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

                                   FORM 10-KSB

(Mark One)

[X]      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
         OF 1934

         For the fiscal year ended December 31, 1999


[ ]      TRANSITION  REPORT  UNDER  SECTION  13 OR  15(d)  OF THE  SECURITIES
         EXCHANGE ACT OF 1934

For the transition period from ___________________ to ____________________

                         Commission file number: 0-15070

                            Alpha 1 Biomedicals, Inc.
--------------------------------------------------------------------------------
                 (Name of small business issuer in its charter)

Delaware                                                          52-1253406
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(State or other jurisdiction of                 (I.R.S. Employer Identification
incorporation or organization)                     number)

          3 Bethesda Metro Center, Suite 700, Bethesda, Maryland 20814
--------------------------------------------------------------------------------
           (Address of principal executive offices including zip code)

         Issuer's telephone number: 301-961-1992

         Securities  registered  under Section 12(b) of the Act:None  Securities
         registered under Section 12(g) of the Act:

                          Common Stock, $.001 par value
                          -----------------------------
                                (Title of Class)

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter  period that the  registrant  was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days. YES NO X

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

         State the issuer's revenues for its most recent fiscal year: $0.

         The aggregate  market value of the voting stock held by  non-affiliates
of the  registrant,  computed by reference to the closing price of such stock on
the NASDAQ System on October 23, 2000, was  approximately  $1.16  million.  (The
exclusion from such amount of the market value of the shares owned by any person
shall  not be deemed  an  admission  by the  registrant  that such  person is an
affiliate of the registrant.)

The number of shares of issuer's Common Stock outstanding as of October 23, 2000
                                 was 19,477,429.

                       Documents Incorporated by Reference
                       -----------------------------------
                                      None

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE)
         YES           NO    X
            ----            ----


<PAGE>



                                     PART I


ITEM 1.  BUSINESS

General

     Alpha 1  Biomedicals,  Inc.  (the  "Company")  was  formed in 1982 and is a
pharmaceutical  research and development  company focusing on the development of
products to treat a variety of human  diseases.  In September  1998, the Company
suspended its operations due to the  insufficiency of funds. In August 1999, the
Company resumed operations,  on a limited basis,  beginning with the appointment
by its Board of Directors of the Company's Chairman and co-founder, Dr. Allan L.
Goldstein,  as the  Company's  new  chief  executive  officer  and  the  Board's
appointment of four individuals,  including Dr. Goldstein, to serve as financial
and business  consultants to the Company and to manage the Company's  affairs on
an  interim  basis.  The  consultants  are  responsible  for  general  corporate
activities, product development planning and the selection and management of the
various  external  resources  necessary  to conduct  pre-clinical  and  clinical
studies.     See    "Item    12.    Certain     Relationships     and    Related
Transactions--Consulting Agreement." Currently, the Company has no products that
have received regulatory approval.

     The Company  utilizes a virtual  company  strategy in order to  effectively
control  costs.  The Company will  contract out  research  and  development  and
manufacturing  operations,  as well as other functions  critical to its mission.
The Company  believes this approach  enhances its ability to allocate  resources
rapidly  to  different  projects.  The  strategy  consists  of (i)  identifying,
evaluating and licensing  pharmaceutical  product  opportunities  that appear to
have  significant  commercial  potential;  (ii)  designing  pre-clinical  and/or
clinical  protocols to test such products;  (iii) utilizing third party contract
manufacturers  to  supply  clinical  grade  material  and third  party  contract
research  organizations  to  perform  pre-clinical  and/or  clinical  studies in
accordance   with  its  designed   protocols;   and  (iv)  pursuing   sublicense
arrangements  with  established  pharmaceutical  companies to support late stage
clinical testing and ultimately marketing if regulatory approval is obtained.

     The  Company's  primary  business  focus  for most of its  history  was the
commercialization  of Thymosin  alpha 1  ("T[alpha]1"),  a 28 amino acid peptide
shown to regulate the immune system in animal models.  T[alpha]1 is now approved
for the treatment of hepatitis b and c and as an immune adjuvant in 20 countries
outside the United States and is in  registration  for approval in several more.
In 1998,  the  Company  sold all rights and  interests  it had in  T[alpha]1  to
SciClone  Pharmaceuticals,  Inc.  See  "--  Previous  Commercial  Development  -
Thymosin Alpha 1" below.  The Company's  current  primary  business focus is the
commercialization of Thymosin beta 4, a 43 amino acid peptide ("T(beta)4").  The
Company is concentrating its efforts on the use of T(beta)4 for the treatment of
injured tissue and non- healing wounds to enable more rapid repair and/or tissue
regeneration.

Primary Commercial Development Focus - Thymosin Beta 4

     General.  Originally  isolated  from the thymus,  T(beta)4 is a  chemically
synthesized  copy of a natural  human  peptide that  circulates in the blood and
plays a vital role in the  regeneration,  remodeling  and  healing  of  tissues.
Although  it is  recognized  that  wound  healing  is a  complex  process,  most
companies  working to develop new drugs in this area have  focused  primarily on
adding different growth factors to stimulate  healing and have, to date,  failed
to demonstrate dramatic

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improvements in the healing process.  T(beta)4 represents a new type of compound
being developed to speed the healing of injured  tissues,  accelerate the growth
of  blood   vessels  and  reduce   inflammation.   Unlike   compounds   such  as
Platelet-Derived  Growth Factor ("PDGF"),  Keratinocyte Growth Factor ("KGF-2"),
Epidermal  Growth Factor ("EGF"),  or basic  Fibroblast  Growth Factor ("bFGF"),
T(beta)4 is not a growth  factor  and,  unlike  Interleukin-1  ("IL-1") or Tumor
Necrosis Factor ("TNF-a"),  T(beta)4 is not a cytokine.  (Cytokines are proteins
and  peptides  which  act as  immune  regulators  and  modulate  the  functional
activities of  individual  cells and  tissues.)  Rather,  it regulates the actin
molecule in most  mammalian  cells and as such plays a vital role in the healing
of injured or  damaged  tissues.  Actin  comprises  up to 10% of the  protein of
non-muscle  cells and plays a central role in cell  structure  (formation of the
cytoskeleton) and in the movement of cells throughout the body. Research studies
from the National Institutes of Health ("NIH") published in 1995, 1997, and 1999
established that T(beta)4  stimulates the migration of human keratinocytes (skin
cells) and the migration of human endothelial  cells.  Endothelial cells are the
major  cell types  responsible  for the  formation  of blood  vessels  and other
tissues. These studies were the first to document the important role of T(beta)4
in wound healing.

     Product Development.  The Company's first efforts to commercialize T(beta)4
focused on the development of T(beta)4 for the treatment of cystic fibrosis. The
Company  suspended this  development work in February 1996 upon learning that it
would  potentially  infringe upon a U.S.  patent issued for certain  therapeutic
compounds which might be used for the treatment of cystic fibrosis.  The Company
attempted but was not able to negotiate a license to this patent. In March 1997,
the Company provided  limited funding under a research  contract with Vanderbilt
University  to  determine  the  effect  of  T(beta)4  in a sheep  model of Adult
Respiratory Distress Syndrome ("ARDS"), a syndrome associated with septic shock.
In  animal  models  of  septic   shock,   T(beta)4  has  been  shown  to  reduce
endotoxin-induced  death,  presumably  by  modulating  pathologic  mediators  of
inflammation and cell death.  Additional  pre-clinical research studies would be
required to determine the value of T(beta)4 in the treatment of septic shock and
syndromes  associated with septic shock.  The Company is considering  additional
studies  for  this  use of  T(beta)4  and  holds  two  patents  related  to this
application. See "--Proprietary Rights" below.

     The Company's main product  development  focus is its involvement  with and
support of studies using  T(beta)4 for the treatment of  non-healing  wounds and
similar  medical  problems.  The  Company  entered  into a  Material  Transfer -
Cooperative  Research and  Development  Agreement with the NIH during the second
quarter of 1997. Under this agreement,  the Company provided an NIH investigator
with T(beta)4  purchased  from a third party vendor for testing in animal models
in a wound healing study. In exchange,  the Company  received an option to elect
an exclusive  or  non-exclusive  commercialization  license from the NIH for any
patent  rights that might result from the research  study that relate to the use
of T(beta)4 as a tissue growth and repair  factor.  The agreement  provides that
the Company must exercise this option within three months after the NIH notifies
the Company that a patent or other  intellectual  property  application has been
filed. A provisional  patent  application  was filed by NIH in July 1998, with a
Patent  Cooperation  Treaty (PCT) application filed in July 1999,  pertaining to
the work  performed on T(beta)4.  Due to the  suspension  of  operations  by the
Company in 1998,  the Company did not  exercise  its rights to license  T(beta)4
from the NIH  following  notification  of the  patent  application  filing.  Dr.
Goldstein,  however,  was named as a co-inventor on the patent application filed
by the NIH, and since he assigned these rights for nominal  consideration to the
Company in May 2000, the Company retains a shared right to develop  T(beta)4 for
wound healing

                                        2

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based  on the  patent  application  filed by the  NIH,  when and if a patent  is
issued.  The Company is presently  negotiating  with the NIH to secure the NIH's
rights under the patent  application in order to effectively secure an exclusive
proprietary  position  with  respect to T(beta)4 for wound  healing,  should the
patent be issued.  No assurance can be given as to whether or when a patent will
be issued,  or as to any  conditions  that might be attached  to the patent.  In
addition,  no  assurance  can  be  given  that  the  Company  will  be  able  to
successfully  negotiate from the NIH an exclusive right to the patent issued, if
issued, under conditions acceptable to the Company.

     To date, the NIH has performed  pre-clinical animal studies using T(beta)4,
supplied by the  Company,  which have  indicated  that  T(beta)4 is effective in
healing  injured  tissue and  improving  wound  healing  and  chemical  burns in
steroid-treated  rodents and other mammals. Before clinical trials may begin the
Company  must file with the U.S.  Food and Drug  Administration  (the  "FDA") an
Investigational  New Drug Application  ("IND"),  and the IND must be approved by
the FDA. Product development activities generally required to support the filing
of an IND include (i) manufacturing of pre-clinical supplies;  (ii) pharmacology
studies;  (iii) toxicology studies;  (iv) manufacture of clinical supplies;  and
(v) development of a  biochemicalassay  and  immunoassay  for T(beta)4.  In June
2000,  the  Company  and the NIH met with the FDA to discuss  the  proposed  IND
application  which, if approved,  would allow Phase I clinical trials on the use
of T(beta)4 as a  wound-healing  treatment  to begin.  The Company has  received
correspondence from the FDA which specifies the remaining pre- clinical work the
Company  must  undertake  in  order  to have the IND  approved.  For  additional
information   regarding  the  regulatory  approval  process  for  the  Company's
products,  see "-- Government  Regulation." The Company is currently  evaluating
the cost of completing  the pre- clinical work necessary for approval of the IND
and  Phase  I  clinical  trials  and  may  need to  enter  into a  collaborative
relationship  with a larger partner or raise  additional  funds to conduct these
trials.  See  "Forward-Looking  Statements --  Uncertainties  Related to Limited
Capital Resources" and "-- Dependence on Collaborative  Relationships" contained
in Exhibit 99.1 to this Report.

     Other areas the Company may explore  with  T(beta)4  are the healing of eye
injuries,  including  chemical burns and inflammatory  processes,  post surgical
healing, and wound healing in patients undergoing steroidal therapy. The Company
also is reconsidering the possible applications of T(beta)4 for the treatment of
septic  shock and  cystic  fibrosis.  All of the  Company's  efforts  to develop
additional applications would likely require substantial additional capital or a
strategic  alliance or other  partnership  arrangement with a firm providing the
capital and/or necessary expertise.

     The Company has placed  development  of T(beta)4  for wound  healing as its
highest product development priority.  For additional  information regarding the
Company's efforts to commercialize T(beta)4, see "--Proprietary Rights."

Previous Commercial Development - Thymosin Alpha 1

     The Company's first commercial development project was focused onT[alpha]1,
a 28 amino acid peptide  shown to regulate the immune  system in animal  models.
T[alpha]1  is now  approved  for the  treatment  of  hepatitis b and c and as an
immune adjuvant in 20 countries outside the United States and is in registration
for approval in several more.  The  commercial  development  of this product was
licensed to SciClone Pharmaceuticals, Inc. ("SciClone") in November 1994.


                                        3

<PAGE>



     Under the license  agreement  with  SciClone,  the Company was  entitled to
receive certain royalties on SciClone's net sales revenue from licensed products
that ranged from 3% to 7% depending on SciClone's rights in the country in which
the sales occurred.  The Company's right to receive royalties was to continue at
least until  September 30, 2002. If, at the end of this eight-year  period,  the
Company had not realized  royalty  payments in the amount of $35  million,  then
SciClone's  royalty  obligations  were to continue  until the earlier of (i) the
payment to the Company of royalties  aggregating  $35 million or (ii)  September
30, 2009.

     In 1996, the Company entered into a second  agreement with SciClone whereby
the Company  received a  non-refundable  payment of  royalties  in the amount of
$500,000,  which was  included  in revenues in 1996.  In  exchange,  the Company
agreed that after royalty payments totaling $1.75 million were made, the Company
would forgo future  royalties,  if and when  earned,  in an amount equal to $2.5
million.

     In August 1997,  the Company  entered into a third  agreement with SciClone
whereby the Company  received  $70,000 as a  non-refundable  royalty  payment in
exchange for the Company's  agreement to forgo an additional  $700,000 in future
royalties. This payment was included in revenues in 1997.

     In December  1997,  the Company  entered  into an agreement  with  SciClone
whereby the Company's rights to receive royalty payments from the future sale by
SciClone and its  licensees  of T[alpha]1  would be sold to SciClone in exchange
for  $130,000  in cash and  444,115  shares of SciClone  common  stock,  plus an
additional 155,885 shares if the market value of SciClone common stock was below
$4.053 per share during prescribed  trading periods following the closing of the
transaction.

     To assist the Company in funding its operations  pending the closing of the
transaction,  SciClone agreed in 1998 to advance the Company up to $350,000,  to
be repaid in several  installments  following  the  closing of the  transaction.
These  advances were secured by shares of SciClone  common stock having a market
value equal to the principal amount of the loans.

     The royalty sale transaction was approved by the Company's  stockholders on
July 15, 1998 and  completed  on July 28,  1998.  In 1998 and 1999,  because the
market value of the SciClone  common stock was below $4.053 per share during the
prescribed  post-closing  trading  periods,  the Company  received an additional
155,885  shares of SciClone  common stock.  As of December 31, 1999, the Company
owed  SciClone  approximately  $301,722 on the  outstanding  advances and was in
default in its  obligations  to repay these  amounts.  On January 25, 2000,  the
Company  and  SciClone  entered  into an Omnibus  and  Mutual  Release of Claims
Agreement  under  which  SciClone  agreed to cancel all  amounts  payable by the
Company upon the  Company's  payment to SciClone a sum of $162,500.  This amount
was paid by the Company to SciClone in February 2000. SciClone further agreed to
return to the Company the 69,085 shares of stock of SciClone  common stock which
were being held by SciClone as collateral for the loans.  Each company agreed to
release  the  other  from  any and all  claims  whatsoever  which  they may have
relating to or arising under the agreement, the loans and the shares of SciClone
common stock. As of October 23, 2000, the Company held 62,673 shares of SciClone
common stock.  The closing price per share of the SciClone  common stock on that
date,  as  reported by The Nasdaq  Stock  Market,  was $8.563.  The price of the
SciClone  common stock is subject to fluctuation and may increase or decrease in
any amount and at any time.

                                        4

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As discussed below under "Item 6.  Management's  Discussion and Analysis or Plan
of Operation--  Liquidity and Capital  Resources," the Company plans to sell its
remaining SciClone shares as needed to fund operations.

Manufacturing

     In anticipation of Phase I clinical trials, the Company has contracted with
a  manufacturer  to produce  T(beta)4  for this study,  and future  studies,  of
T(beta)4.  The Company has pre-paid  $50,000 of the $100,000  cost of an initial
quantity of the material and,  under the agreement  with the  manufacturer,  the
remaining  $50,000  will become due 30 days after the  Company's  obtainment  of
exclusive rights under the patent application filed by the NIH; however,  if the
Company  has not  negotiated  such  exclusive  rights  by March  17,  2002,  the
remaining  amount  will  become  due at that  time.  See  "Item 6.  Management's
Discussion and Analysis or Plan of Operation." For the Phase I clinical  trials,
it is  expected  that the  T(beta)4  supplied  by the  Company  will be given to
another  manufacturer  to produce a topical gel or other  material  that will be
administered  to test  subjects.  Two  manufacturers  have  been  identified  to
formulate and test this material.  No agreements with these  manufacturers  have
been entered into,  however,  and no assurance can be given that such agreements
will be negotiated  on terms  favorable to the Company,  or at all.  Contractors
will be selected on the basis of their supply  capability,  ability to produce a
drug  substance  in  accordance   with  current  Good   Manufacturing   Practice
requirements  of the  FDA and to meet  Company-established  specifications.  The
Company does not know at this time what the cost of manufacturing  this material
will be, or whether it will have sufficient funds to cover this cost.

Competition

     The Company is engaged in a business that is highly  competitive.  Research
and  development  activities for the development of drugs to treat patients with
cystic  fibrosis,  septic shock and non- healing  wounds are being  sponsored or
conducted  by  private  and  public  institutions  and by  major  pharmaceutical
companies located in the United States and a number of foreign  countries.  Most
of these companies and institutions  have financial and human resources that are
substantially  greater  than  those  of the  Company,  and that  have  extensive
experience  in  conducting  research  and  development  activities  and clinical
testing  and  in  obtaining  the  regulatory   approvals   necessary  to  market
pharmaceutical  products.  With respect to wound-healing,  Johnson & Johnson has
recently begun  marketing of  Regranex(TM)  for this purpose.  Another  company,
Human  Genome  Sciences,  Inc.,  announced  on October 17, 2000 that  SmithKline
Beecham  Corporation  had exercised  rights to jointly develop with Human Genome
Sciences a wound healing drug based on gene therapy.

Government Regulation

     Regulation  by  governmental  authorities  in the United States and foreign
countries will be a significant factor in the manufacturing and marketing of the
Company's  products  and  in  its  ongoing  research  and  product   development
activities.  Any  product  developed  by the  Company  will  require  regulatory
approval by  governmental  agencies prior to  commercialization.  In particular,
human  therapeutic  products are subject to rigorous  pre-clinical  and clinical
testing and other approval  procedures by the FDA and similar health authorities
in foreign  countries.  Various federal  statutes and regulations also govern or
influence the manufacturing, labeling, storage, record keeping and

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marketing of such  products.  The process of obtaining  these  approvals and the
subsequent  compliance with appropriate federal statutes and regulations require
the expenditure of substantial  resources.  Any failure by the Company to obtain
regulatory approvals, or any delay in obtaining such approvals,  could adversely
affect the marketing of products being developed by the Company,  its ability to
receive product or royalty revenues and its liquidity and capital resources.

     Pre-clinical  testing in the  laboratory  must be conducted to evaluate the
potential  efficacy and the safety of an  investigational  drug.  The results of
these studies are submitted to the FDA as part of an IND, which must be reviewed
and approved before clinical testing can begin.  Typically,  clinical evaluation
involves a three stage  process.  In Phase I, trials are conducted  with a small
number of  subjects  to  determine  the  safety  profile,  the  pattern  of drug
distribution  and  metabolism.  In Phase II, trials are conducted with groups of
patients  afflicted  with a specific  disease in order to determine  preliminary
efficacy,  optimal dosages and expanded  evidence of safety. In Phase III, large
scale,  multi-center,  comparative  trials are conducted with patients afflicted
with a target disease in order to provide enough data for the statistical  proof
of efficacy and safety required by the FDA and other regulatory authorities.

     The  results  of  the  pre-clinical  and  clinical  testing  with  detailed
information on manufacturing  are submitted to the FDA in the form of a New Drug
Application  ("NDA") or a Product License  Application ("PLA") accompanied by an
Establishment  License  Application  ("ELA") for approval to commence commercial
sales.  In  responding  to an NDA,  PLA or ELA,  the  FDA  may  grant  marketing
approval,  request  additional  information  or deny the  application if the FDA
determines  that  the  application  does not  satisfy  its  regulatory  approval
criteria. Therefore, even if the Company completes Phase III clinical trials for
certain  of its  products,  there can be no  assurance  that the FDA will  grant
marketing approvals, or if granted, that they will be granted on a timely basis.
If the  FDA  does  approve  a  product,  it may  require,  among  other  things,
post-marketing  testing,  including  potentially expensive Phase IV studies, and
surveillance to monitor the safety and  effectiveness  of the drug. In addition,
the FDA may in some  circumstances  impose  restrictions  on the use of the drug
that may be difficult  and  expensive to  administer.  Product  approvals may be
withdrawn if compliance  with regulatory  requirements  are not maintained or if
problems occur after the product reaches the market.

     Under the Orphan Drug Act,  the FDA may  designate a product or products as
having  Orphan Drug  status to treat "a rare  disease or  condition"  which is a
disease or condition that affects  populations of less than 200,000  individuals
in the United States, or, if victims of a disease number more than 200,000,  the
sponsor establishes that it does not realistically  anticipate its product sales
will be sufficient to recover its costs. If a product is designated as an Orphan
Drug,  then the sponsor is entitled to receive  certain  incentives to undertake
the  development  and  marketing  of the product.  One such  incentive is market
exclusivity.  The sponsor  that  obtains the first  marketing  for a  designated
Orphan Drug for a given indication is eligible to receive marketing  exclusivity
for a period of seven years.  There may be multiple  designations of Orphan Drug
status for a given drug and for different indications. However, only the sponsor
of the first  approved  NDA (or PLA) for a given drug for its use in  treating a
given rare disease may receive  marketing  exclusivity  for such use.  Even if a
sponsor of a product for an indication  for use with an Orphan Drug  designation
is the first to obtain FDA approval of an NDA (or PLA) for that  designation and
obtains marketing  exclusivity,  another sponsor's application for the same drug
product may be approved by the FDA during the

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period of exclusivity if the FDA concludes that it is clinically superior. It is
not known whether any  indications  for which T(beta)4 might be developed  would
qualify for Orphan Drug status.

Proprietary Rights

     Under a research agreement with The George Washington  University  ("GWU"),
the Company funded T(beta)4 research at GWU and was granted a sole and exclusive
world-wide  license to any patents that resulted from such  research.  While the
Company no longer  funds  research  under this  agreement,  the Company  remains
obligated  under the  research  agreement  to pay GWU a royalty of 4% of the net
sales,  if any, of specified  products  covered by patents  issued in connection
with  the  agreement.  Pursuant  to the  research  agreement,  the  Company  has
exclusive rights to patent applications filed in the United States and in Europe
disclosing  the use of T(beta)4 for the treatment of septic shock and associated
syndromes,  including ARDS. Two U.S. patents have issued.  The first patent, No.
5,578,570,  entitled "Method of Treating Septic Shock Using T(beta)4," issued on
November 26, 1996 and the second  patent,  No.  5,593,964,  entitled  "Method of
Treating Septic Shock By Preventing Actin Polymerization," issued on January 14,
1997. No sales have occurred and as a result,  no royalty payments have yet been
incurred or paid to GWU pursuant to the research agreement.

     As discussed above under "--Primary Commercial Development Focus - Thymosin
Beta 4 Product Development," the Company has non-exclusive rights under a patent
application  filed  by the  NIH  for the use of  T(beta)4  in the  treatment  of
non-healing  wounds,  and is  presently  negotiating  with the NIH to secure the
NIH's  rights  under  the  proposed  patent  in order  to  create  an  exclusive
proprietary  position  with  respect to T(beta)4 for wound  healing,  should the
patent be  issued.  There can be no  assurance  that this,  or any other  future
patent  application  under  which the  Company  has  rights,  will result in the
issuance of a patent or that any patent issued will not be subject to challenge.
In the case of a claim of patent  infringement by or against the Company,  there
can be no  assurance  that the Company will be able to afford the expense of any
litigation that may be necessary to enforce its proprietary rights.

Employees

     The  Company  utilizes  a  product   development   strategy  that  involves
contracting  out  research,  development  and  manufacturing  functions to third
parties partially in order to minimize the expense and overhead  associated with
the  maintenance  of  permanent   employees  and  laboratory  and  manufacturing
facilities.  Consistent  with this  strategy,  the  Company  currently  utilizes
several consultants,  along with various other professional  advisors, to advise
its Chief Executive  Officer and Board of Directors on all company matters.  See
"Item  12.  Certain   Relationships  and  Related   Transactions  --  Consulting
Agreement." As of December 31, 1999, the Company had no employees.



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ITEM 2.  PROPERTIES

     The  Company's  corporate  headquarters  are located in Bethesda,  Maryland
where it leases office space in an executive  office suite.  The Company entered
into the lease  agreement for this property in August 1999. The lease  agreement
provides for a three-month  term,  and for an unlimited  number of extensions of
three months per extension.  In addition, the Company has an operating lease for
production  facility  space in  Sunnyvale,  California.  The term of this  lease
expires in January 2002. In March 1995, the Company assigned its interest in the
lease to a third party for the remaining term of the lease.  The Company remains
liable under the original lease  agreement to pay rent and other amounts owed by
the  assignee  if the  assignee  defaults  in  payment  of these  amounts to the
landlord. For additional  information,  see Note 11 of the Notes to Consolidated
Financial  Statements  contained  in Item 7 of this Report and  "Forward-Looking
Statements--  Obligations  Under Prior Laboratory Lease Agreement"  contained in
Exhibit 99.1 to this Report.

ITEM 3.  LEGAL PROCEEDINGS

         None.

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

     No matter was submitted to  stockholders  during the fourth  quarter of the
fiscal year ended December 31, 1999.


                                        8

<PAGE>



                                     PART II

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
                  MATTERS

     The Company's common stock is traded on the over-the-counter  market in the
"pink sheets." The Company also has  outstanding  several classes of warrants to
purchase Company common stock for which there is no public market.

     The  following  table  sets  forth  the  high  and low bid  prices  for the
Company's  common  stock  for  the  periods  indicated  as  reported  by  Profit
Information Services, Inc. These quotations reflect inter-dealer prices, without
retail  mark-up,   mark-down,  or  commission,  and  may  not  represent  actual
transactions.

<TABLE>
                                              High             Low
                                         ---------------------------------------
<S>                                           <C>               <C>
For the year ended December 31, 1999:
        First Quarter                         $.17            $.01
        Second Quarter                        $.125           $.03
        Third Quarter                         $.05            $.01
        Fourth Quarter                        $.02            $.01

For the year ended December 31, 1998:
        First Quarter                         $.0625          $.04
        Second Quarter                        $.07            $.04
        Third Quarter                         $.0625          $.01
        Fourth Quarter                        $.01            $.01

For the year ended December 31, 1997:
        First Quarter                         $.12            $.08
        Second Quarter                        $.13            $.03
        Third Quarter                         $.125           $.08
        Fourth Quarter                        $.08            $.0625
</TABLE>


     As of October 23, 2000, there were approximately 1,120 holders of record of
the Company's common stock.

     The Company did not pay a cash dividend on its common stock during the past
three fiscal years and does not anticipate  that any cash dividends will be paid
on the common stock in the foreseeable future due to the Company's limited funds
for operations.

                                        9

<PAGE>



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

     THE FOLLOWING  DISCUSSION  SHOULD BE READ IN  CONJUNCTION  WITH THE AUDITED
FINANCIAL  STATEMENTS  AND NOTES  THERETO OF THE COMPANY  CONTAINED IN ITEM 7 OF
THIS REPORT. THE FOLLOWING INFORMATION CONTAINS FORWARD-LOOKING STATEMENTS WHICH
INVOLVE  CERTAIN RISKS AND  UNCERTAINTIES.  ACTUAL RESULTS AND EVENTS MAY DIFFER
SIGNIFICANTLY  FROM  THOSE  DISCUSSED  IN THE  FORWARD-LOOKING  STATEMENTS.  SEE
EXHIBIT 99.1, ATTACHED HERETO.

Financial Condition

     The  Company's  total assets at December 31, 1999 were  $932,363,  compared
with $449,767 at December 31, 1998.  This increase in total assets was primarily
due to  increases in the  Company's  balances of cash and cash  equivalents  and
investments.

     Cash and cash  equivalents  increased  to $43,387 at December 31, 1999 from
$2,698 at December  31,  1998,  primarily as a result of sales by the Company of
shares of SciClone common stock it received in its royalty sale transaction with
SciClone.  Investments  rose to $886,122 at December  31, 1999 from  $444,872 at
December 31, 1998.  This change resulted from an increase in the market value of
SciClone shares held by the Company.

     Accounts  payable  decreased to $273,385 at December 31, 1999 from $367,768
at December 31, 1998, and accrued  expenses fell to $58,861 at December 31, 1999
from $94,763 at December  31, 1998.  These  decreases  resulted  from payment of
amounts  owed  and  the  Company's  not  incurring   additional  expenses  while
operations  were  suspended  from  September  1998 to August 1999. The Company's
obligations  under letter agreements with certain of its vendors were reduced to
$693,394 at December 31, 1999 from  $875,106 at December 31, 1998 as a result of
repayment  of amounts  owed.  As noted  below  under  "--Liquidity  and  Capital
Resources,"  subsequent  to December  31, 1999,  the  Company's  obligations  to
certain of its vendors were  settled for payments in the  aggregate of $168,164.
Notes  payable  decreased  to  $301,722 at  December  31, 1999 from  $392,046 at
December 31, 1998.  This  reduction  stemmed from the  repayment  during 1999 of
notes payable to two of the Company's creditors, including accrued interest.

     Stockholders'  deficit  decreased  to $394,999  at  December  31, 1999 from
$1,279,916 at December 31, 1998. This amount was reduced primarily because of an
increase in accumulated and other  comprehensive  income (loss) to $483,326 from
($962,823), offset by the net loss for 1999 of $711,232.

Comparison of Results of Operations for Years Ended December 31, 1999 and 1998

     Net Income  (Loss).  The Company had a net loss of  $711,232,  or $0.06 per
basic and diluted share, for the year ended December 31, 1999, compared with net
income of $1,761,568,  or $0.15 per basic and diluted share,  for the year ended
December  31,  1998.  The loss  for 1999  stemmed  primarily  from a  $2,202,703
reduction in other income, including a reduction in gain on sale of

                                       10

<PAGE>



royalty  rights and an  increase  in  realized  losses on sales of  investments,
explained  below.  Net income in 1998  included a  $657,756  extraordinary  gain
resulting from the negotiation of reductions in amounts owed to certain vendors,
explained  below.  Excluding  this  extraordinary  gain,  the Company would have
earned net income of $1,103,812,  or $0.09 per basic and diluted share,  for the
year ended December 31, 1998.

     Operating  Loss. The Company had an operating loss of $202,166 for the year
ended  December 31, 1999 compared to an operating  loss of $589,825 for the year
ended  December 31, 1998.  This  reduction in  operating  loss  resulted  from a
reduction in operating expenses for 1999, discussed below. Revenues for the year
ended  December  31,  1999 were  zero,  compared  to $3,265  for the year  ended
December 31, 1998.  Revenues in 1998  consisted of consulting  income.  As noted
below,  under  "--Liquidity  and  Capital   Resources,"  the  Company  does  not
anticipate it will generate revenues in the foreseeable future.

     Operating expenses in 1999 totaled $202,166,  compared to $593,090 in 1998.
This  decrease  was  attributable  primarily  to  the  Company's  suspension  of
operations in September 1998, which continued until the resumption of operations
in August 1999.  Operating  expenses are  comprised of research and  development
expenses,  which were  $1,276 for 1999 and  $41,339  for 1998,  and  general and
administrative  expenses,  which were  $200,890  for 1999 and $551,751 for 1998.
Research and  development  expenses  decreased,  as no research and  development
activities  were  conducted  while   operations  were  suspended.   General  and
administrative  expenses decreased  primarily because the Company terminated all
employees, sublet its leased office space and engaged in no operating activities
upon suspension of its operations.

     The  Company  expects  that its  operating  expenses  for the  year  ending
December 31, 2000 will increase  substantially as compared to operating expenses
for  1999,  as 2000  will  represent  a full year of  operations  compared  with
approximately  four months of operations  during 1999.  The Company also expects
that its operating losses will increase in 2000, since as with 1999, the Company
does not anticipate it will generate any revenues in 2000.

     Other Income (Expense) and Extraordinary Item. Gains on the sale of royalty
rights for 1999 and 1998 were $89,589 and $2,068,637, respectively, representing
the market value of shares of SciClone  common stock  received by the Company in
1999 and 1998 pursuant to its royalty sale agreement  with SciClone.  The amount
for 1998 also  includes  a $130,000  cash  payment  the  Company  received  from
SciClone under the agreement.  Realized  losses on sales of investments for 1999
and 1998 were $582,059 and $365,064, respectively,  representing losses from the
sale of SciClone shares received in the royalty sale transaction.

     Interest  income  for  1999  and  1998  was $18 and  $4,882,  respectively.
Interest  expense  for  1999 and 1998 was  $15,925  and  $14,521,  respectively,
representing  amounts  owed to certain of the  Company's  lenders.  As explained
below, under "--Liquidity and Capital  Resources," four of the Company's vendors
agreed in 1998 to reduce  the  aggregate  amount  owed them from  $1,559,756  to
$902,000.  This $657,756  reduction was  recognized in 1998 as an  extraordinary
gain.

     Income Taxes.  At December 31, 1999, the Company had net operating loss and
research and development tax credit carryforwards of approximately $38.3 million
and $600,000, respectively,

                                       11

<PAGE>



for income tax purposes  which expire in various  years  through  2014.  Certain
substantial  changes  in the  Company's  ownership  would  result  in an  annual
limitation on the amount of the net operating  loss  carryforwards  which can be
utilized.

     The Company has provided a full valuation allowance for deferred tax assets
since  realization of these future  benefits  cannot be reasonably  assured as a
result  of  recurring  operating  losses.  For  years in which  the  Company  is
profitable,  these  deferred  tax  assets  are  available  to offset  income tax
liabilities and expense, subject to certain limitations.

Comparison of Results of Operations for Years Ended December 31, 1998 and 1997

     Net Income (Loss).  The Company  earned net income of $1,761,568,  or $0.15
per basic and diluted share,  for the year ended December 31, 1998 compared with
a net loss of $795,430, or $0.07 per basic and diluted share, for the year ended
December  31,  1997.  Net income for 1998  stemmed  primarily  from a $1,834,090
increase in other  income,  including a  realization  of gain on sale of royalty
rights  offset by a  realization  of losses on sales of  investments,  explained
below. Net income for 1998 also included a $657,756 extraordinary gain resulting
from the negotiation of reductions in amounts owed to certain vendors, explained
below.  Excluding  this  extraordinary  gain,  the Company would have earned net
income of $1,103,812,  or $0.09 per basic and diluted share,  for the year ended
December 31, 1998.

     Operating  Loss. The Company had an operating loss of $589,825 for the year
ended  December 31, 1998 compared to an operating  loss of $654,977 for the year
ended  December 31, 1997.  This  reduction in  operating  loss  resulted  from a
reduction in operating expenses for 1998, discussed below, offset by a reduction
in revenues for 1998. Revenues for the year ended December 31, 1998 were $3,265,
compared to $215,034  for the year ended  December  31,  1997.  Revenues in 1998
consisted of consulting  income.  Revenues in 1997 consisted of consisted of (i)
royalty payments totaling $69,104 from SciClone;  (ii) a $70,000  non-refundable
advanced  royalty payment from SciClone in exchange for the Company's  agreement
to forego  $700,000 in possible  future  royalty  payments;  and (iii)  payments
totaling $75,930 primarily for consulting services.

     Operating expenses in 1998 totaled $593,090,  compared to $870,011 in 1997.
This decrease was largely attributable to the Company's suspension of operations
in September 1998,  which continued until the resumption of operations in August
1999.  Operating  expenses are comprised of research and  development  expenses,
which were $41,339 for 1998 and $85,695 for 1997, and general and administrative
expenses,  which were  $551,751  for 1998 and  $784,316  for 1997.  Research and
development  expenses  decreased because no research and development  activities
were conducted  while  operations  were  suspended.  General and  administrative
expenses  decreased  primarily  because the Company  terminated  all  employees,
sublet its leased  office  space and  engaged in no  operating  activities  upon
suspension of its operations.

     Other  Income  (Expense)  and  Extraordinary  Item.  In 1998,  the  Company
realized a gain on the sale of royalty  rights of $2,068,637,  representing  the
market value of shares of SciClone  common stock received by the Company in 1998
pursuant to its royalty sale agreement with SciClone and a $130,000 cash payment
to the Company by SciClone under the agreement. This gain was offset by realized
losses on sales of investments in 1998 of $365,064, representing losses from the
sale of

                                       12

<PAGE>



SciClone  shares  received in the royalty sale  transaction.  The Company had no
sales of investments in 1997.

     Interest  income  for  1998 and 1997 was  $4,882  and  $911,  respectively.
Interest  expense  for 1998 and 1997 was  $14,521  and  $141,364,  respectively,
representing  amounts  owned to certain of the  Company's  vendors and  lenders.
Interest  expense  decreased  from 1997 to 1998  because  of the  repayment  and
elimination  of certain of the  Company's  indebtedness  in 1998.  As  explained
below, under "--Liquidity and Capital  Resources," four of the Company's vendors
agreed in 1998 to reduce  the  aggregate  amount  owed them from  $1,559,756  to
$902,000.  This $657,756  reduction was  recognized in 1998 as an  extraordinary
gain.

     Income Taxes.  At December 31, 1998, the Company had net operating loss and
research and development tax credit carryforwards of approximately $38.9 million
and $600,000 respectively, for income tax purposes which expire in various years
through  2013.  Certain  substantial  changes in the Company's  ownership  would
result  in an  annual  limitation  on the  amount  of  the  net  operating  loss
carryforwards which can be utilized.

     The Company has provided a full valuation allowance for deferred tax assets
since  realization of these future  benefits  cannot be reasonably  assured as a
result  of  recurring  operating  losses.  For  years in which  the  Company  is
profitable,  these deferred tax assets are available to offset future income tax
liabilities and expense, subject to certain limitations.

Liquidity and Capital Resources

     Since its inception in 1982,  the Company's  activities  have  consisted of
conducting   research  and  development,   sponsoring  clinical  trials  of  its
proprietary   products,   the  construction  and  equipping  of  laboratory  and
production facilities, and the manufacture of products for research, testing and
clinical  trials.  The  Company's  accumulated  deficit of  $37,005,591  through
December 31, 1999 has been funded primarily by the proceeds from the issuance of
equity  securities  (and  interest  earned  on such  funds),  the  licensing  of
technology  developed  or acquired by the  Company,  limited  product  sales and
royalties, and the sale of royalty rights.

     The Company  continues its  development  program for  T(beta)4,  and has no
products that have received regulatory  approval.  The Company has not generated
significant revenues from operations and does not anticipate  generating product
revenues or other revenues from  operations for the foreseeable  future.  During
1997, revenues consisted of consulting services of $75,930 and royalty income of
$139,104.  During 1998,  revenues  consisted of  consulting  services of $3,265.
These revenue sources are substantially  below the level required to cover fully
the  Company's  expenses or to provide  adequate  cash flow.  During  1999,  the
Company  earned no revenues.  The Company will  require  substantial  funding in
order to complete its research and development activities and to manufacture and
market any products which the Company intends to develop.

     Aside from its  existing  balance  of cash,  the only  significant  readily
available  source of funds the Company  currently has is its ability to sell the
shares of  SciClone  common  stock that it owns.  The  Company  also  expects to
receive  approximately $2,000 per month for at least the next two years from the
repayment  to the Company of loans  outstanding  to certain  parties,  discussed
below under

                                       13

<PAGE>



"Item 12. Certain Relationships and Related  Transactions."  Throughout 1998 and
1999,  the Company sold shares of SciClone  common stock to fund  operations and
pay  outstanding  liabilities.  Under the  acquisition  agreement with SciClone,
sales were  restricted to a maximum of 50,000 shares monthly;  this  restriction
lapsed in 1999.  During 1998, a total of 131,000 shares were sold,  resulting in
cash proceeds of $165,878 and a realized  loss on the sales of $365,064.  During
1999, prior to the retention of the Company's current management consultants,  a
total of 324,327 shares were sold,  resulting in cash proceeds of $512,429 and a
realized loss on the sales of $582,059.  The Company currently has 62,673 shares
of SciClone common stock  remaining,  with a current market value,  based on the
closing price on October 23, 2000, of $8.563 per share.

     In March 1997,  the Company  concluded  a private  placement  of five units
consisting  of common stock and Class D warrants for which the Company  received
gross proceeds of $250,000. Each unit consists of 500,000 shares of common stock
and 165,000 Class D warrants each having an exercise  price of $0.10 per warrant
and a term of ten  years.  The  proceeds  of the  offering  were used in part to
conduct pre-clinical animal studies at Vanderbilt  University using T(beta)4 and
to fund operations.  For additional  information regarding the Class D and other
outstanding  warrants to purchase the Company's  common stock, see Note 8 to the
Notes to Financial Statements contained in Part 7 of this Report.

     In July 1997,  the  Company  received  an  unsecured  $50,000  loan from an
individual  to  provide  additional  operating  capital.  The  terms of the loan
agreement  provided for  repayment of principal  and interest  within six months
with interest at the rate of 8% per annum. Additionally, the noteholder received
a five-year  warrant to purchase 100,000 shares of the Company's common stock at
$0.13 per share, the fair market value of the Company's common stock on the date
of the grant.  During  January  1998,  the loan term was extended to provide for
payments to be made in five consecutive  equal monthly  installments,  beginning
January 1998. In  consideration  of the extended  payment term,  the  noteholder
received an additional warrant to purchase 41,666 shares of Company common stock
an exercise  price of $0.13 per share.  The  Company  repaid the loan in full in
1998.

     In October 1997, the Company received an unsecured loan of $60,000, bearing
interest  at a  rate  of  8%  per  annum,  from  ViroPro  Pharmaceuticals,  Inc.
("ViroPro").  As of December 31, 1998,  outstanding principal of $45,100 was due
and accrued interest had been fully paid. The note was paid in full during 1999,
including  accrued  interest.  ViroPro and the Company had  discussions  in 1997
regarding  the  possibility  of a  business  combination.  There  have  been  no
discussions since that time.

     In 1998,  in  connection  with its T[alpha]1  royalty sale  agreement  with
SciClone,  the Company was loaned  approximately  $350,000  by  SciClone,  to be
repaid in several installments  following the closing of the transaction.  These
advances  were secured by shares of SciClone  common stock having a market value
equal to the  principal  amount  of the loans and were  intended  to assist  the
Company in funding its  operations  pending the closing of the  transaction.  As
noted   under   "Item   1.   Description   of   Business--Previous    Commercial
Development-Thymosin  Alpha 1," the Company defaulted in its obligation to repay
these loans,  and paid  SciClone  $162,500 in  settlement of all amounts owed in
February 2000.


                                       14

<PAGE>



     As a result of the  termination  of  research  and  development  activities
during 1996, the Company canceled  agreements with certain vendors.  The Company
was able to cancel  approximately  $1,200,000 of work on  outstanding  orders of
approximately  $2,700,000.  The Company entered into separate letter  agreements
with four vendors,  to which the Company's  obligations in the aggregate totaled
$1,323,000,  to defer  payment in exchange for a commitment to pay the vendors a
percentage of the royalties  received by the Company under its license agreement
with SciClone.  Following execution of its royalty sale agreement with SciClone,
the Company in January and February  1998 entered into amended  agreements  with
the four vendors, subject to the completion of the royalty sale transaction with
SciClone,  which would accelerate payments owed to the vendors. In consideration
for the  acceleration  of payments,  the vendors  agreed to reduce the Company's
aggregate obligation,  including accrued interest,  from $1,559,756 to $902,000,
which the Company  agreed to pay from the  proceeds of the sale of the shares of
SciClone common stock received in connection with the royalty sale  transaction.
As a result  of the  decrease  in value of the  SciClone  common  stock  and the
Company's  suspension of operations during 1998 and 1999, the Company was unable
to maintain the repayment  schedule set forth in the amended agreements with the
four vendors.

     Subsequent  to December  31,  1999,  the Company  entered  into  settlement
agreements  with  several of its  creditors,  including  two of the four vendors
referred to above.  Pursuant to the settlement  agreements,  liability  balances
totaling  $759,176  at  December  31,  1999 were  settled  for  payments  in the
aggregate of $168,164.  In connection  with the  settlement  agreement  with one
creditor,  the Company's supplier of T(beta)4 for wound-healing studies to which
the Company was indebted  approximately $543,000 plus interest, the Company paid
a deposit of $50,000 for a  commitment  to purchase  $100,000 of  T(beta)4.  The
Company  must pay the balance of the  purchase  price within 30 days after it is
granted  an  exclusive  license  from the NIH to its  rights  under  the  patent
application  filed in  connection  with the  wound-healing  study.  See "Item 1.
Business--  Manufacturing."  The  Company  also paid this  creditor  $125,000 as
repayment and settlement in full of the $543,000 amount owed.

     Currently,  there are three other outstanding  obligations to vendors which
are under dispute.  Amounts owed to these vendors totaled approximately $147,000
at December 31, 1999 and no payments  have been made to such vendors  since that
date.

     Cash  balances  at  December  31,  1998 and 1999 were  $2,698 and  $43,387,
respectively.  Investment  balances at December 31, 1998 and 1999 were  $444,872
and $886,122,  respectively,  and consisted  solely of shares of SciClone common
stock.  Although no assurance can be given,  the Company  believes that its cash
balances,  together with its other readily  available  sources of funds, will be
sufficient  to  sustain  current   operations  through  December  31,  2001.  If
substantial additional funding is not obtained by that point, or if the value of
its SciClone shares declines significantly, the Company will likely be forced to
again suspend or discontinue operations.

     The effect of inflation and changing prices on the continuing operations of
the Company is not expected to be significant.


                                       15

<PAGE>



ITEM 7.           FINANCIAL STATEMENTS


                          INDEPENDENT AUDITORS' REPORT



To the Board of Directors
Alpha 1 Biomedicals, Inc.


We have audited the accompanying balances sheets of Alpha 1 Biomedicals, Inc. as
of  December  31,  1999 and 1998,  and the  related  statements  of  operations,
stockholders'  deficit  and cash flows for the years then ended.  The  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits. The financial  statements of Alpha 1 Biomedicals,  Inc. for the year
ended December 31, 1997 were audited by other auditors whose report, dated March
6,  1998,  expressed  an  opinion  with an  emphasis  paragraph  concerning  the
Company's ability to continue as a going concern.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Alpha 1 Biomedicals, Inc. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended,  in  conformity  with  generally  accepted  accounting
principles.


/s/ Reznick Fedder & Silverman

Bethesda, Maryland
June 2, 2000



                                       16

<PAGE>





                            ALPHA 1 BIOMEDICALS, INC.
                                 BALANCE SHEETS
                           December 31, 1999 and 1998
<TABLE>

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

                                     ASSETS
<S>                                                                   <C>                  <C>
Current assets
   Cash and cash equivalents                                           $    43,387         $     2,698
   Investments                                                             886,122             444,872
                                                                       -----------        ------------
      Total current assets                                                 929,509             447,570

Due from related party, net of allowance                                       965               2,197

Fixed assets, net of accumulated depreciation                                1,889                  -
                                                                      ------------         -----------

      Total assets                                                     $   932,363        $    449,767
                                                                       ===========        ============

</TABLE>


                                  LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>

<S>                                                                   <C>                    <C>
Current liabilities
   Accounts payable                                                    $   273,385        $    367,768
   Accrued expenses                                                         58,861              94,763
   Letter agreements with vendors                                          693,394             875,106
   Notes payable                                                           301,722             392,046
                                                                       -----------        ------------

      Total current liabilities                                          1,327,362           1,729,683
                                                                        ----------        ------------

Commitments                                                                      -                   -

Stockholders' deficit
   Preferred stock, $.001 par value per share,
     1,000,000 shares authorized; no shares
     issued and outstanding                                                      -                   -
   Common stock, par value $.001 per share,
     20,000,000 shares authorized; 11,977,429
     issued and outstanding                                                 11,977              11,977
   Additional paid-in capital                                           36,115,289          35,965,289
   Accumulated deficit                                                 (37,005,591)        (36,294,359)
   Accumulated other comprehensive income (loss)                           483,326            (962,823)
                                                                      ------------       -------------

      Total stockholders' deficit                                         (394,999)         (1,279,916)
                                                                      ------------       -------------

      Total liabilities and stockholders' deficit                     $    932,363       $     449,767
                                                                      =============      =============
</TABLE>





    The accompanying notes are an integral part of these financial statements

                                       17

<PAGE>




                            ALPHA 1 BIOMEDICALS, INC.

                            STATEMENTS OF OPERATIONS
                  Years ended December 31, 1999, 1998 and 1997

<TABLE>


                                                                1999            1998           1997
                                                          -------------------------------------------
<S>                                                           <C>             <C>             <C>
REVENUES
   Consulting                                             $          -  $       3,265  $       75,930
   Royalties                                                         -              -         139,104
                                                           -----------   ------------  --------------
      Total revenue                                                  -          3,265         215,034
                                                          ------------   ------------  --------------

EXPENSES
   Research and development                                      1,276         41,339          85,695
   General and administrative                                  200,890        551,751         784,316
                                                           -----------   ------------  --------------
      Total operating expenses                                 202,166        593,090         870,011
                                                          ------------   ------------  --------------

      Total operating loss                                   (202,166)      (589,825)       (654,977)
                                                         ------------    -----------   -------------

Other income (expense)
   Interest income                                                  18          4,882            911
   Gain on sale of royalty rights                               89,589      2,068,637              -
   Realized loss on sale of investments                       (582,059)      (365,064)             -
   Interest expense                                            (15,925)       (14,521)      (141,364)
   Other expense                                                  (689)          (297)             -
                                                         -------------   ------------  --------------

      Total other income (expense)                           (509,066)      1,693,637       (140,453)
                                                          -----------    ------------  -------------

Income (loss) before extraordinary item                      (711,232)      1,103,812       (795,430)

Extraordinary item - settlement of vendor payables                  -         657,756              -
                                                            ---------    ------------  --------------
      Net income (loss)                                     $(711,232)   $  1,761,568  $    (795,430)
                                                            =========    ============  =============

Basic and diluted income (loss) per common
   share before extraordinary item                          $   (0.06)   $       0.09   $      (0.07)
                                                            ---------    ------------   ------------


Extraordinary item - settlement of vendor payables          $       -    $        0.06   $         -
                                                            ---------    -------------   -----------

Basic and diluted income (loss) per common share            $   (0.06)   $        0.15   $    (0.07)
                                                            =========    =============   ==========
</TABLE>



    The accompanying notes are an integral part of these financial statements

                                       18

<PAGE>




                            ALPHA 1 BIOMEDICALS, INC.
                            STATEMENTS OF CASH FLOWS
                  Years ended December 31, 1999, 1998 and 1997
<TABLE>


                                                                   1999           1998           1997
                                                             ------------------------------ ---------------
<S>                                                            <C>                <C>          <C>
Cash flows from operating activities:
           Net income (loss)                                   $    (711,232)    $1,761,568  $    (795,430)
Adjustments to reconcile net income (loss) to net cash
    used in operating activities:
    Settlement of vendor payables                                          -       (657,756)             -
    Gain on sale of royalty rights                                   (89,589)    (1,938,637)             -
    Realized loss on sale of investments                             582,059        365,064              -
    Stock option compensation expense                                150,000              -              -
    Depreciation                                                         305          1,304          5,040
    Allowance for related party receivable                                 -              -         69,674
    Changes in operating assets and liabilities:
        Decrease in prepaid insurance                                      -         46,988         14,060
        Decrease in other current assets                                   -              -          3,677
        Decrease in due from related party                             1,232              -            772
        Decrease in other assets                                           -              -         15,831
        (Increase) decrease in accounts payable                     (276,095)        64,658         78,612
        (Increase) decrease in accrued expenses                      (35,902)       (44,784)         50,408
        Increase (decrease) in deferred revenue                            -        (65,000)         65,000
                                                               -------------     ----------  --------------
           Net cash used in operating activities                    (379,222)       466,595)       (492,356)
                                                               -------------     ----------  --------------

Cash flows from investing activities:
    Purchase of fixed assets                                          (2,194)             -               -
    Cash received on sale of investments                             512,429        165,878               -
                                                                 -----------  -------------  --------------
           Net cash provided by investing activities                 510,235        165,878               -
                                                                 -----------  -------------  --------------

Cash flows from financing activities:
    Proceeds from issuance of common stock and warrants                    -              -         250,000
    Proceeds from notes payable                                            -        350,000         110,000
    Principal payments of notes payable                              (90,324)       (67,954)              -
                                                                ------------  -------------  --------------
           Net cash provided by (used in) financing activities       (90,324)       282,046         360,000
                                                                ------------  -------------  --------------

           Net increase (decrease) in cash and cash equivalents       40,689        (18,671)       (132,356)

Cash and cash equivalents at beginning of period                       2,698         21,369         153,725
                                                                ------------  -------------  --------------

Cash and cash equivalents at end of period                      $     43,387  $       2,698  $       21,369
                                                                ============  =============  ==============

Supplemental disclosures of cash transactions:
    Cash paid for interest                                     $         400  $       6,440  $            -
                                                               =============  =============  ==============

Supplemental disclosure of significant noncash investing
 and financing
    activities:
    Unrealized gain (loss) on sale of investments              $  1,446,149   $    (962,823) $            -
                                                               ============   =============  ==============
</TABLE>



    The accompanying notes are an integral part of these financial statements

                                       19

<PAGE>





                            ALPHA 1 BIOMEDICALS, INC.
                       STATEMENTS OF STOCKHOLDERS' DEFICIT
                  Years Ended December 31, 1999, 1998 and 1997

<TABLE>

                                                                                               Accumulated
                                                              Additional                          Other                   Total
                                        Common Stock           Paid-in        Accumulated     Comprehensive           Stockholders'
                                     ------------------        Capital          Deficit       income (loss)              Deficit
                                     Shares       Amount
                                     ----------------------------------------------------------------------------------------------
<S>                                     <C>         <C>           <C>             <C>               <C>                       <C>
Balance at December 31, 1996          9,102,429    $ 9,102     $35,613,164      $(37,260,497) $              -          $(1,638,231)

Issuance of Common Stock              2,875,000      2,875         352,125                 -                 -              355,000

Net Loss                                      -          -               -          (795,430)                -             (795,430)
                                     ----------    -------     -----------      ------------     -------------          -----------
Balance at December 31, 1997         11,977,429     11,977      35,965,289       (38,055,927)                -           (2,078,661)
                                     ----------    -------     -----------      ------------     -------------          -----------

Unrealized loss on investments                -          -               -                 -          (962,823)            (962,823)

Net Income                                    -          -               -         1,761,568                 -            1,761,568
                                     ----------    -------     -----------      ------------     -------------          -----------
Balance at December 31, 1998         11,977,429     11,977      35,965,289       (36,294,359)         (962,823)          (1,279,916)
                                     ----------    -------     -----------      ------------     -------------          -----------

Unrealized gain on investments                -          -               -                 -         1,446,149            1,446,149

Stock options issued                          -          -         150,000                 -                 -              150,000

Net Loss                                      -          -               -          (711,232)                -             (711,232)
                                     ----------    -------     -----------      ------------     -------------          -----------
Balance at December 31, 1999         11,977,429    $11,977     $36,115,289      $(37,005,591)    $     483,326             (394,999)
                                     ==========    =======     ===========      ============     =============          ===========

</TABLE>


    The accompanying notes are an integral part of these financial statements


                                       20

<PAGE>


                            ALPHA 1 BIOMEDICALS, INC.
                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                           December 31, 1999 and 1998


1.       ORGANIZATION AND BUSINESS

Organization and Nature of Operations
-------------------------------------

Alpha  1  Biomedicals,   Inc.  (the  "Company"),  a  Delaware  corporation,  was
incorporated in 1982. The Company  operates  predominantly  in a single industry
segment,  the  biotechnology   industry,   which  consists  of  researching  and
developing  new  pharmaceutical  products  for  the  treatment  of  diseases  or
conditions that arise as a result of immune system disorders,  including chronic
viral infections, cancer and autoimmune disease.

In early 1996, the Company  substantially halted its development program and all
other  research and  currently  has no products  that have  received  regulatory
approval.  During 1997, the Company entered into a Material Transfer Agreement -
Cooperative Research and Development  Agreement  ("MTA-CRADA") with the National
Institutes of Health ("NIH"), whereby an NIH investigator will use Thymosin beta
4, provided by the Company,  in several studies including  clinical trials,  for
the treatment of non-healing  wounds.  In exchange for providing the product and
other  data,  the  Company  received  an  option  to elect to  negotiate  for an
exclusive  or  non-exclusive  commercialization  license  from NIH pursuant to a
patent  application  filed by NIH in  1998.  The  Company's  option  expired  on
February 11,  1999.  The  Company's  President  is a  co-inventor  on the patent
application  filed by the NIH.  As a result,  he  retains  an  equal,  undivided
interest  in  the  intellectual  property  described  in  the  patent  which  he
subsequently  assigned to the Company on May 1, 2000.  The  Company,  therefore,
shares equally with NIH all rights to the  intellectual  property which might be
forthcoming  under the patent  application,  resulting in full but non-exclusive
rights. In August 1999, the Company began negotiations with NIH to license NIH's
rights under the patent  application in order to effectively secure an exclusive
position with respect to the intellectual property.

On December 17,  1997,  the Company  entered  into the Alpha Rights  Acquisition
Agreement (the  "Acquisition  Agreement")  with SciClone  Pharmaceuticals,  Inc.
(SciClone) to sell its rights to receive from  SciClone  royalties on the future
sales of Thymosin alpha 1 (see note 4). Prior to the Acquisition Agreement,  the
Company licensed to SciClone, on an exclusive basis, all of the Company's patent
and  proprietary  rights with  respect to Thymosin  alpha 1. Under the  license,
SciClone had the right to develop, test, make, use and sell Thymosin alpha 1 and
products  containing  Thymosin alpha 1 for all human and animal  therapeutic and
diagnostic uses (collectively,  "Licensed  Products").  In consideration for the
license, the Company was entitled to receive from SciClone royalties on the sale
by SciClone of Licensed  Products  that ranged from 3% to 7% of  SciClone's  net
sales revenues,  depending upon the date the license in a particular country was
obtained  by  SciClone  and on whether  SciClone  has patent  protection  in the
country in which the Licensed Products are sold.

On September 25, 1998, the Company  announced that it was suspending  operations
due to insufficient funds to continue operations.  During 1998,  operations were
funded from cash proceeds  received from the sale of SciClone stock. The Company
continued to pay debts and other  obligations after operations ceased by selling
SciClone Common Stock.

In  August  1999,  the  Company  contracted  with a group  of four  consultants,
including the President of the Company, to advise the Company on the most viable
approaches  for resuming  business  operations,  including  raising  capital and
funding research and development.  At that time the Company resumed  operations.
The  consultants  each  received  consideration  in the form of 1,875,000  stock
options,  exercisable  at its fair market value of $.04 per share.  In addition,
one  consultant  will  receive a monthly fee of $5,000 for  assistance  with the
Company's management and operations.



                                       21

<PAGE>


                            ALPHA 1 BIOMEDICALS, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

1.       ORGANIZATION AND BUSINESS (Continued)

The  Company  continues  to  pursue  strategic  alliances  or other  partnership
arrangements with entities  interested in and with resources to develop Thymosin
beta 4, or other business transactions which would allow the Company to generate
resources to permit continuation of the Company's operations.

Should  the  Company  obtain  substantial   additional  funding,  other  factors
including  competition,  dependence  on  third  parties,  uncertainty  regarding
patents,  protection  of  proprietary  rights,  manufacturing  of  peptides  and
technology  obsolescence  could have a significant impact on the Company and its
operations.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates
----------------

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  at the date of the
financial  statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents
-------------------------

The Company considers all highly liquid investments with original  maturities of
three months or less to be cash equivalents.

Fixed Assets
------------

Fixed assets are stated at cost less accumulated depreciation.  Expenditures for
maintenance and repairs which do not  significantly  prolong the useful lives of
the  assets  are  charged  to  expense.   Depreciation  is  computed  using  the
straight-line method over estimated useful lives of two to ten years.

Investments
-----------

Investments  consist  of  shares  of  SciClone  Common  Stock,  which  have been
classified as available for sale securities.  Available-for-sale  securities are
stated at fair value, and unrealized gains and losses are reported as a separate
component of stockholders' equity.

Comprehensive Income
--------------------

Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No 130, "Reporting  Comprehensive  Income," which established
standards for reporting and display of comprehensive  income (net income (loss))
plus all other changes in net assets from nonowner sources and its components in
the financial statements.



                                       22

<PAGE>


                            ALPHA 1 BIOMEDICALS, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue Recognition
-------------------

The Company recognizes royalties as revenue when received from SciClone. Revenue
generated  from the  Acquisition  Agreement  was recorded at the time of closing
with SciClone.  The transaction  recorded revenue based on the cash compensation
received,  the average  market  price of the initial  shares of SciClone  Common
Stock received,  and the closing market price per share of SciClone Common Stock
at the  date  the  additional  shares  were  received.  The  Company  recognizes
consulting revenue as the consulting services are performed.

Research and Development
------------------------

Research  and  development   costs  are  expensed  as  incurred.   Research  and
development  performed by third parties is expensed based upon the third party's
stage of product development.

Income Taxes
------------

The Company  accounts  for income taxes using the asset and  liability  approach
(SFAS No. 109 "Accounting for Income Taxes"),  which requires the recognition of
deferred tax assets and liabilities for the expected future tax  consequences of
temporary  differences  between  the  carrying  and  tax  bases  of  assets  and
liabilities.  A valuation  allowance  is recorded  if,  based upon the  evidence
available,  it is more likely than not that some  portion or all of the deferred
tax assets will not be realized.

Letter of Agreements with Vendors
---------------------------------

During 1996,  the Company  entered into four  separate  letter  agreements  with
vendors which allowed the Company to defer payments of current obligations.  The
four letter  agreements were due on demand,  but stipulated that a percentage of
future  royalties  received  from  SciClone  would  be  used to pay  down  their
obligation.  In January and  February  1998,  the Company  entered  into amended
agreements  with the four  companies,  subject to the  completion of the royalty
sale  transaction  with SciClone (see note 4), which would  accelerate  payments
due. In consideration  for the  acceleration of payments,  the vendors agreed to
reduce the Company's  aggregate  obligation,  including accrued  interest,  from
$1,559,756 to $902,000, which the Company agreed to pay from the proceeds of the
sale of the shares of  SciClone  common  stock  received  under the  Acquisition
Agreement  (see note 1). Due to the  decrease  in value of the  SciClone  Common
Stock and  discontinuance  of operations  during 1998 and 1999,  the Company was
unable to maintain the payment  schedule  outlined in the  agreements  discussed
above.  As of December 31, 1999 and 1998,  $693,394 and $875,106,  respectively,
remain payable to these vendors (see note 11).

Fair Value of Financial Instruments
-----------------------------------

The estimated fair values of the Company's cash and cash  equivalents,  due from
related  party,  accounts  payable,  letter  agreements  with  vendors,  accrued
expenses and notes  payable  approximate  their  carrying  values,  due to their
short-term nature.


                                       23

<PAGE>


                            ALPHA 1 BIOMEDICALS, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impairment of Long-Lived Assets
-------------------------------

The  Company  complies  with SFAS No. 121,  "Accounting  for the  Impairment  of
Long-Lived  Assets and for  Long-Lived  Assets to be Disposed  Of." SFAS No. 121
requires that long-lived  assets and certain  identifiable  intangibles held and
used by an entity be  reviewed  for  impairment  whenever  events or  changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  To determine  recoverability of its long-lived assets, the Company
evaluates the probability  that future  undiscounted net cash flows will be less
than the carrying amounts of net assets. Impairment, if any, is measured at fair
value.

Financial Risks
---------------

The Company's  investment in available for sale  securities  consist of SciClone
Common Stock which has been used to fund  operations  during 1998 and 1999.  The
Company has 144,673  shares of SciClone  Common Stock at December 31, 1999, at a
market  price of $6.125 per share,  which are subject to market  conditions  and
price fluctuations.

Earnings (loss) Per Share
-------------------------
<TABLE>

                                                          1999                 1998                1997
                                                      ---------------------------------------------------------
<S>                                                   <C>                    <C>               <C>
Net income (loss) available for common
   shareholders (A)                                   $    (561,232)         $  1,761,568     $    (795,430)
                                                      =============          ============     =============
Average outstanding:
   Common stock (B)                                      11,977,429            11,977,429        10,880,000
   Employee stock options                                         -                     -                 -
                                                      -------------          ------------     -------------

Common stock and stock equivalents (C)                   11,977,429            11,977,429        10,880,000
                                                     ==============          ============     =============

Earnings (loss) per share:
   Basic (A/B)                                       $         (.05)         $        .15     $        (.07)
   Diluted (A/C)                                     $         (.05)         $        .15     $        (.07)
</TABLE>



Unexercised  employee stock options,  which were previously granted, to purchase
7,530,000,  700,360 and  1,777,793  shares of the  Company's  common stock as of
December  31,  1999,  1998 and  1997,  respectively,  were not  included  in the
computations of diluted earnings per share because the options'  exercise prices
were greater than the average market price of the Company's  common stock during
the respective period.


                                       24

<PAGE>


                            ALPHA 1 BIOMEDICALS, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock Based Compensation
------------------------

The  Company  has  adopted  the  disclosure-only  provisions  of SFAS  No.  123,
"Accounting   for  Stock-Based   Compensation,"   for  employee  stock  options.
Accordingly,  when the Company  grants  employee  stock options with an exercise
price equal to the NASDAQ bulletin board price ("quoted price") of the shares on
the date of the grant,  no compensation  expense is recorded.  If employee stock
options  are  granted  at  an  exercise   price  less  than  the  quoted  price,
compensation expense is recorded to the extent of the intrinsic value.

Transactions  with  nonemployees  in which  consideration  is  received  for the
issuance of equity  instruments are accounted for based on the fair value of the
consideration  received  or the fair  value of the  equity  instruments  issued,
whichever is more reliably measurable.

3.       INVESTMENTS

The following is a summary of the Company's  investments as of December 31, 1999
and 1998:
<TABLE>


                                                    Gross            Gross
                                 Amortized       unrealized       unrealized       Estimated
                                    cost            gains           losses         Fair value
                               ------------     ------------     ------------     ------------
          <S>                   <C>               <C>            <C>                 <C>
             1999
    ----------------------
      Equity securities        $  402,796          $483,326       $      -         $886,122
                               ==========          ========       =========        ========

             1998
    ----------------------
      Equity securities        $1,407,695          $      -       $(962,823)       $444,872
                               ==========          ========       =========        ========
</TABLE>



4.       SALE OF ROYALTY RIGHTS

On December 17,  1997,  the Company  entered  into an Alpha  Rights  Acquisition
Agreement (the  "Acquisition  Agreement")  with SciClone,  pursuant to which the
Company agreed to sell to SciClone its right to receive from SciClone  royalties
on the future  sales of Thymosin  alpha 1. In  exchange,  during 1997 at initial
settlement,  $65,000 cash was received. In October 1998, additional compensation
was  received  at closing  that  included  $65,000  cash and  444,115  shares of
SciClone  stock,  valued at $4.053 per  share,  and the  potential  to receive a
maximum of 155,885  additional  shares of  SciClone  stock  based on the stock's
market value.  The additional  shares were  contingent  upon the average closing
sales price of the SciClone  Common  Stock at certain  predetermined  dates.  An
additional  50,297 and 105,588 shares of SciClone Common stock, were received in
1999 and 1998, respectively.

In addition to the Acquisition Agreement,  SciClone made advances to the Company
totaling $350,000 (see note 8).

Under the Acquisition  Agreement,  the Company relinquished its future rights to
royalties,  effective as of the date of the Acquisition Agreement.  In addition,
the  Company  assigned  to SciClone  (i) all  patents  held by the Company  with
respect to Thymosin alpha 1 and (ii) all of the Company's rights and obligations
under  licenses  with third  parties  pursuant to which the Company has acquired
rights to Thymosin alpha 1 (subject to all required consents of such third-party
licensors).


                                       25

<PAGE>


                            ALPHA 1 BIOMEDICALS, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

4.       SALE OF ROYALTY RIGHTS (Continued)

The Company has accounted for the sale of the royalty rights based upon the fair
value of the consideration received, which is more readily determinable than the
fair value of the Company's  right to receive  royalty  payments from the future
sales by SciClone and its  licensees of Thymosin  alpha 1. In 1998,  the Company
recorded  a gain in the amount of  $2,068,637  as  determined  by the sum of (i)
$130,000 of cash  received,  (ii) the average price of the 444,115 common shares
received,  determined by reference to the average closing market price per share
of SciClone  Common Stock for a period of 20 days  preceding the Closing Date as
reported by the NASDAQ  Stock  Market,  and (iii) the market  price per share of
SciClone  Common  Stock as reported at closing by the NASDAQ Stock Market on the
dates the additional shares are received.

Throughout  1998 and 1999,  the Company sold shares of SciClone  Common Stock to
fund  operations  and  pay  outstanding   liabilities.   Under  the  Acquisition
Agreement,  sales were restricted to a maximum of 50,000 shares monthly.  During
1998,  a total of  131,000  shares  were sold,  resulting  in cash  proceeds  of
$165,878 and a realized  loss on the sales of $365,064.  During 1999, a total of
324,327 shares were sold,  resulting in cash proceeds of $512,429 and a realized
loss on the sales of  $582,059.  As of December  31, 1999 and 1998,  the Company
held a total of 144,673 and 418,703  shares,  respectively,  of SciClone  Common
Stock with a fair value of $886,122 and $444,872, respectively.

5.       PROPRIETARY RIGHTS AND LICENSES

The Company held  certain  proprietary  rights to Thymosin  beta 4 in the United
States  under a  Commercial  Text  Agreement  ("CTA")  between  the  Company and
Hoffman-LaRoche,  Inc. and its foreign affiliate ("HLR") effective September 15,
1982.  Pursuant the CTA the Company was  obligated to pay HLR a royalty of 8% on
commercial sales (or 4% of commercial sales, if the FDA approved Thymosin beta 4
for sale by a  competitor).  The CTA was  amended  by an  agreement  ("Amendment
Agreement") dated August 6, 1991 whereby the Company's royalty  obligation would
extend to the latter of expiration  of the U.S.  Patents that are the subject of
the obligation,  or any continuation,  continuation in part, division or reissue
thereof,  or ten  (10)  years  from  the date of the  first  commercial  sale of
Thymosin beta 4. The U.S. Patents identified in the CTA and Amendment  Agreement
have all expired and no continuation,  continuation in part, division or reissue
thereof has occurred nor has there been any commercial  sale of Thymosin beta 4.
As of December 31, 1999,  the Company no longer has any  obligations  under this
agreement.

The Company  also has a  worldwide  license to certain  uses of Thymosin  beta 4
under a research agreement with George Washington University ("GWU") under which
the Company is obligated to pay GWU a royalty of 4% on commercial sales. No such
royalties have been incurred or paid as of December 31, 1999.

6.       RELATED PARTIES

In 1994, the Company entered into a note receivable agreement with the President
of the Company, covering a loan of $149,000 due December 30, 1994, which accrued
interest at the prime rate calculated monthly. The loan was repaid on January 1,
1995,  in part with the  proceeds of an unsecured  second loan to the  President
from the Company in the amount of $115,617. The second loan has an interest rate
of 11.5% and was to be  repaid in 36 equal  monthly  installments.  In  February
1996,  the terms of the loan were  amended  to  provide  for the  suspension  of
installment  payments for 12 months, but with interest  continuing to accrue. In
March 1997 and  December  1997,  the terms of the loan were  further  amended to
suspend installment payments an additional nine and twelve months, respectively,
with  interest  continuing  to accrue  through  December  31,  1997.  Currently,
installment payments are suspended until a repayment plan can be negotiated.  As
of December 31, 1999, the outstanding balance on the loan was $69,674, which has
been fully reserved as a doubtful collection.


                                       26

<PAGE>


                            ALPHA 1 BIOMEDICALS, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

6.       RELATED PARTIES (Continued)

The  President  also  serves the  Company as a  consultant.  In  addition to his
position with the Company,  the President is also Chairman of the  Department of
Biochemistry  and  Molecular  Biology  at GWU.  The  Company  has not funded any
research personally conducted by the President,  and anticipates that any future
funding,  if any,  will  also be  limited  to  research  projects  performed  by
principal investigators at GWU other than the President. No funding was provided
during 1998 or 1999.

7.       COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

Fixed assets consist of the following:
<TABLE>

                                                         December 31,
                                                       -------------------------
                                                         1999        1998
                                                       -------------------------
<S>                                                      <C>          <C>
Furniture and equipment                                  $3,123      $40,332
Less accumulated depreciation                             1,234       40,332
                                                         ------      -------
                                                         $1,889      $     -
                                                         ======      =======
</TABLE>


Accrued expenses consist of the following:
<TABLE>

                                                         December 31,
                                                      --------------------------
                                                         1999        1998
                                                      --------------------------
<S>                                                       <C>         <C>
Interest                                                  $23,605    $  8,080
Directors fees                                             27,832      37,756
Accrued salaries and vacation                                   -      35,832
Other                                                       7,424      13,095
                                                          -------    --------
                                                          $58,861     $94,763
</TABLE>



8.       NOTES PAYABLE AND STOCKHOLDERS' EQUITY

Common Stock and Warrants

During 1997, the Company completed a private placement of Units in which it sold
a total of five Units at a price of $50,000 per Unit. Each Unit consisted of (i)
500,000 shares of Common Stock and (ii) 165,000 Class D Warrants,  each of which
is  exercisable  to purchase one share of Common  Stock at an exercise  price of
$.10 per share and has a term of 10 years.

In June 1997,  the Company  entered  into an agreement  with an unrelated  third
party  to  provide  financial  advisory  services.   The  agreement   stipulated
compensation  for  services to be  performed at $10,000 and warrants to purchase
360,000 shares of the Company's  Common Stock.  The warrants became  exercisable
one year after the date of grant at a price  equal to the 20 day  average  price
per share for the  period  immediately  prior to the grant  date.  The  warrants
expire five years subsequent to the grant date. As of December 31, 1999,  $7,424
remains payable to the third party.


                                       27

<PAGE>


                            ALPHA 1 BIOMEDICALS, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

8.       NOTES PAYABLE AND STOCKHOLDERS' EQUITY (Continued)

Notes Payable and Warrants
--------------------------

During  October  1997,  the Company  received a $60,000  unsecured  loan bearing
interest of 8% per annum.  As of December  31,  1998,  outstanding  principal of
$45,100 was due and accrued  interest had been fully paid.  The note was paid in
full during 1999,  including accrued interest.  Additionally,  during July 1997,
the Company  received a $50,000  unsecured  loan from an  individual  to provide
additional  operating  capital.  The terms of the loan  agreement  provided  for
repayment  within  six  months  with  interest  at the  rate  of 8%  per  annum.
Additionally,  the noteholder  received a warrant to purchase  100,000 shares of
the  Company's  Common  Stock at $.13 per share.  The warrant has a term of five
years.  In January  1998,  the terms of the note were  amended  to  provide  for
monthly  repayment of the loan in equal amounts from January  through June 1998.
In  consideration  of the amended terms,  the noteholder  received an additional
warrant to purchase  41,666  shares of the  Company's  Common  Stock at $.13 per
share with a term of five years.  The note  principal  and accrued  interest was
repaid in full during 1998 and, as of December  31,  1999,  none of the warrants
have been exercised.

In conjunction with the Acquisition  Agreement,  the Company entered into a note
agreement  with  SciClone  in  which  the  Company  received  advances  totaling
$350,000. Under the note agreement, interest accrues at the rate of 8% per annum
and, as of December  31, 1999 and 1998,  outstanding  principal  is $301,722 and
$346,946,   respectively,   and   accrued   interest   is  $23,605  and  $8,080,
respectively.  In January 2000,  the Company and SciClone  entered into a Mutual
Release of Claim  Agreement  where SciClone  would accept a one-time  payment of
$162,500 in satisfaction  of outstanding  principal and accrued  interest.  This
payment was made in February 2000 as satisfaction  for all outstanding debt with
SciClone.  SciClone has returned all 69,085  shares of stock held as  collateral
under the note agreement.

A warrant to purchase 20,000 shares of the Company's  Common Stock was issued in
February  1995, in  settlement of a suit filed against the Company.  The warrant
had an  exercise  price of $1.00 per share.  On  February  2, 1998,  the warrant
expired.

Shareholders Rights Plan
------------------------

In April  1994,  the Board of  Directors  adopted a  Shareholders  Rights  Plan,
pursuant to which it declared a dividend  distribution  of one  Preferred  Stock
Purchase  Right  ("Right")  for each  outstanding  share of  Common  Stock.  The
dividend  distribution  was  payable to  stockholders  of record at the close of
business April 29, 1994.

The Rights can become  exercisable  only if a person or group acquires more than
25% of the Common Stock or announces a tender offer,  the  consummation of which
would  result in  ownership  by a person or group of more than 25% of the Common
Stock.  Each Right  would then  entitle  the  holder to  purchase  one-hundredth
(1/100) of a share of a new series of  preferred  stock at an exercise  price of
$16.00.

If the Company is acquired in a merger or other business combination transaction
with,  or a  significant  portion of the  Company's  business is acquired  by, a
person or group that has acquired more than 25% of its outstanding Common Stock,
each Right will  entitle  its holder  (other than such person or group or any of
their affiliates or associates) to purchase,  at the then-current exercise price
of the Right, a number of the acquiring  company's  common shares having a value
that is twice such exercise  price.  In addition,  if a person or group acquires
more than 25% of the Company's outstanding Common Stock, each Right will entitle
its  holder  (other  than  such  person or group or any of their  affiliates  or
associates)  to purchase,  at the  then-current  exercise  price of the Right, a
number of  shares  of Common  Stock  having a market  value  that is twice  such
exercise price.


                                       28

<PAGE>


                            ALPHA 1 BIOMEDICALS, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

8.       NOTES PAYABLE AND STOCKHOLDERS' EQUITY (Continued)

Prior to the time that the Rights become exercisable, they are redeemable at the
option of the Board of Directors at a redemption  price of $0.01 per Right.  The
Board of  Directors is required to redeem the rights in the event of an all-cash
tender  offer for all of the  outstanding  shares of the Common Stock that meets
certain requirements. The Rights will expire on April 29, 2004.

Stock Based Compensation
------------------------

The Company  accounts for stock based  compensation  using the  intrinsic  value
method  prescribed  in  Accounting   Principles  Board  Opinion  (APB)  No.  25,
"Accounting for Stock Issued to Employees," and related  interpretations.  Under
APB No. 25,  compensation  cost is measured as the excess, if any, of the quoted
market  price on the  Company's  Common  Stock at the date of the grant over the
exercise  price of the quoted market price on the Company's  Common Stock at the
date of the grant over the exercise  price of the option  granted.  Compensation
cost for stock options,  if any, is recognized  ratably over the vesting period.
Generally, the Company's policy is to grant options with an exercise price equal
to the quoted market price of the Company's  Common Stock on the grant date. The
Company has adopted the disclosure only provisions of SFAS No. 123,  "Accounting
for Stock Based Compensation." The fair value accounting requirement of SFAS No.
123 did not have a material  effect on the  Company's  net  earnings  (loss) and
basic and diluted net earnings (loss) per share.

Incentive Stock Option Plan
---------------------------

The Company has an Incentive  Stock Option Plan  established  in 1986, and since
amended  from time to time,  under which  options to  purchase  shares of Common
Stock of the Company may be granted by the Company to any employee.  All options
granted under the Plan are exercisable at a price equal to the fair market value
of the Common Stock on the date of the grant.  The Plan  authorizes the issuance
of up to  1,500,000  shares of Common  Stock.  The plan  expired in 1996.  As of
December 31, 1999, there were no options outstanding under the plan.

1987 Non-Qualified Stock Option Plan
------------------------------------

The 1987  Non-Qualified  Stock Option Plan was adopted by the Board of Directors
and approved by the  stockholders in 1987. The Plan provides for grants of stock
options to any  employee.  The Plan  authorizes  the issuance of up to 1,000,000
shares of Common Stock. The plan expired in 1997. As of December 31, 1999, there
were no options outstanding under the plan.

Directors Stock Option Plan
---------------------------

The  Directors  Stock  Option  Plan was  adopted by the Board of  Directors  and
approved by the stockholders in 1987. Under the Plan, options to purchase 10,000
shares of Common  Stock are granted  automatically  to each person who becomes a
director  after  April 10,  1987,  and who,  at the time such  person  becomes a
director, is not an employee of the Company. Options granted under the Plan have
an exercise  price per share equal to the fair market  value of the Common Stock
on the date of the grant.  In 1992,  the Plan was amended,  with the approval of
stockholders at the 1992 Annual Meeting (i) to add an automatic  annual grant to
each non-employee director of an option to purchase 5,000 shares of Common Stock
if the individual is re-elected as a Director at the Annual Meeting, and (ii) to
increase  to 200,000  the number of shares of Common  Stock  issuable  under the
Plan. Options granted under the Plan have a ten-year term and become exercisable
in 20%  increments  beginning  on the date of the grant and on each  anniversary
date  thereafter.  Since 1992, the Plan has been amended several times to change
the exercise price per share, the most recent amendment being in 1998, stating a
price of $.06 per share.  The Plan  expired in 1997.  As of December  31,  1999,
30,000 options were outstanding under the plan.


                                       29

<PAGE>


                            ALPHA 1 BIOMEDICALS, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

8.       NOTES PAYABLE AND STOCKHOLDERS' EQUITY (Continued)

Compensation Committee Option Plan
----------------------------------

On January 7, 1997, the Board of Directors  approved a resolution to grant stock
options to officers and employees of the Company.  A total of 1,388,120  options
were granted to four individuals  under two stock option plans. The options were
exercisable  at the closing price of the  Company's  stock on January 6, 1997. A
total of 813,160  options were granted  under the  Incentive  Stock Option Plan.
None of these options were  exercised and all 813,160  options  expired in 1998.
Under the Non-Qualified  Stock Option Plan, 574,960 options were granted and all
expired unexercised in 1999.

Options Outstanding And Exercisable
-----------------------------------

The following  table  summarizes the Company's  stock option  activity for 1997,
1998 and 1999:

<TABLE>
                                                                                 Weighted
                                                                    Exercise     Average
                                              Number              Price          Exercise
                                              of shares            Range         Price
                                              ------------- ------------------------------
<S>                                            <C>               <C>              <C>
Options outstanding, December 31, 1996          389,673     $0.53 to $16.25      $7.16
Options granted                               1,388,120          $0.13            0.13
                                              ---------     ---------------      -----

Options outstanding, December 31, 1997        1,777,793     $0.13 to $16.25       1.79
Options terminated                           (1,077,433)    $0.13 to $16.25       1.66
                                              ----------    ---------------      -----

Options outstanding, December 31, 1998          700,360     $0.13 to $15.00       1.98
Options granted                               7,500,000          $0.04            0.04
Options terminated                             (670,360)    $0.13 to $16.25       1.77
                                              ----------    ---------------      -----

Options outstanding, December 31, 1999        7,530,000     $0.04 to $10.50      $0.07
                                              ==========    ===============      =====
</TABLE>


Options Outstanding And Exercisable
-----------------------------------

The following  table  summarizes  information  about the options  outstanding at
December 31, 1999:
<TABLE>

                              Options Outstanding                       Options Exercisable
               --------------------------------------------------------------------------------
                                   Weighted-
                                    Average          Weighted                         Weighted
    Range                          Remaining         Average                          Average
 of Exercise       Number         Contractual        Exercise          Number         Exercise
    Prices       Outstanding     Life (Years)         Price         Outstanding        Price
-----------------------------------------------------------------------------------------------
<S>                 <C>              <C>               <C>             <C>                <C>
    $9.50         10,000             3.5             $9.50           10,000             $9.50
    10.50         10,000             4.5             10.50           10,000             10.50
     0.53         10,000             6.5              0.53           10,000              0.53
     0.04      7,500,000            10.0              0.04        7,500,000              0.04
               ---------                                          ---------
               7,530,000                                          7,530,000
               =========                                          =========
</TABLE>


                                       30

<PAGE>


                            ALPHA 1 BIOMEDICALS, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998


8.       NOTES PAYABLE AND STOCKHOLDERS' EQUITY (Continued)

At December 31, 1999, 7,530,000 options, with an average exercise price of $0.07
per share,  were  exercisable.  At December 31, 1998,  700,360 options,  with an
average  exercise  price of $1.98,  were  exercisable.  At  December  31,  1997,
1,773,793 options, with an average exercise price of $1.79, were exercisable.

In August 1999, the Company granted 7,500,000  options,  at an exercise price of
$0.04, which became fully vested during 1999.

9.       EMPLOYEE BENEFIT PLAN

The  Company  maintains  a  401(k)  retirement  plan  that  has  had  no  active
participation from employees or the Company in 1998 or 1999.

10.      INCOME TAXES

Deferred tax assets are comprised of the following:
<TABLE>

                                            December 31,       December 31,
                                               1999               1998
                                            ------------------------------------
<S>                                          <C>                 <C>
Net operating loss carryforwards            $13,261,000       $ 13,268,720
Capital loss carryforward                       541,000            329,178
Research and development tax credit             614,000            614,000
                                            -----------       ------------
                                             14,416,000         14,211,898
Valuation allowance                         (14,416,000)       (14,211,898)
                                            -----------       ------------

Net deferred tax assets                     $         -       $          -
                                            ===========       ============
</TABLE>

The Company has  provided a full  valuation  allowance  for  deferred tax assets
since  realization of these future  benefits  cannot be reasonably  assured as a
result of recurring  operating  losses.  If the Company achieves  profitability,
these  deferred  tax  assets  would be  available  to offset  future  income tax
liabilities and expense, subject to certain limitations.

At December  31,  1999,  the Company had net  operating  loss and  research  and
development  tax credit  carryforwards  of  approximately  $38.3 million and $.6
million,  respectively,  for income tax purposes  which expire in various  years
through  2014.  Certain  substantial  changes in the Company's  ownership  would
result  in an  annual  limitation  on the  amount  of  the  net  operating  loss
carryforwards which can be utilized.


                                       31

<PAGE>


                            ALPHA 1 BIOMEDICALS, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

11.      COMMITMENTS

Leases
------

In August 1999,  the Company  entered into an agreement to lease office space in
Bethesda,  Maryland.  The lease was for a period of three  months and expired on
November  30,  1999.  Under  the  terms  of  the  lease  agreement,   the  lease
automatically  renews upon  expiration  for an additional  three months,  unless
either the Company or the lessor  provides notice of termination of the lease 60
days prior to  expiration.  The  Company's  rent  expense  for 1999 and 1998 was
$7,074 and  $12,572,  respectively.  The  Company  has an  operating  lease (the
"Master Lease") for a production facility space in Sunnyvale,  California, which
expires in January 2002.  The  Sunnyvale  lease was assigned to a third party in
March 1995 on the same terms for the  remaining  term of the Master  Lease.  The
assignment  is  subordinate  to the Master Lease and the Company is still liable
under the terms of the Master  Lease.  Under the Master  Lease,  future  minimum
lease payments are as follows:
<TABLE>
          <S>                       <C>           <C>
           Year ending December 31, 2000         $376,880
                                    2001          393,032
                                    2002           33,650
                                               ----------
                                                 $803,562
</TABLE>


12.      SUBSEQUENT EVENTS

Settlement Agreements
---------------------

During  2000,  the Company  entered  into  Settlement  Agreements  with  several
creditors.  These agreements  provided for immediate payment to the creditors at
an amount less than currently due. Liability balances totaling $759,176 existing
at December 31, 1999 were settled for payments  made in 2000 in the aggregate of
$168,164.  Also, in connection with the Settlement  Agreement,  one creditor was
paid a deposit  of $50,000  for a future  commitment  to  purchase  $100,000  of
Thymosin beta 4.

Exercise of Consultants' Options
--------------------------------

In February 2000,  stock options  granted to the four  consultants  (see note 1)
were  exercised.  Each  consultant  exercised the 1,875,000  options at $.04 per
share with payment made in the form of notes  receivable from each consultant in
the amount of $75,000.  The notes bear interest at 6.09% with  interest  payable
quarterly beginning June 1, 2000. The notes mature in February 2003.


                                       32

<PAGE>


                            ALPHA 1 BIOMEDICALS, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998



13.  QUARTERLY  FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
                                                                 Third Quarter
                                                                   Year ended                Year ended December 31, 1999
                                                                                   -------------------------------------------------
                                                               December 31, 1998    First Quarter   Second Quarter  Third Quarter
                                                             -----------------------------------------------------------------------
<S>                                                              <C>                 <C>            <C>              <C>
REVENUES
   Consulting                                                 $            750      $       -    $           -      $           -
   Royalties                                                                 -              -                -                  -
        Total revenue                                                      750              -                -                  -
                                                              ----------------      ---------    -------------      --------------

EXPENSES
   Research and development                                             13,142              -                -                  -
   General and administrative                                          120,203          7,206                -             17,236
   Stock option compensation                                                 -              -                -            150,000
                                                              ----------------      ---------    -------------      -------------
        Total operating expenses                                       133,345          7,206                -            167,236
                                                              ----------------      ---------    -------------      -------------

        Total operating loss                                          (132,595)        (7,206)               -           (167,236)
                                                              ----------------      ---------    -------------      -------------

Other income (expense)
   Interest income                                                           -              -               18                  -
   Gain on sale of royalty rights                                    1,930,000              -                -             89,589
   Realized gain (loss) on sale of investments                               -       (365,868)        (239,735)            23,544
   Interest expense                                                     (6,080)        (4,281)          (3,881)            (3,881)
   Other income (expense)                                                    -              -              389                  -
                                                              ----------------      ---------    -------------      -------------

      Total other income (expense)                                   1,923,920       (370,149)        (243,209)           109,252
                                                              ----------------      ---------    -------------      -------------

Income (loss) before extraordinary item                              1,791,325       (377,355)        (243,209)           (57,984)
                                                              ----------------      ---------    -------------      -------------

Extraordinary item - settlement of vendor payables                     657,756              -                -                 -
                                                              ----------------      ---------    -------------      -------------

Net income (loss)                                             $      2,449,081      $(377,355)   $    (243,209)     $     (57,984)
                                                              ================      =========    =============      =============

Basic and diluted income (loss) per common                    $           0.14      $   (0.03)   $      (0.02)      $       (0.01)

Extraordinary item - settlement of vendor payables            $           0.06      $       -    $          -       $           -
                                                              ----------------      ---------    ------------       -------------

Basic and diluted income (loss) per common share              $           0.20      $   (0.03)   $      (0.02)      $      (0.01)
                                                              ================      =========    ============       ============
</TABLE>

(1)Loss per  share  calculations  for  each of the  quarters  are  based  on the
   weighted average shares outstanding for each period. The sum of the quarters
   may not necessarily be equal to the full year loss per share amounts.


                                       33

<PAGE>



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

     The information required by Item 304 of Regulation S-B regarding the change
in the  Company's  accountants  was  previously  filed as part of the  Company's
Current  Report on Form 8-K filed on May 2, 2000, as amended on Form 8-K/A filed
on May 11, 2000. There were no disagreements with the accountants required to be
disclosed in such report.

                                    PART III

ITEM 9.           DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
                  PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
                  ACT

Directors and Executive Officers

     The  Company's  Board of Directors  consists of three  directors,  Allan L.
Goldstein, Joseph C. McNay and Albert Rosenfeld.  Directors are elected annually
to serve one-year terms.  The Company's  executive  officers are Dr.  Goldstein,
Chairman,   President  and  Chief  Executive  Officer,   and  Albert  Rosenfeld,
Secretary-Treasurer.

     The following table sets forth, with respect to each director and executive
officer,  his name and age,  the year in which he first became a director of the
Company,  and his principal  occupation and business  experience during the past
five years.

<TABLE>

   Name, Year First
  Became Director of                             Principal Occupation and
      Company                          Age          Business Experience
------------------------             ------  -----------------------------------
<S>                                   <C>    <C>
Allan L. Goldstein, 1982               63    Chairman of the Board of the Company since 1982; Chief
                                             Executive Officer of the Company from 1982 to 1986, and
                                             1999 to present; Chief Scientific Advisor of the Company
                                             from 1982 to present; Professor and Chairman of
                                             Department of Biochemistry and Molecular Biology at The
                                             George Washington University School of Medicine and
                                             Health Sciences from 1978 to present.

Joseph C. McNay, 1987                  66    Chairman and Director of Essex Investment Management
                                             Company, Inc., a registered investment advisor, from 1976
                                             to present; Director of Softech, Inc. and MPSI System, Inc.
</TABLE>



                                       34

<PAGE>


<TABLE>
 Name, Year First
  Became Director of                             Principal Occupation and
      Company                          Age          Business Experience
------------------------             ------  -----------------------------------
<S>                                   <C>    <C>
Albert Rosenfeld, 1982                 79    Secretary - Treasurer of the Company from 1999 to
                                             present; Consultant on Future Programs for March of
                                             Dimes Birth Defect Foundation from 1973 to present;
                                             Adjunct Professor, Department of Human Biological
                                             Chemistry and Genetics at University of Texas Medical
                                             Branch, from 1974 to 1998; frequent author and lecturer on
                                             scientific matters.
</TABLE>


Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Securities Exchange Act of 1934, as amended,  requires
the Company's  directors and executive  officers,  and persons who own more than
10% of the Company's common stock, to report to the SEC their initial  ownership
of the  Company's  common stock and any  subsequent  changes in that  ownership.
Specific due dates for these  reports have been  established  by the SEC and the
Company is required to disclose any late filings or failures to file.

     To the  Company's  knowledge,  based  solely on its review of the copies of
such reports furnished to the Company and written  representations that no other
reports  were  required  during the fiscal year ended  December  31,  1999,  all
Section 16(a) filing requirements applicable to the Company's executive officers
and directors during 1999 were met except for the inadvertent  failure to report
on Form 5 one transaction by Dr. Goldstein.



                                       35

<PAGE>



ITEM 10.          EXECUTIVE COMPENSATION

Summary Compensation Table

     The following  table  summarizes for the years  indicated the  compensation
paid by the Company to each person who served as the Company's  Chief  Executive
Officer during 1999. No other  executive  officer of the Company earned a salary
and bonus for 1999 in excess of $100,000.
<TABLE>

                                                                                                      Long Term
                                                              Annual Compensation                 Compensation Awards
                                                                                  Other        Restricted
                                                                                 Annual          Stock                     All Other
                                        Fiscal                                Compensation        Award        Options       Compen-
     Name and Principal Position         Year       Salary         Bonus         ($)(2)            ($)           (#)         sation
------------------------------------  ---------- -------------  ----------- ----------------- --------      ------------ ----------
<S>                                      <C>           <C>           <C>           <C>            <C>            <C>           <C>
Allan L. Goldstein, President and        1999           ---          ---           ---            ---          1,875,000       ---
Chief Executive Officer(1)               1998           ---          ---           ---            ---                ---       ---
                                         1997           ---          ---           ---            ---            455,121       ---
Michael L. Berman                        1999     $  22,816          ---           ---            ---                ---       ---
Former Chief Executive Officer           1998       104,617          ---           ---            ---                ---       ---
                                         1997       149,820          ---           ---            ---            682,682     $2,960
</TABLE>

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

(1) Dr. Goldstein was appointed Chief Executive  Officer upon the resignation of
Dr. Berman in July 1999.
(2) Neither  Dr.  Goldstein  nor  Dr.  Berman  received   personal  benefits  or
    perquisites  which  exceeded  the lesser of $50,000 or 10% of his salary and
    bonus.

         The following table sets forth certain information concerning grants of
stock options to Drs. Goldstein and Berman during fiscal 1999.

<TABLE>
                                 OPTION GRANTS IN LAST FISCAL YEAR
                                                     Individual Grants
                             Number of          % of Total
                              Shares             Options
                            Underlying          Granted to         Per Share
                              Options          Employees in        Exercise          Expiration
                              Granted          Fiscal Year           Price              Date
==================================================================================================
<S>                           <C>                <C>                  <C>               <C>
Allan L. Goldstein           1,875,000          100%                 $0.04           08/15/09
Michael L. Berman                  ---          ---                    ---              ---
======================  =================== ================== ================= ==================
</TABLE>


                                       36

<PAGE>



     The  following  table  provides  information  as to the  value of the stock
options held by Drs. Goldstein and Berman as of December 31, 1999 and the values
realized by them upon the exercise of stock options during fiscal 1999.
<TABLE>

                              AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END
                                                    OPTION VALUES
                                                               Number of
                                                              Securities                        Value of
                                                               Underlying                      Unexercised
                                                              Unexercised                     In-the-Money
                                                              Options at                       Options at
                                                              FY-End (#)                       FY-End ($)
                             Shares
         Name               Acquired       Value
                          on Exercise     Realized   Exercisable    Unexercisable    Exercisable      Unexercisable
                              (#)           ($)          (#)             (#)             ($)               ($)
==========================================================================================================================
<S>                           <C>           <C>          <C>             <C>             <C>                <C>
Allan L. Goldstein            ---          $---      1,875,000           ---            $---(1)            $---
Michael L. Berman             ---           ---            ---           ---             ---                ---
==========================================================================================================================
</TABLE>

(1)      An option is  in-the-money  if the exercise price of the option is less
         than the market value of the stock  underlying the option.  None of Dr.
         Goldstein's options were in-the-money as of December 31, 1999.

Directors' Compensation

     Prior to the  Company's  suspension  of  operations  in 1998,  non-employee
directors (Directors McNay and Rosenfeld) were each paid an annual fee of $5,000
and a fee of $1,250 for each meeting attended in person, and were reimbursed for
expenses   incurred  in  attending  Board  meetings.   Upon  the  suspension  of
operations,  the Company discontinued paying director fees. It is uncertain when
the Company will  reinstitute  the payment of director  fees.  Each of Directors
McNay and Rosenfeld  are owed  director  fees earned prior to the  suspension of
operations amounting to $13,916. It is uncertain when these amounts will be paid
and whether these amounts will be paid with interest.

ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT

     The following table shows, as of October 23, 2000, the beneficial ownership
of the Company's common stock by:

         o        any persons or entities  known by management  to  beneficially
                  own more  than  five  percent  of the  outstanding  shares  of
                  Company common stock;

         o        each director of the Company; and

         o        all of the executive  officers and directors of the Company as
                  a group.


                                       37

<PAGE>



         The  persons  named  in  the  following  table  have  sole  voting  and
dispositive powers for all shares of common stock shown as beneficially owned by
them,  subject  to  community  property  laws  where  applicable  and  except as
indicated in the footnotes to the table.

         Beneficial  ownership is determined in accordance with the rules of the
Securities  and  Exchange   Commission.   Shares  of  common  stock  subject  to
outstanding  options,  warrants or other rights to acquire held by a person that
are currently  exercisable or exercisable  within 60 days after October 23, 2000
are included in the number of shares beneficially owned by the person and deemed
outstanding   shares  for  purposes  of  calculating  the  person's   percentage
ownership.  These shares are not, however, deemed outstanding for the purpose of
computing the percentage  ownership of any other person. As of October 23, 2000,
there were 19,477,429 shares of Company common stock outstanding.

<TABLE>
                                                                                                       Percent of
                                                                                      Beneficial      Common Stock
                    Name of Beneficial Owner                                           Ownership       Outstanding
-----------------------------------------------------------------        -----------------------   -------------------
<S>                                                                                       <C>              <C>
Roger H. Samet                                                                         997,050(1)         5.04%
J. J. Finkelstein                                                                    1,875,000(2)         9.63
Richard J. Hindin                                                                    1,885,000(3)         9.68
Sidney J. Silver                                                                     1,875,000(4)         9.63
Allan L. Goldstein, Chairman, President and Chief                                    2,342,491(5)        12.03
  Executive Officer
Michael L. Berman,                                                                      89,450(6)         0.46
  Former Chief Executive Officer
Joseph C. McNay, Director                                                              792,000(7)         4.03
Albert Rosenfeld, Director, Secretary and Treasurer                                     25,100(8)         0.13
All executive officers and directors as a group (3 persons)                          3,159,591(9)        16.06
----------
</TABLE>

(1)  As reported by Mr. Samet on Amendment  No. One to a Schedule 13D filed with
     the  SEC  on  February  24,  1999.  Mr.  Samet  reported  sole  voting  and
     dispositive  powers as to all  shares  listed.  Included  among the  shares
     listed are 292,050 shares which Mr. Samet has the right to acquire pursuant
     to Class D warrants  issued to him by the Company.  Mr. Samet's  address is
     254 East 68th Street, #29B, New York, NY 10021.

(2)  As  reported  by Mr.  Finkelstein  on a Schedule  13D filed with the SEC on
     November  7,  2000.  The  address  for  Mr.  Finkelstein  is  c/o  Alpha  1
     Biomedicals,  Inc., 3 Bethesda Metro Center, Suite 700, Bethesda,  Maryland
     20814.

(3)  As reported by Mr.  Hindin on a Schedule 13D filed with the SEC on November
     7, 2000.  The  address for Mr.  Hindin is 407 Chain  Bridge  Road,  McLean,
     Virginia 22101.

(4)  As reported by Mr.  Silver on a Schedule 13D filed with the SEC on November
     7, 2000. The address for Mr. Silver is c/o Silver, Freedman & Taff, L.L.P.,
     1100 New York Avenue, N.W., Washington, D.C. 20005.

(5)  As  reported  by Dr.  Goldstein  on a  Schedule  13D filed  with the SEC on
     November 7, 2000.  Consists of (i) 2,249,285  shares owned  directly by Dr.
     Goldstein over which he has sole voting and  dispositive  powers;  and (ii)
     93,206  shares  held by Dr.  Goldstein's  wife  with  respect  to which Dr.
     Goldstein  shares  voting  and  dispositive  powers.  The  address  for Dr.
     Goldstein is c/o Alpha 1 Biomedicals,  Inc., 3 Bethesda Metro Center, Suite
     700, Bethesda, Maryland 20814.


                                       38

<PAGE>



(6)  Consists of (i) 68,000  shares  directly  owned by Dr. Berman over which he
     has sole voting and  dispositive  powers;  and (ii) 21,450 shares which Dr.
     Berman  has the  right  to  acquire  pursuant  to the  exercise  of Class D
     warrants.  The address for Dr. Berman is c/o Alpha 1  Biomedicals,  Inc., 3
     Bethesda Metro Center, Suite 700, Bethesda, Maryland 20814.

(7)  Consists of (i) 612,000  shares  owned  directly by Mr. McNay over which he
     has sole voting and dispositive  powers; (ii) 15,000 shares which Mr. McNay
     has the right to acquire  through the  exercise of stock  options  that are
     currently  exercisable;  and (iii)  165,000  shares which Mr. McNay has the
     right to acquire pursuant to the exercise of Class D warrants.  The address
     for Mr. McNay is c/o Alpha 1  Biomedicals,  Inc., 3 Bethesda  Metro Center,
     Suite 700, Bethesda, Maryland 20814.

(8)  Consists of (i) 10,100 shares owned directly by Mr. Rosenfeld over which he
     has sole voting and  dispositive  powers;  and (ii) 15,000 shares which Mr.
     Rosenfeld  has the right to acquire  through the exercise of stock  options
     that are currently exercisable.  The address for Mr. Rosenfeld is c/o Alpha
     1 Biomedicals, Inc., 3 Bethesda Metro Center, Suite 700, Bethesda, Maryland
     20814.

(9)  Consists  of (i)  2,871,385  shares  owned  directly by all  directors  and
     executive  officers of the Company as a group; (ii) 30,000 shares which all
     directors  and  executive  officers  as a group  have the right to  acquire
     through the exercise of stock options that are currently exercisable; (iii)
     93,206  shares  owned by family  members  of all  directors  and  executive
     officers  as a group;  and (iv)  165,000  shares  which all  directors  and
     executive  officers  as a group have the right to acquire  pursuant  to the
     exercise of Class D warrants.  Does not include  shares held by Dr. Berman,
     the Company's former Chief Executive Officer.

ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Loan to Dr. Goldstein

         In May 1994,  the Company  extended a loan in the amount of $149,000 to
Dr. Goldstein for the purpose of enabling Dr. Goldstein to meet a margin call on
a brokerage  account  collateralized  by Company common stock at a time when the
Board of Directors  concluded that it would be contrary to the best interests of
the Company for Dr. Goldstein to sell the shares. The loan was unsecured and had
an interest rate equal to the prime rate, with all principal and interest due on
the December 31, 1994 maturity  date. The loan was repaid on January 1, 1995, in
part with the proceeds of a second loan to Dr. Goldstein from the Company in the
amount of $115,617 that was  unsecured.  The second loan has an interest rate of
11.5% and was to be repaid in 36 equal monthly installments.

         In February  1996, the terms of the second loan were amended to provide
for the  suspension  of  installment  payments for 12 months,  but with interest
continuing  to accrue.  In March 1997 and December  1997,  the terms of the loan
were further  amended to suspend  installment  payments an  additional  nine and
twelve months,  respectively,  with interest  continuing to accrue.  The Company
suspended  operations  in  1998  and  principal  and  interest  payments  by Dr.
Goldstein  ceased during and subsequent to the  suspension of operations.  As of
December 31, 1999, the balance owed by Dr. Goldstein was $69,674, which has been
fully  reserved  by the  Company as a  doubtful  collection.  In July 2000,  the
Company  agreed  to waive all prior and  subsequent  interest  during  and after
suspension  of the  Company's  operations  and  approved a payment  plan for the
$69,674 owed by Dr. Goldstein to the Company in 36 equal monthly installments of
$1,935.38.  In August 2000, the Company agreed to pay Dr. Goldstein a consulting
fee of  $5,000  per  month,  $3,000  of which is paid in cash and the  remaining
$2,000 of which is retained by the Company and applied  toward  repayment of the
loan.


                                       39

<PAGE>



Consulting Agreement

         On August 16, 1999,  the Company  entered  into an  agreement  with Dr.
Goldstein, J.J. Finkelstein,  Richard J. Hindin and Sidney J. Silver to serve as
financial  and  business  consultants  to the Company  and manage the  Company's
affairs on an interim basis. This agreement was executed following suspension of
the Company's  operating  activities due to  insufficient  funds.  The agreement
provides for the  consultants  to prepare a business plan  specifying a proposed
business  strategy for the Company and evaluate  financing and  recapitalization
proposals.  The  agreement  also  provides for the  consultants  to, among other
things: work with the Company's creditors to eliminate or restructure its debts;
work with  governmental  agencies  to  ensure  regulatory  compliance  and allow
continuation of the Company's  business;  recruit  necessary  management for the
Company;  and negotiate with companies interested in licensing or other business
and financial relationships with the Company.

         In  consideration  for services  provided to the  Company,  each of the
consultants was granted an option to purchase 1,875,000 shares of Company common
stock at an exercise price of $0.04 per share,  the then-fair  market value.  In
February  2000,  each  consultant  exercised  his  option in full.  The  Company
accepted from each  consultant as payment of the $75,000  exercise  price a note
payable to the Company in the amount of $75,000,  accruing interest at 6.09% per
annum and payable  quarterly for 36 months  beginning June 1, 2000. Each note is
secured  by the shares of Company  common  stock  issued  upon  exercise  of the
consultant's option. Mr. Finkelstein,  who is responsible for performing certain
operating  functions of the Company,  also receives a monthly fee of $8,000.  In
addition,  as noted above,  Dr. Goldstein is paid a consulting fee of $5,000 per
month.  Mr.  Silver is a partner  in the law firm of  Silver,  Freedman  & Taff,
L.L.P.  This firm has  represented  the  Company in a variety of legal  matters,
including the negotiation of settlements  with certain  creditors and agreements
with certain other parties.



                                       40

<PAGE>



ITEM 13.              EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

<TABLE>
Exhibit No.       Description of Exhibit                                             Reference*
---------------------------------------------------------------------------------------------------------------------------
<S>                 <C>                                                               <C>
3.1               Restated Certificate of Incorporation of Company                   Exhibit 3.1 to Registration Statement
                                                                                     No. 33-9370, Amendment No. 1 (filed
                                                                                     11/26/86)

3.2               Amendment to Restated Certificate of Incorporation of Company      Exhibit 3.2 to the Company's
                                                                                     Transitional Report  on Form 10-K,
                                                                                     File No. 1-15070 (filed 3/18/91)

3.3               Bylaws of Company                                                  Exhibit 3.2 to Registration Statement
                                                                                     No. 33-9370 (filed 10/8/86)

3.4               Amendment No. 1 to Bylaws of Company adopted 8/11/89               Exhibit 4.7 to Registration Statement
                                                                                     No. 33-34551, Amendment No. 3 (filed
                                                                                     6/21/90)

3.5               Amendment No. 2 to Bylaws of Company                               Exhibit 4.8 to Registration Statement
                  adopted  6/18/90                                                   No. 33-34551, Amendment No. 3 (filed
                                                                                     6/21/90)

3.6               Amendment No. 3 to Bylaws of Company                               Exhibit 3.6 to the Company's
                  adopted 11/30/90                                                   Transitional Report on Form 10-K, File
                                                                                     No. 1-15070 (filed 3/18/91)

4.1               Form of Stock Certificate                                          Exhibit 4.1 to Registration
                                                                                     Statement No. 33-9370,
                                                                                     Amendment No. 1 (filed
                                                                                     11/26/86)

4.2               Rights Agreement, dated as of April 29, 1994,                      Exhibit 1 to the Company's
                  between the Company and American Stock                             Current Report on Form 8-K, File No.
                  Transfer & Trust Company, as Rights Agent                          1-15070 (filed May 2, 1994)

4.3               Warrant Agreement, dated March 12, 1997                            Exhibit 4.3 to the Company's Annual
                                                                                     Report on Form 10-K, File No.
                                                                                     1-15070 (filed 3/31/97)

4.4               Warrant Agreement, dated July 7, 1997                              Exhibit 4.4 to the Company's Annual
                                                                                     Report on Form 10-K/A, File No. 1-
                                                                                     15070 (filed 5/13/98)

10.1              Material Transfer Agreement-Cooperative Research and               Filed herewith
                  Development Agreement, between the U.S. Public Health Service
                  and the Company

10.2              Settlement Agreement and Mutual Release, dated March 17, 2000,     Filed herewith
                  between the Company and Bachem Biosciences, Inc.
</TABLE>



                                       41

<PAGE>
<TABLE>


<S>                 <C>                                                              <C>
10.3              Consulting Agreement, dated August 16, 1999, among the             Exhibit 99.2 to the Company's Current
                  Company, Allan L. Goldstein, J.J. Finkelstein, Richard J. Hindin   Report on Form 8-K, File No. 1-15070
                  and Sidney J. Silver                                               (filed 11/09/99)

10.4              Amended and Restated Directors Stock Option                        Exhibit 10.25 to the
                  Plan                                                               Company's Annual Report on  Form
                                                                                     10-K, File No. 1-15070 (filed 3/26/93)

10.5              2000 Stock Option and Incentive Plan                               Filed as an Appendix to the Company's
                                                                                     preliminary proxy materials, File No. 1-
                                                                                     15070 (filed 9/29/00)

10.6              Lease Agreement, dated February 10, 1993,                          Exhibit 10.28 to the  Company's
                  between the Company and John Arrillaga,  Trustee, and Richard T.   Annual Report on Form 10-K, File No.
                  Perry, Trustee                                                     1-15070  (filed 3/26/93)
                   (Sunnyvale, California lease)

10.7              Lease Agreement Amendment Number 1, dated                          Exhibit 10.24 to the
                  September 1, 1993, and Amendment Number 2,                         Company's Annual Report on Form
                  dated December 27, 1993 (Sunnyvale,                                10-K, File No.
                  California lease)                                                  1-15070 (filed 3/28/94)

10.8              Lease Agreement Amendment Number 3, dated                          Exhibit 10.28 to the
                  April 19, 1994 (Sunnyvale, California Lease)                       Company's Annual Report on
                                                                                     Form 10-K, File No. 1-15070
                                                                                     (filed 3/31/95)

10.9              Assignment of Lease, dated March 22, 1995                          Exhibit 10.24 to the
                  from the Company to Scios Nova, Inc.                               Company's Annual Report on
                  (Sunnyvale,  California Lease)                                     Form 10-K, File No. 1-15070
                                                                                     (filed 3/31/95)

10.10             Lease and Service Agreement, dated August 24, 1999, between        Filed herewith
                  VANTAS, 3 Bethesda Metro, Inc. and the Company (Bethesda,
                  Maryland lease)

10.11             Unit Purchase Agreement dated March 12, 1997                       Exhibit 10.25 to the Company's Annual
                                                                                     Report on Form 10-K, File No.
                                                                                     1-15070 (filed 3/31/97)

10.12             Registration Rights Agreement, dated March 12, 1997                Exhibit 10.26 to the
                                                                                     Company's Annual Report on
                                                                                     Form 10-K, File No. 1-15070
                                                                                     (filed 3/31/97)

23                Consent of Reznick Fedder & Silverman, P.C.                        Filed herewith

27                Financial Data Schedule                                            Filed herewith

99.1              Information Regarding Forward-Looking Statements                   Filed herewith

99.2              Letter to Stockholders                                             Filed herewith
</TABLE>

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

*     Except  where  noted,  the  exhibits  referred  to  in  this  column  have
      heretofore  been filed with the  Securities  and  Exchange  Commission  as
      exhibits  to the  documents  indicated  and  are  hereby  incorporated  by
      reference   thereto.   The   Registration   Statements   referred  to  are
      Registration Statements of the Company.

                                       42

<PAGE>



     (b)      Reports on Form 8-K

         A Current  Report on Form 8-K dated  October  25, 1999 was filed by the
         Company on November 9, 1999 (reporting under Items 5 and 7).



                                       43

<PAGE>



                                   SIGNATURES


     In accordance  with 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.


                                    ALPHA 1 BIOMEDICALS, INC.
                                    (Registrant)



                                    By: /s/ Allan L. Goldstein
                                        -----------------------
                                        Allan L. Goldstein
                                        President and Chief Executive Officer


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, 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/ Allan L. Goldstein   Chairman of the Board, President,      November 8, 2000
------------------------ Chief Executive Officer and
Allan L. Goldstein       Director



/s/ Joseph C. McNay                                             November 8, 2000
------------------------ Director
Joseph C. McNay


 /s/ Albert Rosenfeld    Director, Secretary and Treasurer      November 8, 2000
------------------------
Albert Rosenfeld



                                       44

<PAGE>


                                INDEX TO EXHIBITS


Exhibit No.         Description of Exhibit
--------------------------------------------------------------------------------

10.1                 Material   Transfer   Agreement-Cooperative   Research  and
                     Development  Agreement,  between  the  U.S.  Public  Health
                     Service and the Company

10.2                 Settlement  Agreement and Mutual  Release,  dated March 17,
                     2000, between the Company and Bachem Biosciences, Inc.

10.10                Lease and Service Agreement, dated August 24, 1999, between
                     VANTAS, 3 Bethesda Metro, Inc. and the Company

23                   Consent of Reznick Fedder & Silverman, P.C.

27                   Financial Data Schedule

99.1                 Information Regarding Forward-Looking Statements

99.2                 Letter to Stockholders





























                                       45