<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-KSB


(Mark one)

[X]        Annual Report pursuant to Section 13 or 15(d) of the Securities
           Exchange Act of 1934  for the fiscal year ended
           September 30, 1999

[ ]        Transition Report pursuant to Section 13 or 15(d) of the Securities
           Exchange Act of 1934 for the transition period
           from ______________ to _____________.

Commission File No. 0-11472

                               BIOMUNE SYSTEMS, INC.
              (Exact name of registrant as specified in its charter)

       Nevada                                                  87-0380088
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)


                              2401 South Foothill Drive
                           Salt Lake City, Utah 84109-1405
               (Address of principal executive offices with Zip Code)

                                   (801) 466-3441
                (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:  None

Securities  registered  pursuant  to  Section  12(g)  of the Act:  common  stock
($0.0001 par value per share)

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 [ ].

The  aggregate  market  value of  common  stock  held by  non-affiliates  of the
registrant  was  $7,687,416,  based on a  closing  price of $1.69  per  share on
January 7, 2000.  The number of shares  outstanding of the  registrant's  common
stock as of January 7, 2000 was 4,999,312 .

On December 31, 1998, the registrant  declared a one-for-ten reverse stock split
of its common  stock,  reducing the number of issued and  outstanding  shares of
stock by a factor of 10.  Outstanding common stock data in this report have been
adjusted to reflect this reverse stock split.

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation SB is not contained herein, and will not be contained, to the best
of the registrant's  knowledge,  in definitive  proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]



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                             BIOMUNE SYSTEMS, INC.

                        1999 FORM 10-KSB ANNUAL REPORT

                               TABLE OF CONTENTS

                                    Part I

                                                                           Page

Item  1.  Business.............................................................3
Item  2.  Properties..........................................................11
Item  3.  Legal Proceedings...................................................12
Item  4.  Submission of Matters to a Vote of Security Holders.................12

                                    Part II

Item  5.  Market for Registrant's Common Equity and Related
          Stockholder Matters.................................................13
Item  6.  Selected Financial Data.............................................15
Item  7.  Management's Discussion and Analysis of Financial Condition and
                 Results of Operations........................................16
Item 7.  Financial Statements and Supplementary Data..........................28

                                    Part III

Item 9.    Directors and Executive Officers of the Registrant.................29
Item 10.  Executive Compensation..............................................32
Item 11.  Security Ownership of Certain Beneficial Owners and Management......39
Item 12.  Certain Relationships and Related Transactions......................41
Item 13.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K....42

                                       -2-

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                                    Part I

Item 1.  Business

Introduction

           Biomune  Systems,  Inc.,  a  Nevada  corporation  ("Biomune"  or  the
"Company"),  with its wholly owned  subsidiary,  Optim  Nutrition,  Inc., a Utah
corporation ("Optim") is engaged in the research, development,  distribution and
sale  of  biologic  pharmaceutical  products,  nutraceutical  and  medical  food
products and  supplements.  Certain of these products have been developed by the
Company and incorporate a patented whey protein  technology  (the  "Technology,"
sometimes referred to as "BWPT" or "ProMune(TM)"),  which is designed to provide
or increase  protective  immunities  from and immune  response to disease and to
provide nutritional supplementation. Nutraceutical products are food supplements
that are  derived  from a food  base and  marketed  as a  beneficial  source  of
nutrients to promote good health.  Among other things, the Company believes that
ProMune may be utilized to develop  products to treat  various  gastrointestinal
and infectious  diseases and that products  derived from the Technology may help
increase the body's  immune  response.  The Company also  believes  that certain
products   derived   from   the   Technology   provide   important   nutritional
supplementation for persons who are nutritionally deprived or immune stressed or
compromised.

           In years  prior to 1998,  Biomune  invested  significant  sums in the
research and development of the Technology and related  products.  These efforts
were funded almost entirely and independently by Biomune,  primarily through the
sale  of  its  securities.   In  fiscal  year  1997,  Biomune  scaled  back  its
pharmaceutical  product development effort, due primarily to limited capital. In
addition,  Biomune  determined  to focus its  resources on the  development  and
marketing of nutraceutical products. Future research and development activities,
if any, will require funding from joint venture partners,  strategic  alliances,
private or governmental grants or other third-party  funding sources.  There can
be no  assurance  that such sources will be available to the Company or that the
terms on which  funding  may be offered in the future will be  favorable  to the
Company.  Absent  third-party  involvement,  Biomune  anticipates  that  it will
continue to severely  curtail  research and  development  involving  existing or
potential  pharmaceutical  product  candidates based on the Technology,  and may
postpone such efforts until third party participation becomes available.

           As a result of its  increased  emphasis on the nutrition  market,  in
1998 Biomune  acquired the  exclusive  rights to  distribute  and sell a line of
sports  and  energy  nutrition  bars and a  patented  medical  food bar  created
specifically  for  diabetics.  These  products are  manufactured  for Biomune by
contract  manufacturers.  Biomune  has been  granted  the  exclusive  world-wide
marketing and distribution  rights to these products,  in return for the payment
of royalties  based on net sales of the products.  The bars are sold to national
and regional  wholesale and retail chains under the names Mountain  Lift(TM) and
NiteBite(TM). Biomune intends to acquire additional products under license or by
purchase of product rights.

           Biomune has previously filed  Investigational  New Drug  Applications
("IND") with the US Food and Drug  Administration  (the "FDA"),  the  government
agency that  regulates  drugs for humans in the United  States,  on two biologic
pharmaceutical  drug  candidates  developed  from the  Technology:  BWPT-301(TM)
(formerly  known as  Immuno-C),  which the Company  believes may prevent  and/or
treat   cryptosporidiosis,    a   gastrointestinal   disease   caused   by   the
cryptosporidium  parvum  microorganism  that produces acute and severe diarrhea;
and BWPT- 302(TM),  which the Company  believes to be useful in the treatment of
infection by the  life-threatening  bacteria,  Escherichia coli, strain 0157:H7.
This disease  causes severe bloody  diarrhea,  and a hemolytic  uremic  syndrome
associated  with a  high  risk  of  permanent  kidney  damage,  particularly  in
children.

           Data obtained from clinical  trials and other studies  involving whey
protein  concentrate  (the  "Base  Product")  and  BWPT-301,  suggest  potential
health-related  nutritional  benefits  from  the use of  nutraceutical  products
developed  utilizing  the  Technology.  As a result of this  research  activity,
Biomune has developed and is now marketing  Optimune(TM).  The principal  market
for  this  product  is  immune-compromised   individuals  who  need  nutritional
supplementation for any number of reasons.



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Products

           Biomune sells  nutraceuticals,  supplements  and sports and nutrition
bars, medical food bars and biologic pharmaceuticals.

Nutraceutical Activities

           Since  1997,  Biomune  has  engaged  primarily  in  the  development,
distribution  and sale of  nutritional  and  nutraceutical  products,  including
products  based upon the results of and the  information  obtained from clinical
trials and other studies  involving  BWPT-301 and its Base  Product.  These data
suggest   potential   health-related   benefits  may  derive  from  the  use  of
nutraceutical   products  using  the  Technology.   Interest  in   nutraceutical
applications  of the Technology  dates back to 1995,  when Biomune  undertook an
analysis of the  nutraceutical  market.  Nutraceutical  products are  food-based
nutritional  supplements marketed as a beneficial source of nutrients to promote
good health.  Significant  milestones  in these  development  activities  of the
Company include the following:

           o         October 1995,  Optim is  incorporated to develop and market
                     nutraceutical  products.  Optim has developed  Optimune,  a
                     nutritional dietary supplement marketed primarily to people
                     who   are   HIV    positive   or   have   AIDS   or   other
                     immune-compromised individuals, and Maximune, a nutritional
                     dietary supplement similar in composition to Optimune,  but
                     manufactured  in capsule  form and  marketed  primarily  to
                     healthy people who desire weight  maintenance or management
                     assistance.

          o         December 1995, Biomune files a patent application relating
                    to a method  for  enhancing  the  immune  system  using  the
                    Technology  and the Base  Product.  The  patent  application
                    relates   to   an    increase   in   CD4   cell   count   in
                    immune-compromised  individuals.  The  title of this  patent
                    application  is "A Method for  Enhancing  the Immune  System
                    using    Immunologically-Active    Bovine    Whey    Protein
                    Concentrate."  The  authors  of  the  patent  are  Frank  A.
                    Eldredge,  Ph.D.,  formerly  the  Company's  Executive  Vice
                    President -- New Product Development, David O. Lucas, Ph.D.,
                    a former member of the Company's  Scientific Advisory Board,
                    and Craig D. Moffat,  M.D., a consultant to the Company. The
                    patent has been assigned to the Company.

          o         May to June 1996, Biomune completes a nutritional study
                    monitored by  Clinimetric  Research  Associates,  a contract
                    research  organization.  This  study  was  conducted  at St.
                    Francis Memorial  Hospital in San Francisco,  California and
                    the East Bay AIDS Clinic in Berkeley, California. This pilot
                    study was  designed to examine the effects of two  different
                    doses of ProMune on wasting syndrome.  Secondary  objectives
                    included   examining   effects  of   ProMune  on   Karnofsky
                    Performance  Score  and  quality  of  life  as  measured  by
                    HIV-Medical Outcome Study (MOS). Patients were randomized to
                    either 20g ProMune  powder daily or 60g ProMune powder daily
                    (20g, 3 times a day), mixed with cold food or beverage.  The
                    study period was 6 weeks after which patients could elect to
                    continue for an additional 6 weeks.  BCM was measured  using
                    bioelectrical  impedance analysis.  Study staff were trained
                    to use the equipment  prior to beginning the study.  Quality
                    of  life  was  measured  using  the  MOS-HIV   30-Item  Form
                    developed by the Medial  Outcomes  Trust.  35 patients  were
                    randomized,  29 patients  completed 5 weeks, and 23 patients
                    completed 12 weeks.  There were no  significant  differences
                    detected  between  the 2 doses,  and  results  of this study
                    showed  that  75.9% of the study  participants  were able to
                    reverse   their   involuntary   weight  loss.   83%  of  the
                    participants  stated that their quality of life was the same
                    or  better,   and  the  doctor   stated   that  87%  of  the
                    participants' quality of life was the same or better.

           o         October 1997,  Dr. Kotler at St.  Lukes-Roosevelt  Hospital
                     Center in New York completes a year-long  metabolic  study.
                     Less rigorous studies are conducted in California, Florida,
                     New York and Oklahoma. Study results from the Associates in
                     Medical and Mental  Health (the Oklahoma  site)  indicate a
                     significant  increase  in body  cell  mass  (muscle),  body
                     weight and quality of life after 8 weeks on  ProMune.  Body
                     cell mass  increased  an  average  of 0.9kg  (1.9  lbs.) an
                     increase for 79% of study  participants.  These nutritional
                     studies are designed to yield  anecdotal and  corroborating
                     data of the previous  studies and provide new data that may
                     encourage broader exposure for Optimune. There is

                                        -4-

<PAGE>



                     presently  no  timetable  for  completing  studies at other
                     sites. The results of this study will be publicly available
                     at a  future  date in  accordance  with the  protocols  and
                     guidelines governing such studies.

           The market for a weight gain,  immune-enhancing  nutrition supplement
is very competitive and relatively  difficult to penetrate,  particularly  given
the limited financial resources presently available to the Company. Biomune will
continue  to promote its  products  in these  markets,  while  pursuing  its new
marketing plan of seeking  broader  applications  of the Technology for products
with general market appeal.  Biomune will also devote considerable  resources to
marketing the  nutrition,  sports and energy bars and medical food bars added to
its product line in September 1998.

           FDA  approval  is  not   required   before   marketing   and  selling
nutraceutical products.  However, in order to make broad and non-specific claims
regarding the benefits of using a particular nutraceutical product, studies must
be conducted to  substantiate  those  claims.  In  addition,  the  nutraceutical
products must be appropriately labeled in accordance with the Dietary Supplement
Health and  Education Act of 1994 (the "Dietary  Supplement  Act").  At any time
subsequent to commencement of marketing of a nutraceutical product, both the FDA
and the United  States  Federal Trade  Commission  (the "FTC") have the right to
review the  accuracy of the product  claims  being made.  Claims must be broadly
made and may not be made with respect to diagnosis,  treatment, cure, mitigation
or prevention of a specific disease or illness.

Rockwood

           In April 1998,  Biomune acquired a controlling  equity interest (52%)
in Rockwood  Companies LLC (referred to as "Rockwood  LC") for $360,000  cash, a
commitment  to issue  500,000  shares of  preferred  stock  (payable  if certain
benchmarks in sales were obtained),  and covenants on the part of the Company to
loan  $1,500,000  to  Rockwood  LC or its  affiliates  over a  one-year  period.
Rockwood LC distributes and sells health and beauty aids to wholesale and retail
chains.  Rockwood  LC  retained  the right to redeem a portion of the  Company's
member interest if the Company failed to keep its covenants to make the loans to
Rockwood LC. As of December 31, 1998,  Biomune had not advanced  $850,000 of the
funds it had  covenanted  to loan to Rockwood LC. By letter dated March 15, 1999
Rockwood  exercised  its right to reduce the  Company's  interest  to 19% and to
terminate,   effective  December  31,  1998,  other  on-going   commitments  and
agreements between Biomune and Rockwood.  See "Certain Relationships and Related
Transactions."

Optim

           In September 1998, Biomune acquired the exclusive worldwide marketing
and  distribution  rights to the Mountain Lift sports and energy nutrition bars.
The licensor of these rights is ML Industries of Encino,  California.  Under the
agreement, which has an initial term of 10 years and continues on a year-to-year
basis  thereafter,  Biomune  pays ML  Industries  a  royalty  of 7% of net sales
generated by the licensed products. The Mountain Lift product line includes four
flavors, Peanut Crunch, Chocolate,  Cappuccino Crunch and Berry Crunch. Each bar
is formulated  with all natural herbs to improve  oxygen  utilization,  increase
energy and reduce muscle fatigue.  The bars provide a full supplement of ginseng
and ginkgo biloba,  together with 100% of the Recommended  Daily Allowance of 12
essential vitamins and major  antioxidants.  The bars are low in fat and high in
protein.  "Inside Tracks" fitness magazine voted the Mountain Lift bar the "best
tasting  and most  nutritious  bar in the USA" in  November  1997.  The  license
agreement includes an option for the Company to acquire ML Industries.

           The total  energy and  nutrition  bar market is estimated by industry
publications to be more than  $300,000,000 in 1998, with annual growth estimated
at 40%.  According to industry  reports,  distribution  into grocery channels is
growing at an even greater rate per year. Industry markets in which the Mountain
Lift  bars  compete  include   Snacks/Candy  ($60  billion  per  year),  Healthy
Snacks/Meal  Replacements  ($49 billion  annually),  Natural Foods ($6.9 billion
annually),  and Healthy Snacks,  which include  granola and grain-based  snacks,
fruit snacks, and nutrition bars ($3.8 billion per year).

           Also in September 1998,  Biomune entered into an agreement  acquiring
the  exclusive  worldwide  distribution  rights to a  time-release  glucose  bar
developed to prevent hypoglycemia (low blood sugar) in diabetics.  This product,
developed from research  conducted at the Beth Israel Deaconess  Medical Center,
Harvard  Medical  School,  in Boston,  Massachusetts,  is licensed to Biomune by
Medical Foods, Inc., a Delaware corporation.  Under the agreement,  Biomune pays
Medical  Foods a 12%  royalty  on net sales of the  patented  product,  which is
marketed under the trade name

                                      -5-

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NiteBite(TM).  Minimum annual  royalties of $180,000 were payable in 1999,  with
gradual increases annually thereafter through the 10-year term of the agreement.
In September 1999 the Company notified Medical Foods that it was terminating the
agreement.  Since that time the parties have been  negotiating  a resolution  of
issues relating to product returns and minimum royalties. As of the date of this
report no agreement has been reached regarding the on-going  relationship of the
Company with Medical Foods.

           Hypoglycemia  is  a   life-threatening   low  blood  sugar  condition
experienced  primarily by people with diabetes whose condition  requires them to
use insulin to regulate  their blood sugar.  It is estimated  that this includes
approximately  4.3 million of the 9.6  million  diabetics  in the United  States
(according to 1998 National  Institutes of Health data).  NiteBite is a "medical
food." This industry  includes food products  designed  specifically  to address
medical conditions historically treated with drugs or medications.  The industry
may be more  broadly  described  as the  "functional  foods" or "medical  foods"
industry and includes any food or food ingredient  considered to provide medical
or health  benefits,  including the  prevention  and treatment of disease.  This
industry  segment  overlaps  both  the  pharmaceutical/drug   industry  and  the
nutritional/dietary  supplement  industry,  in which  the  Company  historically
conducted  its  research,  and  represents a natural  extension of the Company's
product  development  efforts.  A recent study  conducted at the Joslin Diabetes
Center in Boston reported that exercising diabetes patients were able to consume
fewer  kilocalories  with the  NiteBite  medical  food bar and  experience  less
hyperglycemia  with no  greater  incidence  in  hypoglycemia  compared  with the
higher-kilocalorie  standard snack regimen.  The conclusion of the report on the
study,  published in "Diabetes Care," October 1998, stated, "[T]his medical food
bar should be a reliable  snack for subjects with diabetes who regularly  engage
in exercise. In this study, subjects using the snack containing ingredients with
varying  glycemic  indices  [NiteBite]  consumed  fewer  kilocalories  with less
hyperglycemia   and  the  same  low  rate  of   hypoglycemia   compared  with  a
higher-kilocalorie snack."

Biologic Pharmaceutical Activities

           Between 1994 and early 1997, Biomune invested heavily in clinical and
non-clinical  development  of  pharmaceutical  applications  of the  Technology.
Toward the end of fiscal  1997,  and  continuing  throughout  fiscal  year 1998,
Biomune  shifted its business focus to completing the  development and marketing
of nutraceutical  products.  The emphasis on nutraceutical  products resulted in
postponement of further  pharmaceutical  development until such time, if any, as
funding  from  private or  governmental  grants,  joint  ventures or other third
parties may become available to the Company.

           The  key   milestones  of  the  Company's   biologic   pharmaceutical
development activities include the following:

           o         October 1994,  Biomune completes Phase I clinical trials on
                     BWPT-301,  resulting  in  the  establishment  of  a  safety
                     profile  in  healthy   humans  within  certain  dose  range
                     parameters.

           o        November 1994, Biomune reports the results of Company-
                    sponsored  animal studies  conducted by Dr. Joseph A. Smith,
                    Jr. and Dr.  Mitchell S.  Steiner at  Vanderbilt  University
                    showing the  efficacy of drug  candidates  derived  from the
                    Technology  in reducing  the growth rate of prostate  cancer
                    tumors by 11%.  Based on data from a separate  study,  which
                    discovered an over-production of an immune suppressing agent
                    in  the  presence  of  prostate  cancer  cells,   Vanderbilt
                    University  researchers  selected the Technology to test the
                    theory  that an  immuno-modulating  agent  (such as the Base
                    Product) may  counteract  the  immuno-suppression  caused by
                    cancer  cells  and  thus  act  to  control,   reduce  and/or
                    eliminate  the  tumor.  Dr.  Smith  continues  to study  the
                    possible effects of the Base Product against renal carcinoma
                    cell tumors extracted from humans and inducted into mice. No
                    study data or results from this on-going study have yet been
                    released.

           o         May 1995,  Biomune  reports the results of an in vivo study
                     on rats conducted by Dr. Steiner at Vanderbilt  University.
                     This follow up study  confirmed  the data  derived  from an
                     earlier  study  conducted  at  Vanderbilt   University  and
                     demonstrated  that  there  was a  retardant  effect  on the
                     growth of prostate tumor cells in rats previously  injected
                     with such cells.

           o        October 1995, a pediatrics protocol is submitted to the FDA
                    for the treatment of six  pediatrics  patients with advanced
                    AIDS and chronic  cryptosporidiosis.  There is  presently no
                    time-table for commencing

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                     this study,  and there can be no assurance that the Company
                     will ever  commence  clinical  studies  under this research
                     protocol.

           o         December  1995,  Biomune  files  an  IND  with  the  FDA in
                     connection  with the  development of BWPT-302.  Biomune has
                     concluded  adult Phase I clinical  trials.  This second IND
                     focuses on certain  strains of  Escherichia  coli. In 1996,
                     this IND was expanded to include strains of entero adherent
                     Escherichia coli.  Biomune has completed the administration
                     of  BWPT-302  to  healthy   individuals  in  Phase  I  dose
                     tolerance trials.  Through those dose tolerance trials, the
                     Company gained a general  understanding of how well various
                     doses of BWPT-302(TM) are tolerated.  There is presently no
                     timetable for continuing studies associated with this IND.

           o         January 1996 to December 1996, Dr. Frederick Clayton at the
                     Regional  Veterans  Administration  Hospital  in Salt  Lake
                     City, Utah conducts indirect immuno-fluorescence testing of
                     the   Base   Product   on   various    pathogenic   enteric
                     microorganisms.  Preliminary  results  from  that  research
                     indicated  a  possible   immuno-reaction   against  several
                     gastrointestinal   tract  pathogenic  bacteria.   There  is
                     presently no  timetable  for  continuing  research in these
                     areas.

           o         March  1996,   Biomune   announces   the  results  from  an
                     open-label,   dose   escalating   Phase  II  study  of  the
                     tolerance, safety and efficacy of BWPT-301 in the treatment
                     of  cryptosporidiosis  in individuals with AIDS. That study
                     was  conducted  with six adult AIDS  patients over a 10-day
                     period at St. Luke's-Roosevelt  Hospital Center in New York
                     City, New York by Dr. Donald P. Kotler.  The resulting data
                     will be utilized to design and conduct  additional Phase II
                     dose-ranging  studies  on  BWPT-301,  at  such  time as the
                     funding for such studies becomes available to the Company.

           o        June 1996, the FDA approves an Emergency IND (No. 6679) for
                    the  treatment of one  pediatric  patient with advanced AIDS
                    and cryptosporidiosis.  The patient was treated according to
                    the Company's pediatrics protocol,  which allows for 90 days
                    of dosing  with the Base  Product  at a maximum  dose of 3.0
                    g/kg/day.  The  patient  was  treated  under the care of Dr.
                    Margarita  Silio,  who is  affiliated  with Dr.  Russell Van
                    Dyke,   head  of  the  pediatric   AIDS  section  at  Tulane
                    University and Louisiana State University. The patient, a 12
                    year old girl with advanced AIDS, had  cryptosporidiosis for
                    several   months   before   beginning   the  study  and  was
                    experiencing  diarrhea  in  excess  of  1,000  g/day  at the
                    commencement  of the study.  After 65 days of treatment at a
                    dose of 2 g/kg/day, the study investigator reported that the
                    girl's  weight had  increased  18%, to 59.6 lbs, with marked
                    clinical  improvement.  By the end of the study in September
                    1996, the patient's diarrhea had improved dramatically.

The Technology

           The Technology is a patented process of filtering  specific  proteins
from  bovine  whey,  a  by-product  of cheese  production,  to produce  the Base
Product.  Biomune  uses the  Base  Product  to  formulate  its drug and  product
candidates.  The Technology was developed based on numerous pre-clinical studies
that indicate that a mother's  colostrum provides a mechanism for her infants to
receive  passive  immunity.  Colostrum  contains  thousands of immune  enhancing
proteins known as  immunoglobulins  (or antibodies).  Biomune believes that when
antibodies  from  whey  are  concentrated,   the  beneficial  effects  of  those
antibodies  duplicate  the effects of colostrum.  Antibodies  are found in cows'
milk (in  addition  to  colostrom)  and can be  extracted  from  ordinary  whey.
Biomune's   Technology   utilizes  a  filtration   process  that  produces  high
concentrations of antibodies, as well as protein and other molecules that may be
beneficial in the treatment of infectious diseases.

           The Technology  differs  significantly  from competing  technologies,
such as hyper-immunization  and colostrum-based or colostrum-like  technologies.
Hyper-immunization  involves  the  injection  or  other  exposure  of a cow to a
particular  disease  and the  extraction  from the cow's  milk or  colostrum  of
antibodies  that are  produced  by the cow.  Biomune  believes  its  process  of
filtering and concentrating  bovine whey represents a new and more effective and
economical  approach in the  development  of  pharmaceuticals  for the treatment
and/or  prevention of certain  diseases and in the development of  nutraceutical
products for the  promotion  of good health.  The  Technology  utilizes  readily
available whole milk from cows that have not been hyper-immunized and achieves a
higher degree of concentration of

                                       -7-

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antibodies  than  hyper-immunization.  Whole cow milk is more readily  available
than colostrum, which is produced by the cow for only a few days each year.

           Based on the  results of Phase I and Phase II  clinical  trials  that
were conducted using the BWPT-301 pharmaceutical product candidate,  the Company
believes  that  BWPT-based   products  may  successfully   improve  and  promote
gastrointestinal health, especially in people who are HIV positive or have AIDS,
immune-compromised  patients such as those  undergoing  high-dose  antibiotic or
chemotherapy treatment, and post-surgical and chronic care patients.

Other Pharmaceutical Applications

           Until  such time as there are funds  available  to the  Company  from
joint venture  partners or grants from  government or other third party sources,
of which  there can be no  assurance,  the  Company  has ceased  further  direct
research and pre-clinical or clinical  development  efforts.  Future studies, if
and when undertaken by the Company or on its behalf, will assess the feasibility
of filing additional INDs,  followed by clinical trials, in respect of potential
drug candidates.  It is anticipated that such drugs would utilize the Technology
and  be  designed  to  treat  illness  caused  by  certain  infectious  bacteria
(including,  for example, H. pylori, C. difficile,  C. jejuni, Y. enterocolitica
and Staph. aureus) and certain non-infectious  immunologically-based  syndromes,
diseases and  conditions  (including,  for  example,  certain  cancers,  such as
prostate  cancer,  arthritis,  irritable bowel syndrome and acne). At this time,
there can be no assurance that sufficient  financial resources will be available
when and in the amounts needed,  or that the development  efforts of the Company
will  be  successful  or  that  commercially  viable   pharmaceutical   products
incorporating the Company's Technology will ever be developed.

Technology License

           Biomune has the exclusive  right and license  ("License")  to utilize
the  Technology  for  marketing  and selling  pharmaceutical  and  nutraceutical
products,  solely for human applications,  in the United States,  Canada, Kenya,
Ivory Coast,  Zimbabwe,  Ghana,  Zambia, and Nigeria,  and their possessions and
territories.  The License granted by Protein  Technology,  Inc. ("PTI") includes
the  rights  under  four  United  States  patents,  each  of  which  relates  to
methodologies to produce large proteins  (immunoglobulins)  on a mass production
basis.  PTI has not  represented  or warranted the quality or coverage of any of
those  patents,  and  therefore  the  Company  does not and cannot  provide  any
assurance regarding PTI's rights therein.  The License has been extended through
March 28, 2006.

           PTI may  terminate  the  License if the  Company  fails to observe or
perform any of the covenants,  terms,  conditions or provisions of the agreement
or if it breaches  any  representation  or warranty and fails to cure the breach
within 30 days after receipt of written notice thereof from PTI. The License may
also be terminated by PTI if the Company  commences or has commenced  against it
any proceeding under applicable  bankruptcy law, makes a general  assignment for
the benefit of its creditors,  has a trustee or receiver appointed,  suffers the
attachment, execution or judicial seizure of substantially all of its assets, or
becomes insolvent or liquidates or dissolves.

           The PTI license  provides  that  promptly  following  the issuance of
authorization  or approval by the FDA for sales of any  pharmaceutical  products
covered by the  license,  Biomune and PTI will  negotiate  in good faith for the
grant of License rights for pharmaceutical products in other parts of the world.
In addition, upon achieving nutraceutical product sales of $1,000,000 during any
12 month period,  the Company and PTI will negotiate in good faith for the grant
of License rights in other parts of the world.

Manufacturing

           Biomune  does  not  own  or  operate  any  manufacturing  facilities.
Products are sourced through  third-party  contract  manufacturers.  Outsourcing
allows the Company to enhance production flexibility and capacity,  leverage its
working  capital  and  transfer  risk,  and focus its  energy and  resources  on
marketing and sales,  while  substantially  reducing  capital  requirements  and
avoiding  the costs of managing a  production  workforce.  Biomune  believes its
contract manufacturers have the capacity to fulfill its planned production needs
for at least the next 12 months.  In  addition,  if  arrangements  with  current
manufacturers were not satisfactory,  or if they were either unable or unwilling
to  continue  production  at rates  satisfactory  to the  Company,  the  Company
believes it could locate and qualify other  contract  manufacturers  to meet its
production  needs.  Contract  manufacturers  produce and  package the  Company's
products in

                                       -8-

<PAGE>



accordance with Standard Operating  Procedures for GMP by the FDA. Raw materials
are purchased from approved suppliers and inspected by the contract manufacturer
as they are  received  into the  production  facilities.  They  are  labeled  to
indicate source of supply, lot number and date of receipt,  and samples are kept
for a minimum of two years from the date  received.  The  ingredients  are mixed
into batches under  supervision of two quality assurance  contract  manufacturer
employees to verify  adherence to the  Company's  formulations  and ensure taste
consistency. The finished products are passed through metal detectors,  weighed,
wrapped and date coded.  After each production run, samples are analyzed to test
the product for micro-impurities and to ensure accurate labeling.

           Biomune orders all of its requirements for the Base Product from PTI,
which  purchases it from a distributor in New Zealand.  The Base Product used by
the Company in connection  with clinical  trials of its drug  candidates must be
manufactured  in  accordance  with current  FDA-established  Good  Manufacturing
Practices ("GMP").  The FDA's GMP standards  establish  stringent  practices and
procedures  that must be  followed  by a  manufacturer  in order to  ensure  the
consistency of the product and minimize the possibility of product contamination
or  adulteration.  Currently,  all Base Product is  manufactured in New Zealand.
Based on initial  inspections and follow-up visits of the New Zealand facilities
by consultants  engaged by the Company,  Biomune  believes that those facilities
are and will  continue to be in full  compliance  with  current  GMP  standards.
Biomune intends to file or have the  manufacturer in New Zealand file, as may be
appropriate,  an Establishment  License Application  ("ELA").  The establishment
license  may be  granted  without  inspection,  but the  facility  is subject to
inspection by the FDA at least once every two years.

Marketing

           Biomune  markets  Optimune as a nutritional  dietary  supplement  for
people who are HIV positive or have AIDS and who are suffering from weight loss.
It is also pursuing the marketing of Optimune or a similar nutraceutical product
as a nutritional  dietary  supplement for people  experiencing  weight loss as a
result of intensive  antibiotic or  chemotherapy  treatment,  as well as elderly
persons experiencing weight loss problems.

           Biomune  markets its sports and energy  nutrition  bars as "nutrition
for peak  performance." The Mountain Lift bars have been voted the "best tasting
and most  nutritious  bar" in the United  States.  The marketing  efforts of the
Company are designed to draw attention to the vitamin and antioxidant content of
the bars and their effect on enhanced oxygen and increased energy for sports and
outdoor  enthusiasts.  Current marketing and advertising is designed to increase
consumer awareness of and demand for the products.

           The  Company's  objective  is to develop or  acquire  and  distribute
scientific  products  formulated on natural  substances  designed to enhance the
body's mechanisms. The products of the Company are promoted as "natural products
for a healthier world." The president of Optim,  Randy Olshen, is experienced in
sales and marketing of pharmaceuticals,  clinical nutrition products, functional
and medical foods.  Prior to joining Optim in August 1998, Mr. Olshen  developed
and launched  functional and medical foods for other  nutrition  companies.  Mr.
Olshen's services and those of other marketing and sales personnel, are provided
under an  agreement  with  Harrogate  Marketing  LLC, a Utah  limited  liability
company owned by David G. Derrick a former officer and director of the Company.

Competition

           The Company's  products  compete in the medical  food,  nutrition and
drug  industries.  At  present,  there are several  companies,  such as ImmuCell
Corporation and GalaGen, Inc., that are involved in the research and development
of drugs derived from colostrum and hyper-immunized  cows. In addition,  Biomune
faces  competition  from  numerous  pharmaceutical  and other  biopharmaceutical
companies  that  are  currently   developing   products,   utilizing   unrelated
technologies,  for  the  treatment  or  prevention  of  many  of  the  diseases,
infections  and  syndromes  identified  by the  Company for  application  of its
product  candidates.  Many of the its  competitors  have  substantially  greater
capital  resources,  research and development  capabilities,  manufacturing  and
marketing resources and experience than the Company.

           Two  nutraceutical  products are produced and distributed by the Ross
Products  Division of Abbott  Laboratories  - Ensure(R) and  Advera(R).  Biomune
believes  that  Ensure is  currently  marketed  to the  elderly  and others as a
nutritional  supplement or meal  replacement,  while Advera is being marketed to
individuals  who are HIV positive or have AIDS, as a  nutritional  supplement or
meal replacement and as a way to manage their weight.  Biomune believes that the
Ross

                                     -9-

<PAGE>



Products Division of Abbott Laboratories currently controls approximately 70% of
the nutritional supplement and meal replacement markets. Biomune is also subject
to  increasing  competition  from  companies  that  market  various  powders and
proteins  for  weight   management  and  general  health  to  otherwise  healthy
individuals.

           The Company's  principal  competitors in the nutrition bar market are
PowerBar,  ClifBar,  Met-Rx and  Balance  Bar.  It  believes  its  products  are
differentiated  from other nutrition bars by their taste and, in the case of the
medical food bar, the scientific and medical base of the product. However, these
competitors  are larger,  enjoy  greater  market  recognition  and have  greater
financial  resources  than the Company  allowing them to more widely promote and
market their products.

Government Regulation

           The biopharmaceutical  products and technologies owned by or licensed
to the Company are heavily  regulated by the FDA,  the EPA and other  regulatory
authorities  pursuant to  applicable  federal,  state and local laws,  rules and
regulations. The manufacturing,  packaging, labeling, advertising, distribution,
and sale of the  nutrition  and medical food bars are also subject to regulation
by various  government  agencies,  principally  the FDA. The FDA regulates these
products and activities  pursuant to the Federal Food, Drug and Cosmetic Act and
the Fair Packaging and Labeling Act, and regulations  under these acts. The FDCA
is intended,  among other things,  to ensure that foods are  wholesome,  safe to
eat, and produced under sanitary conditions,  and that food labeling is truthful
and not deceptive.  The FLPA provides requirements for the content and placement
of  information  on  consumer  packages  to ensure  that  labeling is useful and
informative.

           The  Company's  products are generally  regulated  and  classified as
foods  under the FDCA and are not  subject  to  premarket  approval  by the FDA,
unlike  the drug  candidates  and  biopharmaceutical  products  of the  Company.
However,  food  products  are  subject  to  comprehensive  labeling  and  safety
regulations  of the FDA, the violation of which could result in product  seizure
and  condemnation,  injunction  of  business  activities,  or  criminal or civil
penalties.  In  addition,  if the FDA  determines,  on the  basis  of  labeling,
promotional claims or marketing  practices of the Company,  that the promoted or
intended  use of any of the  Company's  products  is for  the  diagnosis,  cure,
mitigation,  treatment,  or  prevention  of  disease,  it could  regulate  those
products as drugs and require, among other things, premarket approval for safety
and  efficacy.  Biomune  believes  that it  presently  complies in all  material
respects with these rules and  regulations.  However,  there can be no assurance
that  non-compliance,  or the  cost  of  future  compliance  with  such  laws or
regulations will not have a material  adverse effect on the Company's  business,
results of operations or financial condition.

           The  Company's  advertising  is  subject  to  regulation  by the  FTC
pursuant  to the  Federal  Trade  Commission  Act,  which  prohibits  unfair  or
deceptive acts or practices,  including the dissemination of false or misleading
advertising.  Violations  of the FTCA may  result in a cease and  desist  order,
injunction,  or civil or criminal  penalties.  The FTC monitors  advertising and
entertains  inquiries and complaints from competing companies and consumers.  It
also reviews referrals from industry self-regulatory organizations.

Employees

           As of  September  30,  1999,  the Company had 3 full-time  employees.
Since  September  1, 1998,  the  Company  leases 6 full-time  employees  under a
marketing agreement with Harrogate.  The Harrogate employees staff the marketing
and sales operations of Optim, including its President,  Randy Olshen. Under the
agreement with Harrogate,  the Company pays Harrogate a fee of 45% through March
31, 1999,  10% April 1, 1999,  through  December 31, 1999, and 45% thereafter of
gross  revenues from the  nutrition  bar and medical food  products  marketed by
Optim.  Harrogate pays Mr. Olshen and the other  employees and costs  associated
with its duties under the agreement. Harrogate also received options to purchase
308,000 shares of Biomune  common stock at a price of $2.00 per share,  which it
may use as incentives and for compensation of its employees  providing  services
to Optim.  During 1999 the total  compensation  paid by Harrogate  for employees
providing  services  to the  Company  was  approximately  $400,000.  None of the
Company's  employees  are  subject to a  collective  bargaining  agreement.  See
"Certain Relationships and Related Transactions."


                                       -10-

<PAGE>



Item 2.  Description of Properties

           The corporate  headquarters for Biomune and Optim are located at 2401
South Foothill Drive,  Salt Lake City, Utah under a written lease agreement with
Young Electric Sign Company,  an unrelated third party (the "Lease  Agreement").
The current Lease Agreement  expires on July 31, 2000. The monthly rent for both
Biomune's  and Optim's  space under the Lease  Agreement was $7,875 per month in
1998 and increased to $8,268.75 per month in 1999. The Company  recently reduced
the amount of space used in the premises to 3500 square feet with reduced rental
payments  of $5,187 per  month.  Biomune  believes  that its  current  corporate
headquarters are sufficient for its needs for the foreseeable  future up through
and  including  the  termination  of the Lease  Agreement.  A new lease has been
negotiated and will expire on July 31, 2000.

           In addition to the corporate headquarters, Optim leases approximately
3,800 square feet of warehouse space in West Valley City, Utah.  Presently Optim
uses  approximately  75% of the  warehouse  space.  Biomune  believes that those
facilities  will  accommodate  Optim's  operations and projected  growth for the
foreseeable future.

Item 3.  Legal Proceedings

           On October 12, 1995, a Proposed Class Action Complaint for Violations
of the Federal Securities Laws was filed in the United States District Court for
the District of Utah,  Central  Division,  by Roman Sterlin  (Civil No.  2:95CV-
0944G).  The  Complaint,  as  subsequently  amended,  named as  defendants,  the
Company,  David G. Derrick (the  Company's  former Chief  Executive  Officer and
Chairman of the  Board),  Aaron Gold (a  director  of the  Company),  Charles J.
Quantz (a director of the  Company),  Jack D.  Solomon (a founder of the Company
and a member of the  Company's  Business  Advisory  Board),  Genesis  Investment
Corporation  (a  shareholder  of the  Company)  and The  Institute  for Social &
Scientific  Development,  Inc. (a shareholder of the Company). The plaintiff has
alleged  violations by the defendants of Sections  10(b),  20(a) and 20(A)(a) of
the  Exchange  Act,  Rule 10b-5  promulgated  under the Exchange Act and general
misappropriation   of  material  non-public   information.   Biomune  and  other
defendants  prevailed  in a motion to dismiss  the  lawsuit  based,  among other
grounds, on the expiration of applicable  statutes of limitation.  The plaintiff
appealed  the  decision  of the  District  Court to the United  States  Court of
Appeals for the Tenth Circuit (No. 95-CV-944) in Denver,  Colorado. On September
2, 1998,  the Court of Appeals  reversed in part the decision of the trial court
and  remanded  the case for a  determination  by the trial  court of whether the
complaint had been timely filed in light of the decision of the appellate court.
The trial court has permitted the parties to conduct additional discovery before
a hearing on the issue.  Biomune  expects to complete  discovery in the next six
months.  Biomune  believes that the allegations made in the Complaint are wholly
without  merit and  intends to  vigorously  oppose the claims of the  plaintiff.
However,  there  can  be  no  assurance  that  the  Company's  defense  will  be
successful.  Until  September  1999,  the  Company  has paid the legal  fees and
related  expenses  associated  with the  defense of this action on behalf of the
Company and the other named defendants.

           On  September  29,  1998,  Bryan  Furtek filed a lawsuit in the Third
Judicial  District Court for Salt Lake County,  Salt Lake  Department,  State of
Utah (Civil No. 9890909809),  naming the Company, Bioxide Corporation,  David G.
Derrick,  Jack  Solomon,  Genesis  Investment  Corporation,  and  Biomed  Patent
Development as defendants.  The  plaintiff's  claims  allegedly arose out of his
role  in  the  development  of  certain  waste  disposal   technologies.   Those
technologies  were  included  in the  property  sold by the  Company  in 1998 to
Bioxide Corporation. The defendants, including the Company, filed answers to the
complaint,  denying  all of  plaintiff's  principal  allegations  and claims and
asserting  counterclaims  against Mr.  Furtek,  including,  among other  things,
unjust  enrichment  and a claim that Furtek  misrepresented  his  authority  and
ability to patent the  technology at the core of the  litigation.  This case has
been settled and the lawsuit dismissed.

           By agreement with the Company, entered into September 1998, Harrogate
agreed to assume  and pay all  costs,  including  legal  fees of the  Company in
connection with these cases.

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters

           The Company's  common stock is listed on the National  Association of
Securities  Dealers  Automated  Quotation  ("Nasdaq")  SmallCap Market under the
primary  symbol  "BIME"  since  April 6,  1994.  The  following  table  contains
information  about the range of high and low bid prices for the common stock for
each full quarterly period within the

                                      -11-

<PAGE>



two most recent  fiscal  years,  based upon  quotations  on the Nasdaq  SmallCap
Market (and giving  effect to all stock splits  occurring  during such period or
prior to the issuance of this Report):

   Quarter Ended                 High(1)                            Low(1)

September 30, 1999             $    1.94                          $    0.97
June 30, 1999                  $    2.63                          $    1.19
March 31, 1999                 $    2.78                          $    2.00
December 31, 1998              $    4.38                          $    1.88

September 30, 1998             $    4.06                          $    4.00
June 30, 1998                  $    9.38                          $    8.75
March 31, 1998                 $   10.16                          $    9.38
December 31, 1997              $    8.13                          $    6.56
--------------------

(1)        The source of these high and low prices was Nasdaq.  These quotations
           reflect  inter-dealer  prices,  without retail mark-up,  mark-down or
           commission and may not represent actual transactions.  These high and
           low prices are post-split  prices,  reflecting  the 1-for-10  reverse
           stock split  effective  December  31,  1998.  The high and low prices
           listed have been rounded up to the next highest two decimal places.

           The  market  price of the  common  stock is  subject  to  significant
fluctuations  in response to  variations in the  Company's  quarterly  operating
results,  general  trends in the market for the  Company's  products and product
candidates,  and other factors,  over many of which the Company has little or no
control. In addition,  broad market  fluctuations,  as well as general economic,
business  and  political  conditions,  may  adversely  affect the market for the
Company's  common  stock,  regardless  of  the  Company's  actual  or  projected
performance.  On January  7,  2000,  the  closing  price of the common  stock as
reported by Nasdaq was $1.69 per share.

           On January 7, 2000, there were approximately  1,700 holders of record
of the  Company's  common  stock  and  approximately  3,500  beneficial  owners,
including shares of common stock held in street name.

           Biomune has never declared or paid cash dividends on its common stock
and does not  anticipate  paying any cash  dividends  on its common stock in the
foreseeable future.  Biomune currently  anticipates that all of its cash will be
retained for use in the  operation  and  expansion of its  business.  Any future
determination  as to cash  dividends will depend upon the earnings and financial
position  of the Company and such other  factors as the Board of  Directors  may
deem appropriate.  Cash dividend payments to holders of common stock are subject
to preferred dividend payments to the holders of the Company's preferred stock.

           As of January 7, 2000,  Biomune had the following series of preferred
stock outstanding:

           Series A 10% Cumulative  Convertible  Preferred Stock - 36,499 shares
outstanding, convertible into 1,093 shares of common stock;

           Series B 10% Cumulative Convertible Preferred Stock  - 449 shares
outstanding, convertible into 14 shares of common stock;

           Series J 10% Convertible, Non-Voting Preferred Stock - 1,036.1 shares
outstanding. The series consists of 2,000 shares authorized, with a stated value
of $1,000 per  share.  Holders  are  entitled  to a  dividend  of $100 per share
annually,  payable quarterly in stock or cash at the option of the Company. Each
share is convertible to shares of common stock  calculated by dividing $1,000 by
the market price of the Company's common stock on the date of conversion.



                                       -12-

<PAGE>



Recent Sales of Unregistered Equity Securities

           The  following  information  sets forth certain  information  for all
securities  Biomune sold during the past three years without  registration under
the Securities Act.

1999

           During  the year ended  September  30,  1999,  323 shares of Series E
Preferred Stock were converted and exchanged for approximately 290,000 shares of
common  stock of the  Company.  Subsequent  to  September  30,  1999, a total of
1,420,081  shares of Series F Preferred  Stock were  converted and exchanged for
1,512,000 shares of common stock and 210 shares of Series J Preferred Stock were
converted and exchanged for 394,899 shares of common stock.

           During the  quarter  ended  September  30,  1999 and  pursuant to the
annual meeting of the Company held June 23, 1999, the  shareholders  approved an
amendment to the designation of rights and preferences of the Series F Preferred
Stock to convert at the lesser of the fair market value of the Company's  common
stock or $1.10 per share.

1998

           In 1998,  the Company  issued 180,000 shares of common stock to David
Pomerantz for consulting services provided to the Company.

           In September  1998,  Biomune issued  restricted  shares of its common
stock and  options to purchase  restricted  shares of common  stock.  A total of
32,910 restricted shares were issued,  primarily to satisfy outstanding payables
of Rockwood and for services  provided to the Company or its  subsidiaries.  The
shares were issued at market  value  ($4.00) on the date of issue.  In addition,
the Company  issued one vendor  options to purchase 1,000 shares of common stock
at a price of $7.50 per share.

           In September 1998,  Biomune  accepted  subscriptions in cash totaling
$675,000 for purchase of shares of its Series J Preferred  Stock. The purchasers
of such  shares  were  accredited  investors  as that term is defined  under the
Securities Act and the rules and regulations promulgated under such Act.

1997

           On August 1, 1997,  Biomune issued 1,000 restricted  shares of common
stock and options to purchase 2,500  restricted  shares of common stock to three
consultants for services provided to the Company.  The shares issued were valued
at $37.50 per share and the  exercise  price of the options is $37.50 per share,
which price was the fair market value of the Company's  common stock on the date
of issuance of such securities, adjusted for intervening reverse stock splits.

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


                                       -13-

<PAGE>



Item 6.  Management's Discussion and Analysis or Plan of Operation

           The  following  discussion  and analysis of the  Company's  financial
condition  and  results of  operations  should be read in  conjunction  with the
consolidated  financial  statements and the notes thereto appearing elsewhere in
this Report. See Item 7, "Financial Statements and Supplementary Data."

Overview

           Biomune is engaged in the  research,  development,  distribution  and
sale of  biologic  pharmaceutical  products,  nutraceutical  food  products  and
supplements,  medical foods. In addition it has a minority interest in a company
that distributes health and beauty aids. Certain of the biologic  pharmaceutical
and nutraceutical  products developed by the Company incorporate a patented whey
protein  technology,  which  is  designed  to  provide  or  increase  protective
immunities  from an  immune  response  to  disease  and to  provide  nutritional
supplementation.  Biomune's medical food bar is a patented formulation developed
by researchers at Beth Israel Deaconess Medical Center,  Harvard Medical School,
marketed  by the  Company  under an  exclusive  license.  The  energy and sports
nutrition bars of the Company are also marketed under an exclusive  license from
the developer of the products.  Through a majority owned subsidiary, the Company
also  distributes  health and  beauty  aids and  related  products  to  national
wholesale and retail customers.

           Biomune believes its future results of operations will be affected by
factors such as:

           o        the availability of cash from financing activities to fund
                    its operations;

           o        the results of  research  and  development  efforts and the
                    clinical  trials on  BWPT-301,  BWPT-302  and other  future
                    pharmaceutical drug candidates based on or derived from the
                    Technology;

           o        market acceptance of Optimune, the nutrition and medical
                    food bars, and  pharmaceutical  drug  candidates,  increased
                    competitive pressures;

           o        changes in raw material sources and costs; and

           o        adverse changes in general economic conditions in any market
                    in which the Company conducts or markets its products.

           Biomune  expects that the majority of its future  revenues  will come
from its nutrition  products and new nutraceutical  products and  pharmaceutical
drugs.  Biomune cannot determine the ultimate effect that new products will have
on revenues, earnings or the price of its common stock.

           Biomune's  primary  focus and  efforts  during the fiscal  year ended
September 30, 1999, were the  commercialization  of its nutraceutical  products,
assessing and obtaining additional  nutraceutical and medical products to add to
product  line,  and, to a lesser  extent,  continuing  its efforts to obtain FDA
approval of BWPT-301 for the treatment of  cryptosporidiosis in people with AIDS
and BWPT-302 for the  treatment of E. coli,  strain  0157:H7.  During the fiscal
year ended September 30, 1999, generated $1,501,406 in revenues from the sale of
its products.

           Continuing in fiscal year 2000,  the Company will focus its resources
and efforts on:

           o          commercialization of its nutraceutical products;

           o          continued marketing and selling of the Mountain Lift bars;

           o          acquisition of new nutraceutical and medical food
                      products;

           o          development of one or more additional nutraceutical
                      products based on the Technology; and

           o          approval of BWPT-301 and BWPT-302.


                                       -14-

<PAGE>



Results of Operations

           During the fiscal year ended  September 30, 1999,  Biomune  generated
revenues from continuing  operations  totaling  $1,501,406.  These revenues were
generated by Optim, the Company's  nutraceutical  product subsidiary.  In fiscal
year 1998, total revenue was $2,806,853. These revenues were generated primarily
by Optim,  the Company's  nutraceutical  product  subsidiary  and Rockwood.  The
decrease  in sales  during  fiscal  year  1999 is  attributable  to the  Company
reducing its ownership interest in Rockwood from 52% to 19%.

           Management,   consulting  and  research   expenses  from   continuing
operations  decreased from  $1,052,674 in fiscal year 1998 to $304,894 in fiscal
year 1999.  This decrease was due primarily to a reduction in  expenditures  for
research and development.  Biomune anticipates that it will continue to focus on
reducing  expenditures  for  management,  consulting  and  research  fees in the
foreseeable future.

           Other general and  administrative  expenses decreased from $2,046,699
during fiscal year 1999 to $1,025,618  during fiscal year 1999.  The decrease in
other  general  and  administrative  expenses  was  primarily  a  result  of the
Company's  efforts to reduce  overhead  costs and a  reduction  in the number of
employees.  Biomune expects that general and administrative expenses will remain
at approximately 1999 levels.

           Interest  income  decreased  from  $144,042 for fiscal year 1998,  to
$101,751 for fiscal year 1999.  This decrease was primarily  attributable to the
use of cash for  management,  consulting and research,  as well as other general
and administrative expenses.

           Biomune  had a net loss  from  continuing  operations  of  $2,076,093
(after  accounting for stock  dividends on the  outstanding  shares of preferred
stock) in fiscal year 1999, as compared to a net loss from continuing operations
of $2,968,108 in fiscal year 1998.  This decrease in net loss is attributable to
a decrease in accrued  preferred  stock  dividends,  the  beneficial  conversion
features  on  preferred  stock,  an  increase in the  Company's  revenues  and a
reduction  in other  general and  administrative  expenses as  described  above.
Additional  factors  were  decreases  in  management,  consulting  and  research
expenses. The net loss per common share was $1.15 for fiscal year 1999, compared
to a net loss per common  share of $4.52 for fiscal year 1998.  The  decrease in
the net loss per common share is due  primarily  to the decrease in  management,
consulting  and research  and  development  expenses,  as well as a reduction in
general and administrative expenses.

           Biomune has incurred  significant net operating losses, which totaled
$39,919,639  from  inception  through  September  30,  1999.  Certain of the net
operating loss carryforwards  ("NOLs") related to the accumulated operating loss
may be limited by an ownership change (as that term is defined in Section 382 of
the Internal  Revenue  Code of 1986,  as amended)  that may have  occurred as of
December 10, 1991. See Note 11 to the consolidated financial statements.

Liquidity and Capital Resources

           Biomune has been unable to finance  its  operations  solely from cash
flows from operating  activities.  Substantial funds and additional time will be
required to  continue  commercializing  the  Company's  nutraceutical  products,
completing Phase II and Phase III clinical trials on BWPT-301 (assuming efficacy
is established  during the Phase II clinical  trials),  completing the necessary
clinical   trials  on   BWPT-302,   obtaining   regulatory   approval   for  and
commercializing   products   utilizing  the   Technology   and   developing  and
commercializing  additional  nutraceutical  products  based  on the  Technology.
Because operating  activities have not produced significant revenues to date and
because  the  Company  will  require   significant  capital  to  accomplish  the
objectives  set  forth  above,  additional  equity  or  debt  financing  will be
required, although financing may not be available at all or may not be available
on terms favorable to the Company.  Management  believes that the Company-funded
research and  development  efforts to date have positioned the Company to pursue
future research and development  efforts and clinical trials with joint venture,
strategic alliance, government or private grants or other third-party funding.

           As of September 30, 1999,  Biomune had a deficit of cash and cash
equivalents of $7,828 and a working capital deficit of $16,605  compared to cash
and cash  equivalents of $27,701 and working capital of $981,757 as of September
30, 1998.


                                       -15-

<PAGE>



           During fiscal year 1999, the operating  activities  used $273,578,
provided  mainly by the sale of the  Company's  securities  and the  exercise of
options for the purchase of common stock.  In 1998,  operating  activities  used
$1,740,736 of cash,  provided by the sale of preferred stock and the exercise of
options for the purchase of common stock.

           During fiscal year 2000, Biomune  anticipates  incurring direct costs
of  approximately  $1,000,000  to market  and sell its  nutraceutical  products.
Biomune expects it will continue to finance  operations in part from the sale of
its securities, as well as from sales.

           Biomune  has  no  established   credit   facility  with  any  lending
institution.   From  time  to  time,   Biomune   borrowed   money  from  certain
shareholders,  but  it  has  no  formal  financing  arrangement,   agreement  or
understanding  with any of its  shareholders  or any other  related or unrelated
party to do so in the future.

           The audited  consolidated  financial  statements  of the Company have
been prepared on the assumption  that it will continue as a going  concern.  The
Company's  independent public accountants have issued their report dated January
7, 2000,  that  includes an  explanatory  paragraph  stating that the  Company's
recurring losses and accumulated deficit,  among other things, raise substantial
doubt about the Company's ability to continue as a going concern.  The Company's
product line is limited and it has been  necessary to rely upon  financing  from
the sale of its equity securities to sustain  operations.  Additional  financing
will be required if the Company is to continue as a going concern. If additional
financing  cannot  be  obtained,  Biomune  may be  required  to  scale  back  or
discontinue  its  operations.  Even if additional  financing is available to the
Company,  there can be no  assurance  that it will be on terms  favorable to the
Company.  In any event,  such  financing  will result in immediate  and possibly
substantial dilution to existing shareholders.

Recent Accounting Pronouncements

           For the year ended  September 30, 1999, the Company  adopted SFAS No.
130 issued by the  Financial  Accounting  Standards  Board  ("FASB").  SFAS 130,
"Reporting  Comprehensive Income" requires entities presenting a complete set of
financial  statements to include details of  comprehensive  income that arise in
the reporting period.  Comprehensive income consists of net earnings or loss for
the current period and other  comprehensive  income,  which consists of revenue,
expenses,  gains and  losses  that  bypass the  statement  of  earnings  and are
reported directly in a separate component of equity.  Other comprehensive income
includes,  for  example,  foreign  currency  items,  minimum  pension  liability
adjustments and unrealized gains and losses on certain investment securities.

           During  January  1998,  the American  Institute  of Certified  Public
Accountants  ("AICPA") issued Statement of Position 98-5 "Reporting on the Costs
of Start-up  Activities"  ("SOP 98-5). SOP 98-5 becomes effective for all fiscal
years  beginning  after  December 15,  1998.  Biomune will adopt SOP 98-5 in its
fiscal year beginning October 1, 1999. Because the current  amortization periods
of the product development costs and start-up costs averaging 12 months, Biomune
does not  expect  the  adoption  of SOP 98-5 to have a  material  impact  on the
Company's financial statements.

           During  January  1998,  the AICPA issued  Statement of Position  98-1
"Accounting  for the  Costs of  Computer  Software  Developed  or  Obtained  for
Internal  Use" ("SOP  98-1").  SOP 98-1 became  effective  for all fiscal  years
beginning  after December 15, 1998.  Biomune does not expect the adoption of SOP
98-1 to have a material adverse effect on the Company's financial statements.

Certain Business Considerations and Risk Factors

           The short and  long-term  success  of  Biomune  is subject to certain
risks,  many of which are  substantial in nature.  Shareholders  and prospective
shareholders  in the  Company  should  consider  carefully  the  following  risk
factors, in addition to other information contained in this Report.

           History of Operating Losses; Uncertainty of Future Profitability.
Biomune has incurred  significant net operating  losses since  formation.  As of
September  30, 1999,  Biomune had an  accumulated  deficit of  $39,919,639.  The
factors contributing to these significant operating losses included:

                     o          ongoing marketing expenditures;

                                       -16-

<PAGE>




                     o          acquisition expenses and costs;

                     o          expansion of its research and development
                                programs;

                     o          costs associated with pre-clinical studies and
                                clinical trials for its pharmaceutical product
                                candidates;

                     o          nutritional studies;

                     o          regulatory compliance requirements related to
                                its pharmaceutical product candidates;

                     o          trials for other products that it or its
                                subsidiaries may develop; and

                     o          implementation of programs to market products
                                ultimately approved for distribution, if any.

           Biomune's ability to achieve  profitability  depends upon its ability
to  successfully  market its  products,  to  acquire,  discover  or develop  new
products, to obtain regulatory approvals of its proposed pharmaceutical products
and  to  enter  into   agreements   for  product   development,   manufacturing,
distribution, and commercialization.  There can be no assurance that the Company
will ever achieve significant revenues or profitable operations.

           Going Concern. The consolidated  financial statements of Biomune have
been  prepared  on the  assumption  that the  Company  will  continue as a going
concern.  The Company's  independent public accountants have issued their report
dated January 7, 2000 that includes an  explanatory  paragraph  stating that the
Company's recurring losses and accumulated  deficit,  among other things,  raise
substantial  doubt about the its ability to  continue  as a going  concern.  The
Company's  product  line is  limited  and it has  been  necessary  to rely  upon
financing  from  the  sale  of its  equity  securities  to  sustain  operations.
Additional  financing  will be required if the Company is to continue as a going
concern.  If such additional  financing  cannot be obtained,  the Company may be
required to scale back or discontinue  its  operations.  Even if such additional
financing is available to the Company, there can be no assurance that it will be
on terms favorable to the Company.

           Sale of Equity Securities;  Future Dilution. Biomune anticipates that
it will sell additional  equity securities to fund its operations and to acquire
inventory.  Absent such additional financing,  the Company may find it necessary
to  postpone  or cancel  some of its  planned  business  activities.  This could
adversely  affect the Company's  ability to execute its business plan,  generate
future revenues and introduce new products. There can be no assurance,  however,
that additional financing will be available,  or, if available,  that it will be
available on acceptable terms or in required amounts. Furthermore, if additional
funds are raised by issuing shares of common stock or securities  convertible to
common  stock,  those sales or  conversion  will result in further and  possibly
substantial dilution of the Company's shareholder. Substantial dilution may make
it more  difficult  for  investors to sell their shares or may result in a lower
price of the  Company's  securities.  Biomune may also be forced to obtain funds
through  arrangements  with  collaborative  partners or others may require it to
relinquish  rights to certain  of its  product  candidates  or  technologies  or
products.

           Dependence on Licensed Technology. Biomune is dependent upon licenses
granted by third  parties.  Some of these  license  agreements  require that the
Company achieve  minimum sales in order to retain the license rights.  There can
be no  assurance  that it will  meet the  minimum  sales  requirements  to avoid
cancellation  of the licenses or a change in its rights.  The failure to observe
or  perform a material  covenant,  term,  condition  or  provision  in a license
agreements or the material  breach of a  representation  or warranty made by the
Company,  may result in a termination  or  restriction of its rights under these
agreements.  Termination of any of the licenses or any restriction or limitation
of the Company's rights would adversely affect its operations.

           Government Regulation. The Company's products and business activities
are subject to government  regulations,  including,  without  limitation,  those
administered  by the  FDA and the FTC and  state  and  local  agencies.  Similar
regulatory frameworks exist in other countries, where the Company is licensed to
distribute  products.  To date,  the Company has  completed  extensive  clinical
trials on BWPT-301  pursuant to the submission to the FDA of an IND. Biomune has
also commenced  clinical trials on BWPT-302  pursuant to a second IND,  although
communications with

                                      -17-

<PAGE>



the FDA  concerning  this  second  IND remain at a very  early  stage.  Prior to
marketing pharmaceutical products, such products must undergo extensive clinical
trials and an extensive  regulatory  approval process.  Any denials or delays in
obtaining the requisite approvals would likely have a material adverse effect on
the  Company.   The   pharmaceutical   regulatory   process  includes  extensive
pre-clinical safety,  pharmacology and toxicological testing.  Pre-clinical data
is required for the filing of an IND with the FDA to conduct clinical testing to
establish safety, efficacy, purity and potency of any investigational biological
product. With respect to each biological  pharmaceutical product candidate,  the
developer must  initially  conduct a limited Phase I (safety)  study,  then more
extensive Phase II studies, followed by a Phase III study. This testing can take
many  years  and  require  the  expenditure  of  substantial  capital  and other
resources.  There can be no  assurance  that this testing will be completed on a
timely basis or at all. Delays or denials of marketing  approval are encountered
regularly,  and the Company's  activities with respect to clinical studies since
fiscal 1997  regarding its  pharmaceutical  products have been  curtailed due to
financial  restraints  and the  Company's  increased  emphasis on  nutraceutical
products.  Prior to commencing marketing of a pharmaceutical  product, a company
must file a Product License  Application  ("PLA") and an  Establishment  License
Application  ("ELA") with the FDA and be issued the appropriate  product license
and  establishment  license.  A PLA relates to the product itself,  while an ELA
relates to the  manufacturing  facilities to be used to manufacture the product.
Both a PLA and an ELA are required before product marketing can begin. There can
be no assurance that even after successful clinical testing, regulatory approval
of a PLA or an ELA will ever be obtained.  If obtained,  regulatory approval may
entail  limitations on the indicated uses for which any product may be marketed.
Following  regulatory  approval,  a product and its  manufacturer are subject to
continuing  regulatory  oversight and review. Later discovery of problems with a
product or its  manufacturer  may result in  restrictions  on the product or its
manufacturer.  These  restrictions  may  include  withdrawal  of  the  marketing
approval for the product.  Violation of FDA  requirements in general can lead to
recall or seizure of  products,  injunction  against  production,  distribution,
sales and marketing,  and criminal prosecution,  among other sanctions. The cost
to the Company of conducting human clinical trials can vary  dramatically  based
on a number of factors,  including,  but not limited to, the order and timing of
clinical indications pursued, the size of the patient population,  the number of
participating institutions and the number and type of end points subject to data
collection.  Because  of the  intense  competition  in the  market  in which the
Company  operates,   the  Company  may  have  difficulty   obtaining  sufficient
populations or clinician  support to conduct its clinical  trials as planned and
may have to  expend  substantial  additional  funds  to  obtain  access  to such
resources, or delay or modify its plans significantly. There can be no assurance
that the  Company  will have  sufficient  resources  to  complete  the  required
clinical testing regulatory review and approval process.  Moreover, there can be
no assurance  that clinical  testing of the Company's  product  candidates  will
provide  sufficient  evidence of safety and efficacy in humans,  that regulatory
approvals  will  be  granted  for  any  product  candidate  or  that  it will be
economically   feasible  to  commercialize   any  product  candidate  for  which
regulatory approval is ultimately granted.

           Uncertainty   Regarding   Patents   and   Proprietary   Rights.   The
pharmaceutical  industry places considerable  importance on obtaining patent and
trade  secret  protection  for new  technologies,  products and  processes.  The
success  of the  Company  will  depend in large  part on its  ability  or on the
ability of its current licensors,  to defend patents,  and on their ability,  to
maintain trade secrets and operate without  infringing the proprietary rights of
others.  Patent  protection is highly  uncertain and involves  complex legal and
factual  questions.  Biomune  relies  on  four  patents  issued  to  PTI  on the
Technology,  a patent  applied for by the Company  relating to an enhancement of
the Technology,  and on a patent relating to the NiteBite  medical food bar. The
patent  application  and issuance  process can be expected to take several years
and could entail  considerable  expense to the Company, as it may be responsible
for such costs  under the terms of any  technology  agreements.  There can be no
assurance  that patents will issue as a result of any  applications  or that the
existing  patents  and any patents  resulting  from such  applications,  will be
sufficiently  broad to afford  protection  against  competitors  with similar or
competing  technology.  In addition,  there can be no assurance that the patents
will not be challenged,  invalidated or circumvented, or that the rights granted
thereunder will provide  competitive  advantages to the Company.  The commercial
success of the  Company  will also  depend  upon  avoiding  infringement  of any
patents issued to competitors.  A United States patent application is maintained
under  conditions of  confidentiality  while the application is pending,  so the
Company  cannot  determine  the  inventions  being  claimed  in  pending  patent
applications  filed by third  parties,  if any.  Litigation  may be necessary to
defend or enforce the  Company's  patent and license  rights or to determine the
scope and validity of others'  proprietary  rights.  Defense and  enforcement of
patent claims can be expensive and time  consuming,  even in those  instances in
which the outcome is favorable, and could result in the diversion of substantial
resources and management time and attention from the Company's other activities.
An adverse  outcome could subject the Company to significant  liability to third
parties,  require the Company to obtain licenses from third parties, require the
Company to alter its  products or  processes,  or cease  altogether  any related
research and

                                      -18-

<PAGE>



development  activities  or  product  sales,  any of which  may have a  material
adverse  effect on the Company's  business,  results of operations and financial
condition. With respect to the patents and other proprietary technology licensed
to the  Company  from  third  parties,  the  licensors  have  not  provided  any
representations  or warranties to the Company  relating to  non-infringement  of
third party proprietary  rights and have not indemnified the Company against any
damages or  expenses  arising  out of any such  claims of  infringement.  To the
extent  that the  licensed  rights or the  Company's  activities  or any portion
thereof  is found to  infringe  the  proprietary  rights of any other  person or
entity,  the  Company  could be liable for the  payment of  substantial  damages
without the  likelihood of any  contribution  by the licensor.  Such event could
have a material adverse effect on the Company's operations.  Biomune also relies
on trade secrets,  know-how and continuing technological advancement to maintain
its  competitive  position.  No assurance can be given that others will not gain
access to its trade  secrets,  or that the Company  will be able to  effectively
protect its rights to its trade secrets. Furthermore,  assurance cannot be given
that others will not independently develop substantially  equivalent proprietary
information  and  techniques  or otherwise  gain access to the  Company's  trade
secrets.

           Technological  Changes.  New  process  developments  are  expected to
continue at a rapid pace in the biologic pharmaceuticals,  nutrition and medical
food  industries.  The  Company's  future  success will depend on its ability to
develop and  commercialize  its existing  product  candidates  and to develop or
acquire  new  products.  There  can  be  no  assurance  that  the  Company  will
successfully  complete the development of any of its existing product candidates
or that any of its future products will be commercially viable or achieve market
acceptance. In addition, there can be no assurance that research and development
and discoveries by others will not render some or all of the Company's  programs
or products uncompetitive or obsolete.

           Dependence  on  Third-Party  Manufacturers.  Biomune is  dependent on
third-party  manufacturers  to manufacture  the Base Product and its nutritional
and medical food bars.  Pursuant to the license with PTI, the Company has agreed
to purchase  all of its  requirements  for the Base  Product  from PTI. A single
manufacturer  in New  Zealand  produce  all of such  product at its New  Zealand
facilities.  Although the PTI license  permits the Company to utilize  alternate
sources of supply during any period in which PTI is unable to satisfy all of the
Company's  requirements for the Base Product, if PTI or the sole manufacturer of
Base Product  fail to supply any or all of the  Company's  requirements  for the
Base Product,  or if the Company's  suppliers of nutrition and medical food bars
fail to fulfill  the  Company's  requirements,  there can be no  assurance  that
alternate  sources of supply will be available to the Company at reasonable cost
or at all, and, if available at a reasonable  cost,  whether the Company will be
able to secure such  alternate  sources in a timely  manner.  If such  alternate
sources of supply are not available on a timely basis or on reasonable  economic
terms,  the  Company's  results of  operations  could be severely and  adversely
affected.  The  manufacturing  facilities  in which the  Company's  products are
manufactured  must conform to current FDA GMP. Those standards must be met on an
ongoing basis and the licensed  facilities  are subject to inspection by the FDA
at least once every two years. If a contract manufacturer is unable or unwilling
to obtain or retain its FDA  rating,  the  Company  would be required to find an
alternate source of supply. If alternate manufacturing sources are not available
on a timely basis or on reasonable  economic  terms,  the  Company's  results of
operations could be materially adversely affected.

           Competition.  Biomune  competes  with  companies  that are  currently
developing  or selling  products  similar to or in direct  competition  with the
Company. Many of these competitors have substantially greater capital resources,
research  and  development   capabilities,   and   manufacturing  and  marketing
resources,   capabilities  and  experience  than  the  Company.   The  Company's
competitors  may succeed in developing  products that are more effective or less
costly than any products  that may be  developed  by the  Company,  or that gain
regulatory approval or market acceptance prior to any of the Company's products.
Other  companies have  competitive  products that are in more advanced stages of
clinical testing than are the Company's pharmaceutical product candidates. There
can be no assurance that the Company will be able to compete successfully in any
market.

           Dependence on Qualified  Personnel;  Potential Conflicts of Interest;
Part-Time  Consultants.  The Company's  success is dependent upon its ability to
obtain and retain the services of qualified scientific, sales and marketing, and
executive  management  personnel.  Biomune  faces intense  competition  for such
personnel from other companies,  academic institutions,  government entities and
other research organizations. There can be no assurance that the Company will be
successful in hiring or retaining qualified  personnel.  Moreover,  managing the
integration  of new  personnel  could pose  significant  risks to the  Company's
development  and progress and increase its  operating  expenses.  The  Company's
consultants  and advisors devote only a portion of their time to the business of
the Company and may from time to time serve as officers, directors,  consultants
or advisors to other pharmaceutical, health and fitness,

                                       -19-

<PAGE>



nutrition or biotechnology companies.  There can be no assurance that such other
companies  will not in the future have interests that conflict with those of the
Company.  Biomune  also  contracts  with a related  party to  provide  marketing
services and personnel.

           Product  Liability  Exposure;  Insurance.  Product  liability risk is
inherent  in the  testing,  manufacture,  marketing  and  sale of the  Company's
products and product candidates,  and there can be no assurance that the Company
will be able to avoid significant product liability exposure.  Product liability
insurance for the pharmaceutical and nutraceutical  industries,  when available,
is  extremely  expensive.   Biomune  currently  maintains  a  general  liability
insurance  policy  and a product  liability  insurance  policy.  There can be no
assurance that the Company will be able to maintain such insurance in sufficient
amounts to protect the Company against such liabilities at a reasonable cost. In
addition,  the Company is required to indemnify its licensors and  manufacturers
against  any  product  liability  claims  incurred  by then as a  result  of any
products  developed and sold by the Company.  Any future product liability claim
against the Company could result in liability for substantial damages, which may
not be covered in whole or in part by  insurance,  and which may have a material
adverse effect on the business and financial condition of the Company.

           Litigation.  Biomune  and certain  affiliates  and current and former
officers  and  directors  are parties to certain  legal  proceedings.  While the
Company  believes that the  allegations  made by the plaintiffs in these actions
are wholly  without  merit,  and it intends to  vigorously  oppose such actions.
There can be no assurance that the Company's defense will be successful.

           Limited  Availability of Conclusive  Clinical Studies.  The Company's
products  include  nutritional  supplements  and food  bars  that are made  from
vitamins, minerals, herbs and other substances for which there is a long history
of  human  consumption.  Some  of  the  Company's  products  contain  innovative
ingredients or combinations of ingredients. Although Biomune believes all of its
products to be safe when taken as directed, there is little long-term experience
with human  consumption of certain of these  innovative  product  ingredients or
combinations of ingredients in concentrated  form.  Biomune relies  primarily on
the research of consultants and others for the formulation and production of its
products.  Some of  these  consultants  and  suppliers  may  have  performed  or
sponsored only limited clinical studies relating to these products. Furthermore,
because these products are or will be highly dependent on consumers'  perception
of the  efficacy,  safety and  quality of the  supplement  products,  as well as
similar products distributed by other companies,  the Company could be adversely
affected  in  the  event  such  products  should  prove  or  be  asserted  to be
ineffective  or  harmful  to  consumers  or in the  event of  adverse  publicity
associated with illness or other adverse  effects  resulting from consumers' use
or misuse of the Company's products or similar products.

           Volatility of Stock Price.  The trading price of the Company's common
stock has been and is likely to continue to be subject to wide  fluctuations  in
response  to  the  quarter-to-quarter  variations  in  the  Company's  operating
results, material announcements by the Company or its competitors,  governmental
regulatory action,  conditions in the nutritional  supplement industry, or other
events or factors, many of which are beyond the Company's control. The Company's
operating results in future quarters may be below the expectations of securities
analysts  and  investors.  In such  event,  the price of the Common  Stock would
likely  decline,  perhaps  substantially.  In  addition,  the stock  market  has
historically  experienced  extreme  price and  volume  fluctuations  which  have
particularly affected the market prices of many nutritional supplement companies
and  network  marketing  companies  and which often have been  unrelated  to the
operating  performance of such companies.  Moreover,  the Company's common stock
may be even more prone to volatility than the securities of other  businesses in
similar  industries  in light of the  relatively  small number of shares held by
non-affiliates of the Company. Given such a relatively small public float, there
can be no assurance that the prevailing market price of common stock will not be
artificially inflated or deflated by trading even of relatively small amounts of
common stock.

           Absence  of  Dividends.  Biomune  has  never  declared  or paid  cash
dividends on its common stock and it does not anticipate that any cash dividends
will be declared on its common  stock in the future.  Furthermore,  the right of
common  shareholders to receive a cash dividend is subject to the preferences of
the several  series of  preferred  stock  issued by the  Company  and  presently
outstanding.



                                      -20-

<PAGE>



Special Statement Concerning Forward-looking Statements

           This  Report,   in  particular  the   "Business"  and   "Management's
Discussion and Analysis or Plan of Operation" sections, contains forward-looking
statements  concerning the expectations and anticipated operating results of the
Company. All of the forward-looking statements contained in this report are made
in  reliance  upon the safe harbor  protection  for  forward-looking  statements
provided by the  Securities  Act and the Exchange Act.  Numerous  factors govern
whether any  forward-looking  statement  made by the  Company  will be or can be
achieved.  Any one of  those  factors  could  cause  actual  results  to  differ
materially from those projected bu the  forward-looking  statements made in this
Report.  These  forward-looking  statements  include  plans  and  objectives  of
management for future operations, including plans and objectives relating to the
products and the future  economic  performance  of the Company.  Forward-looking
statements are based on current  expectations that maybe affected by a number of
risks and uncertainties. They are also based on certain assumptions.

           Assumptions  involve  judgments  with respect to, among other things,
future economic,  competitive and market  conditions,  future business decisions
and the  results  of the  clinical  trials  and the time and money  required  to
successfully  complete those trials, all of which are difficult or impossible to
predict  accurately  and many of which are  beyond the  control of the  Company.
Although  Biomune believes that the assumptions  underlying the  forward-looking
statements in this Report are reasonable,  any of these  assumptions could prove
inaccurate.  Therefore,  there can be no assurance that the results contemplated
in any of the forward-looking  statements will be realized.  Budgeting and other
management  decisions are  subjective in many  respects and are  susceptible  to
interpretations  and periodic  revision based on actual  experience and business
developments,  the impact of which may cause the Company to alter its  marketing
capital  expenditure  plans or other  budgets.  This will  affect the  Company's
results of operations. In light of the significant uncertainties inherent in the
forward-looking  statements,  any such  statement  should not be  regarded  as a
representation  by the Company or any other person that the  objectives or plans
of the Company will be achieved.

Outlook

           The  management  and  marketing  team of the  Company  has  worked to
establish  and  develop  a  business  strategy  that  identifies  the  Company's
strengths and objectives,  outlines a vision of the future market  opportunities
in the  industry  and  articulates  a corporate  and  technology  strategy  that
includes strategic alliances,  collaborative  development agreements,  strategic
acquisitions and new product development.

           Biomune believes its primary operating strengths include:

           -         High quality, scientifically sound products
           -         Strong marketing team with industry experience
           -         Growing product lines and positive name recognition within
                     the industry
           -         Inclusive, supportive corporate culture

           Management believes that these strengths can be used to provide added
access to capital markets,  facilitate  accomplishment  of the objectives of the
Company and position the Company as an  attractive  investment  and  development
partner.

           Biomune  will  continue to pursue  research  and  development  of new
product  offerings and enhancements to existing product lines and acquisition of
complementary technologies, products or entities that will enhance or expand its
current product lines. As the Company  proceeds to implement its strategy and to
reach its objectives,  it anticipates  realizing several benefits for itself and
for its shareholders.  In fiscal year 2000, the Company expects continued growth
in sales,  primarily due to the  introduction of the sports and energy nutrition
bars and related products. In addition,  the Company expects further development
of  complementary  technologies,  added  product  and  applications  development
expertise, access to market channels, leverage of strategic alliances, increased
access to capital markets, and additional  opportunities for strategic alliances
in other industry segments.

Item 7.  Financial Statements and Supplementary Data

           Index to Consolidated Financial Statements:

                                      -21-

<PAGE>



           Report of Independent Public Accountants..........................F-1

           Consolidated Balance Sheet  as of September 30, 1999..............F-3

           Consolidated Statements of Operations for the Years Ended
           September 30, 1999 and 1998.......................................F-4

           Consolidated Statements of Shareholders' Equity for the Years Ended
           September 30, 1999 and 1998 ......................................F-5

           Consolidated Statements of Cash Flows for the Years Ended
           September 30, 1999 and 1998......................................F-11

           Notes to Consolidated Financial Statements.......................F-14


                                    Part III

Item 9.  Directors and Executive Officers

           The following table lists the executive officers and directors of the
Company as of January 7, 2000.

    Name                     Age                Position

Christopher D. Illick........59..................Director, Chairman of the Board
Michael G. Acton.............36.....Director, Chief Executive Officer, President
Thomas Q. Garvey, III, M.D...56.........................................Director
Aaron Gold, D.D..............71.........................................Director
Charles J. Quantz, Esq.......71.........................................Director

           Christopher D. Illick  Mr. Illick has been a Director of the Company
since  February  1995 and a Director  of Optim  since May 1,  1996.  He has been
Chairman  of the Board of  Directors  since July 1998.  Mr.  Illick is  Managing
Director of Brean Murry & Co., Inc., an investment banking firm. From March 1995
until May 1997, Mr. Illick was a limited partner in the investment  banking firm
of Oaks  Fitzwilliams & Co., L.P. in New York City, New York. He has also been a
general partner of Illick Brothers,  a real estate and management  concern since
1965, and was the founder and President of the U.S. subsidiary of Robert Fleming
Holding, Ltd. of London, England, from 1973 to 1983. Mr. Illick is also a member
of the board of directors of National Transaction Network, Inc.

           Michael G. Acton,  C.P.A. Mr. Acton has been Chief Executive  Officer
of the  Company  since June 1998.  Prior to that time,  Mr.  Acton was the Chief
Financial  Officer  since July 1997 and  Controller of the Company since October
1994.  He was the President of Volu-Sol from March 15, 1996 until March 1997 and
has been Chief  Executive  Officer and  Chairman of Volu-Sol  from March 1997 to
January 1998. Since March 1999 he has been Secretary Treasurer of Volu-Sol, Inc.
From June 1989 through  October 1994, Mr. Acton was employed by Arthur  Andersen
LLP in Salt Lake City, Utah, where he performed  various tax, audit and business
advisory services. Mr. Acton received a Bachelor of Science Degree in Accounting
in 1988 and a Master of Professional  Accountancy  Degree in 1989, both from the
University of Utah. He is a Certified Public Accountant in the State of Utah.

           Thomas Q. Garvey, III, M.D.  Dr. Garvey has been a Director of the
Company since April 1994 and a member of the Company's scientific advisory board
and a scientific and  regulatory  consultant to the Company since November 1992.
Dr. Garvey has also served as a Director of Optim since May 1, 1996.  Dr. Garvey
is a  gastroenterologist  in private medical and scientific  consulting practice
with Garvey  Associates,  Inc. in Potomac,  Maryland,  since 1981. Prior to that
time, Dr. Garvey was the  Supervisory  Medical  Officer in the FDA's division of
the  Cardio-Renal  Drug  Products  Center.  Prior to that time,  he  completed a
fellowship in  Geratenology  at the  Massachusetts  General  Hospital in Boston,
Massachusetts, and with the National Cancer Institute at the National Institutes
of Health in  Bethesda,  Maryland.  As a  consultant  to various  pharmaceutical
companies, Dr. Garvey has developed, written and consulted on many new drug

                                      -22-

<PAGE>



applications and has assisted the Company in preparing its  investigational  new
drug  applications  and the  development of protocols for clinical trials of the
Company's proposed drug products.

           Aaron Gold, D.D.  Dr. Gold has been a Director of the Company since
April  1984 and a  Director  of Optim  since May 1,  1996.  Dr.  Gold has been a
businessman and religious leader in San Diego,  California  since 1974.  Between
July 1974 and  September  1992,  Dr.  Gold was a Rabbi with the  Tiferth  Israel
Synagogue in San Diego, California.  From July 1994 to the present he has been a
Rabbi with the Nertamid  Synagogue in Rancho  Bernardo,  California.  He holds a
Doctor of Divinity Degree from the Jewish Theological  Seminary of America and a
Doctorate in Philosophy from Columbia University.

           Charles J. Quantz  Mr. Quantz has been a Director of the Company
since  April 1984 and a Director of Optim  since May 1, 1996.  Mr.  Quantz was a
practicing  attorney in California for twenty-six  years prior to his retirement
in 1981.

           No family  relationships  exist between or among any of the Company's
officers  and  directors.  In  addition  to the  above  executive  officers  and
directors, the Company's Optim subsidiary is managed by Randy Olshen, President.

           Randy  Olshen.  Mr.  Olshen has been  President of Optim since August
1998.  Prior to  joining  the  Company,  Mr.  Olshen was  director  of sales and
marketing at Nellson Nutraceutical, where he directed all marketing and research
and  development  activities for the private label  business of  pharmaceutical,
clinical  nutrition and medical food  companies,  worked on new product  concept
development,  coordinated state-by-state medical reimbursement programs, lobbied
for  medical  food bars to be  included on state  formularies,  managed  branded
disease specific products,  and built customer business and marketing  relations
with wholesalers,  institutions, retailers, physicians, dieticians and patients.
Before joining  Nellson,  Mr. Olshen was employed as business  manager for sales
and marketing at McGaw, Inc.

Board of Directors Committees

           The Board of Directors has established a Compensation Committee and
an Audit Committee.

Compensation Committee

           The  Compensation  Committee  makes  recommendations  to the Board of
Directors  with  respect  to  the  compensation  of  management   employees  and
administers  plans and programs  relating to employee  benefits,  incentives and
compensation.  The Compensation Committee also determines the persons to receive
options under the  Company's  stock option plans and the number of options to be
granted. The members of the Compensation  Committee are Michael G. Acton, Thomas
Q. Garvey III and  Christopher  D. Illick.  Mr. Acton abstains from all votes of
the Compensation Committee with respect to matters involving his compensation.

Audit Committee

           The Audit Committee makes recommendations to the Board of Directors
with respect to the engagement of the Company's  independent  public accountants
and  reviews  the scope and effect of the audit  engagement.  The members of the
Audit  Committee  are Michael G. Acton,  Charles J.  Quantz and  Christopher  D.
Illick.

Scientific Advisory Board

           Biomune  has  a  Scientific   Advisory  Board  comprised  of  medical
practitioners  and  distinguished  academicians  and  scientists in the field of
medicine to assist the Company with the development of its  pharmaceutical  drug
candidates and nutraceutical  products.  The Company's  management  periodically
consults with members of the  Scientific  Advisory  Board with respect to issues
arising  within a particular  member's area of  expertise.  Although the Company
periodically  receives  guidance  from certain of the members of the  Scientific
Advisory Board,  all of the members of the Company's  Scientific  Advisory Board
are otherwise employed on a full-time basis and, accordingly, are able to devote
only a small portion of their time to the Company. Each member of the Scientific
Advisory Board has entered into a Confidentiality Agreement with the Company and
has agreed not to disclose any of the Company's confidential  information during
the

                                      -23-

<PAGE>



period such person serves on the  Scientific  Advisory Board and for a period of
five years  thereafter.  The  members of the  Scientific  Advisory  Board are as
follows:

           Allan H. Barker, M.D. Dr. Barker has been a Clinical Associate
Professor of Internal  Medicine at the  University of Utah,  College of Medicine
since 1965, and the President of the Salt Lake Clinic Research  Foundation since
1967.  Dr.  Barker  has over 40 years of  experience  in the  field of  internal
medicine and has been the principal  investigator in over 30 drug study projects
and has overseen  clinical  trials on over 36 drugs.  Dr.  Barker has  published
approximately 40 books and papers primarily on the subject of internal medicine.

           Erwin W. Gelfand, M.D. Dr. Gelfand has been the Chairman of the
Department of Pediatrics,  National Jewish Center for Immunology and Respiratory
Medicine in Denver,  Colorado, and has also been a professor of microbiology and
immunology at that institution. Dr. Gelfand has written over 300 published books
and papers on these  subjects.  Dr.  Gelfand  was a  research  fellow at Harvard
Medical School and at the Max Planck Institute in West Germany.

           Joseph A. Smith, Jr., M.D. Dr. Smith has been Professor of Surgery
and Chairman of the Department of Urology at the Vanderbilt  University  Medical
Center in Nashville,  Tennessee, since 1991. Prior to that time, Dr. Smith was a
Professor of Surgery and  Chairman of the Division of Urology at the  University
of Utah  Medical  Center.  Dr.  Smith  was a  research  fellow  at the  Memorial
Sloan-Kettering  Cancer  Center  in  New  York.  Dr.  Smith  specializes  in the
treatment of cancer and immune-compromised  patients as a result of chemotherapy
treatment. He has written and published 105 articles, participated in writing 48
books and is the sole author of nine books.

           Thomas Q. Garvey III, M.D.  Dr. Garvey is also a director of Biomune.
Please refer to his biographical information above.

           Except for Dr.  Garvey,  who has a separate  agreement  with Biomune,
members of the Scientific Advisory Board are paid either $250 per hour or $1,000
per day for their services,  depending on the individual. Dr. Garvey's agreement
with Biomune provides for the payment of $400 per hour,  $1,500 per half-day and
$3,000 per full day for his services.

Business Advisory Board

           Biomune also has a Business  Advisory Board,  the purpose of which is
to  advise  Biomune's  management  and the  Board  of  Directors  regarding  the
Company's development and future growth. Business Advisory Board members are not
members  of  the  Company's  Board  of  Directors.   The  Company's   management
periodically  consults with members of the Business  Advisory  Board  concerning
business issues. The members of the Business Advisory Board are as follows:

           Royden G. Derrick. Mr. Derrick has been a prominent business and
civic leader.  Mr. Derrick has served on numerous boards,  including as Chairman
of the Board of U & I Corporation,  member-director of the Federal Reserve, Salt
Lake City Branch,  and as a director of First Security  Corporation.  He founded
and owned Western Steel Company, which eventually merged into Joy Manufacturing.
As a civic leader,  Mr.  Derrick was Chairman of the University of Utah Board of
Regents,  Chairman of Partners of the Americas and a General  Authority  for The
Church of Jesus Christ of Latter-day Saints.

           Wilford W. Kirton, Jr., Esq. Mr. Kirton is a prominent lawyer who
founded the Salt Lake City, Utah-based law firm of Kirton & McConkie. Mr. Kirton
has served on numerous boards,  including Lawyers Title Company,  Murdock Travel
and the American Bar Association.

           Jacob ("Jack") D. Solomon.  Mr. Solomon was one of the Company's
founders and has served as a consultant to Biomune since its incorporation.  Mr.
Solomon was also a founder and director of First Federal  Financial  Corporation
and the American  Bank of  Commerce.  He has been  Chairman and Chief  Executive
Officer of Federal Electronics Corporation,  International Technical Development
Corporation and Advanced Patent Technology  Corporation.  Mr. Solomon has served
on  numerous  corporate  boards,   including  Cinecolor   Corporation,   Western
Transistor Corporation and Federal Research and Development Corporation.  During
the Johnson and Kennedy  Administrations,  Mr. Solomon was the National Director
of the Equal Opportunities Foundation.


                                      -24-

<PAGE>



Section 16(a) Beneficial Ownership Reporting Compliance

           Section  16(a) of the 1934 Act requires the  Company's  directors and
executive  officers,  and persons who own more than 10% of a registered class of
the  Company's  equity  securities,  to file  with the SEC  initial  reports  of
ownership and reports of changes in ownership of the Company's  common stock and
other equity securities.  Officers,  directors and greater than 10% shareholders
are  requested  by SEC  Regulations  to furnish the  Company  with copies of all
Section  16(a)  reports  they file.  Based solely upon a review of the copies of
such reports furnished to the Company and written  representations that no other
reports were  required,  the Company  believes that there was compliance for the
fiscal year ended September 30, 1999 with all Section 16(a) filing  requirements
applicable to the Company's officers,  directors and greater than 10% beneficial
owners.

Item 10.  Executive Compensation

           The following table sets forth the annual and long-term  compensation
in fiscal years 1999, 1998 and 1997 for the Company's  Chief Executive  Officer.
No other  executive  officer of Biomune  received  salary or bonus  compensation
exceeding $100,000 in 1999.

<TABLE>
<CAPTION>
                                                        Summary Compensation Table

                                                    Annual Compensation                       Long-Term Compensation
                                                                                        Awards                   Payouts
                     (a)             (b)        (c)        (d)        (e)           (f)         (g)          (h)            (i)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Securities
                                                                     Other      Restricted  Underlying
                                                                    Annual         Stock     Options/       LTIP        All Other
Name and Principal position       Year (1)    Salary      Bonus  Compensation     Awards    SARs(#)(2)   Payouts($)  Compensation($)
---------------------------       --------    ------      -----  ------------     ------    ----------   ----------  ---------------

<S>                                 <C>     <C>            <C>       <C>           <C>       <C>           <C>            <C>
Michael G. Acton (3)                1999    $100,000       --        -0-           -0-       240,000       -0--           -0--
                                    1998    $100,000       --        -0-           -0-             0       -0--           -0--
                                    1997      80,000       --        --            --          2,500       --              --
</TABLE>

(1)        Ended September 30th of each of the fiscal years indicated.

(2)        Adjusted to reflect 1-for-10 reverse stock split effective November
           10, 1997 and the 1-for-10 reverse split effective December 31, 1998.

(3)        Mr.  Acton was the chief  accounting  officer and,  later,  the chief
           financial  officer of Biomune until June 1998.  Amounts shown for Mr.
           Acton for  periods  prior to July 1998 were paid to Mr.  Acton in his
           position as Chief Financial Officer of Biomune.

Stock Plans

           In December  1992,  July 1993,  February  1995 and March,  1996,  the
Company's  Board of Directors  approved the 1992 Stock  Incentive Plan, the 1993
Stock  Incentive  Plan,  the 1995  Stock  Incentive  Plan,  and the  1996  Stock
Incentive Plan, respectively. These plans were also subsequently approved by the
shareholders of the Company.  The 1992 Stock Incentive Plan terminated  December
31, 1997 and no additional  options may be granted under it. As of September 30,
1999,  2,370  shares of the  Company's  common stock were subject to options and
issuable upon exercise of options  granted under the 1992 Stock  Incentive Plan.
The 1993 Stock Incentive Plan has also  terminated.  A total of 12,438 shares of
common  stock were  issuable  upon  exercise of options  previously  granted and
outstanding under the 1993 Stock Incentive Plan at September 30, 1999. No shares
of common  stock  were  available  for  additional  grants  under the 1995 Stock
Incentive Plan, and 19,230 shares of common stock were issuable upon exercise of
outstanding  options  under the Plan at September  30, 1999. As of September 30,
1999, a total of 611,200  shares were issuable upon exercise of options  granted
under the 1996 Stock  Incentive  Plan.  There are  approximately  641,200 shares
available  for future  grants under this plan.  In 1999 the Company  adopted the
1999 Stock Option Plan and authorized  500,000  shares for issuance  pursuant to
future grants under the plan. No grants have been made under this plan as of the
date of this Report.


                                       -25-

<PAGE>



Option Grants in Fiscal Year 1999

           The following  table sets forth  information  concerning the grant of
stock  options and stock  appreciation  rights  (SARs) made under the  Company's
plans  during the fiscal year ended  September  30, 1999 to the Chief  Executive
Officer:

<TABLE>
<CAPTION>
                                Option/SAR Grants in Last Fiscal Year

                                                                              Potential Realizable Value at Assumed
                                                                                 Annual Rates of Stock Price
                           Individual Grants                                     Appreciation for Option Term
---------------------------------------------------------------------------   ------------------------------------------
          (a)               (b)           (c)             (d)            (e)             (f)                      (g)
                                        % of Total
                         Number of    Options/SARs
                        Securities     Granted to
                        Underlying      Employees      Exercise or
                       Options/SARs    in Fiscal      Base Price     Expiration
         Name           Granted (#)       Year         ($/Share)      Date               5% ($)                10% ($)
------------------------------------------------------------------------------------------------------------------------


<S>                          <C>             <C>          <C>             <C>             <C>                   <C>
Michael G. Acton             240,000          --          $1.00            --             $12,000               $24,000
</TABLE>



Aggregated Option Exercises and Fiscal Year-end Option Value

           The  following  table  sets  forth  information  with  respect to the
exercise of stock options by the Company's Chief Executive Officer and President
during the fiscal year ended September 30, 1999, as well as the aggregate number
and value of unexercised options held by such officer on September 30, 1999.

                     Aggregated Option Exercises in Last Fiscal Year
                          and Fiscal Year-end Option Values

<TABLE>
<CAPTION>
                                                               Number of securities
                                                                   Underlying                 Value of Unexercised
                                                                Unexercised options          In-the-Money Options at
                                                               At September 30, 1999(#)      September 30, 1999 ($)
                         Shares Acquired          Value           Exercisable/                 Exercisable/
Name                     On Exercise(#)         Realized($)      Unexercisable                 Unexercisable
---------------------------------------------------------------------------------------------------------------------

<S>                         <C>                     <C>           <C>                             <C>
Michael G. Acton            0 (1)                   -             244,306/-0-                     N/A(2)/-0-
</TABLE>


           (1)       All share  amounts and  exercise  prices  were  adjusted to
                     reflect 1-for-10 reverse stock split effective November 10,
                     1997, and the 1-for-10 reverse split effective December 31,
                     1998.

           (2)       At September 30, 1999, none of the options were in the
                     money.


Compensation of Directors

           Members of the Board of Directors  who are not directly or indirectly
employed  by the  Company  are paid $500 for each  Board  meeting  attended,  in
addition to having their expenses in connection  with attending  meetings of the
Board of Directors.  No stock options were issued during fiscal year 1999 to any
such Directors for their service on the board.


                                      -26-

<PAGE>



Item 11.    Security Ownership of Certain Beneficial Owners and Management

           To  the  Company's   knowledge,   the  following   table  sets  forth
information  regarding  ownership of the Company's  outstanding  common stock on
January  7, 1999 by (i)  beneficial  owners  of more than 5% of the  outstanding
shares of common stock; (ii) each director and each executive officer; (iii) and
all directors and executive officers as a group.  Except as otherwise  indicated
below and subject to applicable  community  property  laws,  each owner has sole
voting and sole investment powers with respect to the stock listed.

<TABLE>
<CAPTION>
                                                                                   Shares of Common stock
Name and Address                                                                   Beneficially  Owned (2)
of Beneficial Owner (1)                                                       Number             Percentage of Class
------------------------------------------------------                -----------------------------------------------

Directors/Officers

<S>                                                                          <C>                         <C>
Michael G. Acton (3) (Executive Officer/Director)                            249,057                     4.7%

Aaron Gold, D.D. (4) (Director)                                               42,046                       *
4373 Sheldon Drive
La Mesa, CA 92401

Charles J. Quantz. (5) (Director)                                             40,872                       *
Post Office Box 8186
Emeryville, CA 94663

Thomas Q. Garvey, III, M.D.  (6) (Director)                                   41,050                       *
10125 Gary Road
Potomac, MD 20854

Christopher D. Illick (7) (Director)                                          77,520                     1.5%
154 Mercer Street
Princeton, N.J. 08450

All executive officers and
directors as a group (persons) (8)                                           450,545                     2.3%
------------------------------
</TABLE>

*           Less than 1%

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

(2)        A person is deemed to be the beneficial  owner of securities that can
           be  acquired  by such  person  within  60 days from the date on which
           beneficial  ownership is calculated,  upon the exercise of options or
           warrants  or  otherwise.   Each  beneficial   owner's  percentage  of
           ownership is determined by assuming that options,  warrants, or other
           rights to acquire shares,  held by such person (but not those held by
           any other  person) and  exercisable  within  sixty (60) days from the
           date hereof have been fully  exercised.  Percentages  are  calculated
           based on 4,999,312  shares of common stock  outstanding as of January
           7, 2000 (as adjusted for shares  deemed to be  beneficially  owned by
           such shareholder).

(3)        Mr. Acton owns 4,752 shares of common stock directly and options to
           purchase 244,306 shares of common stock.

(4)        Dr. Gold owns 696 shares of common stock directly and options to
           purchase 41,350 shares of common stock.

(5)        Mr. Quantz owns 122 shares of common stock directly and options to
           purchase 40,750 shares of common stock


[Footnotes continued on next page.]

                                      -27-

<PAGE>



(6)        Dr. Garvey owns 53 shares of common stock directly and options to
           purchase 40,997 shares of common stock.

(7)        Mr. Illick owns 16,470 shares of common stock directly and options to
           purchase 61,050 shares of common stock.

(8)        Based on a total of  450,545  shares of common  stock,  assuming  the
           exercise of all options held by such person and exercisable within 60
           days of the date of this statement.

           Approximately  8.3%  of the  issued  and  outstanding  shares  of the
Company's common stock are beneficially owned by current directors and executive
officers of the Company.  There are no  arrangements  known to the Company,  the
operation of which may, at a subsequent date, result in a change of ownership or
control of the Company.

Item 12.    Certain Relationships and Related Transactions

David Derrick - Mr. Derrick was an executive officer and director of the Company
until July 1998.

           ADP.  Biomune entered into an Employment and Non-Competition
Agreement with David G. Derrick,  then the Company's Chief Executive Officer and
Chairman of the Board,  effective as of June 15, 1996,  which expired  September
30, 1997. Mr. Derrick  continued that position under a modified  agreement until
July 1998.

           MK  Financial,  Inc. In fiscal  year 1998,  Biomune  entered  into an
investment banking arrangement with MK Financial, Inc., an entity owned by David
G. Derrick.  Under this  arrangement,  Biomune paid $150,000 to MK Financial for
fees and commissions  related to investment  banking  services  performed during
fiscal year 1998.

           Harrogate  Marketing  LLC.  Biomune has an agreement  with  Harrogate
under which Harrogate provides  marketing and management  services and is paid a
fee equal to 10% (45% after January 1, 2000) of the gross revenues from the sale
of  nutrition  and  medical  food  products.  Mr.  Derrick  is the sole owner of
Harrogate.  Biomune also granted  Harrogate an option to purchase 308,000 shares
of  common  stock at a price  of  $2.00  per  share.  As part of the  agreement,
Harrogate  agreed to assume  the  expense  (including  legal  fees and costs) of
pending litigation and all marketing costs.

           Rockwood   Transaction.   Mr.  Derrick  was  required  to  personally
guarantee certain  obligations of the Company in connection with its purchase of
Rockwood.  Biomune  agreed to  indemnity  Mr.  Derrick  in  connection  with his
guarantee.  In addition,  certain  obligations of Cypress Springs LLC, the other
owner of  Rockwood,  relating to the  assumption  of the  negative  net worth of
Rockwood at September 30, 1998, are guaranteed by Greenmints Investment Corp., a
Delaware  corporation.  The assets of  Greenmints  securing  this  obligation of
Cypress comprise trust deed notes secured by real property beneficially owned by
Mr.  Derrick and members of his immediate  family.  In January 1999, Mr. Derrick
satisfied  this note to  Rockwood  through  a  contribution  of  assets  and the
guarantee released.

           Calvin Black Trust Loan. In 1998 Biomune  borrowed  $600,000 from the
Calvin  Black Trust.  The trustee of the Trust is Phil B. Acton,  the brother of
Biomune's  President  and CEO,  Michael  G.  Acton.  The loan to the  Company is
secured by assets,  including accounts receivable and inventory.  The obligation
is guaranteed  personally by Mr. Derrick,  whose guarantee is further secured by
the pledge of 60,000 shares of common stock of the Company beneficially owned by
Mr.  Derrick.  The note was due February 28,  1999.  On March 31, 1999,  Biomune
entered into an agreement with IMG, Ltd., a Utah limited liability company,  for
the sale of 300,000  shares of Bioxide  Corporation  common  stock  owned by the
Company.  The purchase  price for these  securities  was $3.00 per share and was
paid in cash (total price of $341,000)  and the  assumption  of the Calvin Black
Trust Loan note by IMG. At March 31, 1999,  principal  and accrued  interest due
under the Note was  $570,552.27.  In connection with the assumption of the note,
the Trust and IMG entered into a separate  agreement pursuant to which the Trust
released its claims  against the Company.  The sole member and manager of IMG is
David G. Derrick.

James J.  Dalton - Until 1998,  Mr.  Dalton  was a director  and  officer of the
Company.

           Consulting Agreement.  Biomune has a consulting agreement (the
"Consulting  Agreement") with Mr. Dalton.  Pursuant to the Consulting Agreement,
the Company paid Mr.  Dalton a fee of $5,000 and 600 shares of common stock each
month (for a total of 7,200  shares).  Mr.  Dalton was also  granted a five-year
warrant exercisable for the purchase of

                                       -28-

<PAGE>



10,000  shares of the  Company's  common  stock.  During  fiscal year 1997,  the
Company issued to Mr. Dalton options to purchase  49,400 shares of the Company's
common stock at $3.70 per share.

Christopher  D. Illick - Mr.  Illick is the Chairman of the  Company's  Board of
Directors.

            The Company has a Consulting  Agreement with  Christopher D. Illick,
one of the  Company's  directors  and a member  of its  Compensation  and  Audit
Committees.  That Consulting  Agreement  provides for Mr. Illick's services as a
director of the Company and as a member of the Company's  Compensation and Audit
Committees. Pursuant to that Consulting Agreement, the Company issues Mr. Illick
225 shares of common stock each month.

Item 13.     Exhibits, Financial Statement Schedules, And Reports on Form 8-k

(a)        Documents filed as part of this Form 10-KSB:

           1.       Financial Statements (included in Part II, Item 8)

                    Consolidated  Balance  Sheets as of  September  30, 1999 and
                    1998

                    Consolidated  Statements of  Operations  for the Years Ended
                    September 30, 1999, 1998 and 1997

                    Consolidated  Statements  of  Shareholders'  Equity  for the
                    Years Ended September 30, 1999, 1998 and 1997

                    Consolidated  Statements  of Cash Flows for the Years  Ended
                    September 30, 1999, 1998 and 1997

                    Notes to Consolidated Financial Statements

           2.       Financial   Statement   Schedules:    Financial   statement
                    schedules  have been omitted  because they are not required
                    or are not applicable,  or because the required information
                    is shown in the financial statements or notes thereto.

           3. Exhibits: The following Exhibits are filed with this Form 10-K:

           Exhibit No.    Description of Exhibit

           3.1+           Amended and Restated Articles of Incorporation

           3.2+           Amended and Restated Bylaws (adopted March 22, 1996)

           3.3+           Certificate and Statement of Determination of Rights
                          and  Preferences  of  Series  A 10%  Cumulative
                          Convertible Preferred Stock

           3.4+           Certificate and Statement of Determination of Rights
                          and Preferences of Series B 10% Cumulative Convertible
                          Non-Voting Preferred Stock

           3.5+           Certificate and Statement of Determination of Rights
                          and Preferences of Series D 8% Cumulative Convertible
                          Non-Voting Stock

           3.6+           Certificate of Amendment to the Designation of Rights
                          and Preferences Related to Series A 10% Cumulative
                          Convertible Preferred Stock

           3.7+           Certificate and Statement of Determination of Rights
                          and Preferences of Series C 8% Cumulative Convertible
                          Non-Voting Preferred Stock

           3.8            Certificate and Statement of Determination of Rights
                          and Preferences of Series E, 8% Cumulative Convertible
                          Preferred Stock

                                      -29-

<PAGE>



           3.9            Certificate of Amendment of Determination of Rights
                          and Preferences of Series F, 8% Cumulative Convertible
                          Preferred Stock

           3.10           Amendment to Determination of Rights and Preferences
                          of Series F Preferred

           3.11           Certificate and Statement of Determination of Rights
                          and Preferences of Series G, 8% Cumulative Preferred
                          Stock

           3.12           Amendment to Designation of Rights and Preferences of
                          Series G Preferred

           3.13           Certificate and Statement of Determination of Rights
                          and Preferences of the Series J, 8% Cumulative
                          Convertible Preferred Stock

           4.1**          Form of Common Stock Certificate

           4.3**          Form of Series A 10% Cumulative Convertible Preferred
                          Stock Certificate

           4.4*           Form of Series B 10% Cumulative Convertible Preferred
                          Stock Certificate

           4.5#           Form of Series D 8% Cumulative Convertible Preferred
                          Stock Certificate

           4.6+           Form of Series C 8% Cumulative Convertible Preferred
                          Stock Certificate

           4.7            Form of Series E Certificate

           4.8            Form of Series F Certificate

           4.9            Form of Series G Amendment

           4.10           Form of Series J Certificate

           10.43*         Office Lease Agreement

           10.50*         Thomas Q. Garvey, III Indemnification Agreement

           10.51*         St. Luke's-Roosevelt Hospital Center Statement of
                          Agreement

           10.52*         Michael G. Acton Agreement

           10.53*         Frank A. Eldredge Agreement

           10.54*         James Dalton Agreement

           10.60#         Amended License Agreement with PTI

           10.77#         1995 Stock Incentive Plan

           10.80#         Incentive Stock Option Agreement with Michael G. Acton
                          (May 4, 1995)

           10.82#         Amended 1995 Stock Incentive Plan

           10.83#         Non-Qualified Stock Option Agreement with Christopher
                          D. Illick

           10.84#         Schedule Identifying Other Non-Qualified Stock Option
                          Agreements

           10.85#         Incentive Stock Option Agreement with Frank A.
                          Eldredge

                                      -30-

<PAGE>



           10.86#         Schedule Identifying Other Incentive Stock Option
                          Agreements

           10.95+         Lease Agreement with Young Electric Sign Company

           10.97+         Form of Registration Rights Agreement (Series C
                          Preferred)

           10.98+         Form of Investor Questionnaire and Subscription
                          Agreement (Series C Preferred)

           10.108+        License Agreement with Biomed Patent Development LLC

           10.112+        First Amendment to Amended License Agreement with PTI

           10.113++       Contract with ML Industries

           10.114++       Contract with Medical Foods, Inc.

           10.115++       Contract with Harrogate Marketing LLC

           10.116++       Rockwood Purchase Agreement, as amended

           10.117         Marketing and Consulting Services Agreement between
                          Biomune Systems, Inc., and Harrogate Marketing, L.L.C.
                          dated as of August 14, 1999

           23.1           Consent of Tanner + Co.

           23.2           Consent of Arthur Andersen LLP

           27             Financial Data Schedule

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

#         Incorporated by reference to the Company's Annual Report on Form
          10-K/A for the fiscal year ended September 30, 1995.

o         Incorporated by reference to the Company's Annual Report on Form
          10-KSB for the fiscal year ended September 30, 1994.

**        Incorporated by reference to the Company's Annual Report on Form 10-K
          for the fiscal year ended September 30, 1993 and the two month period
          ended November 30, 1993.

***       Incorporated by reference to the Company's Annual Report on Form 10-K
          for the fiscal year ended September 30, 1992.

+         Incorporated by reference to the Company's Annual Report on From 10-K
          for the fiscal year ended September 30, 1996

++        Incorporated by reference to the Company's Annual Report on Form
          10-KSB for the fiscal year ended September 30, 1998

(b) No  reports on Form 8-K were  filed  during  the last  quarter of the period
covered by this report.



                                      -31-

<PAGE>

                                   Signatures

           Pursuant to the  requirements  of Section 13 or 15(d) of the Exchange
Act,  the  registrant  caused  this  report to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.

                                         BIOMUNE SYSTEMS, INC.
                                          (Registrant)

                                                /s/ Michael G. Acton
                                            ------------------------------------
                                         By:  Michael G. Acton
                                         Its: Chief Executive Officer
                                         Date: January 10, 2000

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

Signature                         Title                         Date



/s/ Michael G. Acton              Chief Executive Officer and   January 10, 2000
--------------------------------- Director (Principal Executive
Michael g. Acton                  and Accounting Officer)



 /s/ Charles J. Quantz            Director                      January 12, 2000
---------------------------------
Charles J. Quantz



 /s/ Christopher D. Illick        Director, Chairman            January 10, 2000
---------------------------------
Christopher D. Illick



 /s/ Thomas Q. Garvey III, MD     Director                      January 12, 2000
---------------------------------
Thomas Q. Garvey



                                     -32-


<PAGE>

                      BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES


                 Index to Consolidated Financial Statements







                                                                           Page


Independent auditors' report                                                F-1


Consolidated balance sheet                                                  F-2


Consolidated statement of operations                                        F-3


Consolidated statement of shareholders' equity                              F-4


Consolidated statement of cash flows                                        F-8


Notes to consolidated financial statements                                 F-11





See accompanying notes to consolidated financial statements.


<PAGE>

                     BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                          INDEPENDENT AUDITORS' REPORT




To the Board of Directors and Stockholders
of Biomune Systems, Inc.


We have audited the  consolidated  balance  sheet of Biomune  Systems,  Inc. and
subsidiaries as of September 30, 1999, and the related  consolidated  statements
of  operations,  shareholders'  equity,  and  cash  flows  for the  years  ended
September 30, 1999 and 1998.  These  consolidated  financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Biomune Systems,
Inc.  and  subsidiaries  as of  September  30,  1999,  and the  results of their
operations and their cash flows for the years ended September 30, 1999 and 1998,
in conformity with generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 2 to the
consolidated financial statements,  the Company has had substantial  reoccurring
losses  from  operations,  and has relied  upon  financing  from the sale of its
equity securities to satisfy its obligations. These conditions raise substantial
doubt  about  the  ability  of the  Company  to  continue  as a  going  concern.
Management's  plans in regard to that matter are also  described  in note 2. The
consolidated  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.

TANNER + CO.

Salt Lake City, Utah
January 11, 2000




See accompanying notes to consolidated financial statements.
                                       F-1
<PAGE>

                     BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                           Consolidated Balance Sheet

<TABLE>
<CAPTION>
                                                                                September 30, 1999
---------------------------------------------------------------------------------------------------



                Assets

<S>                                                                          <C>
Current assets:
      Receivables, net                                                       $             483,995
      Inventories                                                                          255,992
      Prepaid expenses                                                                     306,638
                                                                             ---------------------

                     Total current assets                                                1,046,625

Marketable securities, available for sale                                                1,977,026
Property and equipment, net                                                                 82,805
Related party receivables                                                                   84,091
Intangibles, net                                                                           554,081
Investment in and advances to affiliate                                                    450,377
Deposits                                                                                    11,346
                                                                             ---------------------

                                                                             $           4,206,351
                                                                             ---------------------

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

                Liabilities and Shareholders' Equity

Current liabilities:
      Cash overdraft                                                         $               7,828
      Payables and accrued expenses                                                        620,402
      Notes payable                                                                        435,000
                                                                             ---------------------

                     Total current liabilities                                           1,063,230
                                                                             ---------------------

Commitments and contingencies                                                                    -

Shareholders' equity:
      Preferred stock, $.0001 par value; 50,000,000 shares
        authorized, 1,458,278 shares issued and outstanding                              2,174,043
      Common stock, $.0001 par value; 500,000,000 shares
        authorized, 2,522,413 outstanding                                                      252
      Additional paid-in capital                                                        41,914,343
      Stock subscriptions receivable                                                       (55,192)
      Deferred compensation and consulting                                                (202,486)
      Accumulated other comprehensive income (loss)                                       (768,200)
      Accumulated deficit                                                              (39,919,639)
                                                                             ---------------------

                     Total shareholders' equity                                          3,143,121
                                                                             ---------------------

                                                                             $           4,206,351
                                                                             ---------------------
</TABLE>


See accompanying notes to consolidated financial statements.
                                       F-2

<PAGE>

                      Consolidated Statement of Operations

<TABLE>
<CAPTION>
                                                                                   Years Ended September 30,
----------------------------------------------------------------------------------------------------------------------




                                                                                1999                   1998
                                                                   --------------------------   ---------------

<S>                                                                <C>                          <C>
Revenues                                                           $          1,501,406         $     2,806,853
                                                                   --------------------------   ---------------

Operating expenses:
      Cost of revenues                                                          883,140               1,415,428
      Management, consulting and research                                       304,894               1,052,674
      Other general and administrative                                        1,025,618               2,046,699
                                                                   --------------------------   ---------------

                Total operating expenses                                      2,213,652               4,514,801
                                                                   --------------------------   ---------------

Loss from operations                                                           (712,246)             (1,707,948)
                                                                   --------------------------   ---------------

Other income (expense):
      Loss on investment in affiliate                                        (1,506,000)                      -
      Gain on sale of marketable securities from related party                  304,053                       -
      Interest income                                                           101,751                 144,042
      Interest expense                                                          (64,329)                (44,722)
      Other expense, net                                                           (825)                (14,019)
                                                                   --------------------------   ---------------

                Total other (expense) income, net                            (1,165,350)                 85,301
                                                                   --------------------------   ---------------

Loss before income taxes and minority interest                               (1,877,596)             (1,622,647)
Provision for income taxes                                                            -                       -
                                                                   --------------------------   ---------------

                Loss before minority interest                                (1,877,596)             (1,622,647)

Minority interest in net loss of subsidiary                                           -                  14,200
                                                                   --------------------------   ---------------

                Net loss                                           $         (1,877,596)        $    (1,608,447)
                                                                   --------------------------   ---------------

Preferred stock dividends and beneficial conversion premium                    (198,497)             (1,359,661)
                                                                   --------------------------   ---------------

                Net loss applicable to common shares               $         (2,076,093)        $    (2,968,108)
                                                                   --------------------------   ---------------

                Net loss per common share - basic and diluted      $             (1.15)         $         (4.52)
                                                                   --------------------------   ---------------

Weighted average common shares - basic and diluted                            1,806,000                 656,000
                                                                   --------------------------   ---------------
</TABLE>





See accompanying notes to consolidated financial statements.
                                       F-3

<PAGE>


                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                   BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
               Consolidated Statement of Shareholders' Equity

<TABLE>
<CAPTION>
                                                                                             Years Ended September 30, 1998 and 1997
------------------------------------------------------------------------------------------------------------------------------------



                                                         Series A                   Series B                    Series C
                                                      Preferred Stock           Preferred Stock              Preferred Stock
                                                ---------------------------- --------------------- -------------------------------
                                                    Shares       Amount         Shares     Amount        Shares        Amount
                                                ---------------------------- --------------------- -------------------------------

<S>                <C>                                 <C>        <C>              <C>    <C>            <C>     <C>
Balance at October 1, 1997                              34,802    $ 168,583          -     $     -        1,683   $ 2,309,838

Issuance of common stock for:
   Cash                                                      -            -          -           -            -             -
   Services                                                  -            -          -           -            -             -
   Acquisition of subsidiary                                 -            -          -           -            -             -
   Debt                                                      -            -          -           -            -             -
   Accrued liabilities                                       -            -          -           -            -             -
   Note receivable                                           -            -          -           -            -             -
   Conversion of preferred stock                        (1,996)      (9,721)         -           -       (2,055)   (2,820,144)

Conversion of preferred stock to preferred                   -            -          -           -         (100)     (137,245)
stock

Accretion                                                    -            -          -           -            -             -

Issuance of stock options for services                       -            -          -           -            -             -

Deferred compensation                                        -            -          -           -            -             -

Amortization of deferred compensation                        -            -          -           -            -             -

Collection of subscription receivables                       -            -          -           -            -             -

Expiration of Series D preferred stock warrants              -            -          -           -            -             -

Reclassification of stock subscription
  satisfied subsequent to year end                           -            -          -           -            -             -

Capital contribution                                         -            -          -           -            -             -

Preferred stock dividends                                6,968       34,817        449      6, 740          472       647,551

Net loss                                                     -            -          -           -            -             -
                                                ---------------------------- --------------------- -------------------------------

Balance at September 30, 1998                           39,774      193,679        449      6, 740            -             -
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>




<TABLE>
<CAPTION>
                                                         Series E                    Series F                    Series J
                                                     Preferred Stock              Preferred Stock             Preferred Stock
                                                ---------------------------- ---------------------------- -------------------------
                                                   Shares        Amount        Shares        Amount         Shares       Amount
                                                ---------------------------- ---------------------------- -------------------------
<S>                                                     <C>       <C>           <C>           <C>               <C>       <C>
Balance at October 1, 1997                                  -     $       -            -      $       -              -    $       -

Issuance of common stock for:
   Cash                                                   274       234,050     1,000,000       489,450             85       85,000
   Services                                               330       330,000       100,000        60,000              -            -
   Acquisition of subsidiary                              150       150,000             -             -            300      300,000
   Debt                                                     -             -             -             -            100      100,000
   Accrued liabilities                                      -             -             -             -              -            -
   Note receivable                                          -             -             -             -            650      650,000
   Conversion of preferred stock                         (470)     (796,457)            -             -              -            -

Conversion of preferred stock to preferred                  -             -       166,667       100,000              -            -
stock

Accretion                                                   -       600,084             -             -              -            -

Issuance of stock options for services                      -             -             -             -              -            -

Deferred compensation                                       -             -             -             -              -            -

Amortization of deferred compensation                       -             -             -             -              -            -

Collection of subscription receivables                      -             -             -             -              -            -

Expiration of Series D preferred stock warrants             -             -             -             -              -            -

Reclassification of stock subscription
  satisfied subsequent to year end                          -             -             -             -              -            -

Capital contribution                                        -             -             -             -              -            -

Preferred stock dividends                                  39        39,220        52,082        31,249              -            -

Net loss                                                    -             -             -             -              -            -
                                                ---------------------------- ---------------------------- -------------------------

Balance at September 30, 1998                             323       556,897     1,318,749       680,699          1,135    1,135,000
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.
                                       F-4

<PAGE>



                   BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
                Consolidated Statement of Shareholders' Equity
                                   Continued
<TABLE>
<CAPTION>

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



                                                         Series A                     Series B                    Series C
                                                      Preferred Stock             Preferred Stock              Preferred Stock
                                                ---------------------------- --------------------------- -------------------------
                                                    Shares       Amount         Shares        Amount        Shares        Amount
                                                ---------------------------- --------------------------- -------------------------

<S>                                               <C>         <C>                 <C>       <C>               <C>      <C>
Comprehensive net income:
   Net loss                                              -            -              -           -             -             -
   Other comprehensive loss, change in
     unrealized holding loss on marketable
     securities                                          -            -              -           -             -             -

   Total comprehensive loss                              -            -              -           -             -             -

Issuance of common stock for:
   Services                                              -            -              -           -             -             -
   Advances to related parties                           -            -              -           -             -             -
   Conversion of preferred stock                    (5,625)     (28,125)             -           -             -             -
   Acquisition of marketable securities                  -            -              -           -             -             -

Accretion                                                -            -              -           -             -             -

Issuance of common stock options for services            -            -              -           -             -             -

Amortization of deferred compensation                    -            -              -           -             -             -

Expiration of Series D preferred stock warrants          -            -              -           -             -             -

Capital contribution                                     -            -              -           -             -             -

Preferred stock dividends                            2,350       11,750              -           -             -             -
                                                ---------------------------- --------------------------- -------------------------

Balance at September 30, 1999                       36,499    $ 177,304            449      $6,740             -        $    -
                                                ---------------------------- --------------------------- -------------------------
</TABLE>




<TABLE>
<CAPTION>
                                                          Series E                    Series F                    Series J
                                                      Preferred Stock              Preferred Stock             Preferred Stock
                                                ----------------------------- --------------------------- --------------------------
                                                    Shares        Amount        Shares        Amount         Shares       Amount
                                                ----------------------------- --------------------------- --------------------------

Comprehensive net income:
<S>                                                      <C>       <C>           <C>           <C>               <C>      <C>
   Net loss                                                  -             -             -             -              -            -
   Other comprehensive loss, change in
     unrealized holding loss on marketable
     securities                                              -             -             -             -              -            -

   Total comprehensive loss                                  -             -             -             -              -            -

Issuance of common stock for:
   Services                                                  -             -             -             -              -            -
   Advances to related parties                               -             -             -             -              -            -
   Conversion of preferred stock                          (330)     (569,344)            -             -              -            -
   Acquisition of marketable securities                      -             -             -             -              -            -

Accretion                                                    -         5,227             -             -              -            -

Issuance of common stock options for services                -             -             -             -              -            -

Amortization of deferred compensation                        -             -             -             -              -            -

Expiration of Series D preferred stock warrants              -             -             -             -              -            -

Capital contribution                                         -             -             -             -              -            -

Preferred stock dividends                                    7         7,220       101,332        60,800            114      113,500
                                                ----------------------------- --------------------------- --------------------------

Balance at September 30, 1999                                -     $        -    1,420,081     $ 741,499          1,249   $1,248,500
                                                ----------------------------- --------------------------- --------------------------
</TABLE>



See accompanying notes to consolidated financial statements.
                                      F-5

<PAGE>


                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
                Consolidated Statement of Shareholders' Equity
                                   Continued
<TABLE>
<CAPTION>

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


                                                                                          Additional      Stock
                                                             Common Stock                  Paid-in    Subscriptions
                                                  -----------------------------------
                                                        Shares           Amount            Capital      Receivable       Warrants
                                                  ------------------------------------ ------------- --------------- --------------

<S>                                                    <C>            <C>              <C>            <C>              <C>
Balance at October 1, 1997                               323,881      $  32            $33,633,900    $ (101,392)      $  883,273$

Issuance of common stock for:
   Cash                                                   41,261          4                206,299             -               -
   Services                                              150,001         15              1,070,377             -               -
   Acquisition of subsidiary                              30,000          3                119,997             -               -
   Debt                                                        -          -                      -             -               -
   Accrued liabilities                                    10,065          1                 59,133             -               -
   Note receivable                                             -          -                      -      (650,000)              -
   Conversion of preferred stock                         731,454         73              3,626,249             -               -

Conversion of preferred stock to  preferred stock              -          -                 37,245             -               -

Accretion                                                      -          -               (600,084)            -               -

Issuance of stock options for  services                        -          -                295,750             -               -

Deferred compensation                                          -          -                      -             -               -

Amortization of deferred compensation                          -          -                      -             -               -

Collection of subscription receivable                          -          -                      -        46,200               -

Expiration of Series D preferred stock warrants                -          -                544,773             -        (544,773)

Reclassification of stock subscription satisfied
  subsequent to year end                                       -          -                      -       650,000               -

Capital contribution                                           -          -                 49,271             -               -

Preferred stock dividends                                      -          -                      -             -               -

Net loss                                                       -          -                      -             -               -
                                                  ------------------------------------ -------------- --------------- --------------

Balance at September 30, 1998                          1,286,662        128             39,042,910       (55,192)        338,500
</TABLE>




<TABLE>
<CAPTION>
                                                                        Accumulated
                                                      Deferred             Other
                                                    Compensation       Comprehensive       Accumulated
                                                   and Consulting         Income             Deficit             Total
                                                  ---------------- -------------------- ----------------- ------------------

<S>                                                 <C>                      <C>        <C>                <C>
Balance at October 1, 1997                          $  (69,500)              $  -       $(35,480,749)      $  1,343,985

Issuance of common stock for:
   Cash                                                     -                   -                  -         1,014,803
   Services                                                 -                   -                  -         1,460,392
   Acquisition of subsidiary                                -                   -                  -           570,000
   Debt                                                     -                   -                  -           100,000
   Accrued liabilities                                      -                   -                  -            59,134
   Note receivable                                          -                   -                  -                 -
   Conversion of preferred stock                            -                   -                  -                 -

Conversion of preferred stock to  preferred stock           -                   -                  -                 -

Accretion                                                   -                   -                  -                 -

Issuance of stock options for  services              (295,750)                  -                  -                 -

Deferred compensation                                (447,584)                  -                  -          (447,584)

Amortization of deferred compensation                 507,972                   -                  -           507,972

Collection of subscription receivable                       -                   -                  -            46,200

Expiration of Series D preferred stock warrants             -                   -                  -                 -

Reclassification of stock subscription satisfied
  subsequent to year end                                    -                   -                  -           650,000

Capital contribution                                        -                   -                  -            49,271

Preferred stock dividends                                   -                   -           (759,577)                -

Net loss                                                    -                   -         (1,608,447)       (1,608,447)
                                                  ---------------- -------------------- ----------------- ------------

Balance at September 30, 1998                        (304,862)                  -        (37,848,773)        3,745,726
</TABLE>

See accompany notes to financial statements.

                                       F-6


<PAGE>


                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
                 Consolidated Statement of Shareholders' Equity
                                   Continued
<TABLE>
<CAPTION>

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

                                                                                         Additional        Stock
                                                             Common Stock                 Paid-in      Subscriptions
                                                  ---------------------------------
                                                        Shares           Amount           Capital        Receivable       Warrants
                                                  --------------------------------- --------------- ----------------- --------------

<S>                                                    <C>              <C>         <C>             <C>                 <C>
Comprehensive net income:
   Net loss                                                    -             -                 -               -               -
   Other comprehensive loss, change in unrealized
     holding loss on marketable securities                     -             -                 -               -               -


   Total comprehensive loss                                    -             -                 -               -               -



Issuance of common stock for:
   Services                                               34,100             4            63,413               -               -
   Advances to related parties                           403,400            41           806,857               -               -
   Conversion of preferred stock                         356,251            35           597,434               -               -
   Acquisition of marketable securities                  442,000            44           828,156               -               -

Accretion                                                      -             -            (5,227)              -               -

Issuance of common stock options for services                  -             -           242,300               -               -

Amortization of deferred compensation                          -             -                 -               -               -

Expiration of Series D preferred stock warrants                -             -           338,500               -        (338,500)

Preferred stock dividends                                      -             -                 -               -               -
                                                  --------------------------------- --------------- ----------------- --------------

Balance at September 30, 1999                          2,522,413        $  252      $ 41,914,343     $   (55,192)       $      -
                                                  --------------------------------- --------------- ----------------- --------------
</TABLE>


<TABLE>
<CAPTION>
                                                                           Accumulated
                                                          Deferred            Other
                                                        Compensation      Comprehensive      Accumulated
                                                      and Consulting        Income            Deficit            Total
                                                  ---------------------------------------------------------------------------

<S>                                                    <C>            <C>                <C>           <C>
Comprehensive net income:
   Net loss                                                    -                  -                 -        (1,877,596)
   Other comprehensive loss, change in unrealized
     holding loss on marketable securities                     -           (768,200)                -          (768,200)
                                                                                                       -----------------

   Total comprehensive loss                                    -                  -                 -        (2,645,796)
                                                                                                       -----------------


Issuance of common stock for:
   Services                                                    -                  -                 -            63,417
   Advances to related parties                                 -                  -                 -           806,898
   Conversion of preferred stock                               -                  -                 -                 -
   Acquisition of marketable securities                        -                  -                 -           828,200

Accretion                                                      -                  -                 -                 -

Issuance of common stock options for services                  -                  -                 -           242,300

Amortization of deferred compensation                    102,376                  -                 -           102,376

Expiration of Series D preferred stock warrants                -                  -                 -                 -

Preferred stock dividends                                      -                  -          (193,270)                -
                                                  ---------------- ------------------ ---------------  -----------------

Balance at September 30, 1999                          $(202,486)     $   (768,200)      $(39,919,639) $       3,143,121
                                                  ---------------- ------------------ ---------------  -----------------
</TABLE>


See accompanying notes to consolidated financial statements.
                                      F-7

<PAGE>

                     BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                      Consolidated Statement of Cash Flows

<TABLE>
<CAPTION>
                                                                                                   Years Ended September 30,
------------------------------------------------------------------------------------------------------------------------------------

                                                                                                1999                 1998
                                                                                   -------------------------- ------------------
<S>                                                                                <C>                        <C>
Cash flows from operating activities:
   Net loss                                                                        $         (1,877,596)      $     (1,608,447)
   Adjustments to reconcile net loss to net cash used in operating activities:
      Depreciation and amortization                                                              41,320                66,573
      Recognition of revenues in exchange for investments                                             -              (400,000)
      Loss on investment in affiliate                                                         1,506,000                     -
      Gain on sale of marketable securities related party                                      (304,053)                    -
      Issuance of common stock, stock options  and warrants for services                        305,717             1,460,392
      Amortization of deferred consulting expense                                               102,376               507,972
      Change in assets  and  liabilities,  net of effect  of  nonmonetary  asset
        acquisitions:
           Receivables                                                                         (226,881)             (348,608)
           Inventories                                                                          (51,773)              149,488
           Prepaid expenses                                                                    (306,638)              (19,032)
           Net assets for discontinued operations                                                     -               362,473
           Other assets                                                                               -               117,412
           Payables and accrued expenses                                                        530,122            (2,014,759)
           Cash overdraft                                                                         7,828                     -
           Minority interest                                                                          -               (14,200)
                                                                                   -------------------------- ---------------

                Net cash used in
                operating activities                                                           (273,578)           (1,740,736)
                                                                                   -------------------------- ---------------

Cash flows from investing activities:
   Proceeds from sale of marketable securities to related parties                               504,125                     -
   Purchase of property, equipment, and intangibles                                             (51,833)             (327,151)
   Purchase of investments                                                                            -               (25,000)
   Cash in unconsolidated entity                                                                (25,662)                    -
   Net (advances to) repayments from related parties                                            575,151            (1,152,430)
   Net change in unconsolidated entity                                                          (11,301)                    -
   Purchase of marketable securities of related parties                                      (1,179,603)                    -
                                                                                   -------------------------- ---------------

                Net cash used in
                investing activities                                                           (189,123)           (1,504,581)
                                                                                   -------------------------- ---------------

Cash flows from financing activities:
   Proceeds from notes payable                                                                  435,000             1,074,500
   Proceeds from issuance of common stock                                                             -               206,303
   Proceeds from issuance of preferred stock and related
      warrants                                                                                                        808,500
   Increase in deferred compensation                                                                  -              (447,584)
   Payments received on stock subscription receivable                                                 -                46,200
                                                                                   -------------------------- ---------------

                Net cash provided by
                financing activities                                                            435,000             1,687,919
                                                                                   -------------------------- ---------------

Net decrease in cash and cash equivalents                                                       (27,701)           (1,557,398)

Cash and cash equivalents at beginning of year                                                   27,701             1,585,099
                                                                                   -------------------------- ---------------

Cash and cash equivalents at end of year                                           $                      -   $        27,701
                                                                                   -------------------------- ---------------
</TABLE>


See accompanying notes to consolidated financial statements.

                                      F-8
<PAGE>


                     BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
                      Consolidated Statement of Cash Flows
                                  Continued
<TABLE>
<CAPTION>

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


                                     Supplemental disclosure of cash flow information:


                                                                                           1999                  1998
                                                                                   ---------------------  --------------------

<S>                                                                                <C>                     <C>
Interest paid                                                                      $             44,561    $                 -
                                                                                   ---------------------  --------------------

Income tax paid                                                                     $                 -    $                 -
                                                                                   ---------------------  --------------------
</TABLE>


Supplemental  disclosure  of  noncash  investing  and financing activities:

During  the year  ended  September  30, 1999:

     o The Company had preferred stock dividends of $193,270.

     o The Company  converted  5,625 shares of Series A preferred  stock and 330
     shares of Series E preferred  stock  (aggregating  $597,469)  into  356,251
     shares of common stock.

     o The Company's  warrants for Series D preferred stock expired and $338,500
     was transferred to additional paid in capital from warrants.

     o The  Company  had an  unrealized  loss on its  related  party  marketable
     securities of $768,500.

     o The Company had accretion of $5,227 on Series E preferred stock.

     o The Company  reduced  notes  payable by $559,000  and $11,553 of interest
     payable by  exchanging  marketable  securities  from  parties.  The Company
     realized a gain of $146,660.

     o The Company  exchanged  common  stock for  marketable  equity  securities
     from a related party at $828,200

     o The Company received  $1,586,594 of marketable  securities from a related
     entity to satisfy a receivable from a related party.

     o The Company issued common stock for advances of $806,898.


See accompanying notes to consolidated financial statements.
                                      F-9

<PAGE>

                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                      Consolidated Statement of Cash Flows
                                   Continued


Supplemental  disclosure of noncash investing and financing activities
     - Continued:

     o The Company had its  ownership  interest in Rockwood  reduced from 52% to
     19%.  This  change  in  ownership  increased  the  carrying  amount  of its
     investment in Rockwood by reclassifying the following:


<TABLE>
<CAPTION>

<S>                            <C>
Cash                           $               25,662
Receivables                                 2,346,004
Inventories                                   457,024
Prepaid expenses                               19,032
Property and equipment                         87,031
Other assets                                    3,090
Intangibles                                   251,150
Payables                                     (697,136)
Notes payable                                (515,500)
Minority interest                             (31,281)
                               ----------------------

Investment in Rockwood         $            1,945,076
                               ----------------------
</TABLE>



     During the fiscal year 1998, the Company  purchased 52% of the  outstanding
     common stock of Rockwood.  The Company  entered into certain  agreements to
     make loans to  Rockwood  and pay cash if  certain  benchmarks  are met,  in
     exchange for the common stock and recorded net assets from the  acquisition
     as follows:


<TABLE>
<CAPTION>
<S>                            <C>
Receivables                    $             582,928
Related party receivables                    526,260
Inventories                                  439,463
Property and equipment, net                    9,946
Other assets                                 120,503
Payables and accrued expenses             (1,584,348)
Minority interest                            (45,481)
Equity                                       (49,271)
                               ---------------------

                                $                  -
                               ---------------------
</TABLE>



See accompanying notes to consolidated financial statements.
                                      F-10

<PAGE>


                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                      Consolidated Statement of Cash Flows
                                   Continued




Supplemental  disclosure of noncash investing and financing activities
     - Continued:

During  the year  ended  September  30, 1998:

     o The  Company  issued  preferred  stock  in  payment  of  preferred  stock
     dividends of $759,577.

     o The Company issued preferred stock in exchange for debt, receivables, and
     acquisition of intangibles of $1,200,000.

     o The Company  issued common stock in exchange for debt and  acquisition of
     intangibles of $179,134.

     o The Company  increased  common stock and additional  paid-in-capital  and
     decreased  preferred stock by $3,626,322 due to the conversion of preferred
     stock to common stock.

     o  The  Company   increased   preferred  stock  and  decreased   additional
     paid-in-capital   by  $600,084  due  to  the  preferred  stock   beneficial
     conversion feature.

     o The Company increased  additional  paid-in-capital and decreased warrants
     by $544,773 due to certain preferred stock warrants expiring.

     o The Company increased  additional  paid-in-capital and increased deferred
     compensation  by $295,750 due to the  issuance of stock  options for future
     services.

     o The Company increased additional  paid-in-capital and decreased preferred
     stock by $37,245 as a result of the conversion of Series C preferred  stock
     to Series F preferred stock.



See accompanying notes to consolidated financial statements.
                                      F-11

<PAGE>


                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements

                           September 30, 1999 and 1998



1.    Organization and Significant Accounting Policies
Biomune Systems, Inc. (Biomune) was incorporated in Nevada on December 31, 1981.
Biomune is a  biopharmaceutical  and nutraceutical  company that, along with its
wholly owned subsidiary (the Company), Optim Nutrition, Inc. (Optim), is engaged
primarily  in  researching,   developing,   producing  and  marketing   biologic
pharmaceutical   products  and  nutraceutical  food  supplements   derived  from
Biomune's  patented  technology  (ProMune).  Nutraceutical  food supplements are
derived from a whey protein food base and are marketed as a beneficial source of
nutrients to promote good health.


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


Principles  of  Consolidation  and Basis of  Presentation  During the year ended
September 30, 1999 the  Company's  ownership  interest in Rockwood  companies LC
(Rockwood)  was reduced from 52% to 19%. The  Company's  financial  statement at
September 30, 1998 and the year then ended reflect  Rockwood in the consolidated
financial statements from April 1, 1998 (date of acquisition).  At September 30,
1999 and for the year then ended  Rockwood is accounted  for on the cost method.
The net  operations of Rockwood in 1998 prior to the  ownership  decrease to 19%
was netted with the write down of the Company's investment in Rockwood.

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


                                      F-12

<PAGE>


                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   Continued



1.    Organization and Significant Accounting Policies - Continued

Marketable Securities
The Company  Classifies  its marketable  debt and equity  securities as "held to
maturity.  All other  marketable  debt and equity  securities  are classified as
"available  for sale" are  carried in the  financial  statements  at fair market
value. Realized gains and losses,  determined using the specific  identification
method,  are  included  in  earnings;  unrealized  holding  gains and losses are
reported as a separate component of stockholders' equity.  Securities classified
as held to maturity are carried at amortized cost.

For both categories of securities, declines in fair market value below amortized
cost that are other than temporary are included in earnings.


Cash and Cash Equivalents
For  purposes  of the  statement  of cash  flows,  cash  includes  all  cash and
investments with original maturities to the Company of three months or less.

Inventories
Inventories are recorded at the lower of cost or market,  cost being  determined
on a first-in, first-out (FIFO) method.


Intangible Assets
Intangible  assets  consist  primarily  of licenses  acquired to market and sell
certain  products  and technology acquired  in  the  acquisition  of  Rockwood.
Intangibles are being amortized over a period of 5 to 10 years.


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


Earnings  Per  Common  and  Common  Equivalent  Share The  computation  of basic
earnings  per common  share is computed  using the  weighted  average  number of
common shares outstanding during the year.


                                      F-13

<PAGE>


                         BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                         Notes to Consolidated Financial Statements
                                   Continued

1.    Organization and Significant Accounting Policies - Continued

Earnings Per Common and Common  Equivalent  Share - Continued The computation of
diluted  earnings per common share is based on the  weighted  average  number of
shares  outstanding  during the year plus common stock  equivalents  which would
arise from the  exercise of stock  options and  warrants  outstanding  using the
treasury  stock  method and the average  market price per share during the year.
Common  stock  equivalents  are not  included in the diluted  earnings per share
calculation when their effect is antidilutive.


Preferred  stock  dividends  and the impact of  beneficial  conversion  premiums
increase  the net loss  attributable  to common  stockholders  for  purposes  of
computing the net loss per common share.

Investments
The  Company  accounts  for its  investments  using  the lower of cost or market
method.

Revenue Recognition
Revenue is recognized upon shipment of the product.


Management, Consulting and Research Expenses
Management, consulting and research expenses include amounts paid to third-party
and  related-party  consultants  for marketing,  investment  banking,  and other
business  advisory  services,   as  well  as  costs  related  to  the  Company's
nutraceutical and  pharmaceutical  product research and development  activities.
Research and  development  costs  totaled  approximately  $0 and $17,000 for the
years ended September 30, 1999 and 1998, respectively.


Advertising
The Company  expenses the cost of advertising when the advertising  occurs.  For
the years  ended  September  30,  1999 and 1998,  advertising  expenses  totaled
approximately  $12,000  and  $85,000,  respectively,  and are  included in other
general and administrative expenses in the accompanying statement of operations.


Income Taxes
The  Company  recognizes  deferred  income  tax  assets or  liabilities  for the
expected  future tax  consequences  of events that have been  recognized  in the
financial  statements  or tax returns.  Under this method,  deferred  income tax
assets or  liabilities  are  determined  based upon the  difference  between the
financial statement and income tax bases of assets and liabilities using enacted
tax rates  expected  to apply when  differences  are  expected  to be settled or
realized.


                                      F-14

<PAGE>


                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   Continued

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


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


Reclassifications
Certain  accounts in the 1998 financial  statements  have been  reclassified  to
conform with the current year presentation.


2.    Going Concern

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As of September 30, 1999, the
Company had an accumulated deficit and has had substantial recurring losses. The
consolidated  operations of the Company have not had sustained profitability and
the Company has relied upon financing from the sale of its equity securities and
liquidation of other assets to satisfy its  obligations.  These conditions raise
substantial  doubt  about the  ability  of the  Company to  continue  as a going
concern.  The consolidated  financial  statements do not include any adjustments
that might result from the outcome of these uncertainties.


The  Company's  ability  to  continue  as a  going  concern  is  subject  to the
attainment of profitable  operations or obtaining necessary funding from outside
sources.  Management's  plan with respect to this  uncertainty  include  raising
additional  equity  funding  through  the  sale  of  the  Company's  securities,
evaluating new products and markets,  and  minimizing  overhead and other costs.
However, there can be no assurance that management will be successful.

                                        F-15

<PAGE>

                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                                   Continued



3.    Detail of Certain Balance Sheet Accounts

<TABLE>
<CAPTION>
<S>                                                                   <C>
Receivables:
      Trade receivables                                               $               148,678
      Current portion of related party receivables
        (see note 6)                                                                  230,000
      Interest and other                                                              120,317
      Less allowance for doubtful
        accounts                                                                      (15,000)
                                                                      -----------------------

                                                                      $               483,995
                                                                      -----------------------




Inventories:
      Finished goods                                                  $               180,639
      Raw materials                                                                   105,353
      Reserve for obsolescence                                                        (30,000)
                                                                      -----------------------

                                                                      $               255,992
                                                                      -----------------------




Payables and accrued expenses:
      Trade payables                                                  $               442,635
      Accrued royalties payable                                                       129,872
      Accrued payroll and payroll taxes                                                31,695
      Accrued interest expense                                                         16,200
                                                                      -----------------------

                                                                      $               620,402
                                                                      -----------------------
</TABLE>

                                        F-16

<PAGE>

                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   Continued

3.    Detail of Certain Balance Sheet Accounts - Continued

<TABLE>
<CAPTION>
Preferred Stock:

<S>                                                                   <C>
Series A, 10% cumulative, convertible; 36,499
shares outstanding                                                    $               177,304

Series B, 10% cumulative, convertible non-voting;
449 shares outstanding                                                                  6,740



Series F, 8% cumulative, convertible, non-voting;
1,420,081 shares outstanding                                                          741,499

Series J, 10% cumulative, convertible non-voting;
1,249 shares outstanding                                                            1,248,500
                                                                      -----------------------

                                                                      $2,174,043
                                                                      -----------------------
</TABLE>

4.    Marketable Securities
During the years ended September 30, 1999 and 1998, the Company purchased common
and  preferred  stock  of  two  companies  which  are  controlled  by  the  same
individuals  which  control the Company.  The Company  acquired  these shares in
exchange for the following amounts:


<TABLE>
<CAPTION>
<S>                                                              <C>
Cash                                                             $               424,908
Sale of inventories                                                              400,000
Exchanged for related party receivables                                        1,862,743
Exchanged for common stock                                                       828,200
Less:                          cost of shares sold                              (770,625)
                               unrealized holding loss                          (768,200)
                                                                 -----------------------

                                                                 $             1,977,026
                                                                 -----------------------
</TABLE>

The  Company's   marketable   securities  in  companies  under  common  control,
classified as available-for-sale consist of the following:


<TABLE>
<CAPTION>
<S>                                                              <C>
Marketable securities, at cost                                   $             2,745,226
Gross unrealized holding loss                                                   (768,200)
                                                                 -----------------------

Marketable securities, at fair value                             $             1,977,026
                                                                 -----------------------
</TABLE>
                                        F-17

<PAGE>

                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   Continued


4.    Marketable Securities - Continued

Changes   in   the   unrealized   holding   loss   on   marketable    securities
available-for-sale  and reported as a separate component of stockholders' equity
are as follows:


<TABLE>
<CAPTION>
<S>                                                              <C>
Balance, beginning of year                                       $                     -
Unrealized holding loss                                                         (768,200)
Deferred income tax effect related to
  the unrealized holding gain                                                          -
                                                                 -----------------------

Balance, end of year                                             $              (768,200)
                                                                 -----------------------
</TABLE>

5.    Property, Plant and Equipment
Property and equipment consists of the following:


<TABLE>
<CAPTION>
<S>                                                                   <C>
Furniture, fixtures, and equipment                                    $               224,177
Less accumulated depreciation
  and amortization                                                                   (141,372)
                                                                      -----------------------

                                                                      $                82,805
                                                                      -----------------------
</TABLE>

6.    Related Party Receivables
Related party receivables consist of the following:


<TABLE>
<CAPTION>
<S>                                                                   <C>
Notes  receivable from entities,  which are shareholders
or are controlled by an advisory board chairman, interest
at various interest rates due on demand                               $               265,091

Note receivable  from an individual who is a relative of
a major  shareholder of the company, at an interest rate
of 1% over prime, unsecured and due on demand                                          50,000
                                                                      -----------------------
                                                                                      314,091

Less current portion                                                                 (230,000)
                                                                      -----------------------
                                                                      $                84,091
                                                                      -----------------------
</TABLE>

                                        F-18

<PAGE>

                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   Continued


7.    Intangibles
Intangible assets consist of the following:


<TABLE>
<CAPTION>
<S>                                                              <C>
Licenses                                                         $               595,000
ProMune Technology                                                                70,000
                                                                 -----------------------

                                                                                 665,000

Accumulated amortization                                                        (110,919)
                                                                 -----------------------

                                                                 $               554,081
                                                                 -----------------------
</TABLE>


8.    Investment in and Advances to Affiliate
During the year ended  September 30, 1998,  the Company  acquired a 52% majority
interest in Rockwood, which was accounted for as a purchase and, accordingly, is
included  in  the  consolidated   statements  of  operations,   cash  flows  and
shareholder's  equity and  comprehensive  income for the period of April 1, 1998
(date of  acquisition)  to September  30,  1998.  Due to the Company not meeting
certain  financing  obligations  as provided  for in the  purchase  agreement of
Rockwood,  the  Company's  interest in Rockwood was reduced to 19%. In addition,
during the year ended  September 30, 1999 the Company  exchanged its interest in
Rockwood for a 19% interest in Twin Eagles LLC, which is engaged in the business
of health and beauty products.


The Company's investment also includes an advance made to the management company
of Rockwood in the amount of $500,000,  as a long-term  advance to assist in the
capital  funding  of  Rockwood.  This loan was  secured by the 48%  interest  in
Rockwood,  bears  interest of 8% per annum,  and  matures on January  15,  2006.
Interest  payments are due quarterly  begin January 15, 1999 and equal principal
and interest payments are due annually  beginning January 15, 2002. At September
30, 1999 interest receivable was in arrears in the amount of $50,000.

                                        F-19

<PAGE>

                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   Continued


8.    Investment in and Advances to Affiliate - Continued
During the year ended  September 30, 1999, the Company  recognized a loss in the
investment  in and  advances to Rockwood and its  management  company due to the
estimated recoverability of the investment as follows:


<TABLE>
<CAPTION>
<S>                                                                <C>
Investment and advances at cost                                    $           2,156,377
Loss for estimated recoverabliity                                             (1,706,000)
                                                                   ---------------------

Investment and advances to affiliate at
  September 30, 1999                                               $             450,377
                                                                   ---------------------
</TABLE>

9.    Notes Payable
Notes payable consist of the following:


<TABLE>
<CAPTION>
<S>                                                                <C>
Unsecured notes payable to an individual at rates
ranging from 24%to 30%, due on demand                              $             275,000

Unsecured notes payable to individuals at rates
ranging from 24% to 30%, due in February and
March 2000                                                                       145,000

Unsecured note payable to an officer of the
Company, with 8% interest, due on demand                                          15,000
                                                                   ---------------------

                                                                   $             435,000
                                                                   ---------------------
</TABLE>

                                        F-20

<PAGE>

                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   Continued

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


<TABLE>
<CAPTION>
                                                                 Years Ended
                                                                September 30,
                                                    --------------------- -----------------
                                                            1999               1998
                                                    --------------------- -----------------

<S>                                                 <C>                   <C>
Federal income tax benefit
   at statutory rate                                $            639,000  $        550,000
Change in valuation
  allowance                                                     (639,000)         (550,000)
                                                    --------------------- -----------------

                                                    $                  -  $              -
                                                    --------------------- -----------------
</TABLE>


Deferred tax assets (liabilities) are comprised of the following:


<TABLE>
<CAPTION>
<S>                                                                <C>
Net operating loss carryforwards                                   $          10,071,000
Write-down of assets                                                             615,000
Allowance for bad debts                                                           14,000
Valuation allowance                                                          (10,700,000)
                                                                   ---------------------

                                                                   $                  -
                                                                   ---------------------
</TABLE>


                                        F-21

<PAGE>

                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   Continued

10.   Income Taxes - Continued
The Company's  valuation  allowance was also reduced for the  expiration of both
the investment tax credit  carryforward  and a portion of the net operating loss
carryforward.

As of  September  30, 1999,  the Company had net  operating  loss  carryforwards
(NOLs) for federal income tax reporting  purposes of approximately  $31,400,000.
There can be no  assurance  that all of these NOLs will be  available  to offset
future taxable income, if any. An NOL generated in a particular year will expire
for federal tax  purposes if not  utilized  within 15 years.  Additionally,  the
Internal  Revenue Code contains other provisions which could reduce or limit the
availability and utilization of these NOLs. For example, limitations are imposed
on the utilization of NOLs if certain ownership changes have taken place or will
take place. In accordance  with SFAS No. 109, a valuation  allowance is provided
when it is more likely  than not that some  portion of the  deferred  income tax
asset will not be realized.  Due to the uncertainty with respect to the ultimate
realization of the NOLs, the Company has  established a valuation  allowance for
all of its deferred income tax assets.


The Company has determined  that as of December 10, 1991  ownership  changes (as
that term is defined  in  Section  382 of the  Internal  Revenue  Code) may have
occurred.  The  impact  of  this  ownership  change  is  to  limit  the  use  of
approximately $1,328,000 of the Company's total NOLs. The Company estimates that
the use of these NOLs would be limited to approximately  $502,000 per year (on a
cumulative basis). The NOLs that may have been limited by the possible ownership
change expire in the years and in the amounts indicated below:


<TABLE>
<CAPTION>
Year Generated             Amount        Year of Expiration
--------------------------------------------------------------------------------

<S>                   <C>                       <C>
1985                  $      10,000             2000
1986                        148,000             2001
1987                        149,000             2002
1988                        137,000             2003
1989                        234,000             2004
1990                        252,000             2005
1991                        226,000             2006
1992                        172,000             2007
                      -------------

Total                 $   1,328,000
                      -------------
</TABLE>


                                        F-22

<PAGE>

                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   Continued

10.   Income Taxes - Continued
The Company's  NOLs that are not limited  expire in the years and in the amounts
indicated below:



<TABLE>
<CAPTION>
Year Generated         Amount                Year of Expiration
--------------------------------------------------------------------------------

<S>                   <C>                        <C>
1992                  $      625,000             2007
1993                       6,386,000             2008
1994                       3,417,000             2009
1995                       3,217,000             2010
1996                       5,762,000             2011
1997                       7,203,000             2012
1998                       1,608,000             2013
1999                       1,878,000             2019
                      --------------

Total                 $   30,096,000
                      --------------
</TABLE>



11.   Reverse Common Stock Split
On November 10, 1997 and December 31,  1998,  the  Company's  Board of Directors
approved a 1-for-10  reverse common stock split.  All common share amounts,  per
share  information  and numbers of common shares into which  preferred  stock is
convertible  have been  retroactively  adjusted to reflect this  reverse  common
stock split in the accompanying consolidated financial statements.


12.   Commitments
Optim
In September 1998, the Company  acquired the exclusive  worldwide  marketing and
distribution rights to the Mountain Lift sports and energy nutrition bars. Under
the  agreement,  which  has an  initial  term of 10  years  and  continues  on a
year-to-year  basis  thereafter,  the Company  pays a royalty of 7% of net sales
generated by the licensed products.

As of September 30, 1999, the Company had $19,406  royalties payable under terms
of the agreement.

                                        F-23

<PAGE>

                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   Continued

12.   Commitments - Continued
NiteBite
In September 1998, the Company entered into an agreement acquiring the exclusive
worldwide   distribution  rights  to  a  time-release  glucose  bar.  Under  the
agreement,  the Company pays a 12% royalty on net sales of the patented product,
which is marketed under the trade name NiteBite.  The bars are  manufactured for
the Company under contract by third parties.

As of September 30, 1999, the Company had $110,466 royalties payable under terms
of the agreement.


Technology
The Company has the  exclusive  right and license to utilize a patented  process
technology  (Technology) for pharmaceutical and nutraceutical  products,  solely
for human  applications,  in the United  States,  Canada,  Kenya,  Ivory  Coast,
Zimbabwe, Ghana, Zambia, and Nigeria, and their possessions and territories. The
license  includes  the rights  under four United  States  patents.  This license
expires in March of 2006.


The license may  terminate if the Company fails to observe or perform any of the
covenants,  terms,  conditions  or provisions of the agreement or if it breaches
any representation or warranty and fails to cure the breach within 30 days after
receipt of written  notice.

Leases
The Company is contingently liable for the facilities of the Volu-Sol
lease should Volu-Sol not make the payment.  (See Note 16).

                                        F-24

<PAGE>

                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   Continued

13.   Stock Options and Warrants
The Company has established  certain Stock Incentive Plans  (collectively,  "the
Plans"), which allows for the granting of incentive stock options,  nonqualified
stock options, and the award of common stock to certain  individuals,  including
employees,  officers,  directors,  consultants,  and others as designated by the
board of  directors.  Under the terms of the  Plans,  the  exercise  prices  for
incentive stock options shall not be less than the fair market value at the date
of grant.  The exercise price for  nonqualified  stock options shall not be less
than the lesser of: 1) the book value per share of common stock as of the end of
the fiscal year of Biomune  immediately  preceding  the date of grant,  or 2) 50
percent of the fair market value per share of common stock on the date of grant.
Options are exercisable  within periods determined by the Board of Directors but
may not exceed ten years from the date of grant.


A summary of the stock option and warrant activity is as follows:


<TABLE>
<CAPTION>
                                                                          Weighted
                                                        Number             Average
                                                          of              Exercise
                                                        Shares              Price
                                                 ---------------------------------------

<S>                                              <C>                    <C>
Outstanding at October 1, 1998                                124,220   $ 129.40
      Exercised                                               (41,260)     37.00
      Canceled                                                (31,587)    206.18
      Granted                                                 369,000      10.64
                                                 --------------------
Outstanding at September 30, 1999                             420,373     229.20
      Exercised                                              (300,000)      2.00
      Canceled                                                (24,526)    156.81
      Granted                                                 650,000       1.00
                                                 --------------------
                                                              745,847$      6.76
                                                 --------------------

Exercisable at September 30, 1999                             745,847
                                                 --------------------
</TABLE>

                                        F-25

<PAGE>

                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   Continued


13.   Stock Options and Warrants - Continued
When  accounting  for the  issuance  of stock  options  and  warrants  financial
accounting  standards  allows entities the choice between  adopting a fair value
method or an intrinsic  value method with footnote  disclosures of the pro forma
effects if the fair value method had been adopted. The Company has opted for the
latter approach. Had the Company's options and warrants been determined based on
the fair value method,  the results of operations would have been reduced to the
pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                   Years Ended
                                                                  September 30,
                                                    -----------------------------------------
                                                            1999                1998
                                                    ----------------------  -----------------

<S>                                                 <C>                     <C>
Net loss applicable to common
  shares - as reported                              $         (2,076,093)   $     (2,968,108)
Net loss applicable to common
  shares - pro forma                                $         (2,350,487)   $     (2,986,846)
Loss per common share - as reported                 $             (1.15)    $          (4.52)
Loss per common share -   pro forma                 $            (1.30)     $          (4.55)
                                                    ----------------------  -----------------
</TABLE>


The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:


<TABLE>
<CAPTION>
                                                                   September 30,
                                                      ---------------------------------------
                                                              1999               1998
                                                      --------------------  -----------------

<S>                                                   <C>                   <C>
Expected dividend yield                               $                -    $             -
Expected stock price volatility                                       80%               108%
Risk-free interest rate                                             5.25%                 5%
Expected life of options                                          2 years            2 years
                                                      --------------------  -----------------
</TABLE>

The weighted average fair value of options granted during 1999 and 1998 are $.96
and $.29, respectively.

                                        F-26

<PAGE>

                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   Continued

13.   Stock Options and Warrants - Continued
The  following  table  summarizes  information  about stock options and warrants
outstanding at September 30, 1999:


<TABLE>
<CAPTION>
                                   Outstanding                          Exercisable
                  -------------------------------   --------------------------------------------
                                    Weighted
                                     Average
                                    Remaining         Weighted                   Weighted
                      Number       Contractual         Average      Number        Average
     Range of       Outstanding       Life            Exercise    Exercisable    Exercise
 Exercise Prices        at           (Years)            Price         at           Price
--------------------------------- ---------------   ------------ -------------  ----------------

<S>                  <C>               <C>          <C>           <C>           <C>
$1.00 to             719,000           4.60         $    1.93     719,000       $      1.93
17.50

37.00 to 68.80        13,047           1.90             38.30      13,047              1.93

167.00 to             13,800           1.66            228.76      13,800            228.76
238.00
--------------------------------- ---------------   ------------ -------------  ----------------

$  1.00 to           745,847           3.50         $    6.76     745,847       $     65.94
238.00
--------------------------------- ---------------   ------------ -------------  ----------------
</TABLE>


14.   Fair Value of Financial Instruments
None of the Company's financial  instruments are held for trading purposes.  The
Company estimates that the fair value of all financial  instruments at September
30, 1999, does not differ  materially from the aggregate  carrying values of its
financial  instruments recorded in the accompanying balance sheet. The estimated
fair value amounts have been  determined by the Company using  available  market
information and appropriate valuation  methodologies.  Considerable judgement is
necessarily  required in  interpreting  market data to develop the  estimates of
fair value, and,  accordingly,  the estimates are not necessarily  indicative of
the amounts that the Company could realize in a current market exchange.

                                        F-27

<PAGE>

                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   Continued

15.   Related Party Transactions
Related party transactions consist of the following:

During the year ended September 30, 1999:

     o The Company owns marketable  equity securities in two companies which are
     under common control. The carrying value of those marketable  securities is
     $1,977,026 at September 30, 1999.

     o The Company has advances to and investments in an affiliate in the amount
     of $450,377.

     o The Company sold a note receivable of $402,051,  including interest, to a
     shareholder in exchange for marketable securities.

     o The Company sold  marketable  securities of $675,000 to a shareholder  in
     exchange for $341,000 and transferred $570,553 of debt to a shareholder.

     o The Company sold marketable  securities for $73,125 to a trust in which a
     relative of an officer is the trustee.

     o The  Company  exchanged  $828,200  of its common  shares  for  marketable
     securities from a shareholder.

     o The Company owed an officer of the company  $15,000 for a short-term note
     which is due on demand, is unsecured, and accrues interest at 8%. (See note
     10).

     o The Company advanced to an entity controlled by a shareholder $1,893,233.
     The entity repaid $1,586,593 in the form of marketable securities.


                                        F-28

<PAGE>

                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   Continued

15.   Related Party Transactions - Continued
In addition, the Company had the following transactions:

      The Company has various  notes  receivable  due from related  parties (see
      Note 6).  Interest  income  recorded  under the  notes was  approximately,
      $9,000 and $102,000  during the years ended  September  30, 1999 and 1998,
      respectively.


      The  Company  has  a  management  agreement  with  an  entity  owned  by a
      shareholder and former officer of the Company. The agreement provides that
      the entity will provide  management and marketing  services to the Company
      in exchange for a fee equal to 45% through March 1999,  10% for April 1999
      through  December  31, 1999 and 45% after  December  31, 1999 of the gross
      revenues of the nutrition and medical food products.  Total payments under
      the agreement are  approximately  $396,000 and $18,000 for the years ended
      September 30, 1999 and 1998, respectively.

      During 1998 , the Company sold certain rights including  royalty rights to
      waste disposal  technology for a gain of $400,000 to another company under
      common control.


      The Company paid $37,000 rent to the minority interest member for the year
      ended September 30, 1998.


16.   Operating Leases

The  Company  leases its  facilities  related  to  continuing  operations  under
noncancellable  operating leases,  which expire through July 2001. Lease expense
for the years ended September 30, 1999 and 1998, was approximately  $100,000 and
$114,000, respectively. Future minimum lease commitments are as follows:


<TABLE>
<CAPTION>
Fiscal year                Amount
                    ---------------------
<S>   <C>           <C>
      2000          $              66,000
      2001                         16,000
                    ---------------------

                    $              82,000
                    ---------------------
</TABLE>

                                        F-29

<PAGE>

                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   Continued

16.   Operating Leases - Continued

These  minimum  lease  commitments  do not include any amounts  associated  with
Volu-Sol's  leased facility.  To the extent that Volu-Sol  defaults on any lease
payments,  Biomune is obligated to make such payments as the lessee. These lease
commitments total $4,617 per month through November 2000.

17.   Litigation
The Company and certain of its officers and directors are currently  involved in
litigation  with a  shareholder.  On October 12, 1995,  a Proposed  Class Action
Complaint for violation of federal  securities  laws was filed in U.S.  District
Court. The complaint  alleges various  violations of the Securities and Exchange
Act of 1934.  On April 2, 1997,  the trial court  dismissed  with  prejudice all
claims  of the  plaintiff  and  assessed  costs of the  litigation  against  the
plaintiff.  In May 1997,  the plaintiff  appealed the decision.  On September 2,
1998, the Court of Appeals reversed the decision of the trial court and remanded
the case for a  determination  by the trial court whether the complaint had been
timely filed. No date had been set for a rehearing by the trial court.


The Company  believes  that the  allegations  made in the  Complaint  are wholly
without  merit and  intends to  vigorously  oppose the claims of the  plaintiff.
However,  there  can  be  no  assurance  that  the  Company's  defense  will  be
successful.  Until  September  1998,  the  Company  has paid the legal  fees and
related  expenses  associated  with the  defense of this action on behalf of the
Company and the other named defendants.  The financial statements do not include
any accrued amounts should the Company not prevail in the litigation.


On September 29, 1998, a lawsuit was filed in the Third Judicial  District Court
for Salt Lake County, naming the Company,  Bioxide Corporation,  and individuals
and related entities as defendants.  The plaintiff's  claims allegedly arose out
of his role in the  development  of certain waste disposal  technologies.  Those
technologies  were  included  in the  property  sold by the  Company  in 1998 to
Bioxide Corporation. This case has been settled and the lawsuit dismissed.


By agreement with the Company,  Harrogate Marketing LLC has agreed to assume and
pay all costs,  including  legal fees, of the Company in connection with both of
these matters.

                                        F-30

<PAGE>

                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   Continued

18.   Significant Source of Revenues
The Company had revenue from one customer in 1999 of approximately $164,000.


19.   Subsequent Events
During December 1999 the Company  converted its Series F preferred stock and 213
shares of its Series J preferred stock into common stock of the Company.