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 DECEMBER 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 0-11472

                              BIOMUNE SYSTEMS, INC.
        (Exact name of small business issuer as specified in its charter)



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



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

                                 (801) 466-3441
                           (Issuer's telephone number)





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 February 9, 1999, the issuer had issued and outstanding  1,339,762  shares
of common stock, par value $.0001.



                                       -1-

<PAGE>



                                TABLE OF CONTENTS


<TABLE>
<CAPTION>

PART I.           FINANCIAL INFORMATION
                                                                                                               Page
                                                                                                                No.
<S>      <C>                                                                                                      <C>
       1.       Financial Statements

                  Unaudited Condensed Consolidated Balance Sheets as of December 31, 1998
                  and September 30, 1998..........................................................................3

                  Unaudited Condensed Consolidated Statements of Operations for
                  the three months ended December 31, 1998 and 1997...............................................4

                  Unaudited Condensed Consolidated Statements of Cash Flows for
                  the three months ended December 31, 1998 and 1997...............................................5

                  Notes to Unaudited Condensed Consolidated Financial Statements..................................7

         2.       Management's Discussion and Analysis or Plan of Operation......................................11


PART II.          OTHER INFORMATION..............................................................................13
</TABLE>


                                       -2-

<PAGE>

<TABLE>
<CAPTION>


                                     PART I

ITEM 1 - Financial Statements

                     BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

ASSETS


                                                                               Dec. 31,     Sep. 30, 
                                                                                 1998         1998 
                                                                            -------------- ------------

Current assets:
<S>                                                                         <C>            <C>         
  Cash and cash equivalents                                                 $      668,988 $     27,701
  Receivables, net                                                               1,568,592    2,147,249
  Inventories, net                                                                 580,123      661,243
  Prepaids                                                                         154,811       19,032
                                                                            -------------- -------------
 Total current assets                                                            2,972,514    2,855,225

Long-term Receivables, net                                                       1,391,260    1,391,260
Property and equipment, net                                                        146,588      150,544
Investments                                                                        660,000      425,000
Intangibles, net                                                                   787,999      814,009
Other assets, net                                                                   27,988       14,437
                                                                            -------------- -------------
       Total assets                                                         $    5,986,349 $  5,650,475
                                                                            ============== =============

                                       LIABILITIES AND SHAREHOLDERS' EQUITY


Current liabilities:
  Accounts payable and accrued expenses                                     $    1,044,079 $     798,968
  Notes Payable                                                                    937,328     1,074,500
                                                                            -------------- -------------
           Total current liabilities                                             1,981,407     1,873,468
 Minority Interest                                                                  46,364        31,281
Shareholders' equity:
    Preferred stock, $.0001 par value; 50,000,000 shares 
     authorized 1,360,430 shares and 1,360,430 shares 
     issued and outstanding respectively                                         2,612,124     2,573,015
    Common stock, $.0001 par value; 500,000,000 shares 
     authorized 1,339,762 shares and 1,286,662 shares 
     outstanding respectively                                                          134           128
   Additional paid-in capital                                                   39,056,080    39,042,910
   Stock subscriptions receivable                                                  (55,192)      (55,192)
   Warrants                                                                        338,500       338,500
   Deferred compensation and consulting                                           (266,324)     (304,862)
   Accumulated deficit                                                         (37,726,744)  (37,848,773)
                                                                            -------------- -------------
           Total shareholders' equity                                            3,958,578     3,745,726
                                                                            -------------- -------------
                                                                            $    5,986,349 $   5,650,475
                                                                            ============== =============

  The accompanying notes are an integral part of these condensed consolidated
                                balance sheets.

</TABLE>





                                       -3-

<PAGE>




                     BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)


                                                        For the Three Months
                                                          Ended Dcember 31,

                                                          1998           1997
                                                     ------------   ------------
REVENUES                                             $ 1,161,827    $    51,917

OPERATING EXPENSES:
  Cost of revenues                                       489,892         36,551
  Management, consulting and research fees               199,631        422,210
  Other general and administrative                       328,405        481,383
                                                     ------------   ------------
         Total operating expenses                      1,017,928        940,144
                                                     ------------   ------------
INCOME (LOSS) FROM OPERATIONS                            143,899       (888,227)
OTHER INCOME (EXPENSE):
  Interest income, net                                    41,079         30,822
   Minority interest                                      10,665             --
  Other, net
                                                     ------------   ------------
         Total other income, net                          30,414         30,822
                                                     ------------   ------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS             174,313       (857,405)
   Gain on disposal of discontinued Volu-Sol, Inc.            --         28,027
                                                     ------------   ------------
NET INCOME (LOSS)                                        174,313       (829,378)
Preferred Stock dividends and accretion of
    beneficial conversion feature                        (56,238)       (36,937)
                                                     ------------   ------------
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES        $   118,075    $  (866,315)
                                                     ============   ============
NET INCOME (LOSS) PER COMMON SHARE  (basic)          $      0.09    $     (2.62)
                                                     ============   ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING             1,331,104        330,313
   (basic)
NET INCOME (LOSS) PER COMMON SHARE (fully diluted)   $      0.05    $     (2.62)
                                                     ============   ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING             2,380,758        330,313
   (diluted)


  The accompanying notes are an integral part of these condensed consolidated
                                statements.

                                       -4-

<PAGE>


<TABLE>
<CAPTION>

                     BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                Increase (Decrease) in Cash and Cash Equivalents


                                                           For the Three Months
                                                             Ended December 31,

                                                             1998            1997   
                                                        ------------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                     <C>          <C>           
Net income (loss)                                       $   174,314  $  (1,519,490)
  Adjustments to reconcile net loss to net cash
  used in operating activities:
  Gain on disposal of Volu-Sol, Inc.                             --        (28,027)
  Depreciation and amortization                              35,612         11,572
  Issuance of Common Stock, options and warrants for
  services                                                       --        199,359
  Amortization of deferred consulting expense                38,538         53,520
  Cancellation of stock issued to consultants                    --        (50,000)
  Exchange of related-party note receivable                      --         24,671
  Changes in assets and liabilities:
  Accounts receivable, net                                  648,656        (44,747)
  Interest receivable                                            --        (13,362)
  Inventories                                                81,120         31,597
  Advances to related party                                      --        150,000
   Prepaid expenses                                        (135,779)            --
  Other assets                                              (13,551)            --
  Accounts payable and accrued liabilities                  245,112       (463,002)
  Minority Interest                                          15,083             --
  Accrued payroll and payroll taxes                                        (45,063)
                                                        -----------    -----------
    Net cash generated (used) in operating activities     1,089,105     (1,303,130)
                                                        -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment                           (5,646)            --
Net (advances) repayments from related parties              (70,000)            --
Payments received on notes receivable                            --       (337,691)
Purchase Investments                                       (235,000)            --
                                                        -----------    -----------
    Net generated (used) cash in investing activities      (310,646)      (337,691)
                                                        -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable                                  (137,172)            --
                                                        -----------    -----------
    Net cash provided (used) by financing activities       (137,172)            -- 
                                                        -----------    -----------
</TABLE>


  The accompanying notes are an integral part of these condensed consolidated
                                   statements.

                                       -5-

<PAGE>




                     BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                Increase (Decrease) in Cash and Cash Equivalents


                                                        For the Three Months
                                                         Ended December 31,


                                                          1998           1997
                                                      -----------   ------------

NET INCREASE (DECREASE) IN CASH AND CASH
   EQUIVALENTS                                        $  641,287    $(1,640,821)

CASH AND CASH EQUIVALENTS AT  BEGINNING
   OF THE PERIOD                                          27,701      1,922,790
                                                      -----------   ------------

CASH AND CASH EQUIVALENTS AT END OF
   THE PERIOD                                          $ 668,988    $   281,969
                                                      ===========   ============



SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

During the three  months ended  December 31, 1998 the Company paid  dividends on
its outstanding  preferred stock by issuing additional shares of preferred stock
totaling $52,285.

The Company  increased common stock and additional paid in capital and decreased
preferred  stock by $17,129 due to the  conversion of preferred  stock to common
stock.

The Company increased  preferred stock and decreased  additional paid in capital
by $3,953 due to the preferred stock beneficial conversion feature.








  The accompanying notes are an integral part of these condensed consolidated
                                  statements.


                                       -6-

<PAGE>



                     BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

(1)  PRESENTATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The  accompanying  interim  condensed   consolidated  financial  statements  are
unaudited and have been prepared  consistent with generally accepted  accounting
principles for interim  financial  information and with the instructions to Form
10- QSB and Item 310(b) of Regulation S-B. Accordingly,  they do not include all
of the  information  and  footnotes  required by generally  accepted  accounting
principles for complete financial statements. These statements should be read in
conjunction with the audited financial  statements and notes thereto included in
the Company's annual report on Form 10-K for the fiscal year ended September 30,
1998. Reference to the Company or Biomune includes Biomune Systems, Inc. and its
subsidiaries, Optim Nutrition, Inc. and Rockwood Companies, LLC.

In the opinion of management,  the accompanying unaudited condensed consolidated
financial  statements  contain  all  adjustments   (consisting  only  of  normal
recurring  adjustments)  necessary  to fairly  present the  Company's  financial
position as of December  31, 1998 and the results of  operations  and cash flows
for the three months ended  December  31, 1998 and 1997.  The interim  financial
statements should be read in conjunction with the following  explanatory  notes.
The results of operations  for the three months ended  December 31, 1998 are not
necessarily  indicative  of the results that may be expected for the year ending
September 30, 1999.

(2) DIVESTITURE OF VOLU-SOL, INC.

On October 1, 1997, the Company  divested itself of its wholly owned  subsidiary
Volu-Sol,  Inc.,  by  distributing  the common stock of Volu-Sol  prorata to the
Company's  stockholders  of  record  as of  March 5,  1997.  The  operations  of
Volu-Sol,  Inc.  are  reflected  herein as  discontinued  operations  during the
affected period.

(3)  NET INCOME (LOSS) PER COMMON SHARE

Basic net income (loss) per common share ("Basic EPS") excludes  dilution and is
computed by dividing net income (loss) by the weighted  average number of common
shares outstanding during the period. Diluted net income (loss) per common share
("Diluted  EPS")  reflects  the  potential  dilution  that could  occur if stock
options or other contracts to issue common stock including convertible preferred
stock were exercised or converted into common stock.  The computation of Diluted
EPS does not assume  exercise or  conversion  of  securities  that would have an
anti-dilutive effect on net income per common share.

At December 31, 1998,  there were  outstanding  options and warrants to purchase
418,881  shares of common  stock and there were  1,331,104  shares of  preferred
stock outstanding, convertible into a minimum of 774,796 shares of common stock.

At December 31, 1997,  there were  outstanding  options and warrants to purchase
1,095,135 shares of common stock and there were 36,485 shares of preferred stock
outstanding,  convertible  into a minimum of 2,815,441  shares of common  stock,
neither of which are  included in the  computation  of diluted EPS because  they
would be anti-dilutive.

(4)  COMMON STOCK TRANSACTIONS

The Company has  deferred  consulting  expense  related to shares  issued  under
consulting  agreements  entered into prior to September 30, 1998. These deferred
amounts are being  recognized  over the terms of the  agreements as services are
provided.  Total amortization of these deferred  consulting expenses was $38,538
for the three months ended December 31, 1998.

Subsequent  to December  31,  1997,  accrued  vacation  payable to two  officers
totaling  $38,572  was  settled by issuing  77,144  shares of Common  Stock.  In
addition,  accrued  liabilities  of $75,000  owed to ADP  Management  for office
expenses and rent were settled by issuing 150,000 shares of Common Stock.

                                       -7-

<PAGE>



(5)  STOCK OPTIONS AND WARRANTS

As of December 16, 1997, the Company offered all holders of options and warrants
a one-time  opportunity to exchange  their options or warrants,  as the case may
be, for options or warrants  exercisable  until  February 28, 1998 at a price of
$.50 per share.  Option and  warrant  holders  who  decline  to  exchange  their
outstanding  options or warrants and exercise the replacement  warrants retained
their existing options or warrants,  without any change in the previously stated
exercise  terms and price.  For the three months ended  December 31, 1997,  as a
result of this exchange  offer,  the Company  recorded  compensation  expense of
$124,359 related to options held by employees and directors.

During the three months ended  December 31, 1997,  warrants to purchase  147,059
shares of common stock expired. As a result,  $544,773 was reclassified from the
caption "Common Stock Warrants" to the caption "Additional Paid-in Capital."

Subsequent  to  December  31,  1997,  an option  holder  exercised  his right to
purchase  412,457  shares  of common  stock at $0.50  per share and the  Company
received $206,229 in cash.

(6)  RELATED-PARTY TRANSACTIONS

During the quarter ended December 31, 1998, the Company recorded  management fee
income of $225,000 from its Rockwood subsidiary.

As  shown  on the  enclosed  balance  sheet,  related  party  receivables  equal
2,055,215.

From  March 5, 1997  through  September  30,  1997,  the  Company  made loans to
Volu-Sol,  Inc.  (then  a  wholly  owned  subsidiary  of the  Company)  totaling
$390,500.  During the year-ended  September 30, 1998, Volu-Sol made a payment of
$150,000 of which $114,351 went to principal and $35,649 as interest. During the
quarter ended  December 31, 1998 the Company made  additional  loans to Volu-Sol
totaling  $70,000.  These loans bear interest at a rate of 10% per annum and are
due on demand.  Accrued but unpaid  interest  owed to the Company on these loans
totaled $20,159 at December 31, 1998.

During the  quarter  ended  December  31,  1997,  the  Company  entered  into an
investment banking arrangement with MK Financial, Inc., an entity owned by David
G. Derrick,  who was then the Company's Chief Executive  Officer and Chairman of
the  Board.  Under  this  arrangement,  the  Company  advanced  $150,000  to  MK
Financial,  Inc. for fees and commissions related to investment banking services
to be performed.  Subsequent to December 31, 1997, MK Financial,  Inc.  assisted
the Company in raising  additional  capital through the sale of preferred stock.
This agreement was terminated during the fiscal year ended September 30, 1998.

(7)  CONSULTING AGREEMENTS

On December 16, 1997, the Company entered into a consulting agreement with David
Pomerantz ("Pomerantz"),  whereby Pomerantz was issued a total of 180,000 shares
of the Company's  common stock in exchange for consulting  services,  consisting
primarily of investor relations  services,  to be provided through September 30,
1998.  The Company  recorded  consulting  expense of $90,000 of which $67,500 is
deferred and recognized  over the remaining  term of the  consulting  agreement,
which expired on December 31, 1998.

(8) PREFERRED STOCK TRANSACTIONS

During the three months ended December 31, 1998, the Company  accrued  dividends
on its outstanding  Series A, Series E, Series F and Series J Preferred stock of
$3,250, $5,460, $15,200 and $28,375, respectively. Preferred stock dividends are
payable in either  additional  shares of preferred stock (of the same series) or
in cash, at the option of the Board of Directors.  On December 31, 1998, accrued
dividends on Series A, E, F and J Preferred stock totaling $52,285, were paid by
issuing 650 shares of Series A Preferred stock, 5.5 shares of Series E Preferred
stock,  25,333  shares of Series F  Preferred  stock and 28.4 shares of Series J
Preferred stock.

In December 1997, the Board of Directors  authorized the creation of a series of
the Company's preferred stock designated as "Series E 8% Cumulative  Convertible
Non-Voting Preferred Stock" (the "Series E Preferred stock"),

                                       -8-

<PAGE>



consisting  of  30,000  shares  of the  authorized  and  unissued  shares of the
Company's Preferred Stock, $0.0001 par value per share. The holders of shares of
Series E Preferred  stock are  entitled to receive an annual  dividend  from the
Company's  assets  legally  available  therefor,  prior and in preference to any
declaration  or payment of any dividend on the common  stock of the Company,  at
the  rate of  $80.00  per  share.  Dividends  may be paid  either  in cash or in
additional  shares of Series E Preferred stock at the discretion of the Board of
Directors  of the  Company.  Each  share of  Series  E  Preferred  stock  may be
converted into the number of shares of the Company's  common stock determined by
dividing $1,000 plus any accrued and unpaid  dividends by an amount equal to the
market price of the common stock on the date of conversion less 42%,  subject to
the Company's  right of redemption.  The holders of Series E Preferred stock are
also entitled to certain rights and preferences upon liquidation.  Subsequent to
December  31,  1997,  283.5  shares of Series E  Preferred  stock  were sold for
$283,500  in cash.  In  addition,  280 shares of Series E  preferred  stock were
issued to satisfy accounts payable of $280,000.

In December 1997, the Board of Directors  authorized the creation of a series of
the Company's preferred stock designated as "Series F 8% Cumulative  Convertible
Non-Voting  Preferred  Stock" (the "Series F Preferred  stock"),  consisting  of
7,000,000  shares  of the  authorized  and  unissued  shares  of  the  Company's
Preferred Stock,  $0.0001 par value per share. The holders of shares of Series F
Preferred  stock are entitled to receive an annual  dividend  from the Company's
assets legally available therefor, prior and in preference to any declaration or
payment of any  dividend  on the  common  stock of the  Company,  at the rate of
$0.048 per share.  Dividends may be paid either in cash or in additional  shares
of  Series F  Preferred  at the  discretion  of the  Board of  Directors  of the
Company.  Each share of Series F Preferred stock may be converted into one share
of the Company's common stock, subject to the Company's right of redemption. The
holders of Series F Preferred also have certain  preferences  upon  liquidation,
subject to rights of senior  series of preferred  stock.  Subsequent to December
31, 1997, 1,000,000 shares of Series F Preferred stock were sold for $600,000 in
cash.

(9) ROCKWOOD TRANSACTION

In April 1998,  the Company  acquired a  controlling  (52%)  equity  interest in
Rockwood's successor, Rockwood Companies LLC (referred to as "Rockwood LC"), for
$360,000 cash, a commitment to issue 500,000 shares of preferred  stock (payable
if certain  benchmarks in sales are obtained),  and covenants on the part of the
Company to loan  $1,500,000  to  Rockwood LC or its  affiliates  over a one-year
period.  Rockwood LC  distributes  and sells health and beauty aids to wholesale
and retail chains Rockwood LC has the right to redeem a member's interest if the
Company  fails to keep its  covenants  to make the loans to Rockwood  LC.  Among
other  things,  Rockwood  LC could  reduce  the  Company's  equity  interest  to
approximately 20% of the total issued and outstanding  equity  interests.  As of
December  31, 1998,  the Company had not  advanced  $850,000 of the funds it had
covenanted to loan to Rockwood LC, by March 15, 1999.  Its ability to do so will
depend in part on the  Company's  ability  to obtain  additional  debt or equity
financing  and  increasing  sales  of its  products,  of which  there  can be no
assurance.


Item 2 - Management's Discussion and Analysis or Plan of Operation

         The  following  discussion  should  be read  in  conjunction  with  the
unaudited  condensed  consolidated  financial  statements  and the notes thereto
appearing elsewhere in this Quarterly Report on Form 10-QSB.

Overview

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

                                       -9-

<PAGE>




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

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

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

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

         o        changes in raw material sources and costs; and

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

         o        the  company  is  in  negotiations  to  renew  its  technology
                  license.

         The Company believes that the majority of its future revenues will come
from its nutrition and medical food products and new nutraceutical  products and
pharmaceutical  drugs. The Company cannot determine the ultimate effect that new
products will have on revenues,  earnings or the price of the  Company's  common
stock.

         The Company's  primary  focus and efforts  during the fiscal year ended
September 30, 1998, were the  commercialization  of its nutraceutical  products,
assessing and obtaining additional  nutraceutical and medical products to add to
product  line,  and, to a lesser  extent,  continuing  its efforts to obtain FDA
approval of BWPT-301 for the treatment of  cryptosporidiosis in people with AIDS
and BWPT-302 for the treatment of E. coli,  strain  0157:H7.  During the quarter
ended December 31, 1998, the Company's  revenues were generated from the sale of
Optimune and Maximune,  special food bars and nutrition bars, and sale of health
and beauty aids through the Company's majority owned Rockwood subsidiary.

         Continuing  in fiscal year 1999,  the Company will focus its  resources
and efforts on:

         o        commercialization of its nutraceutical products;

         o        continued  marketing  and selling of the NiteBite and Mountain
                  Lift bars;

         o        acquisition of new nutraceutical and or medical food products;

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

         o        approval of BWPT-301 and BWPT-302.

         o        renewing its technology license.

Results of Operations

Comparison of the Three Months Ended December 31, 1998
with the Three Months Ended December 31, 1997

         During the three  months  ended  December  31,  1998,  the  Company had
revenues of $1,161,827 compared to $51,917 for the comparable three month period
ended  December  31, 1997.  The  increase in sales is due  primarily to sales of
health and beauty aids,  through  Rockwood LC, acquired in April 1998, and sales
of medical  foods and  nutrition  bars that  commenced  during the quarter ended
December 31, 1998.


                                      -10-

<PAGE>



         Cost of sales were  $489,892 for the three  months  ended  December 31,
1998  compared  to cost of sales of $36,551 for  the same  period  in 1997.  The
overall  gross margin for the quarter in 1998 was 58% of  revenues,  compared to
30% for the  comparable  quarter in 1997. The increase in gross margin is due to
the higher margins from the Company's Rockwood subsidiary.

         Management,  consulting  and research  fees were $199,632 for the three
months ended  December  31,  1998,  as compared to $422,210 for the three months
ended December 31, 1997. The Company recorded $225,000 of management fee income,
from its Rockwood  subsidiary,  for the quarter ended  December 31, 1998,  which
reduced   management,   consulting   and  research  fee  expense.   General  and
administrative  expenses  decreased  from  $481,383  for the three  months ended
December 31, 1997 to $328,405 for the three months ended  December 31, 1998. The
decrease in fees and expenses is due to the Company's efforts to reduce overhead
costs.

         During the three months ended  December 31, 1997, the Company had a net
loss of $829,378 compared to a net profit of $174,313 for the three months ended
December 31, 1998.  This  turnaround  from a net loss in 1997 to a net profit in
the same  quarter in 1998 is  attributable  primarily to the increase in revenue
from the  Company's  nutraceutical  products  and medical food bars and revenues
from Rockwood LC and a reduction in operating expenses discussed above.

         Net  (fully  diluted)  loss per  common  share was  $(2.62)  during the
quarter ended December 31, 1997 compared to net income per common share of $0.05
for the quarter ended December 31, 1998. This turnaround from a net loss in 1997
to a net profit in the same  quarter in 1998 is  attributable  primarily  to the
increase in revenue from the Company's  nutraceutical  products and medical food
bars and  revenues  from  Rockwood  LC and a  reduction  in  operating  expenses
discussed above.

         On October 1, 1997,  the Company  divested  itself of its wholly  owned
subsidiary,  Volu-Sol, Inc., by a pro rata distribution of Volu-Sol, Inc. common
stock to the Company's  shareholders  of record as of March 5, 1997. The Company
recognized  a gain  of  $28,027  on  disposal  of  discontinued  Volu-Sol,  Inc.
operations as a result of this divestiture.

Liquidity and Capital Resources

         Historically,  the Company  has been  unable to finance its  operations
from cash flows from operating  activities.  The Company expects it will require
substantial  funds and time to  commercialize  its  nutraceutical  products,  to
complete  Phase II and  Phase III  clinical  trials  on  BWPT-301(TM)  (assuming
efficacy is established  during the Phase II clinical  trials),  to complete the
necessary clinical trials on BWPT-302(TM), to obtain regulatory approval for and
commercialize products utilizing the Technology and to develop and commercialize
additional   nutraceutical   products   based   on   the   Technology.   Because
revenue-generating  operating  activities are not in place at significant levels
and because the Company  will  require  significant  capital to  accomplish  the
objectives  set forth  above,  additional  equity  and/or debt  funding  will be
required,  although such funding may not be available or may not be available on
favorable  terms.  Management  believes  that the  Company-funded  research  and
development  efforts  to date have  positioned  the  Company  to  pursue  future
research  and  development  efforts  and  clinical  trials  with joint  venture,
strategic alliance, government or private grants or other third-party funding.

         As of December 31, 1998,  the Company had cash and cash  equivalents of
$668,988  and  working  capital  of  $991,107  as  compared  to  cash  and  cash
equivalents of $27,701 and working capital of $981,757 as of September 30, 1998.

         The Series A Preferred  stock bears a 10% cumulative  dividend  payable
annually in cash or in  additional  shares of Series A Preferred  stock,  at the
election of the  Company's  Board of  Directors.  As of December 31,  1998,  the
Company had accrued  dividends on the Series A Preferred stock totaling  $3,250,
which  dividends  the Company  paid in  additional  shares of Series A Preferred
stock.

         During  the  three  months  ended  December  31,  1998,  the  Company's
operating activities generated $1,089,105 of cash. During the same period in the
previous  fiscal year, the Company's  operating  activities  used  $1,303,130 of
cash,  which was  provided by the raising of capital  from the sale of preferred
stock.

                                      -11-

<PAGE>



         The Company has no  established  credit  facility  with a bank of other
lending  institution.  The Company has in the past, from time to time,  borrowed
money from certain shareholders,  but there is no formal financing  arrangement,
agreement or  understanding  in affect with any of its shareholders or any other
related or unrelated party at this time. The Company's current line of credit is
due and payable on February 28, 1999.

         The  Company's  product  line is limited  and the Company has relied in
large  part upon  financing  from the sale of its equity  securities  to sustain
operations.  Additional financing will be required if the Company is to continue
as a going concern.  If such additional funding cannot be obtained,  the Company
may be  required  to scale  back or  discontinue  its  operations.  Even if such
additional financing becomes available to the Company, there can be no assurance
that it will be on terms favorable to the Company.  In any event, such financing
will  result  in  immediate  and  possibly   substantial  dilution  to  existing
shareholders.  Finally,  based upon its operational  needs in the coming months,
some  of the  Company's  existing  assets  may  not be  readily  converted  into
sufficient liquid working capital to meet the company's cash requirements.

         The Company has a note payable of $559,000  due  February 27, 1999.  In
addition,  as of December 31, 1998, the Company had not advanced $850,000 of the
funds it had  covenanted  to Rockwood LC by March 15, 1999.  Its ability to meet
these  obligations  will  depend  in part on the  Company's  ability  to  obtain
additional  debt or equity  financing and increasing  sales of its products,  of
which there can be no assurance.

Special Statement Concerning Forward-looking Statements

         This Report, in particular the "Management's Discussion and Analysis or
of  Operation"  section,  contains  forward-looking  statements  concerning  the
expectations  and  anticipated  operating  results  of  the  Company.  All  such
forward-looking statements contained herein are intended to qualify for the safe
harbor protection provided by Section 21Eof the Securities Exchange Act of 1934,
as amended.  The reader should  understand that numerous  factors govern whether
events  described  by any  forward-looking  statement  made by the Company  will
occur.  Any one of such factors could cause actual results to differ  materially
from those  projected  by the  forward-looking  statements  made in this Report.
These forward-looking  statements include plans and objectives of management for
future operations,  including plans and objectives  relating to the products and
the future economic performance of the Company.  The forward-looking  statements
and associated risks relate to:

         o        market acceptance of the products;

         o        development of new nutraceutical products;

         o        the extent of additional research and development, general and
                  administrative   and  other  direct  costs   associated   with
                  obtaining final FDA approval on BWPT-301;

         o        the  anticipated  cost and related expense of the BWPT-301 and
                  BWPT-302  clinical  trials  until final FDA  approval has been
                  received;

         o        unexpected  delays in receipt of final FDA  approval  on BWPT-
                  301;

         o        the estimated  commencement  date of Phase III clinical trials
                  and the completion of those clinical trials on BWPT-301;

         o        and the lack of sufficient  cash to fund current and projected
                  operations and budgeted  research and  development  for fiscal
                  year 1999.

         The forward-looking  statements are based on current  expectations that
may be affected by a number of risks and  uncertainties and are based on certain
assumptions, such as:

         o        the Company will have adequate financing available.

         o        the  efficacy  of  BWPT-301  will be  established  during  the
                  ongoing  Phase II clinical  trials and the Phase III  clinical
                  trials;


                                      -12-

<PAGE>



         o        the  Company  will  be  able  to  successfully  undertake  and
                  complete clinical trials on BWPT-302(TM);

         o        the Company will be able to successfully market the health and
                  beauty  aids  and  it's  the   nutraceutical   products,   and
                  successfully  develop and  commercialize  other  nutraceutical
                  products;

         o        the  Company  will  be  able  to   successfully   develop  and
                  commercialize the Technology;

         o        the Company  will  successfully  conduct  additional  Phase II
                  clinical  trials on BWPT-301and  may need to conduct  clinical
                  trials that are different  from those that have been conducted
                  to date or that are currently contemplated by the Company; and

         o        the Company will be able to timely and  properly  quantify and
                  analyze the data derived from its clinical trials.

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

                           PART II. OTHER INFORMATION

Item 6.   Exhibits and Reports on Form 8-K

         (a)               Exhibits

                  27       Financial Data Schedule

         (b)               Reports on Form 8-K

         By a Current  Report on Form 8-K dated  October  6, 1998,  the  Company
reported  an increase  in the number of  Volu-Sol  shares  issued as part of the
divestiture of Volu-Sol, Inc., pursuant to an agreement with the NASD.

         By a Current  Report on Form 8-K dated  December 15, 1998,  the Company
reported  the  results of a hearing  before  the NASD  regarding  the  continued
listing of the Company's common stock on the Nasdaq SmallCap Stock Market.

                                      -13-

<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.



                              BIOMUNE SYSTEMS, INC.
                                  (Registrant)



Date: February 11, 1999           /s/ Michael G. Acton                          
                                  ----------------------------------------------
                                  Michael G. Acton,  Chief Executive Officer and
                                  Controller (Principal Financial and Accounting
                                  Officer)




                                      -14-