       57
<PAGE>   69
and development of OvaRex(TM) MAb and BrevaRex(TM) MAb products and to make
certain payments to the Company upon the Company's achieving certain milestones.
However, there can be no assurance that Purdue will exercise the Purdue Option,
thereby entitling the Company to such payments. See Item 1 - "Description of the
Business Strategic Alliances and License Agreements - Purdue Pharma L.P."

ITEM 9A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is included in the discussion under Item
9, above.


                                       58
<PAGE>   70
ITEM 10 - DIRECTORS AND OFFICERS OF REGISTRANT AS OF JUNE 1, 1999

<TABLE>
<CAPTION>
                                                                           PRESENT OCCUPATION AND POSITION
NAME AND MUNICIPALITY                   POSITION                           DURING THE LAST FIVE YEARS
--------------------------------------  ---------------------------------  -------------------------------------------
<S>                                     <C>                                <C>
Dr. Antoine A. Noujaim(2)               Chairman of the Board and          Present and Chief Executive Officer
Edmonton, Alberta                       Chief Scientific Officer           from November, 1995 to February 22,
                                                                           1998; President of Biomira
                                                                           Research Inc., a division of Biomira
                                                                           Inc. (A biopharmaceutical company),
                                                                           from 1994 to 1995; Senior Vice-President
                                                                           of the Immunoconjugate Division of Biomira
                                                                           Inc. from 1989 to 1994; director of Biomira
                                                                           Inc. from 1985 to 1995.


Richard E. Bagley                       President, Chief Executive         President, Chief Executive Officer
Weston, Massachusetts                   Officer and Director               and Director since February 23,
                                                                           1998.  Chairman and Chief
                                                                           Executive Officer of Proscript Inc.
                                                                           from September, 1995 to February,
                                                                           1998.  President and Chief Executive
                                                                           Officer of Immulogic
                                                                           Pharmaceutical Corporation from
                                                                           1990 to 1994.

William R. McMahan(2)                   Director                           Director since January 1, 1996.
Calgary, Alberta                                                           President of Oxbow Capital Corporation
                                                                           (a merchant banking company) from
                                                                           October, 1993 to present. A Director
                                                                           of International Marketing, Oxbow
                                                                           Resources Limited (a merchant banking
                                                                           company) from January, 1992 to present.
                                                                           Consultant for Safety Boss Limited (an
                                                                           oilfield service company) from August
                                                                           1, 1991 to December 31, 1991.

Jean-Claude Gonneau(1)                  Director                           Director since January 29, 1997.
London, United Kingdom                                                     Director of the Company.  Principal
                                                                           with Donaldson, Lufkin & Jenrette
                                                                           (an investment dealer).
</TABLE>


                                       59
<PAGE>   71
<TABLE>
<S>                                     <C>                                <C>
Monique Begin(1)                        Director                           Director since May 14, 1998.
Ottawa, Ontario                                                            Professor emeritus, University of
                                                                           Ottawa.  Dean, Faculty of Health
                                                                           Sciences, University of Ottawa from
                                                                           1990 to 1997.  Former Minister of
                                                                           National Health and Welfare
                                                                           Canada from September 1977 to
                                                                           September 1984.

Jim A. Wright(1)                        Director                           Director since May 14, 1998.
Winnipeg, Manitoba                                                         Chairman of the Board, President
                                                                           and Chief Scientific Officer of
                                                                           GeneSense Technologies Inc. since
                                                                           1997.  Terry Fox Senior Research
                                                                           Scientist of the National Cancer
                                                                           Institute of Canada since 1990.
                                                                           Associate Director, Manitoba
                                                                           Institute of Cell Biology since 1989.

Edward M. Fitzgerald                    Senior Vice President, Chief       Senior Vice President, Chief
Dover, Massachusetts                    Financial Officer and              Financial Officer and Secretary since
                                        Secretary                          September 28, 1998.  Consultant in
                                                                           private practice, 1998.  Director,
                                                                           Mergers & Acquisitions and
                                                                           Director, Consumer Lending Group
                                                                           at BankBoston Corporation from
                                                                           1992 to 1997.  With Arthur
                                                                           Andersen & Co. from 1978 to 1992
                                                                           serving as Partner from 1989 to
                                                                           1992.

Dr. Christopher F. Nicodemus            Senior Vice President,             Senior Vice President, Medical and
Charlestown, Massachusetts              Medical and Regulatory             Regulatory Affairs since January 25,
                                        Affairs                            1999.  Vice President, Medical
                                                                           Affairs from 1998 to 1999 and Vice
                                                                           President, Clinical Operations from
                                                                           1997 to 1998 of Diatide, Inc.  With
                                                                           Immulogic Pharmaceutical
                                                                           Corporation from 1993 to 1997
                                                                           serving as Vice President, Medical
                                                                           Affairs from 1994 to 1997.  Senior
                                                                           Associate Medical Director with
                                                                           Pfizer Labs from 1992 to 1993.

Dr. Thomas R. Sykes                     Vice-President, Preclinical        Vice-President since January, 1996.
Acton, Massachusetts                    and Support Operations             Director of Pharmaceutical Research
                                                                           and Development of Biomira
                                                                           Research Inc. from 1993 to 1995.
                                                                           Director of Product Development
                                                                           for the Immunoconjugate Division
                                                                           of Biomira Inc. from 1990 to 1993.
</TABLE>


                                       60
<PAGE>   72
<TABLE>
<S>                                     <C>                                <C>
Marlene R. Booth                        Vice President, Regulatory         Vice President, Regulatory Affairs
Norwell, Massachusetts                  Affairs and Project                and Project Management since June
                                        Management                         1, 1999.  Vice President, Project
                                                                           Management, QA and Regulatory at
                                                                           Proscript, Inc. from 1997 to 1999.
                                                                           Senior Director, Regulatory Affairs
                                                                           at Biopure Corporation from 1995 to
                                                                           1997.  Vice President, Regulatory
                                                                           Affairs and Quality Assurance from
                                                                           1992 to 1994 at Ares-Serono.
</TABLE>

NOTES:

(1)      Member of Audit Committee.
(2)      Member of Compensation Committee.
(3)      Mr. Sykes has tendered his resignation effective June 30, 1999.

ITEM 11 - COMPENSATION OF DIRECTORS AND OFFICERS

COMPENSATION OF EXECUTIVE OFFICERS

The following table sets forth the compensation paid to Richard E. Bagley, Dr.
Antoine A. Noujaim, Dr. R. Madiyalakan, Dr. Thomas Sykes and Blaine Schamber
(the "Named Executive Officers") for each of the fiscal years ended December 31,
1998 and 1997 and the period from July 17, 1996 to December 31, 1996, being the
end of the first financial year of the Company following the acquisition by the
Company of all of the issued shares of AltaRex Inc.


                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                     LONG-TERM
                                                                                 COMPENSATION AWARDS
                                                                                 -------------------
                                                       ANNUAL COMPENSATION         COMMON SHARES
                                                     ------------------------      UNDER OPTIONS        ALL OTHER
    NAME AND                        YEAR              SALARY            BONUS         GRANTED         COMPENSATION
PRINCIPAL POSITION                   (5)               ($)               ($)            (#)              ($)(4)
------------------------------------------------------------------------------------------------------------------
<S>                                 <C>              <C>               <C>       <C>                  <C>
Richard E. Bagley(1)                1998             315,179             Nil          825,000              Nil
President and Chief
Executive Officer
</TABLE>


                                       61
<PAGE>   73
                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                     LONG-TERM
                                                                                 COMPENSATION AWARDS
                                                                                 -------------------
                                                       ANNUAL COMPENSATION         COMMON SHARES
                                                     ------------------------      UNDER OPTIONS        ALL OTHER
    NAME AND                        YEAR              SALARY            BONUS         GRANTED         COMPENSATION
PRINCIPAL POSITION                   (5)               ($)               ($)            (#)              ($)(4)
------------------------------------------------------------------------------------------------------------------
<S>                                 <C>              <C>               <C>       <C>                  <C>
Dr. Antoine A. Noujaim(1)           1998             220,000             Nil              Nil            6,880
Chairman of the Board,              1997             220,000             Nil              Nil            6,312
Chief Scientific Officer            1996              78,602             Nil          375,000              Nil
and Former President and
Chief Executive Officer

Dr. R. Madiyalakan(2)               1998             131,706             Nil              Nil           32,991
Vice-President, Planning            1997             105,000           5,771           10,000            3,997
and Chief Scientific                1996                 Nil             Nil           25,000              465
Officer

Dr. Thomas Sykes                    1998             167,135             Nil              Nil           51,589
Vice President, Preclinical         1997             105,000             Nil           10,000            4,269
and Support Operations              1996              36,559             Nil           25,000              465

Blaine Schamber(3)                  1998             116,250             Nil           40,000           11,021
Controller; previously              1997             105,000             Nil           10,000            4,206
Vice-President, Finance             1996              35,941             Nil           25,000              464
and Corporate
Development
------------------------------------------------------------------------------------------------------------------
</TABLE>

Notes:

(1)      Dr. Noujaim became an officer of the Company on July 17, 1996 upon the
         acquisition by the Company of all of the issued shares of AltaRex Inc.
         Dr. Noujaim's salary was paid by AltaRex Inc. until May of 1997. Dr.
         Noujaim ceased to be the President and Chief Executive Officer of the
         Company on February 23, 1998. Mr. Richard E. Bagley was appointed
         President and Chief Executive Officer of the Company on that date.

(2)      Dr. Madiyalakan ceased to be an officer of the Company in September
         1998. He currently serves as a consultant to the Company under a
         services agreement that expires on September 30, 1999 and the amounts
         which appear on the table do not include compensation earned
         thereunder.

(3)      Mr. Schamber ceased to be the Vice-President, Finance and Corporate
         Development of the Company in July, 1998. He currently serves as
         Controller of the Company.

(4)      Compensation under the column "All Other Compensation" is with respect
         to employee benefits such as health care, life insurance and a group
         retirement savings plan. In respect of Messrs. Madiyalakan and Sykes,
         such amounts include relocation expenses. The aggregate amount of
         Perquisites and other personal benefits, securities, and property did
         not exceed the lesser of $50,000 and 10 percent of the total annual
         salary and bonus of the named Executive Officer.


                                       62
<PAGE>   74
(5)      1996 figures are for the period from July 17, 1996 to December 31,
         1996. 1997 and 1998 figures are for the period from January 1 to
         December 31 of those years.

On September 28, 1998, Edward M. Fitzgerald commenced employment with the
Company as Senior Vice-President, Chief Financial Officer and Secretary. Total
Annual Compensation for 1998 for the above executive officers and Mr. Fitzgerald
equals $1,042,644.

STOCK OPTIONS

The following table details information with respect to the grant of options by
the Company to the named executive officers during the financial year of the
Company ended December 31, 1998.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                  OPTION GRANTS
------------------------------------------------------------------------------------------------------------------------------
                                                                                  MARKET VALUE OF
                              COMMON        % OF TOTAL                             COMMON SHARES
                              SHARES          OPTIONS                               UNDERLYING
                              UNDER         GRANTED TO         EXERCISE OR        OPTIONS ON THE
                             OPTIONS         EMPLOYEES         BASE PRICE          DATE OF GRANT
                             GRANTED       IN FINANCIAL         ($/COMMON            ($/COMMON
          NAME                  #              YEAR              SHARE)               SHARE)              EXPIRY DATE(1)
------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>           <C>                 <C>                <C>                     <C>
Richard E. Bagley            825,000            57%               $3.00                $3.00               March 4, 2008
Blaine J. Schamber            40,000            3%                $2.18                $2.18               May 13, 2008
</TABLE>

Note:

(1)      At the annual and special meeting of shareholders held on May 19, 1999,
         the shareholders approved and adopted an amendment to the terms of
         certain outstanding options granted under the Plan extending the
         exercise period of such options from five years from the original date
         of grant to ten years from the original date of grant. The expiry date
         included herein incorporates the adoption of this amendment.

The following table details all options held by the named executive officers and
outstanding on December 31, 1998. There were no options of the Company exercised
by the named executive officers during the last financial year.


         AGGREGATED OPTION EXERCISES DURING THE MOST RECENTLY COMPLETED
               FINANCIAL YEAR AND FINANCIAL YEAR-END OPTION VALUES


                                       63
<PAGE>   75
<TABLE>
<CAPTION>
----------------------------------------------------------------------
                                                            VALUE OF
                                                           UNEXERCISED
                                UNEXERCISED               IN-THE-MONEY
                                OPTIONS AT                 OPTIONS AT
                                 FINANCIAL                 FINANCIAL
                                 YEAR-END                   YEAR-END
                               EXERCISABLE/               EXERCISABLE/
                               UNEXERCISABLE             UNEXERCISABLE
NAME                                (#)                       ($)1
----------------------------------------------------------------------
<S>                           <C>                        <C>
Richard E. Bagley                 Nil/825,000                NA/NA
----------------------------------------------------------------------
Dr. Antoine A.                250,000/125,000                NA/NA
Noujaim
----------------------------------------------------------------------
Dr. Thomas R.                    26,666/8,334                NA/NA
Sykes
----------------------------------------------------------------------
Blaine J.                       26,666/48,334                NA/NA
Schamber
----------------------------------------------------------------------
Dr. R.                             Nil/26,666                NA/NA
Madiyalakan
----------------------------------------------------------------------
</TABLE>

Note:

1        None of the unexercised options were in-the-money as at December 31,
         1998.

COMPENSATION OF DIRECTORS

In 1998, each director, with the exception of Dr. Antoine A. Noujaim and Mr.
Bagley, received a fee of $10,000 per annum. Further, all directors are eligible
to receive stock options and are entitled to receive their reasonable out-of
pocket disbursements incurred on the business of the Company. In the aggregate,
a total of $71,501 in fees was paid to the members of the Board of Directors
during the period from January 1, 1998 to December 31, 1998.


                                       64
<PAGE>   76
ITEM 12 - OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR
          SUBSIDIARIES


As at June 1, 1999, there were outstanding options to purchase a total of
2,355,499 Common Shares under the Company Stock Option Plan (the "Plan") and the
following table sets out in detail all stock options issued and outstanding
under the Plan.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                               Number of Shares                                 Exercise Price
Group                            Under Option            Date of Grant            per Share           Expiry Date(1)
-------------------------------------------------------------------------------------------------------------------------
<S>                            <C>                      <C>                     <C>                   <C>
Directors (excluding               382,500              July 26, 1996                1.80             July 26, 2006
Executive Officers)                 12,500              July 8, 1997                 3.68             July 8, 2007
(six in total                       30,000              January 22, 1998             2.96             January 22, 2008
                                   100,000              May 21, 1998                 2.18             May 21, 2008
-------------------------------------------------------------------------------------------------------------------------
Executive Officers                  25,000              July 26, 1996                1.80             July 26, 2006
(four in total)                     10,000              February 11, 1997            5.90             February 11, 2007
                                   824,130              March 4, 1998                3.00             March 4, 2008
                                       870              July 6, 1998                 3.00             July 6, 2008
                                   175,000              September 15, 1998           0.91             September 15, 2008
                                   175,000              December 23, 1998            0.53             December 23, 2008
-------------------------------------------------------------------------------------------------------------------------
Employees                          108,500              July 26, 1996                1.80             July 26, 2006
(29 in total)                       13,333              February 4, 1997             6.00             February 4, 2007
                                    10,000              February 11, 1997            5.90             February 11, 2007
                                    14,000              July 8, 1997                 3.68             July 8, 2007
                                     3,000              November 7, 1997             3.30             November 7, 2007
                                    10,000              February 1, 1998             2.84             February 1, 2008
                                   105,000              May 21, 1998                 2.18             May 21, 2008
                                    50,000              August 4,1998                1.15             August 4, 2008
                                    50,000              November 30, 1998            0.80             November 30, 2008
                                   100,000              May 11, 1999                 0.46             May 11, 2009
-------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       65
<PAGE>   77
<TABLE>
<S>                                 <C>                 <C>                          <C>              <C>
Consultants
Dr. Terry Allen                      5,000              July 8, 1997                 3.68             July 8, 2007
Dr. Richard Baum                    10,000              July 8, 1997                 3.68             July 8, 2007
Dr. Beatrice Leveugle                5,000              July 8, 1997                 3.68             July 8, 2007
Dr. Gerry Miller                     5,000              July 8, 1997                 3.68             July 8, 2007
Dr. John Samuels                     5,000              July 8, 1997                 3.68             July 8, 2007
Dr. Constantine Bona                10,000              July 8, 1997                 3.68             July 8, 2007
Dr. Jean-Francois Chatal            10,000              July 8, 1997                 3.68             July 8, 2007
Dr. David Goodwin                   10,000              July 8, 1997                 3.68             July 8, 2007
Dr. James Lown                      10,000              July 8, 1997                 3.68             July 8, 2007
Dr. Dean Mann                       10,000              July 8, 1997                 3.68             July 8, 2007
Dr. Paul Muller                     10,000              July 8, 1997                 3.68             July 8, 2007
Dr. Aldo Serafini                   10,000              July 8, 1997                 3.68             July 8, 2007
Dr. David Wishart                    5,000              November 7, 1997             3.30             November 7, 2007
Dr. R. Madiyalakan                  26,666              September 30, 1998           0.72             October 30, 1999
Genome Securities, Inc.             25,000              July 17, 1998                1.40             July 17, 2008
</TABLE>


Note:

(1)      At the annual and special meeting of shareholders held on May 19, 1999,
         the shareholders approved and adopted an amendment to the terms of
         certain outstanding options granted under the Plan extending the
         exercise period of such options from five years from the original date
         of grant to ten years from the original date of grant. The expiry date
         included herein incorporates the adoption of this amendment.


ITEM 13 - INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

There are no material interests, direct or indirect, of directors, senior
officers or shareholders of the Company who beneficially own, directly or
indirectly, more than 10% of the outstanding Common Shares or any known
associate or affiliates of such persons, in any transaction since July 1996 or
in any proposed transaction which has materially affected or will materially
affect the Company, except for the following:

1.       On July 17, 1996 the Company acquired all of the issued and outstanding
         shares of AltaRex Inc. for a purchase price satisfied by the issuance
         by the Company of 7,525,000 Common Shares (the "AltaRex Acquisition").
         As a result, the former shareholders of AltaRex Inc. became the
         controlling shareholders of the Company and AltaRex Inc. became a
         wholly owned subsidiary of the Company. Each of the officers and
         directors of the Company (other than Mr. Gonneau) directly or
         indirectly owned shares of AltaRex Inc. prior to the AltaRex
         Acquisition and therefore received Common Shares of the Company
         pursuant to the AltaRex Acquisition. The numbers of Common Shares of
         the Company referred to in this paragraph have been adjusted to reflect
         a consolidation of the Common Shares of the Company which was effected
         in November of 1996.


                                       66
<PAGE>   78
2.       AltaRex Inc. entered into loan agreements with several individuals
         between January 1, 1996 and July 17, 1996 pursuant to which it borrowed
         $1,100,000 (the "Bridge Financing"). Dr. Antoine A. Noujaim and 668355
         Alberta Ltd. loaned $100,000 and $400,000 respectively to AltaRex Inc.
         pursuant to the bridge financing. The loans from Dr. Noujaim and 668355
         Alberta Ltd. were unsecured loans bearing interest at 12% per annum.
         The bridge financing was repaid in full by AltaRex Inc. on July 30,
         1996. William R. McMahan, a director of the Company, is a director of
         668355 Alberta Ltd. and a trust established for the benefit of his
         family is a major shareholder of 668355 Alberta Ltd.


                                     PART II

ITEM 14 - DESCRIPTION OF SECURITIES TO BE REGISTERED

Not Applicable.

                                    PART III

ITEM 15 - DEFAULTS UPON SENIOR SECURITIES

Not Applicable

ITEM 16 - CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
          SECURITIES

Not Applicable

                                     PART IV

ITEM 17 - FINANCIAL STATEMENTS

See the Financial Statements listed in Item 19 hereof and attached hereto as
Exhibit A, which are filed and incorporated herein as part of this Annual
Report.

These financial statements were prepared in accordance with generally accepted
accounting principles in Canada and are expressed in Canadian dollars. Such
financial statements have been reconciled to United States generally accepted
accounting principles. For a history of exchange rates in effect for Canadian
dollars as against U.S. dollars see page 3 of this Annual Report.


                                       67
<PAGE>   79
ITEM 18 - FINANCIAL STATEMENTS

Not Applicable

ITEM 19 - FINANCIAL STATEMENTS AND EXHIBITS

Financial Statements

Report of Ernst & Young LLP, Independent Chartered Accountants

Consolidated balance sheets as at December 31, 1998 and December 31, 1997

Consolidated statements of loss and accumulated deficit for the years ended
December 31, 1998, 1997 and 1996, and for the period December 1, 1995 to
December 31, 1998

Consolidated statements of cash flows for the year ended December 31, 1998, 1997
and 1996, and for the period December 1, 1995 to December 31, 1998

Notes to the Consolidated Financial Statements

Exhibits

The list of Exhibits filed as part of this Annual Report on Form 20-F are set
forth on the Exhibit Index immediately preceding such Exhibits, and is
incorporated herein by this reference.


                                       68
<PAGE>   80

                                    SIGNATURE

Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.


ALTAREX CORP.


     /s/ Edward M. Fitzgerald
Per: ____________________________________________
      Edward M. Fitzgerald
      Senior Vice President, Chief Financial
      Officer and Secretary

DATED this 22nd day of June, 1999.


                                       69
<PAGE>   81
                                                                       Exhibit A

                                  CONSOLIDATED FINANCIAL STATEMENTS


                                  ALTAREX CORP.




                                  DECEMBER 31, 1998 AND 1997



                                      A-1
<PAGE>   82
                                AUDITORS' REPORT


To the Directors of
ALTAREX CORP.

We have audited the consolidated balance sheets of ALTAREX CORP. as at December
31, 1998 and 1997 and the consolidated statements of loss and accumulated
deficit, and the consolidated statements of cash flows for the years ended
December 31, 1998, 1997, 1996 and the period December 1, 1995 to December 31,
1998. 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 an audit to obtain
reasonable assurance 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.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1998
and 1997 and the results of its operations and the changes in its financial
position for the years ended December 31, 1998, 1997, 1996 and the period
December 1, 1995 to December 31, 1998 in accordance with accounting principles
generally accepted in Canada.



Edmonton, Canada                                      /s/ Ernst & Young LLP
February 12, 1999                                     Chartered Accountants
(except as to note 11 which is
as of April 27, 1999)



                                      A-2
<PAGE>   83
ALTAREX CORP.


                           CONSOLIDATED BALANCE SHEETS


As at December 31
<TABLE>
<CAPTION>

                                                                 1998                  1997
(In Canadian dollars)                                             $                      $
----------------------------------------------------------------------------------------------
<S>                                                         <C>                    <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments                               12,823,420            25,002,106
Accounts receivable                                               78,616               192,299
Investment tax credit receivable                                                       247,734
Prepaid expenses                                                 174,293                89,096
----------------------------------------------------------------------------------------------
                                                              13,076,329            25,531,235
DEPOSITS AND OTHER ASSETS [note 2]                               322,840               185,741
NOTES RECEIVABLE FROM EMPLOYEES [note 3]                         106,186
CAPITAL ASSETS [note 4]                                        1,654,419             1,582,768
----------------------------------------------------------------------------------------------
                                                              15,159,774            27,299,744
==============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable and accrued liabilities                       2,079,168             1,035,299
----------------------------------------------------------------------------------------------
                                                               2,079,168             1,035,299
DEFERRED LEASE CREDIT                                            433,766               555,676
----------------------------------------------------------------------------------------------
                                                               2,512,934             1,590,975
----------------------------------------------------------------------------------------------

COMMITMENTS AND CONTINGENCIES [notes 7 , 10 and 11]

SHAREHOLDERS' EQUITY
Share capital [notes 5 and 11]                                32,838,364            32,784,364
Accumulated deficit during the development stage             (20,191,524)           (7,075,595)
----------------------------------------------------------------------------------------------
                                                              12,646,840            25,708,769
----------------------------------------------------------------------------------------------
                                                              15,159,774            27,299,744
==============================================================================================
</TABLE>

See accompanying notes

On behalf of the Board:


                                       Director                     Director


                                      A-3
<PAGE>   84
ALTAREX CORP.


                       CONSOLIDATED STATEMENTS OF LOSS AND
                               ACCUMULATED DEFICIT

<TABLE>
<CAPTION>

                                                               YEARS ENDED                       DEC. 1, 1995
                                                              DECEMBER 31,                        - DEC. 31,
                                              ---------------------------------------------
                                                  1998              1997            1996             1998
(In Canadian dollars)                               $                 $               $                $
-------------------------------------------------------------------------------------------------------------
<S>                                         <C>                <C>               <C>              <C>
REVENUES
Research contracts [note 7]                      50,000           680,000            15,000           745,000
Sale of research materials                                         39,760             8,589            71,869
Interest income                                 963,742           900,076            64,668         1,928,486
-------------------------------------------------------------------------------------------------------------
                                              1,013,742         1,619,836            88,257         2,745,355
-------------------------------------------------------------------------------------------------------------

EXPENSES
Research and development [note 7]             9,433,681         4,733,918         1,720,031        16,095,431
General and administrative                    4,695,990         1,563,555           540,285         6,841,448
-------------------------------------------------------------------------------------------------------------
                                             14,129,671         6,297,473         2,260,316        22,936,879
-------------------------------------------------------------------------------------------------------------

NET LOSS FOR THE YEAR                       (13,115,929)       (4,677,637)       (2,172,059)      (20,191,524)
Accumulated deficit, beginning of year       (7,075,595)       (2,397,958)         (225,899)
-------------------------------------------------------------------------------------------------------------
ACCUMULATED DEFICIT, END OF YEAR            (20,191,524)       (7,075,595)       (2,397,958)      (20,191,524)
=============================================================================================================
NET LOSS PER COMMON SHARE                   ($     0.79)       ($    0.29)       ($    0.24)
-------------------------------------------------------------------------------------------
Weighted-average number of
   common shares                             16,503,764        15,894,880         9,067,374
===========================================================================================
</TABLE>

See accompanying notes


                                      A-4
<PAGE>   85
ALTAREX CORP.


                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>

                                                                         YEARS ENDED                     DEC. 1, 1995
                                                                         DECEMBER 31,                     - DEC. 31,
                                                    -------------------------------------------------
                                                       1998                1997             1996             1998
(In Canadian dollars)                                    $                   $                $                $
----------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                <C>               <C>              <C>
CASH USED IN OPERATING ACTIVITIES
Net loss                                             (13,115,929)       (4,677,637)       (2,172,059)      (20,191,524)
Adjustments to reconcile net loss to net
  cash used in operating activities:
   Depreciation and amortization                         548,687           366,268           127,816         1,052,488
   Amortization of deferred lease credit                (168,551)          (64,324)                           (232,875)
   Interest expense satisfied through
    issuance of common shares                                                                 12,066            12,066
Net changes in non-cash working capital
  balances                                             1,301,468           374,431          (163,546)        1,621,897
----------------------------------------------------------------------------------------------------------------------
                                                     (11,434,325)       (4,001,262)       (2,195,723       (17,737,948)
----------------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES
Purchase of capital assets                              (620,339)       (1,473,826)          (45,473)       (2,706,908)
Acquisition of AltaRex Corp.                                                                 (30,250)          (30,250)
----------------------------------------------------------------------------------------------------------------------
                                                        (620,339)       (1,473,826)          (75,723)       (2,737,158)
----------------------------------------------------------------------------------------------------------------------

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Issue of common shares, net [note 6]                      54,000         2,860,273        25,391,601        29,305,874
Issue of Private Placement Units, net [note 6]                                             2,340,674         2,340,674
Issue of Special Warrants, net [note 6]                                                    1,210,000         1,210,000
Share subscription receivable                                                                293,963
Deferred lease credit                                     46,641           620,000                             666,641
Deferred finance costs                                  (118,477)                                             (118,477)
Employee relocation loans                               (106,186)                                             (106,186)
Net changes in non-cash financing balances                                (219,028)          219,028
----------------------------------------------------------------------------------------------------------------------
                                                        (124,022)        3,261,245        29,455,266        33,298,526
----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
   SHORT-TERM INVESTMENTS                            (12,178,686)       (2,213,843)       27,183,820        12,823,420
Cash and short-term investments,
   beginning of year                                  25,002,106        27,215,949            32,129
----------------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS,
   END OF YEAR                                        12,823,420        25,002,106        27,215,949        12,823,420
======================================================================================================================
</TABLE>

See accompanying notes


                                      A-5
<PAGE>   86
ALTAREX CORP.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 1998 and 1997

(In Canadian dollars)


1. BASIS OF PRESENTATION

DESCRIPTION OF BUSINESS

The Company, amalgamated under the Business Corporations Act (Alberta) is a
biotechnology company that is engaged in the research and development of
biopharmaceutical products for the therapy of cancer. The Company is in its
development stage.

The Company's ability to complete its research and development program and
commercialize its technology is dependent on the Company continuing to arrange
the necessary financing and the receipt of regulatory approvals to use its
products in the therapy of cancer.

ACQUISITION OF ALTAREX INC.

Effective July 17, 1996, AltaRex Corp. (formerly known as Allrich Energy Group
Inc.) acquired 100% of the issued and outstanding common shares of AltaRex Inc.
by issuing a total of 7,525,000 of AltaRex Corp.'s common shares. At the date of
acquisition, AltaRex Corp. was a non-operating company with net monetary
liabilities totalling $30,250, which amount approximated their net fair value.
AltaRex Inc. was incorporated on October 31, 1995 and commenced active
operations on December 1, 1995. By this transaction, sufficient common shares of
AltaRex Corp. were issued so that a controlling interest (approximately 74%) of
the corporate group passed to the former shareholders of AltaRex Inc.
Accordingly, for accounting purposes, AltaRex Inc. was treated as the purchaser,
and the acquisition was accounted for as a reverse take-over. The legal parent
company, AltaRex Corp., is deemed to be a continuation of AltaRex Inc., and
accordingly, these financial statements are a continuation of the financial
statements of AltaRex Inc., the legal subsidiary, and not the legal parent. In
these financial statements, the 1996 comparative figures presented are those of
AltaRex Inc. In making the acquisition, AltaRex Inc. acquired net liabilities of
approximately $30,250 which amount has been charged to share issue costs. The
acquisition has been accounted for using the purchase method with the cost of
the purchase being a nominal $1.

AMALGAMATION OF ALTAREX CORP. AND ALTAREX INC.

Effective May 31, 1997, AltaRex Corp. amalgamated with its wholly-owned
subsidiary, AltaRex Inc., to continue operations as AltaRex Corp. For accounting
purposes, the amalgamation has been accounted for based on the carrying amounts
of the assets and liabilities of AltaRex Corp. and AltaRex Inc. prior to the
amalgamation.


                                      A-6
<PAGE>   87
ALTAREX CORP.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 1998 and 1997

(In Canadian dollars)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared by management in accordance with
accounting principles generally accepted in Canada, which do not differ
materially from those established in the United States, except as disclosed in
Note 8. The preparation of financial statements in conformity with such
principles requires management to make estimates and assumptions that affect the
reported assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting periods. Actual results could differ
from those estimates.

CONSOLIDATION OF SUBSIDIARIES

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, AltaRex US, Corp.

REVENUE RECOGNITION

Research material sales are recognized as materials are delivered.

Revenue from research contracts, which includes government funding of research
projects, is recognized as the services are performed based on costs incurred
or, for those contracts that provide for milestone payments, as milestones are
achieved. Amounts received under refundable research contracts are recorded as
revenue when repayment is conditional on the commercial success of the research
effort. Amounts received in advance of services to be performed are recorded as
unearned revenue.

CASH AND SHORT-TERM INVESTMENTS

The Company invests its surplus cash in highly liquid government and commercial
instruments with maturities not exceeding one year. The carrying cost of
short-term investments approximates their fair value. The short-term investments
held at December 31, 1998 have maturity periods averaging 2.5 months (1997 - 5
months) and average interest rates approximating 5.1% (1997 - 3.9%).


                                      A-7
<PAGE>   88
ALTAREX CORP.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 1998 and 1997

(In Canadian dollars)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

DEPOSITS AND OTHER ASSETS

Deposits and down payments on service contracts are deferred and expensed as
services are provided under the terms of the contract.

Included in deposits and other assets are amounts paid on deposit to an
underwriter in anticipation of a financing transaction and have been deferred
pending completion of a transaction. In the event of successful completion of
the financing these costs will be charged to capital. In the event the financing
is unsuccessful these costs will be expensed.

CAPITAL ASSETS

Capital assets are stated at cost net of investment tax credits, accumulated
amortization and depreciation. Depreciation and amortization is provided at
rates which are designed to allocate the cost of the assets, on a straight-line
basis, over their estimated useful lives as follows:

<TABLE>
<S>                                               <C>
            Scientific equipment                      5 years
            Computer software and equipment           3 years
            Office equipment                          5 years
            Leasehold improvements                3 - 5 years, term of lease
</TABLE>

DEFERRED LEASE CREDIT

The deferred lease credit relates to leasehold improvements provided to the
Company by the landlord for its leased office and research facilities. The
deferred lease credit is being amortized over the term of the lease agreements
which is three to five years (see note 7).

RESEARCH AND DEVELOPMENT COSTS

Research costs are expensed in the period incurred. Development costs are
expensed in the period incurred unless the Company believes a development
project meets generally accepted accounting principles for deferral and
amortization. No development costs have been deferred to date.

FOREIGN CURRENCY TRANSLATION

Monetary assets and liabilities in foreign currencies are translated into
Canadian dollars at the rate of exchange at the period end; transactions during
the period are translated at the rate of exchange in effect at the date of the
transaction. Gains and losses arising from these translation adjustments are
included in income.


                                      A-8
<PAGE>   89
ALTAREX CORP.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 1998 and 1997

(In Canadian dollars)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INVESTMENT TAX CREDITS

The Company is permitted to offset federal income taxes payable with unapplied
investment tax credits which are based on the cost of carrying on qualifying
research and development activities and the cost of qualifying new equipment
(see note 6).

Refundable investment tax credits received by the Company relating to the
acquisition of assets are deducted from the cost of the related asset.
Refundable investment tax credits received by the Company relating to current
expenses are included in the determination of net income as a reduction of
research and development costs.

INCOME TAXES

Income taxes have been provided on a deferred tax allocation basis whereby the
provision for income taxes is determined on the basis of income and expenses
included on the statement of income rather than the related amounts reported in
the income tax returns of the Company. Deferred income taxes relate primarily to
differences between the amount of depreciation and amortization recorded for
accounting purposes and capital cost allowance claimed for income tax purposes.

LOSS PER SHARE

In accordance with generally accepted accounting principles in Canada applicable
to reverse take-overs, the loss per share figures are calculated on the
following basis:

-        The number of shares outstanding from the beginning of the fiscal
         period to the date of the reverse take-over on July 17, 1996 are deemed
         to be the number of shares issued by AltaRex Corp. to AltaRex Inc.

-        The number of shares outstanding from the date of the reverse take-over
         to the end of each of the fiscal periods are deemed to be the actual
         number of shares of AltaRex Corp. outstanding in each period.

The loss per share figure is calculated on the weighted-average number of shares
outstanding based on the numbers determined above, including shares held in
escrow.


                                      A-9
<PAGE>   90
ALTAREX CORP.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 1998 and 1997

(In Canadian dollars)


3. NOTES RECEIVABLE

The note receivable balance is comprised of employee relocation loans. The notes
are unsecured, non-interest bearing (except on default of repayment),
denominated in U.S. dollars, and have maturity dates ranging from May 2000 to
June 2003.

4. CAPITAL ASSETS
<TABLE>
<CAPTION>
                                                      1998                          1997
                                          ---------------------------     -----------------------
                                                        ACCUMULATED                  ACCUMULATED
                                           COST        AMORTIZATION        COST     AMORTIZATION
                                             $               $               $            $
------------------------------------------------------------------------------------------------
<S>                                    <C>             <C>             <C>           <C>
Scientific equipment                     1,187,996       543,893         954,565       306,144
Computer software and equipment            301,968       150,688         174,658        74,763
Office equipment                           416,559       117,151         244,346        50,820
Leasehold improvements                     781,041       221,413         713,000        72,074
----------------------------------------------------------------------------------------------
                                         2,687,564     1,033,145       2,086,569       503,801
----------------------------------------------------------------------------------------------
NET BOOK VALUE                          1,654,419                      1,582,768
==============================================================================================
</TABLE>

5. SHARE CAPITAL

AUTHORIZED

The authorized share capital of the Company consists of an unlimited number of
common shares and an unlimited number of preferred shares.

The preferred shares may be issued in one or more series and the directors are
authorized to fix the number of shares in each series and to determine the
designation, rights, privileges, restrictions and conditions attached to the
shares of each series.


                                      A-10
<PAGE>   91
ALTAREX CORP.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 1998 and 1997

(In Canadian dollars)


5. SHARE CAPITAL (CONTINUED)

ISSUED AND OUTSTANDING COMMON SHARES

Summarized below is the issued and outstanding common shares of AltaRex Corp.:
<TABLE>
<CAPTION>
                                                                                             SHARE
                                                                           NUMBER OF         CAPITAL
                                                                           SHARES             $
----------------------------------------------------------------------------------------------------
<S>                                                                       <C>             <C>
BALANCE AT DECEMBER 1, 1995                                                1,169,330
   Issue of shares                                                            25,000
   Initial capitalization of Company                                                       1,000,000
----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995                                               1,194,330       1,000,000
   Private placement of shares of AltaRex Inc.                                               175,200
   Issue of shares of AltaRex Inc. in settlement of interest payable                          12,066
   Shares issued in private placement of unit sales                        1,497,500       2,310,424
   Shares issued to acquire AltaRex Inc.                                   7,525,000               1
   Issue of shares for cash from exercise of Special Warrants                797,500       1,210,000
   Shares issued for cash in public offering                               4,100,000      25,036,466
   Issue of shares resulting from exercise of stock options                  116,933          76,014
   Issue of shares resulting from exercise of Warrants                        43,300         103,920
----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996                                              15,274,563      29,924,091
   Issue of shares resulting from exercise of stock options, net              95,000         170,931
   Issue of shares resulting from exercise of Warrants                     1,113,050       2,689,342
----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997                                              16,482,613      32,784,364
   Issues of shares resulting from exercise of stock options                  30,000          54,000
----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998                                              16,512,613      32,838,364
====================================================================================================
</TABLE>

Effective November 28, 1996, the shareholders approved a consolidation of the
Company's common shares, on the basis of one new common share for every four
existing common shares. These financial statements reflect the share
consolidation for all periods presented.

On July 17, 1996, the Company issued 1,497,500 common shares on the exercise of
Private Placement Units ("Units"). The Units were issued for gross proceeds of
$2,695,500 inclusive of Units issued for $175,000 in commission charges. The
Units consisted of 1,497,500 common shares and common share purchase warrants
("Warrants") that were exercisable into 1,497,500 common shares.


                                      A-11
<PAGE>   92
ALTAREX CORP.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 1998 and 1997

(In Canadian dollars)


5. SHARE CAPITAL (CONTINUED)

Also on July 17, 1996 Special Warrants were issued for gross proceeds of
$1,435,500 inclusive of Special Warrants issued for $130,500 in commission
charges. The Special Warrants consisted of 797,500 common shares and Warrants
that were exercisable into 797,500 common shares. On November 18, 1996 a total
of 797,500 common shares were issued on the exercise of Special Warrants.

As additional consideration for the services rendered by the underwriter related
to the Special Warrant issuance, a compensation option was granted. The
compensation option consisted of optioned units that if exercised would have
resulted in the issuance of 72,500 common shares and warrants that would have
been exercisable into 72,500 common shares.

On July 17, 1998 the right to exercise the outstanding Warrants and compensation
option related to the issuance of Units and Special Warrants expired.

On December 20, 1996, the Company issued 4,100,000 common shares in a public
offering for net proceeds of $25,036,466, after related issue expenses of
$2,638,534.

As at December 31, 1998, a total of 2,649,552 (December 31, 1997 - 5,260,994)
common shares of the Company are being held in escrow for regulatory purposes
and released on the following basis:

-        An amount of 2,434,773 (December 31, 1997 - 4,831,440) common shares
         will be released from escrow on a basis pro rata to each shareholder,
         of one common share for each $1.20 of gross research and development
         costs incurred by the Company to a maximum in any one year of 2,396,667
         common shares. A total of 2,396,667 common shares were released in
         1998.

-        An additional 214,779 (December 31, 1997 - 429,554) common shares will
         be released from escrow on a basis pro rata to each shareholder on July
         17, 1999. A total of 214,775 common shares were released on July 15,
         1998.

WARRANTS AND STOCK OPTION PLAN (SEE NOTE 11)

In 1998, the Company amended its stock option plan for directors, officers,
employees and consultants. Pursuant to the amended plan, a total of 2,480,000
(December 31, 1997 - 1,544,206) common shares of the Company are reserved for
issue of stock options, of which 209,251 (December 31, 1997 - 565,373) are
available for grant at December 31, 1998. At December 31, 1998, there were
2,114,083 (December 31, 1997 - 683,833) stock options outstanding for directors,
officers and employees and 156,666 (December 31, 1997 - 295,000) options for
consultants.


                                      A-12
<PAGE>   93
ALTAREX CORP.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 1998 and 1997

(In Canadian dollars)

5. SHARE CAPITAL (CONTINUED)

The following schedule details the warrants and stock options granted,
exercised, expired and cancelled since December 1, 1995.

<TABLE>
<CAPTION>
                                                     SHARES ISSUABLE ON
                                                         EXERCISE OF
                                              ------------------------------       EXERCISE PRICE
                                              STOCK OPTIONS       WARRANTS         PER SHARE
                                                                                          $
-------------------------------------------------------------------------------------------------
<S>                                           <C>                <C>               <C>
BALANCE AT DECEMBER 1 AND
DECEMBER 31, 1995                                   Nil                 Nil
     Granted                                    858,500           2,440,000           1.80 - 3.00
     Exercised                                                      (43,300)          2.40 - 3.00
-------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996                    858,500           2,396,700
     Granted                                    217,833              41,667           3.30 -12.00
     Exercised                                  (95,000)         (1,113,050)          1.80 - 3.00
     Cancelled                                   (2,500)                                     3.68
-------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997                    978,833           1,325,317
     Granted                                  1,723,666                               0.53 - 3.00
     Exercised                                  (30,000)                                     1.80
     Cancelled                                 (401,750)                              1.15 - 5.90
     Expired                                                     (1,283,650)          1.80 - 3.00
-------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998                  2,270,749              41,667
=================================================================================================
</TABLE>

                                      A-13
<PAGE>   94
ALTAREX CORP.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 1998 and 1997

(In Canadian dollars)

5. SHARE CAPITAL (CONTINUED)

The following warrants and stock options to purchase common shares are
outstanding at December 31, 1998.

<TABLE>
<CAPTION>

         SHARES ISSUABLE ON
            EXERCISE OF
------------------------------------
                                                   EXERCISE PRICE
STOCK OPTIONS              WARRANTS                    PER SHARE                YEAR OF EXPIRY
                                                          $
----------------------------------------------------------------------------------------------
<S>                        <C>                   <C>                            <C>
     26,666                                              0.72                        1999
                             41,667                     12.00                        2000
    522,250                                              1.80                        2001
    139,500                                       3.30 - 3.68                        2002
     33,333                                       5.90 - 6.00                        2002
    400,000                                       0.53 - 0.91                        2003
     75,000                                       1.15 - 1.40                        2003
  1,074,000                                       2.18 - 3.00                        2003
-----------------------------------------------------------------------------------------------
  2,270,749                  41,667
===============================================================================================
</TABLE>


                                      A-14
<PAGE>   95
ALTAREX CORP.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 1998 and 1997

(In Canadian dollars)


6. INCOME TAX

The Company is eligible for scientific research and development investment tax
credits which may be applied against federal taxes payable. The accumulated
non-refundable investment tax credits as at December 31, 1998 approximate
$1,923,000 (December 31, 1997 - $1,360,000).

As at December 31, 1998, the Company has scientific research and experimental
development expenditures for tax purposes of approximately $8,146,000 (December
31, 1997 - $5,208,000) which may be carried forward indefinitely and utilized by
reducing income for income tax purposes.

As at December 31, 1998, the Company has approximately $12,984,000 (December 31,
1997 - $2,900,000) of non-capital losses available to be applied to taxable
income of future years. These losses expire between 2001 and 2005.

No recognition has been given in these financial statements to the potential tax
benefits which may result from these carry forward amounts.

7. COMMITMENTS AND CONTINGENCIES (SEE NOTE 11)

The Company leases office and research facilities and is committed to annual
minimum basic rent payments as follows:
<TABLE>
<CAPTION>
                                           $
------------------------------------------------------
<S>                                   <C>
           1999                         279,919
           2000                         279,919
           2001                         156,077
           2002                          52,454
</TABLE>


                                      A-15
<PAGE>   96
ALTAREX CORP.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 1998 and 1997

(In Canadian dollars)

7. COMMITMENTS AND CONTINGENCIES (CONTINUED)

On December 1, 1995, in an arm's-length transaction, AltaRex Inc. acquired a
fifteen year exclusive world-wide right and license to a certain antibody, its
cell bank, related data, records and proprietary rights (the "Technology") which
will be used for the therapy of cancer (the "Biomira License Agreement"), for a
non-refundable cash fee of $150,000 from Biomira Inc., which, at the time of the
acquisition, had a director who was also a director of the Company. This license
fee has been charged to research and development expenses. In addition, certain
equipment was purchased for cash of $514,000, an amount approximating its fair
value. The Company also agreed to pay royalties associated with revenues from
the Technology. The Technology agreement requires that the Company use its best
efforts to commercialize the Technology and to commit to spending certain
minimum amounts to develop the Technology. Should these obligations not be met,
the Company's right under the Technology agreement ceases to be exclusive (see
note 11).

The Company is party to a jointly-funded research contract with the
Canada-Israel Industrial Research and Development Foundation. Total funding of
$300,000 is available over a three year term commencing in 1997. During 1997,
$100,000 was received and recorded as revenue. No amounts were received in 1998
and the Company is not currently conducting research pursuant to the contract.
The funding received is conditionally repayable, on commercial success, at a
rate of 2.5% of gross sales of the resulting products.

The Company is party to an agreement with the Alberta Heritage Foundation for
Medical Research to jointly fund clinical trials, with the Company controlling,
through ownership or licensing, all of the technology. Total funding available
of $500,000 was received and recorded as revenue in 1997. The Company is
required to repay this funding and a royalty equivalent to the amount actually
received, from the commercial success of the resulting products and technology,
at a rate of the lesser of 5% of gross sales or $100,000 per annum. In addition,
the Company granted Warrants in connection with this agreement which entitle the
holder to obtain 41,667 common shares (see note 5).

The Company has contracted certain research projects to a third party consultant
for a three year period ending March 2000. Fees will be paid to the consultant
to a maximum of $300,000 per annum.


                                      A-16
<PAGE>   97
ALTAREX CORP.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 1998 and 1997

(In Canadian dollars)


8. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY
    ACCEPTED IN THE UNITED STATES

These financial statements have been prepared in accordance with accounting
principles generally accepted in Canada (Canadian GAAP) which conform in all
material respects to those accounting principles in the United States (U.S.
GAAP), except as follows:

(a) Cash and short-term investments
    For Canadian GAAP purposes with regard to the statement of cash flows, cash
    and cash equivalents include all short-term investments. For U.S. GAAP
    purposes only those short-term investments with original maturities of less
    than three months would be included in cash and cash equivalents. Short-term
    investments with maturities greater than three months amounted to $4,241,732
    as at December 31, 1998 ($9,036,000 as at December 31, 1997).

    In addition, for Canadian GAAP purposes, the gross amount of non-cash items
    are included in the respective operating, investing, or financing activities
    as applicable. For U.S. GAAP purposes, non-cash items such as leasehold
    improvements financed by the deferred lease credit would be excluded from
    the statements of cash flows. Accordingly, for U.S. GAAP purposes for the
    year ended December 31, 1998 cash used in investing activities would
    decrease by $4,840,909 (1997 - increase by $8,416,000), cash provided in
    financing activities would decrease by $46,641 (1997 - $620,000) and cash
    and cash equivalents would decrease by $4,241,732 (1997 - $9,036,000).

(b) Accounting for income taxes
    For U.S. GAAP purposes, the Company would be required to account for income
    taxes in accordance with the provisions of Statement of Financial Accounting
    Standards No. 109 "Accounting for Income Taxes" (SFAS 109). SFAS 109
    requires recognition of deferred tax assets and liabilities for the expected
    future tax consequences of events that have been included in the financial
    statements or tax returns. Under this method, deferred tax assets and
    liabilities are determined based on the difference between the financial
    statement and tax bases of assets and liabilities using enacted tax rates in
    effect for the year. In addition, for U.S. GAAP purposes, a deferred tax
    asset, net of a valuation allowance, would be recorded to recognize the
    future benefit of loss carryforwards when the realization of the benefit is
    determined to be more likely than not. For Canadian GAAP purposes, the
    benefits of such losses may only be recorded in the period incurred if
    realization is virtually certain. At December 31, 1998, the Company has
    determined that the deferred tax asset net of a valuation allowance of
    $11,066,000 (December 31, 1997 - $5,005,000) would be nil (nil at December
    31, 1997).


                                      A-17
<PAGE>   98

                   Notes to Consolidated Financial Statements

8. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY
    ACCEPTED IN THE UNITED STATES (CONTINUED)

(c) Accounting for stock-based compensation

    For U.S. GAAP purposes, the Company would account for stock-based
    compensation to employees in accordance with Accounting Principles Board
    (APB) Opinion No. 25. For U.S. GAAP purposes, no compensation expense would
    be recognized on the Company's stock options and warrants granted, since the
    exercise price of these instruments equal the fair value of the Company's
    stock as at the date of the grant. Stock-based compensation to non-employees
    would be recorded at the fair value of the options and warrants granted.
    This compensation expense would be amortized over the appropriate vesting
    periods. As at December 31, 1998, the unamortized compensation benefit that
    the Company would record as additional compensation expense in future
    periods amounts to $89,000 (December 31, 1997 - $181,000).

(d) Reverse  take-over costs

    For Canadian GAAP purposes, costs incurred in connection with the Company's
    reverse take-over are presented as a charge against shareholder's equity.
    For U.S. GAAP purposes, these costs totalling $495,000 would be charged to
    expense. Accordingly, net loss for the year ended December 31, 1996 and
    share capital for each of the periods presented would increase by $495,000.

 (e) Comprehensive income

    For U.S. GAAP purposes, the Company would adopt the disclosure requirements
    of Financial Accounting Standard No. 130 ('SFAS 130'). SFAS 130 requires the
    presentation of comprehensive income and its components. Comprehensive
    income includes all changes in equity during a period except shareholder
    transactions. For the periods presented, comprehensive income would equal
    net loss determined for U.S. GAAP purposes as set out in the following
    table.


                                      A-18
<PAGE>   99
ALTAREX CORP.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 1998 and 1997

(In Canadian dollars)


8. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY
    ACCEPTED IN THE UNITED STATES (CONTINUED)

The following table reconciles the net loss as reported on the statements of
loss to the net loss that would have been reported had the financial statements
been prepared in accordance with U.S. GAAP.

<TABLE>
<CAPTION>
                                                             YEARS ENDED                 DEC. 1, 1995
                                                             DECEMBER 31,                - DEC. 31,
                                               --------------------------------------
                                                 1998         1997             1996         1998
                                                   $            $                $           $
-----------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>            <C>           <C>
Net loss per  Canadian GAAP                    13,115,929    4,677,637      2,172,059     20,191,524

Adjustment for stock -based compensation          130,000      163,000         75,000        368,000

Adjustments of reverse take-over costs                                        495,000        495,000
----------------------------------------------------------------------------------------------------
Net loss per U.S. GAAP                         13,245,929    4,840,637      2,742,059     21,054,524
====================================================================================================
Basic and diluted net loss
per share, U.S. GAAP                                (0.80)       (0.30)         (0.30)
=====================================================================================
Weighted-average number of
common shares                                  16,503,764   15,894,880      9,067,374

Weighted-average number
of common shares and
dilutive share equivalents                     16,503,764   15,894,880      9,067,374
====================================================================================================
</TABLE>

The following summarizes balance sheet items with material variations under U.S.
GAAP.
<TABLE>
<CAPTION>

                                                                   DECEMBER 31,       DECEMBER 31,
                                                                       1998               1997
                                                                        $                  $
-------------------------------------------------------------------------------------------------
<S>                                                                 <C>                <C>
Share capital                                                       33,701,364         33,517,364
Accumulated deficit                                                 21,054,524          7,808,595
</TABLE>


                                      A-19
<PAGE>   100
ALTAREX CORP.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 1998 and 1997

(In Canadian dollars)

9. SEGMENTED DISCLOSURE

The Company has considered the reporting requirements of the Canadian Institute
of Chartered Accountants on segment disclosures. The Company has determined that
it manages its operations as one reportable segment of a biotechnology company
engaged in the research and development of biopharmaceutical products for the
therapy of cancer. All of the Company's revenues are generated in Canada. The
Company's capital assets are located in Canada with the exception of $330,000
located in the United States.

10. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE

The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
entity, including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.



                                      A-20
<PAGE>   101
ALTAREX CORP.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 1998 and 1997

(In Canadian dollars)

11. SUBSEQUENT EVENTS

(a)      Biomira License Agreement

         Biomira Inc. has provided the Company with written notice alleging that
         the Company is in default of certain reporting obligations under the
         Biomira License Agreement and that Biomira Inc. will terminate the
         agreement on June 1, 1999 unless the alleged defaults are fully cured
         on or before that date. Biomira had previously given notice to the
         Company of the alleged default and that the agreement would terminate
         on April 15, 1999. The Company believes that it is currently in
         compliance with all of the terms of the Biomira License Agreement and
         intends to take such actions as may be necessary to prevent any attempt
         by Biomira Inc. to terminate the Biomira License Agreement or in any
         way limit the rights of the Company thereunder.

(b)      Biomira Claim

         On February 26, 1999, Biomira Inc. commenced legal action against the
         Company, the founder of the Company and certain other individuals
         affiliated with the Company, claiming ownership of an invention
         disclosed in a patent application filed by the Company relating to
         certain aspects of the Company's core technology, products, processes,
         and their production. In the action, Biomira is seeking, among other
         things, a court order stating that it is the sole owner of the
         invention and related intellectual property rights therein, including
         the patent application, an injunction prohibiting the Company from
         using the invention and damages in the amount of $200,000,000. Although
         there can be no assurance that Biomira will not be successful with its
         claim, the Company believes that the claim is without merit. The
         Company has filed a statement of defense denying the claim. Given the
         early stage of the Biomira Claim, it is not possible to estimate the
         potential costs and losses, if any, related to this matter.

(c)      Altarex Claim

         On March 16, 1999, the Company filed a counter claim against Biomira
         Inc., seeking a declaration of the court that, among other things, (i)
         Biomira is in breach of the Biomira License Agreement and the related
         asset purchase agreement between the Company, Biomira Inc. and Biomira
         Research Inc., (ii) the Company has the exclusive worldwide right and
         license to use the B43 Technology to develop, commercialize,
         manufacture, use and sell products based upon such technology
         (including OvaRex(TM) MAb), (iii) the Company has the exclusive right
         under the Biomira License Agreement to develop, commercialize, use and
         sell all AIT(R) Technology applications, (iv) as a result of its
         breaches of the Biomira License Agreement, Biomira Inc. is not entitled
         to any rights under the Biomira License Agreement, and (v) the terms of
         the Biomira License Agreement prohibit Biomira from bringing the legal
         action described in the preceding paragraph. In addition, the Company
         is seeking an injunction prohibiting Biomira from pursuing its legal
         action against the Company and damages in an amount to be proven at
         trial. Biomira Inc. has filed a statement of defense denying the
         counterclaim. Given the early stage of the Altarex Claim, it is not
         possible to estimate the potential costs related to this matter.


                                      A-21
<PAGE>   102
ALTAREX CORP.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 1998 and 1997

(In Canadian dollars)

11. SUBSEQUENT EVENTS (CONTINUED)

(d)      Amendment to stock option plan

         On April 9, 1999 the Company's directors approved an amendment to the
         Company's stock option plan, subject to shareholder and regulatory
         approval, by increasing the number of Common Shares reserved for
         issuance from 2,480,000 to 4,180,000 and increasing the maximum
         exercise period for existing and future options from 5 years to 10
         years.

(e)      Public offering of Common shares

         Pursuant to an agency agreement dated April 27, 1999, the Company
         proposes to issue up to 34,000,000 Common Shares at $0.50 per share,
         for gross proceeds of $17,000,000. The agency fee and other expenses of
         the issue payable by the Company are estimated at $1,700,000 and will
         be deducted from the gross proceeds. The Company has also agreed to
         grant the agents options to acquire up to an aggregate of 5,100,000
         additional Common Shares at the offering price to cover
         over-allotments.


                                      A-22
<PAGE>   103
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT                                                                              PAGE
NUMBER   DOCUMENT DESCRIPTION                                                       NUMBER
------   --------------------                                                       -------
<S>      <C>                                                                        <C>

1.1+     The Articles of the Company dated November 18, 1993 as amended by
         Articles of Amendment dated June 25, 1996 and November 28, 1996.

1.2+     Articles of Amalgamation of the Company dated May 31, 1997 as amended
         by Articles of Amendment dated June 27, 1997.

1.3+     The Bylaws of the Company dated March 1, 1995.

1.4+     Asset Purchase Agreement dated November 24, 1995 among AltaRex Inc.,
         Biomira Research Inc. and Biomira Inc.*

1.5+     The Share Purchase Agreement.

1.7+     Letter Agreement dated February 20, 1996 between AltaRex Inc. and Merck
         Frosst Canada Inc.*

1.8+     Joint Research Collaboration Agreement dated February 21, 1996 between
         AltaRex Inc. and Resolution Pharmaceuticals Inc.

1.9+     Joint Research and Licensing Agreement dated August 15, 1996 between
         the University of Alberta and AltaRex Inc.*

1.10+    License Agreement dated November 24, 1995 between Biomira Inc. and
         AltaRex Inc.*

1.11+    Assignment of Patent Agreement dated April 4, 1996 between Biomira Inc.
         and AltaRex Inc.

1.12+    Employment Contracts dated January 1, 1996, between AltaRex Inc. and
         Dr. Antoine Noujaim, and Employment Contracts dated January 1, 1997
         between AltaRex Corp. and each of Blaine J. Schamber, Dr. R.
         Madiyalakam and Dr. Thomas R. Sykes.

1.13+    The Warrant Indenture.

1.14+    The Special Warrant Indenture.

1.15+    Assignment of Letter Agreement dated February 20, 1996 between AltaRex
         Inc. and Merck Frosst Canada Inc. See "Business of AltaRex - Strategic
         Alliances and License Agreement."

1.16+    Employment Contract dated January 1, 1997 between AltaRex Corp. and Dr.
         R. Madiyalakan.

1.17+    Employment Arrangement dated February 18, 1998 and amended as of March
         30, 1998 between AltaRex Corp. and Richard E. Bagley.

1.18     Office lease of Altarex U.S. Corp. dated March 30, 1998 for property
         located at 303 Wyman Street, Waltham, Massachusetts

</TABLE>
<PAGE>   104
*        Confidential treatment granted as to certain portions, which portions
         are omitted and filed separately with the Commission.

+        Incorporated by reference to Exhibits to the Company's Registration
         Statement on Form 20-F.