<PAGE>   1
                                                                  Page 1 of 16

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC. 20549

                                    FORM 10-Q

            [X]         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                        THE SECURITIES EXCHANGE ACT OF 1934

            For the quarterly period ended         March 31, 1998
                                           -------------------------------

                                       OR

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

            For the transition period from ____________ to _____________

                         Commission file number     0-15070
                                               --------------

                            Alpha 1 Biomedicals, Inc.
              -----------------------------------------------------
             (Exact name of registrant as specified in its charter)

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

                            6707 Democracy Boulevard
                                    Suite 111
                             Bethesda, MD 20817-1129
              -----------------------------------------------------
          (Address of principal executive offices, including zip code)

                                  301-564-4400
              -----------------------------------------------------
               (Registrants telephone number, including area code)

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

                                    Yes         X        No
                                             -------          -------

          As of May 11, 1998, 11,977,429 shares of the registrant's common
stock, par value $.001 per share, were issued and outstanding.





<PAGE>   2
                                                                   Page 2 of 16




                            ALPHA 1 BIOMEDICALS, INC.

                                    FORM 10-Q

                          QUARTER ENDED March 31, 1998

                                      INDEX
<TABLE>
<CAPTION>
                                                                                  Page No.
                                                                                  --------
Part I.        Financial Information
<S>                                                                              <C>
               Item 1.     Financial Statements

                           Balance Sheets at March 31, 1998
                           (unaudited) and December 31, 1997
                           (audited)                                                 3

                           Statements of Operations for the three-
                           month periods ended March 31, 1998
                           and 1997 (unaudited)                                      4

                           Statements of Cash Flows for the three-
                           month periods ended March 31, 1998 and
                           1997 (unaudited)                                          5

                           Notes to Financial Statements                          6-11

               Item 2.     Management's Discussion and Analysis of
                           Financial Condition and Results of
                           Operations                                            12-14

Part II.       Other Information

               Item 6.     Exhibits and Reports on Form 8-K                         15

Signatures                                                                          16
</TABLE>


<PAGE>   3
                                                                   Page 3 of 16

                         Part I. Financial Information

                           ALPHA 1 BIOMEDICALS, INC.
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                              March 31,      December 31,
                                                                                1998             1997
                                                                                ----             ----
                                                                             (unaudited)
<S>                                                                   <C>                  <C>
ASSETS

Current assets
       Cash and cash equivalents                                      $       42,308       $        21,369
       Prepaid insurance                                                      31,876                46,988
                                                                      ---------------      ----------------

                Total current assets                                          74,184                68,357

Fixed assets, net                                                              1,135                 1,304
Due from related party, net of allowance                                       2,197                 2,197
                                                                      ---------------      ----------------

                Total assets                                          $       77,516       $        71,858
                                                                      ===============      ================

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities
       Accounts payable                                               $      323,421       $       276,215
       Accrued expenses                                                      436,927               408,801
       Notes payable                                                         220,000               110,000
       Letter agreements with vendors                                      1,290,503             1,290,503
       Deferred revenue                                                      130,000                65,000
                                                                      ---------------      ----------------

                Total current liabilities                                  2,400,851             2,150,519
                                                                      ---------------      ----------------

Stockholders' equity (deficit)
       Preferred stock, $.001 par value per share,
        1,000,000 authorized; no shares issued                                 -                     -
       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                                         35,965,289            35,965,289
       Accumulated deficit                                               (38,300,601)          (38,055,927)

                                                                      ---------------      ----------------
                Total stockholders' equity (deficit)                      (2,323,335)           (2,078,661)
                                                                      ---------------      ----------------

      Total liabilities and stockholders' equity (deficit)            $       77,516       $        71,858
                                                                      ===============      ================
</TABLE>

<PAGE>   4

                                                                   Page 4 of 16



                           ALPHA 1 BIOMEDICALS, INC.
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                Three months ended
                                                                                     March 31,
                                                                         ----------------------------------
                                                                              1998               1997
                                                                         --------------      -------------
                                                                                              (unaudited)
<S>                                                                      <C>                 <C>
Revenues                                                                 $       2,515       $      9,229

Expenses
   Research and product
    development                                                                 13,793             39,336
   General and administrative                                                  195,583            145,925
                                                                         --------------      -------------

Total expenses                                                                 209,376            185,261
                                                                         --------------      -------------

Operating loss                                                                (206,861)          (176,032)
Interest expense                                                               (37,819)           (35,043)
Interest income                                                                      6                231
                                                                         --------------      -------------

Net loss                                                                 $    (244,674)      $   (210,844)
                                                                         ==============      =============

Basic and diluted net loss per common share                              $       (0.02)      $      (0.02)
                                                                         ==============      =============


Weighted average number
 of common shares outstanding                                               11,977,429          9,746,873
                                                                         ==============      =============
</TABLE>

<PAGE>   5

                                                                   Page 5 of 16

                           ALPHA 1 BIOMEDICALS, INC.
                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                     Three months ended
                                                                                          March 31,
                                                                              ------------------------------------
                                                                                   1998                  1997
                                                                              --------------      ----------------
                                                                                          (unaudited)
<S>                                                                           <C>                <C>
Cash flows from operating activities:
       Net loss                                                               $    (244,674)      $      (210,844)

Adjustments to reconcile net loss to net
       cash used in operating activities:
                Depreciation                                                            169                 2,383
                Litigation settlement in common stock                                  -                  105,000
                Changes in operating assets and liabilities:
                     Decrease in prepaid insurance                                   15,112                19,255
                     Decrease in other current assets                                  -                    3,677
                     Decrease in due from related party                                -                       30
                     Increase in accounts payable                                    47,206                19,078
                     Increase (decrease) in accrued expenses                         28,126              (168,169)
                     Decrease in letter agreements with vendors                        -                  (16,765)
                     Increase in deferred revenue                                    65,000                  -
                                                                              --------------      ----------------

Net cash used in operating activities                                               (89,061)             (246,355)
                                                                              --------------      ----------------


Cash flows from financing activities:
       Proceeds from issuance of common stock/warrants                                  -                 200,000
       Proceeds from issuance of notes payable                                      140,000              -
       Repayment of notes payable                                                   (30,000)             -
                                                                              --------------      ----------------

Net cash provided by financing activities                                           110,000               200,000
                                                                              --------------      ----------------

Net increase (decrease) in cash and cash equivalents                                 20,939               (46,355)

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

Cash and cash equivalents at end of period                                    $      42,308       $       107,370
                                                                              ==============      ================
</TABLE>



<PAGE>   6
                                                                    Page 6 of 16


                            ALPHA 1 BIOMEDICALS, INC.

                          NOTES TO FINANCIAL STATEMENTS

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.

Since early 1996, the Company has substantially halted its development program
and all other research and 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 the NIH investigator will use Thymosin
beta 4 material provided by the Company in a wound healing study. In exchange,
the Company may license from the NIH any patent rights that might result from
the research study that relate to the use of Thymosin beta 4 as a wound healing
treatment. To date, no data from the research has been released since the study
has not been completed. The Company has not generated significant revenues from
operations and does not anticipate generating product revenues for the
foreseeable future. The Company will require substantial funding in order to
re-activate and conduct its research and development activities and to
manufacture and market the products which the Company intends to develop.
Management plans to continue 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.

Cash and short-term investment balances at March 31, 1998 total $42,308. This
amount, based on the Company's commitments, is insufficient to satisfy current
requirements beyond the middle of the second quarter of 1998. On December 17,
1997, the Company entered into a Alpha Rights Acquisition Agreement (the
"Acquisition Agreement") with SciClone Pharmaceuticals, Inc. ("SciClone"),
pursuant to which the Company has agreed to sell to SciClone its right to
receive from SciClone royalties on the future sales of Thymosin alpha 1. In
exchange, the Company will receive a combination of cash and shares of SciClone
Common Stock. The transaction is subject to the approval of the stockholders of
the Company.

The Company currently licenses 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 has 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 is entitled to receive from SciClone
royalties on the sale by SciClone of Licensed Products that range 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.



<PAGE>   7
                                                                    Page 7 of 16



Under the Acquisition Agreement, the Company will relinquish its future rights
to royalties, effective as of the date of the Acquisition Agreement. In
exchange, the Company received on the date of the Acquisition Agreement, a cash
payment of $65,000 and an additional $65,000 during January 1998. If the
transaction contemplated by the Acquisition Agreement does not close for any
reason, SciClone will be credited with a prepayment of future royalties in an
amount equal to $130,000 (less royalties foregone by the Company following the
date of the Acquisition Agreement), multiplied by a factor of ten, effective
after SciClone has made royalty payments to the Company totaling $1.75 million.

Upon the closing of the transaction, the Company will receive 444,115 shares of
SciClone Common Stock (the "Initial Shares"), which number of shares has been
calculated based on an average of a price of $4.053 per share over a period
preceding the date of the Acquisition Agreement (the "Initial Average Price").
In addition, on each of 12 consecutive monthly Lock-Up Release Dates, the
Company will be entitled to receive additional shares of SciClone Common Stock
(the "Additional Shares") which, when added to Initial Shares, cannot exceed
600,000 shares, if the average of the closing sale prices per share of the
SciClone Common Stock on such Lock-Up Release Date and each prior Lock-Up
Release Date is less than the Initial Average Price.

Both the Initial Shares and the Additional Shares will be subject to resale
restrictions, as provided for in a Stock Rights Agreement between the Company
and SciClone to be entered into at the closing. Under the Stock Rights
Agreement, (i) SciClone will agree to file a registration statement (the
"Registration Statement") under the Securities Act of 1933, as amended, that
will register both the Initial Shares and the Additional Shares for resale by
the Company and (ii) the Company will agree that, commencing with the 30-day
period beginning on the effective date of the Registration Statement and during
each of the next eleven 30-day periods thereafter (the first day of each such
period being referred to as a "Lock-Up Release Date"), it will limit its resale
(A) of Initial Shares to a number equal to 1/12 of the total number Initial
Shares and (B) of Additional Shares to a number equal to 50,000, minus the
number of Initial Shares sold during the period.

Because the future price of SciClone Common Stock cannot be known, neither the
number of Additional Shares, if any, received by the Company, nor the proceeds
that the Company would realize from the sale of the Initial Shares and the
Additional Shares, if any, is determinable.

To assist the Company in funding its operations pending the closing of the
transaction and prior to the effectiveness of the Registration Statement,
SciClone has agreed in the Acquisition Agreement to loan to the Company up to
$280,000 as follows: (i) $70,000 on the sixty-first calendar day following the
date of the Acquisition Agreement, (ii) $70,000 on the later of (A) the
ninety-first calendar day following the date of the Acquisition Agreement and
(B) the first business day following the closing, and (iii) $70,000 on the
business day in each of the next two months corresponding to the business day of
the loan referred to in clause (ii), if such corresponding business day precedes
the effective date of the Registration Statement (collectively, the "Advances").
The obligation of the Company to repay the Advances will be evidenced by a
Promissory Note and Security Agreement. Any advances are non-interest bearing.
Advances will be secured by Initial Shares having a market


<PAGE>   8
                                                                    Page 8 of 16


value equal to the principal amount of the loans. The Company will be required
to repay Advances in monthly installments of $70,000, commencing on the earlier
of (i) the ninth Lock-Up Release Date and (ii) the Lock-Up Release Date
following any date on which the Company receives new equity financing of at
least $500,000, and in any event Advances will be due and payable in full no
later than May 31, 1999. If the transaction does not close for any reason,
SciClone will be credited with a prepayment of $700,000 in future royalties
(effective after SciClone has made royalty payments to the Company totaling
$1.75 million) with respect to the $70,000 Advance made in anticipation of the
closing, in lieu of the obligation of the Company to repay the Advance. The
Company executed a note agreement with SciClone in February 1998 for the first
$70,000 loan amount under the Acquisition Agreement.

The Company intends to submit the transaction with SciClone to its stockholders
for approval at the Company's next annual meeting, which will be held as soon as
practicable. Approval of the transaction requires the affirmative vote of the
holders of a majority of the outstanding shares of the Company's Common Stock as
well as approval from creditors holding at least 90% of the Company's financial
obligation. In the event shareholder approval is not received, after the Company
has been paid $1.75 million in royalties, royalty payments from SciClone will
not resume until SciClone effects sales of Licensed Products sufficient to
generate cumulative royalties in excess of $6.95 million.

The Company will account for the SciClone transaction 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. The Company will record at
the Closing Date a gain on the SciClone transaction in the amount as the sum of
(i) $130,000 of cash received, (ii) the fair market value of the 444,115 Initial
Shares received, determined by reference to the closing market price per share
of SciClone Common Stock at the Closing Date as reported by the Nasdaq Stock
Market, and (iii) the intrinsic value of the Company's right to receive
Additional Shares of SciClone Common Stock, subject to a maximum of 155,885
Additional Shares, if the market value of SciClone Common Stock if below $4.053
per share during the Lock-Up Periods. The intrinsic value, which approximates
fair market value, of the right to receive Additional Shares of SciClone Common
Stock will be determined by reference to the closing market price per share of
SciClone Common Stock at the Closing Date as reported by the Nasdaq Stock
Market. Because the future price of the SciClone Common Stock cannot be known,
the total gain on the SciClone transaction is indeterminable at this time.

Subsequent to the Closing Date, the Company will classify the SciClone Common
Stock as available-for-sale for financial reporting purposes. To the extent that
the subsequent market value of the SciClone Common Stock is above or below the
market value on the Closing Date, the Company will record the SciClone Common
Stock at fair market value and will record the unrealized gain or loss,
respectively, net of tax, as a component of stockholders' equity until realized.

To the extent that the subsequent market value of the SciClone Common Stock is
above or below the market value on the Closing Date, the Company will record the
right to receive Additional Shares of SciClone Common Stock at its


<PAGE>   9
                                                                    Page 9 of 16

intrinsic value, which approximates fair market value, and will record the
unrealized loss or gain, respectively, net of tax, as a component of
Stockholders' equity until realized. Based upon the terms of the Acquisition
Agreement, the maximum intrinsic value of the Company's right to receive
additional shares is $467,655. On the date the Company receives Additional
Shares, if any, the Company will record the Additional Shares received at the
then fair market value and will reduce the right to receive Additional Shares of
SciClone Common Stock by a corresponding amount.

If the SciClone transaction is completed, the Company's sole source of cash,
absent a new financing, will be the sale of the SciClone Common Stock. Based on
its current cash flow projections, the Company believes that the proceeds from
the SciClone transaction will provide it with sufficient funds to continue as a
going concern into the fourth quarter of 1998. This projection is dependent upon
the price of the SciClone Common Stock remaining at or above $3.00 per share.
Should the price of SciClone Common Stock decline below that price or should
unforeseen financial needs arise, the period for which the Company should be
able to continue in operation using the proceeds of the SciClone transaction
would be shortened.

During 1995, the Company refocused its research efforts to Thymosin beta 4.
Research activities and preclinical studies were initiated and accelerated based
on anticipated cash resources that the Company expected to materialize through a
proposed merger. In anticipation of the merger and the cash that was to become
available, the Company commenced placing orders for the conduct of research
studies and for the purchase of Thymosin beta 4 material totaling $2,704,000. In
January 1996, the Company learned of the issuance of a U.S. patent such that the
commercialization of Thymosin beta 4 as a mucolytic for the treatment for cystic
fibrosis would potentially infringe the claims of this patent. Following an
unsuccessful attempt to obtain a license to this patent, the merger agreement
was terminated by mutual agreement.

As a result of the termination of research and development activities during
1996, the Company canceled research orders with certain vendors. The Company was
able to cancel approximately $1,200,000 of work on outstanding orders of
approximately $2,700,000. Management entered into separate letter agreements
with four vendors, which in the aggregate totaled $1,323,000, to defer payment
in exchange for a commitment to the vendors of revenues received by the Company
in the future under the license agreement with SciClone until the full amounts
of the liabilities have been liquidated. In the event that sufficient funding is
obtained for the Thymosin beta 4 program, all amounts then due would become
payable immediately.

In January and February 1998, the Company entered into amended agreements with
the four vendors, subject to the completion of the pending transaction with
SciClone, which will accelerate payments due. In consideration for the
acceleration of payments, the vendors have agreed to reduce the Company's
aggregate obligation, including accrued interest, to $902,000, which the Company
has agreed to pay from the proceeds of the sale of the shares of SciClone Common
Stock received under the Acquisition Agreement.

The Company continues to pursue strategic alliances or other partnership
arrangements with entities interested in and with resources to develop



<PAGE>   10
                                                                   Page 10 of 16

Thymosin beta 4, or other business transactions which would allow the Company to
generate resources to permit continuation of the Company's operations.

In this regard, on March 4, 1998, the Company entered into an agreement with
Aurora Capital Corporation pursuant to which Aurora will provide the Company
with advisory and investment banking services, including the identification of
potential merger or acquisition candidates and analysis of possible deal
structures. However, there is no assurance that the Company's efforts, or those
on behalf of the Company by Aurora, will be successful.

During March 1998, in a transaction separate from the Acquisition Agreement, the
Company entered into a loan agreement with SciClone, whereby the Company
received $70,000 to provide operating funds. The terms of the loan agreement
provide, in part, for interest at the rate of 8% per annum and is payable over
one year in twelve equal amounts commencing June 1998.

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.

Comprehensive Income

Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." This statement requires
that all items recognized under accounting standards as components of
comprehensive income be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements. This
statement also requires that an entity classify items of other comprehensive
income by their nature in an annual financial statement. The Company has no
other components of comprehensive income other than net income.

Financial Statements

The Balance Sheet as of March 31, 1998, the Statement of Operations for the
three-month periods ended March 31, 1998 and 1997, and the Statements of Cash
Flows for the three-month periods ended March 31, 1998 and 1997, have been
prepared without audit. In the opinion of the management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position at March 31, 1998 and the results of operations and changes
in cash flows for such period have been made. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
These financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's December 31, 1997 audited
financial statements. The results of operations for the three-month period ended
March 31, 1998, are not necessarily indicative of the operating results for the
full year.


<PAGE>   11
                                                                   Page 11 of 16

Forward Looking Statements

Any statements which are not actual facts contained in this document are forward
looking statements that involve risks and uncertainties, including but not
limited to, those relating to product demand, pricing, market acceptance, the
effect of economic conditions, intellectual property rights and litigation,
clinical trials, governmental regulations, competitive products, risks in
product and technology development, the results of financing efforts, the
ability to complete transactions and other risks identified in the Company's
Securities and Exchange Commission filings.




<PAGE>   12
                                                                   Page 12 of 16



                            ALPHA 1 BIOMEDICALS, INC.

Item 2.

           Management's Discussion and Analysis of Financial Condition
                            and Results of Operations

      Results of Operations for the Three-Month Period Ended March 31, 1998
             Compared to the Three-Month Period Ended March 31, 1997

Revenues. Revenues for the three-month period ended March 31, 1998 were $2,515
as compared to $9,229 during the comparable period a year earlier. Revenues in
both periods consisted solely of royalty payments.

Expenses. Expenses for the three-month period ended March 31, 1998 were
$209,376, an increase of $24,115 over the comparable period a year earlier.
Research and development expenses during the current period were $13,793, a
decrease of $25,543 from the prior period. The current period decrease primarily
reflects the effect of decreased payments for research studies from the
comparable period a year earlier. General and administrative expenses during the
current period were $195,583 an increase of $49,658 from the comparable period a
year earlier. The increase primarily reflects (i) an increase in consulting fees
as a result of the Company entering into an agreement with an advisor to provide
advisory and investment banking services, and (ii) an increase in legal expenses
as a result of activities with regard to the Alpha Rights Acquisition Agreement.

Capital Resources and Liquidity

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 $38,300,601 through March
31, 1998 has been primarily funded 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 and limited product sales.

The Company has delayed its development program for Thymosin 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 for the foreseeable future. The Company will require substantial
funding in order to re-activate and conduct its research and development
activities and to manufacture and market the products which the Company intends
to develop.

During the first three months of 1998, revenues consisted solely of royalty
income from SciClone. These revenue sources are substantially below the level
required to cover fully the Company's expenses or to provide adequate cash flow.
Under the payment terms of the Alpha Rights Acquisition Agreement with SciClone,
the Company received a cash payment of $65,000 during January 1998 and a loan of
$70,000 in February 1998. Separately, during March 1998, the Company received a
loan of $70,000 from SciClone, which provides for interest



<PAGE>   13

                                                                   Page 13 of 16

at the rate of 8% per annum and is payable over twelve equal monthly payments
commencing June 1998. Cash balances at March 31, 1998 were $42,308. Current cash
balances will be sufficient to sustain operations to the middle of the second
quarter of 1998. In the event that substantial funding is not obtained, or the
SciClone transaction is not completed, the Company likely will be forced to
discontinue operations.

During July 1997, the Company received an unsecured $50,000 loan from an
individual to provide additional operating capital. The terms of the loan
agreement provide for repayment of principal and interest 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 fair market value of the Company's Common Stock at the date of the
grant. The warrant has a five-year term. During January 1998, the term note 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 41,666 warrants at the same terms as
the original warrants. To date, the Company has made three of the five principal
payments. April and May payments have not been made.

During October 1997, the Company received an unsecured loan of $60,000 from
ViroPro Pharmaceuticals, Inc. ("ViroPro"). The demand note provided for
repayment by April 14, 1998 with interest at the rate of 8%. ViroPro and the
Company had discussions through December 1997 regarding the possibility of a
business combination. There have been no discussions since that time. The loan
has not been repaid.

As a result of the termination of research and development activities during
1996, the Company canceled research orders with certain vendors. The Company was
able to cancel approximately $1,200,000 of work on outstanding orders of
approximately $2,700,000. Management entered into separate letter agreements
with four vendors, which in the aggregate totaled $1,323,000, to defer payment
in exchange for a commitment to the vendors of revenues received by the Company
in the future under the SciClone license agreement until the full amounts of the
liabilities have been liquidated. In the event that sufficient funding is
obtained for the Thymosin beta 4 program, all amounts then due would become
payable immediately.

In January and February 1998, the Company entered into amended agreements with
the four vendors, subject to the completion of the pending transaction with
SciClone, which will accelerate payments due. In consideration for the
acceleration of payments, the vendors have agreed to reduce the Company's
aggregate obligation, including accrued interest, to $902,000, which the Company
has agreed to pay from the proceeds of the sale of the shares of SciClone Common
Stock received under the Alpha Rights Acquisition Agreement.

On March 4, 1998, the Company entered into an agreement with Aurora Capital
Corporation pursuant to which Aurora will provide the Company with advisory and
investment banking services, including the identification of potential merger or
acquisition candidates and analysis of possible deal structures. However, there
is no assurance that the Company's efforts, or those on behalf of the Company by
Aurora, will be successful.



<PAGE>   14
                                                                   Page 14 of 16

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

New Accounting Standards

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement is effective for 1998. The
Company does not believe the adoption of this statement will have a significant
impact on its reporting and disclosure requirements.

In July 1996, the Emerging Issues Task Force provided guidance which requires
that internal and external costs specifically associated with modifying software
for the Year 2000 should be expensed as incurred. The Company believes its
computer systems are Year 2000 compliant and, accordingly, does not believe
modifications to its systems will be necessary.


<PAGE>   15

                                                                   Page 15 of 16



                            ALPHA 1 BIOMEDICALS, INC.

                           Part II - Other Information

Item 6.        Exhibits and Reports on Form 8-K

               (a)         Exhibits

                           Exhibit
                           Number

                              27     Financial Data Schedule

               (b)         A current report on Form 8-K was filed by
                           the Company on January 13, 1998
                           (Items 5 and 7).





<PAGE>   16
                                                                   Page 16 of 16


                                   SIGNATURES

            Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                     Alpha 1 Biomedicals, Inc.
                                     -------------------------
                                            (Registrant)

Date: May 12, 1998                   By:    /s/  R.J. Lanham
                                        ----------------------------------
                                            R.J. Lanham
                                            Vice President and
                                            Chief Financial Officer