<PAGE>
================================================================================

                   UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C. 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 September 30, 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  0-11094    
                       ------------


                            RIBI IMMUNOCHEM RESEARCH, INC.
                (Exact name of registrant as specified in its charter)



        Delaware                           81-0394349
------------------------     ---------------------------------------------------
(State of Incorporation)     (I.R.S. Employer Identification No.)

                      553 Old Corvallis Road, Hamilton, MT 59840
--------------------------------------------------------------------------------
                (Address of principal executive offices and zip code)

Registrant's telephone number, including area code (406) 363-6214
                                                   --------------





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 October 31, 1998, there were 20,322,573 shares of common stock
outstanding.



================================================================================

<PAGE>
                            RIBI IMMUNOCHEM RESEARCH, INC.

                                        INDEX

<TABLE>
<CAPTION>

                                                                           Page
                                                                         Number
                                                                         ------
<S>                                                                         <C> 
PART I.   FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . .  3
-------------------------------

Item 1.   Financial Statements: . . . . . . . . . . . . . . . . . . . . . .  3

          Condensed Balance Sheets
          September 30, 1998 (Unaudited)
          and December 31, 1997 . . . . . . . . . . . . . . . . . . . . . .  4

          Condensed Statements of Operations and Comprehensive Loss
          Three months and nine months ended
          September 30, 1998 and 1997 (Unaudited) . . . . . . . . . . . . .  5

          Condensed Statements of Cash Flows
          Nine months ended September 30, 1998 and
          1997 (Unaudited). . . . . . . . . . . . . . . . . . . . . . . . .  6

          Notes to Condensed Financial Statements (Unaudited) . . . . . . .  7

Item 2.   Management's Discussion and Analysis
          of Financial Condition and Results
          of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 11


PART II.  OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 14
---------------------------

Item 1.   Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 14

Item 2.   Changes in Securities and Use of Proceeds . . . . . . . . . . . . 14

Item 5.   Other Information . . . . . . . . . . . . . . . . . . . . . . . . 15

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


SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
----------

                                          2

</TABLE>

<PAGE>
                            RIBI IMMUNOCHEM RESEARCH, INC.



PART I.  FINANCIAL INFORMATION
------------------------------



Item 1.   Financial Statements

     The condensed balance sheet as of September 30, 1998, the condensed
statements of operations and comprehensive loss for the three month and nine
month periods ended September 30, 1998 and 1997, and the condensed statements of
cash flows for the nine months ended September 30, 1998 and 1997, have been
prepared by the Company without audit. In the opinion of management, all
adjustments necessary to present fairly the financial position, results of
operations and cash flows as of and for the periods indicated have been made,
and such adjustments were normal and recurring in nature.

     It is suggested that the accompanying condensed financial statements be
read in conjunction with the audited financial statements and the notes thereto
included in the Company's 1997 Annual Report to Stockholders and Annual Report
on Form 10-K for the fiscal year ended December 31, 1997.

     The results of operations for the three month and nine month periods ended
September 30, 1998, are not necessarily indicative of results expected for the
full year 1998.

                                          3

<PAGE>
                            RIBI IMMUNOCHEM RESEARCH, INC.

                               CONDENSED BALANCE SHEETS
                                    (In Thousands)
<TABLE>
<CAPTION>
                                           September 30,    December 31,
                                               1998             1997    
                                           -------------    ------------
                                            (Unaudited)
<S>                                            <C>               <C>
ASSETS
------

Current assets:
     Cash and cash equivalents                 $  2,121            1,224
     Available-for-sale investment 
       securities                                13,470           12,146
     Accounts receivable                            394              870
     Inventories                                  1,412            1,250
     Other current assets                           121              234
                                                -------          -------

          Total current assets                   17,518           15,724

Property, plant and equipment, net               11,736           11,453

Other assets and deposits, net                    2,123              593
                                                -------          -------

                                               $ 31,377           27,770
                                                =======          =======

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current liabilities:
     Accounts payable                          $    202              611
     Accrued expenses                               697              614
     Deferred revenue                             2,681            1,130
                                                -------          -------

          Total current liabilities               3,580            2,355
                                                -------          -------

Stockholders' equity:
     Preferred stock                                  1             -
     Common stock                                    20               20
     Additional paid-in capital                  75,341           67,485
     Accumulated deficit                        (47,623)         (42,053)
     Accumulated other comprehensive losses          58              (37)
                                                -------          -------

          Total stockholders' equity             27,797           25,415
                                                -------          -------

                                               $ 31,377           27,770
                                                =======          =======
</TABLE>

See accompanying notes.

                                          4

<PAGE>
                            RIBI IMMUNOCHEM RESEARCH, INC.

              CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                         (In Thousands Except per Share Data)
                                     (UNAUDITED)

<TABLE>
<CAPTION>
                                     Three Months Ended     Nine Months Ended
                                        September 30,         September 30,  
                                     ------------------     -----------------
<S>                                <C>         <C>         <C>        <C>
                                       1998       1997        1998       1997
                                       ----       ----        ----       ----

Revenues:
   Sales                           $    457        980       1,881      1,846 
   Contracts and licenses               731        650       2,158      1,950
   Investment income                    226        240         550        736
   Other, net                             2          1          (2)         9
                                    -------    -------     -------    -------

      Total revenues                  1,416      1,871       4,587      4,541
                                    -------    -------     -------    -------

Costs and expenses:
   Purchases and production costs       528        316       1,250        916
   Research and development           1,666      1,885       5,722      5,446 
   Selling, general and
     administrative                     989        826       3,100      2,542
                                    -------    -------     -------    -------
 
      Total costs and expenses        3,183      3,027      10,072      8,904
                                    -------    -------     -------    -------

      Net loss                       (1,767)    (1,156)     (5,485)    (4,363)
                                    -------    -------     -------    -------

Other comprehensive income:
   Unrealized investment gains
     (losses)                            82         43          71        (17)
   Less reclassification adjustment
     for investment gains (losses) 
     included in net loss               (11)       -            24        -  
                                    -------    -------     -------    -------

      Other comprehensive income
       (loss)                            71         43          95        (17)
                                    -------    -------     -------    -------

      Comprehensive loss             (1,696)    (1,113)     (5,390)    (4,380)
                                    =======    =======     =======    =======

     
Net loss per common share          $   (.09)      (.06)       (.27)      (.22)
                                    =======    =======     =======    =======
 
Average number of shares
  outstanding                        20,321     20,239      20,317     19,992
                                    =======    =======     =======    =======

</TABLE>

See accompanying notes.

                                          5

<PAGE>
                            RIBI IMMUNOCHEM RESEARCH, INC.

                          CONDENSED STATEMENTS OF CASH FLOWS
                                    (In Thousands)
                                     (UNAUDITED)
<TABLE>
<CAPTION>
                                                    Nine Months Ended
                                                      September 30,     
                                                  ----------------------
<S>                                            <C>               <C>
                                                  1998              1997
                                                  ----              ----
Cash flows from operating activities:
  Net loss                                     $ (5,485)          (4,363)
  Adjustments to reconcile net loss to 
    cash used by operating activities:
      Depreciation and amortization                 784              744
      Common stock grants                             4               12
      Compensation relating to stock options         14               20
      Discount accretion and investment
        losses, net                                  23              (43)
      Asset sales and abandoned patents              23               18
      Changes in operating assets and
        liabilities                               1,652             (848)
                                                -------          -------
        Net cash used by operating
          activities                             (2,985)          (4,460)
                                                -------          -------

Cash flows from investing activities:
  Capital expenditures                           (1,026)            (421)
  Payments for other assets                      (1,599)             (74)
  Proceeds from sale of assets                        5              -
  Proceeds from maturities and sales of 
    available-for-sale investment securities     12,393            6,853
  Purchases of available-for-sale
    investment securities                       (13,645)          (6,201)
                                                -------          -------
        Net cash provided (used) by
          investing activities                   (3,872)             157
                                                -------          -------

Cash flows from financing activities:
  Sale of common stock, net                         -              3,977
  Sale of preferred stock, net                    7,718              -
  Exercise of warrants                              -                874
  Exercise of options                                36               25
                                                -------          -------
        Net cash provided by financing
          activities                              7,754            4,876
                                                -------          -------

        Net change in cash equivalents              897              573  

Cash and cash equivalents at
  beginning of period                             1,224              432
                                                -------          -------

Cash and cash equivalents at
  end of period                                $  2,121            1,005
                                                =======          =======
</TABLE>

See accompanying notes.

                                          6

<PAGE>
                            RIBI IMMUNOCHEM RESEARCH, INC.

                       NOTES TO CONDENSED FINANCIAL STATEMENTS
                                     (UNAUDITED)



1.   Inventories
     -----------

<TABLE>
<CAPTION>

     Inventories are as follows:

                                September 30,       December 31,
                                     1998              1997    
                                 -----------        -----------
                                         (In Thousands)
      <S>                         <C>                <C>
      Raw materials               $   136               132
      Work in process               1,214             1,053
      Finished goods                   62                65
                                   ------            ------

                                  $ 1,412             1,250
                                   ======            ======
</TABLE>

2.   Commitments and Contingencies
     -----------------------------

     The Company, the National Institutes of Health ("NIH") and the Bitterroot
Valley Sanitary Landfill ("Landfill") were notified by the Montana Department of
Health and Environmental Sciences (now known as the Department of Environmental
Quality ["DEQ"]) in March of 1991 that they had been identified as potentially
responsible parties ("PRPs") and as such are jointly and severally liable for
groundwater contamination located at and near the site of the Landfill in
Ravalli County, Montana. The Company's involvement arises out of waste materials
that it deposited at the Landfill from 1982 to 1985, which the Landfill had
permits to receive. The NIH unilaterally and voluntarily initiated and completed
work pursuant to an interim remediation plan approved by the DEQ to remove and
decontaminate the believed source of contamination and treat the aquifers which
tests have shown contain contaminants. Although decontamination of the soil at
and around the Landfill has been completed, treatment of the groundwater in the
proximity of the disposal site continues utilizing air sparging, and it is
anticipated such treatment will continue through 1998 and possibly longer.
Carbon filtering was discontinued in August 1997 based upon non-detectible
amounts of volatile organic compounds in post-air sparging samples. The DEQ
conducted a "Risk Assessment" and issued a "Draft Final Feasibility Study" in
October 1994 that discussed possible final remediation alternatives. In August
1995, the DEQ announced that it had approved a second interim action in the
vicinity of the Landfill being unilaterally and voluntarily conducted by the NIH
and which involves installing individual replacement wells and new wells to
provide both an alternate water supply for the area residents and to develop
additional information on the site hydrogeology. Information collected from
these wells through a multi-year monitoring program will be used by the DEQ to
evaluate the effectiveness of the remediation efforts to date. The current plan
calls for the wells to be installed in three phases: Phase I includes occupied
properties with the highest remaining contamination levels; Phase II includes
occupied properties with lesser degrees of contamination; and Phase III consists
largely of vacant properties. Preliminary studies completed in 1994 estimated
the cost of the wells to be approximately $1,400,000. Information indicates that
a total of nineteen alternate water supply wells have been installed at a cost

                                          7

<PAGE>

of approximately $1,000,000. The DEQ could require the PRPs to implement further
remediation should these wells not provide sufficient quality or quantity of
water. The NIH has indicated it is undertaking Phase II groundwater remediation
to intercept and treat contaminated groundwater near the eastern Landfill
boundary. The NIH has projected costs for this Phase II groundwater remediation
to be in excess of $1,000,000 through 1999. The NIH, which has taken the lead
and incurred substantially all of the remediation costs, has represented
publicly that it would continue to work with the DEQ toward an acceptable final
remediation plan. The DEQ initiated an action in 1997 against the Company, the
Landfill and the owner of the Landfill seeking recovery of past alleged costs
associated with its oversight activities in the amount of $238,000, as well as a
declaratory judgment finding the parties liable for future remedial costs, plus
civil penalties in the event the parties fail to comply. In May 1998, the
Company was informed that the DEQ had entered into a settlement agreement with
the Landfill and its owners, whereby the Landfill and its owners agreed to
collectively pay the DEQ approximately $35,000. The Company believes that it has
meritorious defenses to the claim, including the amount thereof, and that there
are other responsible parties. The Company has filed a response to the action,
including motions for a change in venue and to dismiss. Recently, the Court
granted the Company's motion for a change of venue to Ravalli County where the
Company is located. The Court did not rule on the motion to dismiss, which
motion will now be acted upon by the Court in Ravalli County. There can be no
assurance that the Company's defenses and motion will be successful.

     On April 21, 1998, the Company received notice that the U.S. Department of
Justice ("USDJ"), acting on behalf of the Department of Health and Human
Services, which oversees the NIH, filed suit in United States District Court
seeking contribution from the Company of an "equitable share" of past and future
response costs incurred by the NIH in connection with the remediation at and
near the Landfill. The complaint alleges that as of September 30, 1997, the
Plaintiff had incurred response costs in excess of $3,400,000 and that it
expects to incur more than $1,000,000 in additional response costs. On or about
June 4, 1998, the Company received notice that the Plaintiff United States of
America had entered into a settlement agreement with the Landfill and the
Landfill owner pursuant to which the settling parties agreed to make payment in
the amount of $440,000. In view of the settlement, the Plaintiff United States
of America filed with the Court a Joint Motion for Stay of Proceedings between
the United States of America, the Landfill and the Landfill owner. The Company
has filed a response to the action. Although the Company believes it has
meritorious defenses to the claim, including the amount thereof, and that there
are other responsible parties, there can be no assurance that the Company will
be successful in its defenses to claims arising out of the Landfill, including
the claims made by the United States.

     On or about June 6, 1998, the DEQ as a Plaintiff-Intervenor, filed a
complaint in the United States District Court against the Company, the Landfill
and the owner of the Landfill seeking recovery of past alleged costs associated
with its oversight activities in the amount of $258,500, of which it indicated
not more than $154,000 had been reimbursed, plus interest and attorneys fees and
costs as well as a declaratory judgment finding the parties liable for future
response costs. The Company has filed a response to the action, including a
counterclaim against the Plaintiffs. Plaintiff-Intervenor has initiated
discovery. The Company is in the process of responding to the discovery request.
The Company believes that it has meritorious defenses to the claim, including
the

                                          8

<PAGE>

amount thereof, and that there are other responsible parties. There can be no
assurance that the Company's defenses and counterclaim will be successful.

     Depending upon the eventual outcome of the above discussed litigation and
when in time the litigation is concluded, the outcome may or may not have a
material adverse effect on the Company's financial condition. Accordingly, it is
not possible at present to accurately predict whether an adverse outcome will
have a material adverse effect on the Company's financial condition. The Company
is unable to determine its overall potential liability with respect to the
Landfill at this time. As of September 30, 1998, the Company has accrued a
reserve of approximately $260,000, primarily to cover legal, consulting,
remediation and DEQ reimbursement costs associated with the Company as a PRP.
Net costs charged against operations during the first nine month periods of 1998
and 1997 were $77,000 and $43,000, respectively.

     In June 1997, a complaint was filed in District Court in Ravalli County
against the Company by a former employee who was discharged for cause in June
1996. The plaintiff alleges discharge in violation of the Montana Wrongful
Discharge from Employment Act ("Act") and further, that discharge was for
refusal to violate public policy. The Court granted dismissal with respect to
the portion of the complaint which alleges termination for refusal to violate
public policy. Plaintiff filed a motion for reconsideration asking the Court to
reverse its decision with respect to the issue of termination for refusal to
violate public policy and requested the Court for permission to amend the
complaint to include additional allegations relative to the public policy issue.
On April 6, 1998, the Court allowed plaintiff to amend the complaint as
requested. The Company believes that it has a meritorious defense and plans to
vigorously defend the suit. However, it is not possible to reliably assess the
outcome. Depending upon the eventual outcome of this litigation and when in time
the litigation is concluded, the outcome may or may not have a material adverse
effect of the Company's financial condition. Accordingly, it is not possible at
this time to accurately predict whether an adverse outcome will have an adverse
effect on the Company's financial condition.

     The plaintiff has also filed a petition for Judicial Review in District
Court in Missoula County naming the Company and the State of Montana Department
of Labor and Industry respondents and asking the Court to review and overturn
the Department of Labor's decision finding plaintiff was terminated for
misconduct as defined in MCA Section 39-51-2303 and, therefore, not allowing
plaintiff to collect unemployment benefits. The Company filed a response arguing
the correctness of the Department of Labor's decision. Recently, the Court
rendered a decision remanding the matter to the Department of Labor for further
testimony. The Department of Labor has issued a notice of hearing to take such
further testimony. However, in the event plaintiff is successful, it would not
have a material adverse effect on the financial condition of the Company.

3.    Sale of Convertible Preferred Stock
      -----------------------------------

      In July 1998, RGC International Investors, LDC, ("Holder") purchased 8,240
shares of convertible preferred stock of the Company for gross proceeds of
$8,240,000 ("stated value"). The preferred stock's liquidation preference equals
its stated value plus an amount equal to 5% per annum. Beginning the 91st day
after the July 17th closing, the preferred stock is convertible into shares of
common stock of the Company. From the 91st day until 120 days after the closing,
the conversion price is fixed at $6.04. After 120 days, the conversion price is

                                          9

<PAGE>

a floating conversion price, which is the lesser of the fixed conversion price
and a market price based upon average market bid prices for a defined period
prior to the conversion date. The actual number of shares of common stock that
will be issued will depend upon the preferred stock's liquidation preference and
the actual conversion price when the preferred stock is converted. Beginning
with the 91st day from the closing date, each thirty days thereafter, on a
cumulative basis, a maximum amount of 15% of the preferred stock may be
converted into shares of common stock if the conversion price is less than
$4.00. This restriction does not apply if the conversion price is $4.00 or
greater. The Holder and affiliates of the Holder may not hold shares of common
stock in excess of 4.9% of the outstanding shares of common stock at any given
time. In addition, except for block trades of not less than 15,000 shares of
converted common shares, there are restrictions on the number of common shares
that may be traded on any given trading day. Subject to certain conditions, the
Company has the right to redeem all or a portion of the preferred stock at a
premium over the purchase price paid by the Holder. In the event the Company
fails to meet certain obligations under the agreement with the Holder, the
Holder can require the Company to redeem the preferred stock at a premium over
the purchase price paid by the Holder. Any shares not converted or redeemed will
automatically be converted into common stock three years from the closing date.

4.    Net Loss per Common Share
      -------------------------

<TABLE>
<CAPTION>

                             Three Months Ended       Nine Months Ended
                                September 30,           September 30,  
                             ------------------       -----------------
                              1998        1999         1998       1999
                              ----        ----         ----       ----
<S>                        <C>          <C>           <C>       <C>     
Net loss                   $ (1,767)    (1,156)       (5,485)   (4,363)
Accretion of liquidation
 preference on preferred
 stock                           85        -              85       -  
                             ------     ------        ------    ------

Net loss applicable to
 common stock              $ (1,852)    (1,156)       (5,570)   (4,363)
                             ======     ======        ======    ======

Weighted average number of
 shares outstanding          20,321     20,239        20,317    19,992
                             ======     ======        ======    ======

Net loss per common share  $   (.09)      (.06)         (.27)     (.22)
                             ======     ======        ======    ======
</TABLE>

     In addition to the convertible preferred stock described in Note 3 above,
the Company had stock options to purchase 1,641,453 shares of common stock and
warrants to purchase 500,000 shares of common stock outstanding at September 30,
1998. Furthermore, SmithKline Beecham has the right to make an investment of up
to $2,000,000 in the Company at the then market price of the common stock. These
securities have the potential to dilute earnings per share in the future, but
have not been presented in diluted net loss per common share, as the effect is
antidilutive.

5.    Future Accounting Changes
      -------------------------

     During 1998 the Financial Accounting Standards Board released two
Statements of Financial Accounting Standards ("FAS") that the Company will be
required to adopt. FAS No. 132 revises certain disclosures about pension and
other post-retirement benefit plans. FAS No. 133 requires uniform accounting for

                                          10

<PAGE>

derivative instruments and hedging activities. While the Company is still
evaluating FAS No. 133, it does not expect either Standard to have a material
impact on the Company's financial position or results of operations.



<PAGE>

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

General
-------

     Since its inception in 1981, the Company has been engaged primarily in the
research and development of immunostimulants for use in preventing and treating
human diseases. To date, the Company has received limited revenues from
commercial sales and sales of clinical supplies. The Company has incurred net
losses in each year since its inception and expects to incur additional losses
for at least the next year, and probably longer. At September 30, 1998, the
Company's accumulated deficit was approximately $47,623,000.

     The Company's results of operations can vary significantly from quarter to
quarter and depend, among other factors, on costs related to the progress of
clinical trials conducted by the Company and, to a lesser extent, on revenues
and costs associated with manufacturing. To date, research and development
expenses, together with manufacturing costs, have exceeded product and other
revenues in all periods.

     The Company is not able to estimate with certainty the amount of cash and
working capital which may be needed for operations. Such requirements typically
vary depending upon the results of basic research and clinical trials, the time
and expense required for governmental approval of products, and competitive and
technical developments, most of which are beyond management's control. There is
no assurance that the Company will be able to obtain funding in sufficient
amounts or at the appropriate time for its planned activities. In the event the
Company may require additional funding, it might not be able to proceed as
rapidly as it would like, if at all, with the development and commercialization
of its products, which would have a material adverse effect on its future
financial condition and results of operations.

     In computer systems and applications developed in the 1970s and 1980s,
years were often stored in a 2-digit rather than 4-digit format to save
expensive computer storage and processing space. These systems correctly assumed
the 2-digit year in data was preceded by the digits "19." At year 2000, a 2-
digit date of "00" may not be interpreted correctly by these systems, which
could lead to incorrect or inadequate results, or equipment failure in cases
where computer chips regulate equipment operation. The Company established a
committee, which made a preliminary assessment, and hired an outside firm which
determined in reasonable detail the Company's exposure to the "Year 2000"
problem. Systems that will potentially require remediation and testing have been
prioritized and remediation has begun. Plans are underway to survey critical
vendors and customers to determine their level of compliance. The Company
expects to continue to incur both internal staffing costs, as well as consulting
and other expenses related to these issues. These costs will be expensed as
incurred. The Company expects that solutions will involve a mix of purchasing
new systems and modifying existing systems. The Company is not yet able to
estimate the potential costs associated with the Year 2000 problem. At September
30, 1998, approximately

                                          11

<PAGE>

$60,000 has been spent for assessment and remediation. Additionally,
approximately $170,000 has been committed for the acquisition and implementation
of software for tracking and managing manufacturing and for new account systems
that, under other circumstances, would have been purchased at a later time. The
Company is working to solve these issues in a timely manner, but there can be no
assurance that all of the Year 2000 problems will be resolved before the end of
1999 or that all of the Company's vendors and customers will be Year 2000
compliant. At the present time the Company does not expect Year 2000 issues to
have a major impact on its operations.* Most of its raw materials are fairly
common and are available from several different suppliers. However, the Company
is beginning to develop some contingency plans to control the impact of an
unforeseen failure.

     Pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, several forward-looking statements that involve a number of
risks and uncertainties are included within this Management's Discussion and
Analysis of Financial Condition and Results of Operations. In addition to the
risks and uncertainties discussed with the forward-looking statements, there are
a number of other factors that could cause actual results to differ materially
from projected results, including, but not limited to the following: levels of
expenditure on and results of the Company's research and the impact of those
results on milestone and transfer payments from partners; research results of
other companies using the Company's products; competition from other companies;
changes in government regulation, including price controls for newly developed
drugs; and risk factors listed from time-to-time in the Company's reports to the
Securities and Exchange Commission. Forward-looking statements herein are
followed by an asterisk ("*").

Results of Operations
---------------------

     The Company incurred a greater net loss in the third quarter and first nine
months of 1998 than in the same periods in 1997. Expenses were up 5% for the
third quarter and 13% for the first nine months of 1998 compared to those same
periods in 1997. Revenues were down 24% for the quarter and up just slightly for
the first nine months of 1998 compared to the same periods in 1997.
            
     Sales were level for the first nine months of 1998 compared to the first
nine months of 1997. Sales were down by 53% during the third quarter of 1998
compared to the third quarter of 1997. Fluctuations in sales primarily reflect
the product needs of the Company's marketing partners as they work their way
through the product development and approval process. Revenues from contracts
and licenses were up just over 10% for both periods in 1998 compared to the same
periods in 1997 but the increase was mostly offset by lower investment income.
Investment income has decreased as a result of a smaller investment portfolio
during much of the first nine months of 1998.

     Purchases and production costs were higher during the third quarter and
first months of 1998 compared to the same periods in 1997 on level or lower
sales. Fluctuations in the relationship of purchases and production costs to
sales is primarily a function of the Company's manufacturing plant level of
throughput, which varies with the plant and process validation testing being
conducted at the time.

     Research and development expenses decreased 12% in the third quarter of
1998 compared to the third quarter of 1997 and increased 5% in the first nine

                                          12

<PAGE>

months of 1998 compared to the first nine months of 1997. Most of the decrease
in the third quarter reflects the completion of commercial license applications
in Canada and Europe in 1997 and earlier in 1998 for MELACINE in the treatment
of Stage IV (late stage) melanoma. Enrollment of patients continues in a Phase
III human clinical trial using MELACINE with interferon alfa-2b to treat Stage
IV melanoma patients.

     The Company has filed for marketing clearance for MELACINE to be used in
the treatment of Stage IV melanoma in Canada and Europe and is preparing a
Biologics License Application ("BLA") for filing in the United States. In July
representatives of the Health Protection Branch ("HPB"), which is the Canadian
agency reviewing the filing in Canada, conducted an in-depth preliminary Good
Manufacturing Practices (GMP) audit of the Company's Hamilton, Montana facility.
During the extensive inspection, the HPB officials identified certain issues
that it indicated should be addressed before it conducts its final inspection.
The Company is responding to the issues raised on a priority basis, but the
alterations have to be coordinated with the Company's manufacturing schedule.
Once the modifications are completed, the Company will schedule a return visit
by the HPB inspectors.

     Recently, Company representatives met with European regulatory authorities
who informed the Company that before it would continue review of the pending
Marketing Authorization Application ("MAA"), the regulatory authorities would
request that the Company conduct additional Phase III studies in Stage IV
melanoma patients. After considering the request, the Company decided to
withdraw the MAA for the treatment of Stage IV melanoma in Europe. Company
representatives also recently met with representatives of the U.S. Food and Drug
Administration ("FDA") to discuss preliminary information provided by the
Company and to receive guidance as to the content of a BLA in preparation for
filing with the FDA to market MELACINE in the United States. The FDA informed
the Company during this meeting that the clinical data should be reorganized to
provide data showing durability of tumor response and also requested additional
manufacturing information. The Company is in the process of additional data
analysis to comply with the guidance provided by the FDA and continues with its
plans to file a BLA in the United States. This effort has delayed filing in the
United States, which could be sometime toward the middle of next year.* However,
there can be no assurance that the Company will file the application in the
United States and within the time frame stated. Additionally, there can be no
assurance that regulatory authorities will approve marketing MELACINE for any
indication or that revenues will be significant if marketing approval is
granted. 

     Selling, general and administrative expenses were up approximately 20% in
the third quarter of 1998 and up 22% in the first nine months of 1998 compared
to those same periods in 1997. The increases result primarily from costs
associated with commercial license application filings, as well as legal and
professional fees, investor relations expenses and year 2000 assessment and
remediation costs.

Financial Condition
-------------------

     During the first nine months of 1998 the Company used $2,985,000 in
operations which was 33% less than the amount used in the first nine months of
1997. The decrease in cash usage is attributable primarily to changes in
operating assets and liabilities connected to differences in the timing of
recognition of license fee revenues. The Company expects cash flows used in

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<PAGE>

operations for the year 1998 to continue to be less than those in the year 1997
as an increase in revenues on a cash basis is expected to exceed the increase in
expenses.* Projected cash flows are dependent upon the Company receiving
revenues that are anticipated and preparing the commercial filings and
conducting the research and clinical trials that are now planned.


      In July 1998, RGC International Investors, LDC, purchased 8,240 shares of
5% convertible preferred stock of the Company for gross proceeds of $8,240,000
with offering expenses of $522,000. The preferred stock is convertible into
shares of common stock of the Company. (See Note 3 of Notes to Condensed
Financial Statements and Part II, Item 2(b) for more information regarding the
sale of preferred stock). With this additional funding, the Company believes its
available cash, cash equivalents and investments together with funds from
licensing agreements and product sales should be sufficient to meet its capital
requirements through 2000 and possibly longer.*  However, it is possible that
revenues from license agreements, product sales and investments could be lower
than anticipated and/or operating cost and expenses could be higher than
anticipated which could result in having sufficient capital for a period less
than through 2000. 

     See Note 2 of the Notes to Condensed Financial Statements for a discussion
of contingencies related to the Company's identification as a Potentially
Responsible Party for groundwater contamination at and near the Bitterroot
Valley Sanitary Landfill, and a suit filed by the U.S. Department of Justice
seeking to recover a portion of the related remediation costs. Note 2 also
contains information regarding the Company being a named defendant in two suits
brought by the Montana Department of Environmental Quality seeking to recover
alleged costs associated with its oversight activities of the Landfill and a
suit filed by a former employee.



PART II.  OTHER INFORMATION
---------------------------


Item 1.   Legal Proceedings

     (a)  See Note 2 of the Notes to Condensed Financial Statements for a
          discussion of the Company's involvement as a PRP and a defendant in
          civil suits relating to the Bitterroot Valley Sanitary Landfill.
          Note 2 also contains information regarding two suits filed by a
          former employee.

Item 2.   Changes in Securities and Use of Proceeds

     (b)  On July 17, 1998, the Company sold to RGC International Investors,
          LDC, 8,240 shares of Series A Convertible Preferred Stock with a par
          value of $.10 and a stated value of $1,000 per share for gross
          proceeds of $8,240,000. The sale was made pursuant to a private
          placement exemption under Section 4(2) of the Securities Act of 1933.
          Such shares rank prior to the Company's common stock as to
          distribution of assets upon liquidation or the payment of dividends.
          See Note 3 of the Notes to Condensed Financial Statements for more
          information, including rights of converting the preferred shares into
          common shares.


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<PAGE>

Item 5.   Other Information

          Any stockholder proposal submitted outside the processes of Rule
          14a-8 under the Securities Exchange Act of 1934 for presentation to
          the Company's 1999 Annual Meeting of Stockholders will be considered
          untimely for purposes of Rules 14a-4 and 14a-5 if notice thereof is
          received by the Company after February 3, 1999.

Item 6.   Exhibits and Reports on Form 8-K

     (a)  Exhibits

               Exhibit 27 - Financial Data Schedule (filed only electronically)

     (b)  Reports on Form 8-K 

               No reports on Form 8-K were filed during the quarter ended
               September 30, 1998.


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<PAGE>

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.

                         RIBI IMMUNOCHEM RESEARCH, INC.
                         ------------------------------
                                 (Registrant)
       


November 13,1998         By   /s/Vern D. Child                       
                           ------------------------------------------
                             Vern D. Child, Vice President-Finance
                             and Treasurer (duly authorized officer
                             and principal financial and accounting
                             officer)

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