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

                                   FORM 10-QSB

(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
    Exchange Act of 1934

    For the quarterly period ended September 30, 2000

[ ] Transition Report Pursuant to 13 or 15(d) of the Securities
    Exchange Act of 1934

    For the transition period from __________ to __________

                         Commission file number 0-27839


                            EMPYREAN BIOSCIENCE, INC.
        (Exact Name of Small Business Issuer as Specified in Its Charter)


                    Wyoming                                       86-0973095
        (State or Other Jurisdiction of                       (I.R.S. Employer
         Incorporation or Organization)                      Identification No.)


23800 Commerce Park Road, Suite A, Cleveland, Ohio                  44122
    (Address of Principal Executive Offices)                      (Zip Code)

                    Issuer's telephone number (216) 360-7900


              (Former Name, Former Address and Former Fiscal Year,
                          If Changed Since Last Report)

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 [X] No [ ]

As of November 13, 2000, the  Registrant  had 41,796,222  shares of common stock
outstanding.

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

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<PAGE>
                          PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                            EMPYREAN BIOSCIENCE, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS EXCEPT SHARE AMOUNTS)


                                                     September 30,  December 31,
                                                         2000          1999
                                                       --------      --------
                                                      (unaudited)    (audited)
                                     ASSETS
CURRENT ASSETS:
  Cash and cash equivalents .......................    $    233      $    286
  Accounts receivable .............................          30             7
  Prepaid expenses and deposits ...................          15            49
  Inventory .......................................         231           284
  Other ...........................................          --             3
                                                       --------      --------
    Total current assets ..........................         509           629

  Equipment and improvements ......................          41            52
                                                       --------      --------

    Total assets ..................................    $    550      $    681
                                                       ========      ========

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
  Accounts payable and accrued liabilities ........    $  2,057      $  2,045
  Deferred revenue ................................         100           100
  Short-term notes payable ........................          --           198
                                                       --------      --------

    Total current liabilities .....................       2,157         2,343

COMMITMENTS AND CONTINGENCIES .....................          --            --

STOCKHOLDERS' EQUITY (DEFICIT):
  Common stock, authorized 100,000,000 shares,
    without par value; issued and outstanding
    (2000: 41,346,222; 1999: 31,522,109) ..........      28,966        21,494
  Accumulated deficit .............................     (30,573)      (23,156)
                                                       --------      --------

    Total stockholders' equity (deficit) ..........      (1,607)       (1,662)
                                                       --------      --------

    Total liabilities and stockholders'
      equity (deficit) ............................    $    550      $    681
                                                       ========      ========

                 See accompanying notes to financial statements

                                        2
<PAGE>
                            EMPYREAN BIOSCIENCE, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                         Three months ended        Nine months ended
                                                        ---------------------     ---------------------
                                                        Sept. 30,   Sept. 30,     Sept. 30,   Sept. 30,
                                                          2000        1999          2000        1999
                                                        --------    --------      --------    --------
<S>                                                     <C>         <C>           <C>         <C>
Net revenues ....................................       $     49    $     63      $    496    $    650
Cost of sales ...................................             27          11           267          34
                                                        --------    --------      --------    --------

      Gross profit ..............................             22          52           229         616


Selling, general and administrative .............            978         906         2,159       2,891
Royalties .......................................           (345)        124            64         372
Litigation settlement expense ...................          5,360          --         5,434          --
                                                        --------    --------      --------    --------

      Operating expenses ........................          5,993       1,030         7,657       3,263

      Loss from operations ......................         (5,971)       (978)       (7,428)     (2,647)

Other, net ......................................             10          (1)          (14)         (2)
Interest expense ................................             (1)        (45)           (6)       (156)
Interest income .................................              8           1            31           3
                                                        --------    --------      --------    --------

      Other income (expense) ....................             17         (45)           11        (155)
                                                        --------    --------      --------    --------

Net loss ........................................       $ (5,954)   $ (1,023)     $ (7,417)   $ (2,802)
                                                        ========    ========      ========    ========

Basic and diluted loss per share ................       $  (0.15)   $  (0.04)     $  (0.20)   $  (0.10)
                                                        ========    ========      ========    ========

Weighted average number of shares outstanding....         39,207      28,456        36,305      27,519
                                                        ========    ========      ========    ========
</TABLE>

                 See accompanying notes to financial statements

                                        3
<PAGE>
                            EMPYREAN BIOSCIENCE, INC.

       CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                 (IN THOUSANDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                  Common Stock
                                                              ---------------------    Accumulated
                                                               Shares       Amount       Deficit         Total
                                                               ------       ------       -------         -----
<S>                                                           <C>          <C>           <C>           <C>
Balances, January 1, 2000 .................................     31,522     $ 21,494      $(23,156)     $ (1,662)

Common stock issued for cash ..............................      2,904        1,452            --         1,452
Stock options and warrants exercised for cash .............        740          405            --           405
Common stock issued for royalties .........................        476          238            --           238
Common stock issued for debt and services .................        704          360            --           360
Common stock issued for litigation settlement .............      5,000        3,300            --         3,300
Fair value of options granted for litigation settlement....         --        1,595            --         1,595
Fair value of other option and warrant grants .............         --          122            --           122
Net loss ..................................................         --           --        (7,417)       (7,417)
                                                              --------     --------      --------      --------

Balances, September 30, 2000 ..............................     41,346     $ 28,966      $(30,573)     $ (1,607)
                                                              ========     ========      ========      ========
</TABLE>

                 See accompanying notes to financial statements

                                        4
<PAGE>
                            EMPYREAN BIOSCIENCE, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                  Nine months ended
                                                           -------------------------------
                                                           September 30,     September 30,
                                                               2000              1999
                                                              -------           -------
<S>                                                           <C>               <C>
Cash flows from operating activities:
     Net cash used by operating activities .............      $(1,998)          $(1,719)

Cash flows from investing activities:
  Proceeds from sales of fixed assets ..................            5                --
Purchase of capital assets .............................          (17)               (9)
                                                              -------           -------

     Net cash used by investing activities .............          (12)               (9)

Cash flows from financing activities:
  Issuance of common stock .............................        1,857             1,008
  Proceeds of short-term notes payable .................          250               800
  Payments of short-term note payable ..................         (150)               --
                                                              -------           -------

     Net cash provided by financing activities..........        1,957             1,808
                                                              -------           -------

     Net increase (decrease) in cash
       and cash equivalents ............................          (53)               79

Cash and cash equivalents at beginning of period........          286                63
                                                              -------           -------

Cash and cash equivalents at end of period .............      $   233           $   142
                                                              =======           =======
</TABLE>

                 See accompanying notes to financial statements

                                        5
<PAGE>
                            EMPYREAN BIOSCIENCE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                 (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)


NOTE 1 - BASIS OF PRESENTATION

     The financial  information  included herein for the quarters and nine month
     periods ended September 30, 2000 and 1999, and the financial information as
     of September 30, 2000, is unaudited. However, such information reflects all
     adjustments,  consisting of normal recurring adjustments, which are, in the
     opinion of management, necessary for the fair presentation of the financial
     position, results of operations and cash flows for the interim periods. The
     interim  financial  statements  and the  notes  thereto  should  be read in
     conjunction with the annual audited financial statements as of December 31,
     1999. The results of operations for the interim  periods  presented are not
     necessarily indicative of the results to be expected for the full year.

     The  accompanying   condensed  consolidated  financial  statements  include
     Empyrean  Bioscience,  Inc.  and  its  wholly-owned  subsidiary,   Empyrean
     Diagnostics,  Inc. All significant  intercompany  balances and transactions
     have been eliminated in consolidation.

NOTE 2 - GOING CONCERN

     We  incurred  net losses in 1998 and 1999 and expect to incur net losses in
     2000 and at least through 2001. We expect  operations to generate  negative
     cash  flow in 2000 and  through  at  least  2001.  We do not have  existing
     capital resources or credit lines available that are sufficient to fund our
     operations  and capital  requirements  as  presently  planned over the next
     twelve months.  In November 2000, we secured a one-year,  $1,000  revolving
     line of credit from a bank, secured by the signature  guarantees of several
     officers and directors and their wives, which in turn are guaranteed by the
     assets of the Company. We believe this line of credit will be sufficient to
     meet our cash flow requirements  until early 2001, at which time we plan to
     raise additional  equity financing and repay  outstanding  borrowings under
     the line of credit.  We may also pursue a working capital line of credit to
     be secured by our accounts receivable and inventory. We plan to raise funds
     through  the  issuance  of either debt or equity  instruments.  However,  a
     working  capital line of credit and/or equity or debt  financing may not be
     available on favorable  terms or at all.  These  factors raise doubts about
     our ability to continue as a going  concern and our audit report  contained
     in our 1999 annual report on Form 10-KSB filed with the U.S. Securities and
     Exchange  Commission  on March 30, 2000 contains an  explanatory  paragraph
     with respect to this matter.

NOTE 3 - SHORT-TERM NOTES PAYABLE

     In February 2000, the Company  entered into  promissory  note agreements in
     the  aggregate  amount of $250 with  various  officers and  directors.  The
     promissory  notes were due and  payable  nine months from the loan date and
     had a fixed interest rate of 10%,  payable  monthly.  On February 23, 2000,
     promissory  notes in the amount of $298,  including $198 due and payable as
     of December 31, 1999,  were  converted into 596,000 shares of common stock.
     The  remaining  promissory  note in the  amount of $150 was paid in full in
     March  2000.  The  Company  has no  promissory  notes due and payable as of
     September 30, 2000.

                                        6
<PAGE>
NOTE 4 - LEGAL PROCEEDINGS

     We are the  plaintiff  in an  action  that was filed in the  United  States
     District  Court,  Southern  District of Florida  Case  No.00-8300.  In this
     action in federal  court,  the Company  brought suit against  International
     Bioscience  Corporation (IBC),  David Thornburgh,  M.D., and Sara Gomez for
     fraud in the inducement, tortious interference with a business relationship
     and breach of contract in connection  with the Company's  original  license
     from IBC of certain technology. In August 2000, we announced that all legal
     disputes between IBC and our company have been resolved.  We entered into a
     settlement  agreement with IBC on August 9, 2000. This case against IBC has
     been settled by the filing of a  Stipulation  of Dismissal  with the United
     States District Court on August 17, 2000 (see Note 8).

     Optima  Holding Co. Ltd.  intervened in our lawsuit  against IBC,  claiming
     that it has an exclusive  prior right to use the same  technology by virtue
     of a joint venture  agreement  entered into between IBC and Optima.  Optima
     has  asserted  claims  against us for  injunctive  relief,  conversion  and
     tortious  interference  with a business  relationship.  On August 18, 2000,
     Optima,  together  with Mercury  Technology  Corp.  (Delaware)  and Mercury
     Technology Corp.  (Bahamas)  (collectively  "Mercury") amended its original
     intervention  complaint  to add two counts of patent  infringement  against
     both us and IBC,  alleging  that we willfully  infringed  U.S.  Patent Nos.
     3,594,468  and  4,321,277.  Empyrean and IBC have each filed motions in the
     federal  action  seeking the  dismissal  of Mercury's  patent  infringement
     claims.  Mercury has since dropped its claim of infringement of U.S. Patent
     No. 3,594,468.  As noted above, although we have settled our claims against
     IBC and have filed a dismissal of the federal action,  this may not dismiss
     the intervention by Optima and Mercury.

     We are also a defendant in an action that was filed by Optima  Holding Co.,
     Ltd. and Mercury  Technology Corp. on July 28, 1998 in the Circuit Court of
     the Eleventh  Judicial  District,  Dade County,  Florida.  This state court
     action  alleges that we  tortiously  interfered  with Optima and  Mercury's
     contractual  relationship  with IBC. Optima and Mercury claim that they had
     prior rights to the IBC formulation and products and that we induced IBC to
     breach that  agreement.  Optima and Mercury have  requested an  unspecified
     amount of  damages  against  us.  In a  separate  action  that has now been
     consolidated  with the first action in the same court,  IBC has requested a
     declaratory  judgment  that IBC properly  terminated  its  development  and
     distribution contract with Optima and Mercury. Optima and Mercury also seek
     injunctive  relief to  prevent  IBC and its  managers  and  directors  from
     allowing IBC to have further  dealings  with us. The state court action was
     informally  abated while the parties  pursued their remedies in the federal
     action.  If the federal  action is  dismissed,  it is likely that the state
     court  action  will  resume.  If we are not  successful  in the state court
     action, or in the federal action,  we could lose the right to market,  sell
     or  manufacture  our hand sanitizer  product and other  products  currently
     under  development.  Should any court  judgment be entered  precluding  our
     rights to the  products,  IBC has agreed as part of our overall  litigation
     settlement  to secure its  obligations  to us by  granting  us the  highest
     priority  perfected  security  interest IBC is permitted to assign in IBC's
     rights in commercializing the products in the United States.

                                        7
<PAGE>
NOTE 5 - NET REVENUES

     Net revenues are comprised of the following:

                                      Three months ended     Nine months ended
                                     --------------------   --------------------
                                     Sept. 30,  Sept. 30,   Sept. 30,  Sept. 30,
                                       2000       1999        2000       1999
                                       -----      -----       -----      -----
     Product sales .................   $  49      $  30       $ 496      $ 100

     Distribution rights ...........      --         33          --        550
                                       -----      -----       -----      -----

          Net revenues .............      49         63         496        650
                                       =====      =====       =====      =====

NOTE 6 - STOCKHOLDERS' EQUITY

     On  February  23,  2000,  the  Company  completed  a private  placement  of
     6,151,050  shares of common stock that generated  gross proceeds of $3,076.
     Of this  amount,  cash  proceeds  of $750 and $1,452  were  received in the
     fourth  quarter of 1999 and the first  quarter of 2000,  respectively,  and
     $874 resulted from the conversion of promissory notes and royalties payable
     to common  stock.  As of September  30, 2000,  we have paid all of our debt
     with cash or by  converting  promissory  notes  into the  Company's  common
     stock.

     The Company has granted  options to employees,  directors  and others.  The
     Company has also  granted  warrants  to debt  holders  and  investors.  For
     options  granted  to  non-employees,  the  Company  recognizes  consulting,
     interest,  or litigation  settlement expense equal to the fair value of the
     options.  At September  30,  2000,  10,411,710  options and  warrants  were
     exercisable at a weighted average price of $0.69 per share.

     A summary of the status of stock  options and warrants as of September  30,
     2000,  and changes  during the nine months  ended on that date is presented
     below.

<TABLE>
<CAPTION>
                                                       Options                     Warrants
                                               ----------------------       ----------------------
                                                             Weighted                     Weighted
                                                             Average                      Average
                                                             Exercise                     Exercise
                                                 Number        Price         Number        Price
                                               ----------    --------       ----------    --------
<S>                                           <C>            <C>          <C>            <C>
     Outstanding at January 1, 2000 .......     6,633,000      $ .70        2,405,000      $ .67
       Granted ............................     3,263,000        .76        1,538,000        .50
       Exercised ..........................      (285,000)       .54         (455,000)       .55
       Expired ............................      (188,000)       .80               --         --
                                               ----------      -----       ----------      -----
     Outstanding at September 30, 2000 ....     9,423,000      $ .69        3,488,000      $ .68
                                               ==========      =====       ==========      =====
</TABLE>

     Stock options and warrants were not included in the  computation of diluted
     loss per share for the periods  presented  because to do so would have been
     antidilutive.

NOTE 7 - RESTRUCTURING CHARGE

     The Company  recorded a restructuring  charge of $345 in 1999 consisting of
     involuntary  termination benefits of $263 and other related  reorganization
     costs of $82. This charge resulted from a business  reorganization approved
     by the Board of  Directors  in  December  1999  that  included  a  facility
     closure,  relocation  of  the  corporate  headquarters  into  a  more  cost

                                        8
<PAGE>
     effective location, severance costs for two Arizona based personnel and the
     write down of abandoned  fixed assets to estimated  fair value less cost to
     sell.  As of December 31, 1999,  both  employees  had been  terminated  and
     severance  payments and  benefits  are payable to December 31, 2000.  As of
     September 30, 2000, $209 in reorganization costs have been paid and applied
     against the  restructuring  accrual.  The  remaining  reorganization  costs
     consist of severance payments and are expected to be paid prior to December
     31, 2000.

NOTE 8 - LITIGATION SETTLEMENT EXPENSE

     In April 2000,  the Company filed suit in the U.S.  District  Court for the
     Southern District of Florida against IBC alleging breach and default on its
     exclusive  license  agreement with us. The Company announced the resolution
     of all  legal  disputes  with IBC in  August  2000.  Under the terms of the
     settlement,  Empyrean retains the rights to licensed products in the United
     States,  IBC retains the rights to licensed products in Brazil, and a 50/50
     joint venture company formed by Empyrean and IBC obtains rights to licensed
     products  in the rest of the  world.  We  intend to  account  for the joint
     venture under the equity method of accounting. Empyrean is obligated to use
     IBC's  GEDA(R)  trademark  on all its  products.  IBC has the  right to use
     Empyrean's   Preventx(R)  trademark  on  its  products.  In  addition,  the
     settlement  includes a new product license  agreement  between Empyrean and
     IBC that increases the royalty rate from 2% of net sales to 5% of net sales
     in the United States  beginning  August 9, 2000 but  eliminates the minimum
     royalties called for under the prior license agreement beginning January 1,
     2000. Empyrean will also receive a 5% royalty on IBC's net sales in Brazil.
     Additionally,  IBC has  agreed to raise up to  $10,000,  if  necessary, for
     future  clinical trials for a microbicidal  contraceptive  gel and Empyrean
     has agreed to expend up to $10,000,  if  necessary, in the future to market
     the licensed products.

     In conjunction with this settlement, the Company issued 5,000,000 shares of
     common stock and granted  2,226,000 options to purchase common stock to IBC
     at an  exercise  price of $0.83 per share.  The market  value of the common
     stock  issued was  $3,300 and the fair value of the  options on the date of
     grant equaled $1,417.  In addition,  the Company incurred $539 of legal and
     other  expenses  related to the suit and its  settlement  and awarded stock
     options with a fair value of $178 to a director for his role in negotiating
     the settlement. These amounts, totaling $5,434, were expensed as litigation
     settlement expense. In addition, an accrual for minimum royalties to IBC of
     $358 that was  established  in the first and  second  quarters  of 2000 was
     reversed  in the third  quarter as a result of the  elimination  of minimum
     royalties  retroactive  to January 1,  2000.

NOTE 9 - CASH FLOW STATEMENT

     During  2000,   the  Company  has  entered  into  the  following   non-cash
     transactions:

     *    The Company issued 5,000,000 shares of common stock, valued at $3,300,
          and granted  2,226,000  options to purchase  common  stock,  valued at
          $1,417,  to IBC in conjunction with the resolution of all legal claims
          between the two companies and the  establishment  of a new 50/50 joint
          venture by the two companies. The Company also granted 250,000 options
          to purchase  common stock,  valued at $178, to a director for his role
          in negotiating the settlement with IBC.
     *    The Company issued 1,072,050  shares of common stock,  valued at $536,
          to  various  parties  for  the  conversion  of  promissory  notes  and
          royalties payable by the Company to common stock.
     *    The Company issued 108,063 shares of common stock,  valued at $62, and
          granted 257,500  options to purchase  common stock, valued at $122, to
          various consultants and other parties in compensation for services and
          loans provided to the Company.

NOTE 10 - SUBSEQUENT EVENT

     In November 2000, the Company secured a one-year,  $1,000 revolving line of
     credit  from a bank with an  interest  rate equal to the bank's  prime rate
     plus 1/2%.  The line of credit is secured by the  signature  guarantees  of
     several  officers and directors and their wives,  which in turn are secured
     by the assets of the Company.  In return for their guarantees,  the Company
     granted these officers and directors,  collectively,  450,000 shares of the
     Company's  common stock.  As of November 13, 2000, no borrowings  under the
     line of credit were outstanding.

                                       9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

SPECIAL NOTE CONCERNING FORWARD LOOKING STATEMENTS

     THIS  FORM  10-QSB,  INCLUDING  THE  NOTES  TO THE  CONDENSED  CONSOLIDATED
FINANCIAL STATEMENTS AND THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS,"  CONTAINS FORWARD LOOKING  STATEMENTS.  WE
MAY MAKE  ADDITIONAL  WRITTEN AND ORAL FORWARD  LOOKING  STATEMENTS FROM TIME TO
TIME IN  FILINGS  WITH THE  SECURITIES  AND  EXCHANGE  COMMISSION,  IN OUR PRESS
RELEASES, OR OTHERWISE.  THE WORDS "BELIEVE," "EXPECT," "ANTICIPATE," "INTENDS,"
"FORECAST,"  "PROJECT," "PLAN," "HOPE," AND SIMILAR EXPRESSIONS IDENTIFY FORWARD
LOOKING  STATEMENTS.  THESE STATEMENTS MAY INCLUDE,  BUT ARE NOT LIMITED TO, THE
ANTICIPATED  OUTCOME OF  CONTINGENT  EVENTS,  INCLUDING  LITIGATION,  REGULATORY
PROCEEDINGS OR RULEMAKING,  PROJECTIONS  OF REVENUES,  INCOME,  LOSS, OR CAPITAL
EXPENDITURES,  PLANS FOR FUTURE OPERATIONS,  GROWTH AND ACQUISITIONS,  FINANCING
NEEDS OR PLANS AND THE AVAILABILITY OF FINANCING, AND PLANS RELATING TO PRODUCTS
OR PRODUCT DEVELOPMENT AS WELL AS ASSUMPTIONS RELATING TO THE ABOVE SUBJECTS.

     FORWARD  LOOKING  STATEMENTS  REFLECT OUR CURRENT VIEWS  CONCERNING  FUTURE
EVENTS AND FINANCIAL  PERFORMANCE  AND SPEAK ONLY AS OF THE DATE THE  STATEMENTS
ARE  MADE.   THESE  FORWARD   LOOKING   STATEMENTS  ARE  SUBJECT  TO  RISKS  AND
UNCERTAINTIES, SOME OF WHICH CANNOT BE PREDICTED OR QUANTIFIED, THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE SET FORTH IN, CONTEMPLATED BY, OR
UNDERLYING  THE FORWARD  LOOKING  STATEMENTS.  STATEMENTS  IN THIS FORM  10-QSB,
INCLUDING  THE  NOTES  TO  THE  CONSOLIDATED   FINANCIAL   STATEMENTS  AND  THIS
"MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS,"  DESCRIBE FACTORS,  AMONG OTHERS, THAT COULD CONTRIBUTE TO OR CAUSE
SUCH DIFFERENCES.  SUCH FACTORS INCLUDE,  AMONG OTHER FACTORS, THE ACCEPTABILITY
OF EXISTING AND  POTENTIAL  PRODUCTS IN THE  MARKETPLACE,  THE ABILITY TO OBTAIN
SUFFICIENT CAPITAL TO FUND OPERATIONS AND THE OUTCOME OF POTENTIAL LITIGATION.

     The following  discussion and analysis provides  information  regarding our
financial  condition  and  results of  operations  for the periods  shown.  This
discussion   should  be  read  in  conjunction  with  our  Unaudited   Condensed
Consolidated  Financial  Statements and related Notes thereto included elsewhere
in this document.

INTRODUCTION

     In 1998, we acquired  certain rights to use a microbicide  formulation from
International Bioscience Corporation.  We market, sell and distribute innovative
personal care products  based on this  formulation  that are intended to prevent
the spread of infectious  disease.  In the future, we may also market,  sell and
distribute products based upon other third party or purchased  formulations.  To
date, we have introduced one product,  which is marketed as both the Preventx(R)
hand sanitizer and first-aid  antiseptic  and the Coleman(R)  hand sanitizer and
first-aid  antiseptic with the Advanced Preventx(R) Formula, and is sold in both
lotion and towelette forms.  Sales of the towelettes began in the fourth quarter
of 2000.  In  accordance  with the  settlement of our suit with IBC, new product
development  is vested in the  joint  venture  formed  with IBC.  Our  marketing
personnel  and  IBC's  scientific   personnel  share  new  product   development
responsibilities. Additional preventative products will be developed that we can
market  utilizing  the  formulation  used  in our  hand  sanitizer  including  a
disinfectant  surface spray, baby wipes, and a microbicidal  contraceptive  gel.
Our disinfectant  surface spray that is based on the IBC formulation must obtain
regulatory  approval  from the  EPA,  which we  estimate  will  take at least 12
months.  IBC plans to apply for an Investigative  New Drug (IND) number from the
FDA for the baby  wipes  subsequent  to the  receipt  of an IND  number  for the
microbicidal  contraceptive  gel.  An IND number  will  enable  IBC to  commence
testing  that will be  recognized  by the FDA. We estimate  that the testing and
approval  process  for the baby  wipes  will take at least six  months  from the
receipt of the IND number.  The application  process to obtain an IND number for
the microbicidal  contraceptive  gel is underway.  The gel must undergo clinical
trials and obtain regulatory approval prior to marketing. The gel will be tested
to determine  its  effectiveness  in  preventing  HIV as well as other  sexually
transmitted diseases,  all of which have different rates of transmission as well
as  gestation  periods  for  infection  within the human body.  As a result,  we
anticipate the clinical trials for certain  sexually  transmitted  diseases will
require a minimum of six months while other sexually  transmitted  diseases such
as HIV will  require at least 18 months from the  receipt of the IND number.  We
hope to have the clinical trials begin in the fourth quarter of 2000.

                                       10
<PAGE>
     The  limited  revenues  and  substantial  start-up  costs  associated  with
introducing our new line of preventative  products have  significantly  affected
our current financial condition and operations. We have had limited revenues and
have sustained  substantial  losses from  operations in recent years and have an
accumulated deficit.

     We  incurred  net losses in 1998 and 1999 and expect to incur net losses in
2000 and at least through 2001. We expect  operations to generate  negative cash
flow in 2000 and at least  through  2001  and we do not  have  existing  capital
resources or credit lines  available  that are sufficient to fund our operations
and capital requirements as presently planned over the next twelve months. These
factors  raise doubts  about our ability to continue as a going  concern and our
audit report in our annual report on Form 10-KSB filed with the SEC on March 30,
2000 contained an explanatory paragraph with respect to this matter.

     We expect to generate  substantially all of our revenues in the future from
increased sales of our current line of Preventx(R) preventative products as well
as additional preventative products that we can market utilizing the formulation
used in our hand sanitizer and other third-party formulations.

     In  addition  to cost of goods  sold,  which  we  expect  to vary  somewhat
proportionately with sales over time, significant cost and expense items include
salaries and benefits,  consulting fees, royalties,  distribution rights, office
and  administration,  advertising,  and legal and  accounting,  all of which, in
total,  significantly  exceeded  our total  revenues for 1999 and the first nine
months of 2000.  Accordingly,  we do not believe comparing costs as a percentage
of revenues from year to year is meaningful.

RESULTS OF OPERATIONS

COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

     Our total  revenues in the three months ended  September  30, 2000 were $49
compared with $63 in the three months ended  September  30, 1999.  Product sales
increased in the three months  ending  September 30, 2000 to $49 from $30 in the
three months  ending  September  30, 1999 due primarily to shipments to Wal-Mart
Stores,  Inc.,  which  represented  approximately  43% of total revenues for the
three months ended September 30, 2000. However,  total revenues decreased due to
receiving a Southeast Asia  distribution  rights payment in the amount of $33 in
the third quarter of 1999 compared to $0 in the third quarter of 2000.

     Our gross margin from product  sales  decreased to 45% in the quarter ended
September  30, 2000 from 62% in the quarter  ended  September  30,  1999.  Sales
during the  quarter  ended  September  30,  2000 were  primarily  made to retail
customers,  which  generally  yield higher volumes but lower selling prices than
the  institutional  channel  into  which we sold in the third  quarter  of 1999.
Additionally,  product costs are higher in the retail channel due to the cost of
labeling and packaging to effectively reach the end consumer.

     Operating  expenses increased to $5,993 in the three months ended September
30, 2000 from $1,030 in the three months ended  September 30, 1999 primarily due
to the following:

*    Litigation  settlement  expenses  of  $5,360  related  to the  lawsuit  and
     subsequent settlement agreement with IBC were incurred in the quarter ended
     September 30, 2000 compared to $0 in the quarter ended September 30, 1999.

*    An accrual for minimum royalties to IBC of $358 that was established in the
     first and second  quarters of 2000 was  reversed in the third  quarter as a
     result of the  settlement  of our lawsuit with IBC and the  elimination  of
     minimum royalties retroactive to January 1, 2000. As a result, expenses for
     royalties were negative $(345) in the three months ended September 30, 2000
     compared to $124 in the three months ended  September 30, 1999. The quarter

                                       11
<PAGE>
     ended  September 30, 1999  included a minimum IBC royalty  accrual of $122.
     Partially  offsetting  this  benefit is an increase in the IBC royalty rate
     from  2% of  net  sales  to 5% of  net  sales  beginning  August  9,  2000,
     sub-license  royalty  expenses  associated with increased sales of our hand
     sanitizer  in the three months  ended  September  30, 2000 versus the three
     months  ended  September  30,  1999,  and  royalties  related to  licensing
     agreements with Coleman  Corporation and Sunbeam  Corporation that were not
     in place in the quarter ended September 30, 1999.

*    Sales promotion and advertising  expenses  increased to $252 in the quarter
     ended  September 30, 2000 from $189 in the quarter ended September 30, 1999
     as  a  result  of  increased  new  product  development  costs,  redesigned
     point-of-purchase product displays, radio and print advertisements, and the
     development of a web site for on-line consumer sales.

*    Fees for legal  services  increased to $258 in the quarter ended  September
     30, 2000 from $121 in the quarter ended  September  30, 1999.  The increase
     was  due  primarily  to  expenses  related  to  the  filing  of an  amended
     registration statement with the U.S. Securities and Exchange Commission and
     the receipt of  year-to-date  legal billings from a principal law firm that
     exceeded our previous estimates.

*    Fees relating to third party  distribution of our hand sanitizer  decreased
     to $8 in the three months ended  September  30, 2000  compared with $105 in
     the three months ended September 30, 1999. We reduced distribution costs by
     changing to an Ohio-based third party distributor in March 2000, which also
     provides  infrastructure  services  including  distribution,  order  entry,
     warehousing, customer service and billing services.

     Interest  expense  decreased to $1 in the three months ended  September 30,
2000 from $45 in the three months ended September 30, 1999.  Interest expense in
the quarter ended September 30, 2000 represented  interest on financed insurance
premiums  while  interest  expense  in the  quarter  ended  September  30,  1999
represented amortization of the fair value of warrants issued to promissory note
holders and interest on loans.

     We  incurred a net loss in the three  months  ended  September  30, 2000 of
$5,954  compared to a net loss of $1,023 in the three months ended September 30,
1999.  The losses in the third  quarters of 2000 and 1999 were due  primarily to
limited  revenues that were  substantially  exceeded by our costs of operations,
and in 2000, the expense related to the lawsuit and settlement with IBC. Our net
loss per share for the three months ended  September 30, 2000 was $0.15 compared
to a net loss per share of $0.04 in the three months ended  September  30, 1999.
The loss per share increased  primarily as a result of the factors affecting net
loss as discussed above, partially offset by an increase in the weighted average
number of shares  outstanding to 39,207,143 in the three months ended  September
30, 2000 from 28,455,659 in the three months ended September 30, 1999.

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

     Our total  revenues in the nine months ended  September  30, 2000 were $496
compared with $650 in the nine months ended  September  30, 1999.  Product sales
increased in the nine months ending  September 30, 2000 to $496 from $100 in the
nine months  ending  September  30, 1999 due  primarily to shipments to Wal-Mart
Stores, Inc. in 2000, which represented  approximately 64% of total revenues for
the nine months then ended.  However,  total revenues decreased due to receiving
Southeast  Asia  distribution  right payments in the amount of $550 in the first
nine months of 1999 as compared to $0 in the first nine months of 2000.

     Product  sales were lower in the third  quarter of 2000  compared  with the
first  and  second  quarters  of the year as there  were no major  shipments  of
initial  stocking  orders,  such as the shipments to Wal-Mart of Preventx(R) and
Coleman(R)  products in the first and second  quarters.  We anticipate  that our
sales efforts will reverse this trend in the fourth quarter of 2000.

     Our gross  margin from  product  sales  decreased to 46% in the nine months
ended  September 30, 2000 from 50% in the nine months ended  September 30, 1999.
Sales during the nine months ended  September  30, 2000 were  primarily  made to

                                       12
<PAGE>
retail customers,  which generally yield higher volumes but lower selling prices
than the  institutional  channel  into  which we sold in the nine  months  ended
September 30, 1999. Additionally, product costs are higher in the retail channel
due to the cost of labeling and packaging to effectively reach the end consumer.

     Operating  expenses  increased to $7,657 in the nine months ended September
30, 2000 from $3,263 in the nine months ended  September 30, 1999  primarily due
to the following:

*    Litigation  settlement  expenses  of  $5,434  related  to the  lawsuit  and
     subsequent  settlement  agreement with IBC were incurred in the nine months
     ended  September 30, 2000 compared to $0 in the nine months ended September
     30, 1999.

*    Expenses for royalties  decreased to $64 in the nine months ended September
     30, 2000 from $372 in the nine months ended  September 30, 1999,  primarily
     due to the elimination of the guaranteed minimum royalty with IBC beginning
     with the  fiscal  year  2000.  A minimum  IBC  royalty  accrual of $365 was
     included  in the  results for the nine months  ended  September  30,  1999.
     Partially  offsetting  this  benefit is an increase in the IBC royalty rate
     from  2% of  net  sales  to 5% of  net  sales  beginning  August  9,  2000,
     sub-license  royalty  expenses  associated with increased sales of our hand
     sanitizer  in the nine  months  ended  September  30,  2000 versus the nine
     months  ended  September  30,  1999,  and  royalties  related to  licensing
     agreements with Coleman  Corporation and Sunbeam  Corporation that were not
     in place in the first nine months of 1999.

*    Consulting  expenses  decreased to $441 in the nine months ended  September
     30, 2000 from $1,222 in the nine months ended  September 30, 1999 primarily
     due to less expense  recorded for stock option  grants to  consultants  and
     less reliance on paid  consultants  in the nine months ended  September 30,
     2000.  Additionally,  we incurred,  in connection  with our Southeast  Asia
     distribution  agreement,  consulting  services in the amount of $330 in the
     nine months ended  September  30, 1999 as compared to $0 in the nine months
     ended September 30, 2000.

*    Fees relating to third party  distribution of our hand sanitizer  decreased
     to $77 in the nine months ended  September  30, 2000  compared with $375 in
     the nine months ended September 30, 1999. We reduced  distribution costs by
     changing to an Ohio-based third party distributor in March 2000, which also
     provides  infrastructure  services  including  distribution,  order  entry,
     warehousing, customer service and billing services.

*    Expenses for  distribution  rights decreased to $0 in the nine months ended
     September 30, 2000 from $70 in the nine months ended September 30, 1999 due
     to a payment for the Canadian distribution rights to the IBC formulation in
     1999.

*    Legal  expenses  increased to $353 in the nine months ended  September  30,
     2000  compared to $236 in the nine months ended  September  30,  1999.  The
     increase was due primarily to expenses  related to the filing of an amended
     registration statement with the U.S. Securities and Exchange Commission.

     Interest  expense  decreased to $6 in the nine months ended  September  30,
2000  from $157 in the nine  months  ended  September  30,  1999 due to  greater
amortization of the fair value of warrants issued to promissory note holders and
interest on loans in 1999.

     We  incurred a net loss in the nine  months  ended  September  30,  2000 of
$7,417  compared to a net loss of $2,802 in the nine months ended  September 30,
1999. The losses in the first nine months of 2000 and 1999 were due primarily to

                                       13
<PAGE>
limited  revenues that were  substantially  exceeded by our costs of operations,
and in 2000, the expense related to the lawsuit and settlement with IBC. Our net
loss per share for the nine months ended  September 30, 2000 was $0.20  compared
to a net loss per share of $0.10 in the nine months  ended  September  30, 1999.
The loss per share increased  primarily as a result of the factors affecting net
loss as discussed above, partially offset by an increase in the weighted average
number of shares  outstanding  to 36,305,074 in the nine months ended  September
30, 2000 from 27,519,375 in the nine months ended September 30, 1999.

LIQUIDITY AND FINANCIAL POSITION

     To date,  we have been unable to generate  significant  cash flows from our
business operations. As a result, we have funded our operations through investor
financing,  including  sales of common stock,  convertible  debentures,  and the
exercise of warrants and options.  During the fiscal years 1997,  1998, and 1999
and the nine  months  ended  September  30,  2000,  we  raised a total of $7,528
through  these  means.  We also issued stock to satisfy  $5,352 of  obligations,
including  stock valued at $3,300 that was issued to settle the litigation  with
IBC. In addition,  the proceeds from  promissory  notes that were repaid in cash
during this time  period  were $296.  Until such time as we are able to generate
significant cash flow from operations  through  increased sales of our products,
we will be required to continue our  reliance on investor  financing to fund our
operations.  At September 30, 2000, cash and cash  equivalents  totaled $233, an
increase of $91 from  September 30, 1999.  Current  liabilities at September 30,
2000, consisting primarily of accounts payable and accrued liabilities, exceeded
current assets by $1,648.

     During the nine months ended September 30, 2000, net cash used in operating
activities was $1,998,  primarily due to a net loss of $7,417. Non-cash expenses
of $5,079 were incurred in the period.

     In the nine months ended  September 30, 2000,  net cash flow from financing
activities was $1,957,  resulting from the sale of common stock and the exercise
of  options  and  warrants  in the  amount of $1,857  and from the  issuance  of
short-term promissory notes totaling $250, with offsetting payments of the notes
in the amount of $150.

     On February 23, 2000, we completed a private  placement of 6,151,050 shares
of common stock that generated  gross proceeds of $3,076.  Of this amount,  cash
proceeds of $750 and $1,452 were received in the fourth  quarter of 1999 and the
first quarter of 2000,  respectively,  and $874 resulted from the  conversion of
promissory  notes and  royalties  payable to common  stock.  As of September 30,
2000, we have paid all of our debt with cash or by converting  promissory  notes
into the Company's common stock.

     Our future royalty  requirements will affect liquidity.  We are required to
pay royalties to various  licensors,  including  IBC, of up to 17% of net sales.
The settlement with IBC will have a favorable effect on near-term liquidity as a
result of the elimination of the minimum royalty  payment.  The previous license
agreement  required a minimum  royalty  payment of $735 to be paid no later than
January 30, 2001. This payment is no longer required.

                                       14
<PAGE>
     As of September  30, 2000,  we have no debt service or capital  expenditure
obligations.

     We have previously disclosed that we would need to raise additional capital
during fiscal year 2000 or secure a line of credit. In November 2000, we secured
a one-year,  $1,000  revolving  line of credit from a bank with an interest rate
equal to the bank's  prime rate plus 1/2%.  The line of credit is secured by the
signature guarantees of several officers and directors and their wives, which in
turn are secured by the assets of the Company.  In return for their  guarantees,
we have granted these  officers and directors,  collectively,  450,000 shares of
the  Company's  common stock.  As of November 13, 2000, no borrowings  under the
line of credit  were  outstanding.  We believe  that this line of credit will be
sufficient to meet our cash flow requirements until early 2001, at which time we
plan to raise additional equity financing and repay outstanding borrowings under
the  revolving  line of credit.  However,  there can be no  assurance  that such
equity financing will be available on favorable terms or at all.

     We  anticipate  a  substantial  increase in cash  outlays  associated  with
increased  marketing  and sales of our  Preventx(R)  preventative  product line.
Although the IBC settlement  requires us to use reasonable  efforts to expend up
to $10,000  over five years to market  licensed  products in the  territory,  we
believe that 100% of our  expenditures  will qualify to satisfy this  commitment
since we are purely a sales and  marketing  company  whose  products are derived
from the IBC formulation.  We do not believe that incremental outlays beyond the
level  projected in our business and  marketing  plans will be needed  solely to
satisfy the IBC settlement commitment.

     We will incur  additional  expenditures  associated with the development of
additional  preventative  products that we can market  utilizing the formulation
used in our hand  sanitizer.  These  cash  outlays  could  include,  but are not
limited  to,  product  testing,  package  design,  advertising,  point  of  sale
displays, inventory purchases and a sales and marketing campaign. Our investment
in working  capital is also  expected to increase as we broaden our product line
and obtain new customers. Additionally, the joint venture company formed as part
of the  settlement  with IBC is expected to incur net cash outlays for the first
few years and we may be obligated to make  capital  contributions  to or arrange
financing for the joint venture.  The amount of any such capital contribution or
financing requirement is as yet undetermined.

     We do not have existing  capital  resources or credit lines  available that
are  sufficient to fund our  operations  and capital  requirements  as presently
planned over the next twelve months.  We plan to raise  additional funds through
the issuance of either debt or equity instruments.  We may also pursue a working
capital line of credit to be secured by our accounts  receivable  and inventory.
However,  such funds may not be available on favorable terms or at all. To repay
borrowings  under the line of credit,  maintain  our  current  expense  level of
approximately  $3,000 to $4,000 per year and meet the costs  associated with our
increased marketing, sales and development efforts, and capital contributions to
the joint  venture,  it is likely that we will need to raise a minimum of $3,000
to $5,000 of  additional  capital  during fiscal year 2001,  depending  upon the
magnitude of funds  generated  from  operations.  We expect cash  receipts  from
customers  to  increase  in 2001 due to greater  anticipated  sales  volume from
additional customers and a broader product line. The 2001 financing  requirement
may exceed our historical  funding  requirement,  which  averaged  approximately
$2,400 per year in the fiscal years 1997, 1998, and 1999.  Also,  should the FDA
issue  final   regulations   that  are  consistent  with  its  current  proposed
regulations  with respect to our hand  sanitizer,  we may  experience an adverse
effect on liquidity.  Although we believe we would have twelve months to address
any changes which may be necessary regarding the labeling of our hand sanitizer,
the effort  required to undertake the changes may cause our financial  condition
and results of operations to deteriorate and our business may ultimately fail.

     During  2000,  in excess of $400,000  has been raised from the  exercise of
outstanding stock options and warrants. However, this did not negate the need to
raise additional  funds through issuance of debt and equity  instruments or with
credit lines.

                                       15
<PAGE>
                            PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     We are the  plaintiff  in an  action  that was filed in the  United  States
District Court, Southern District of Florida Case No. 00-8300. In this action in
federal  court,  the  Company  brought  suit  against  International  Bioscience
Corporation  (IBC),  David  Thornburgh,  M.D.,  and Sara  Gomez for fraud in the
inducement,  tortious  interference  with a business  relationship and breach of
contract in connection with the Company's  original  license from IBC of certain
technology. In August 2000, we announced that all legal disputes between IBC and
our company have been resolved.  We entered into a settlement agreement with IBC
on August 9, 2000.  This case  against  IBC has been  settled by the filing of a
Stipulation  of Dismissal  with the United States  District  Court on August 17,
2000.

     Optima  Holding Co. Ltd.  intervened in our lawsuit  against IBC,  claiming
that it has an exclusive  prior right to use the same  technology by virtue of a
joint venture agreement entered into between IBC and Optima. Optima has asserted
claims against us for injunctive  relief,  conversion and tortious  interference
with a business relationship.  On August 18, 2000, Optima, together with Mercury
Technology Corp. (Delaware) and Mercury Technology Corp. (Bahamas) (collectively
"Mercury")  amended its  original  intervention  complaint  to add two counts of
patent  infringement  against  both  us and  IBC,  alleging  that  we  willfully
infringed U.S. Patent Nos.  3,594,468 and 4,321,277.  Empyrean and IBC have each
filed motions in the federal  action  seeking the dismissal of Mercury's  patent
infringement claims. Mercury has since dropped its claim of infringement of U.S.
Patent No.  3,594,468.  As noted  above,  although  we have  settled  our claims
against  IBC and have filed a  dismissal  of the  federal  action,  this may not
dismiss the intervention by Optima and Mercury.

     We are also a defendant in an action that was filed by Optima  Holding Co.,
Ltd. and Mercury  Technology  Corp. on July 28, 1998 in the Circuit Court of the
Eleventh  Judicial  District,  Dade  County,  Florida.  This state court  action
alleges that we  tortiously  interfered  with Optima and  Mercury's  contractual
relationship  with IBC.  Optima and Mercury  claim that they had prior rights to
the IBC  formulation  and  products  and  that we  induced  IBC to  breach  that
agreement.  Optima and Mercury have requested an  unspecified  amount of damages
against us. In a separate action that has now been  consolidated  with the first
action in the same court,  IBC has  requested a  declaratory  judgment  that IBC
properly  terminated its development and  distribution  contract with Optima and
Mercury.  Optima and Mercury also seek injunctive  relief to prevent IBC and its
managers and directors  from allowing IBC to have further  dealings with us. The
state  court  action was  informally  abated  while the  parties  pursued  their
remedies in the federal action. If the federal action is dismissed, it is likely
that the state court action will resume.  If we are not  successful in the state
court action, or in the federal action, we could lose the right to market,  sell
or manufacture  our hand sanitizer  product and other products  currently  under
development.  Should any court judgment be entered  precluding our rights to the
products,  IBC has agreed as part of our overall litigation settlement to secure
its  obligations to us by granting us the highest  priority  perfected  security
interest  IBC is  permitted  to assign in IBC's  rights in  commercializing  the
products in the United States.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (b) A report  on Form 8-K was  filed  on  August  17,  2000 to  report  the
settlement of all outstanding  legal claims between  Empyrean and  International
Bioscience  Corporation  and the formation of a 50/50 joint  venture  company to
manufacture,  market,  sell and  distribute  products  to prevent  the spread of
infectious  diseases  throughout  the world  based on  proprietary  formulations
licensed from IBC.

                                       16
<PAGE>
                                   SIGNATURES

     In accordance  with the  requirements  of the Exchange Act, the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                      EMPYREAN BIOSCIENCE, INC.
                                      (Registrant)


November 14, 2000                     /s/ Richard C. Adamany
----------------------                ------------------------------------------
(Date)                                (Signature)
                                      Richard C. Adamany
                                      President and Chief Executive Officer


November 14, 2000                     /s/ Brenda K. Brown
----------------------                ------------------------------------------
(Date)                                (Signature)
                                      Brenda K. Brown
                                      Vice President and Chief Financial Officer

                                       17