<PAGE>

                   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 MARCH 31, 1999

                                   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 May 5, 1999,  the issuer had issued and  outstanding  2,008,142  shares of
common stock, par value $.0001.

Transitional Small Business Disclosure Format
(Check One):

Yes __      No X 


                                  -1-

<PAGE>



                              TABLE OF CONTENTS



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

            Unaudited Condensed Consolidated Balance Sheets as of March 31, 1999
            and September 30, 1998.....................................................3

            Unaudited  Condensed  Consolidated  Statements of Operations for the
            three and six months ended March 31, 1999 and 1998.........................4

            Unaudited Condensed Consolidated Statements of Cash Flows for
            the six months ended March 31, 1999 and 1998...............................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>



                                    PART I

 ITEM 1 - Financial Statements

                    BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (Unaudited)

<TABLE>
<CAPTION>
ASSETS
                                                                               Mar. 31,         Sep. 30,
                                                                                 1999             1998
                                                                                 ----             ----
<S>                                                                         <C>              <C>
Current assets:
  Cash and cash equivalents                                                 $   202,346      $     27,701
                                                                            
  Receivables, net                                                              710,268         2,147,249
  Inventories, net                                                              174,591           661,243
  Prepaids                                                                      957,787            19,032
                                                                            -----------      ------------
 Total current assets                                                         2,044,992         2,855,225

Long-term receivables, net                                                      500,000         1,391,260
Property and equipment, net                                                      58,723           150,544
Investment in Rockwood                                                        1,681,377                -
Investments                                                                     381,056           425,000
Intangibles, net                                                                583,829           814,009
Other assets, net                                                                11,346            14,437
                                                                            -----------      ------------
       Total assets                                                         $ 5,261,322      $  5,650,475
                                                                            -----------      ------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable and accrued expenses                                     $   237,237      $    798,968
  Notes payable                                                                      -          1,074,500
                                                                            -----------      ------------
           Total current liabilities                                            237,257         1,873,468
 Minority interest                                                                   --            31,281
Shareholders' equity:
    Preferred stock, $.0001 par value; 50,000,000 shares authorized
      1,360,430 shares and 1,408,662 shares issued and
      outstanding respectively                                                2,428,638        2,573,015
    Common stock, $.0001 par value; 500,000,000 shares authorized
      2,008,142 shares and 1,339,762 shares outstanding respectively               201               128
   Additional paid-in capital                                               40,159,328        39,042,910
   Stock subscriptions receivable                                              (55,192)          (55,192)
   Warrants                                                                     338,500          338,500
   Deferred compensation and consulting                                        (245,044)        (304,862)
   Accumulated deficit                                                      (37,602,347)     (37,848,773)
                                                                            -----------      -----------
           Total shareholders' equity                                         5,024,084        3,745,726
                                                                              ---------      -----------
                                                                            $ 5,261,322      $ 5,650,475
                                                                            ===========      ===========
</TABLE>



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

                                        -3-
<PAGE>

                     BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                               For the Three Months          For the Six Months
                                                                 Ended March 31,                Ended March 31,

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

<S>                                                           <C>            <C>               <C>            <C>        
REVENUES                                                      $    501,491   $    18,852       $ 1,663,318    $    70,769

OPERATING EXPENSES:
  Cost of revenues                                                 182,233         8,388           672,125         39,439
  Management, consulting and research fees                         235,257       364,524           563,662        662,375
  Other general and administrative                                 222,131       697,220           421,763      1,308,462
                                                              ------------   -----------       -----------    -----------
         Total operating expenses                                  639,621     1,070,132         1,657,550      2,010,276
INCOME (LOSS) FROM OPERATIONS                                     (138,130)   (1,051,280)            5,768     (1,939,507)
OTHER INCOME (EXPENSE):
  Interest income, net                                              42,043        25,915            83,122         56,737
   Minority interest                                                    -             -             10,665             -
  Other, net                                                       270,000            -            270,000             -
                                                              ------------   -----------       -----------    -----------
         Total other income, net                                   312,043        25,515           363,787         56,737
                                                              ------------   -----------       -----------    -----------
NET INCOME FROM CONTINUING OPERATIONS                              173,913    (1,025,365)          369,555     (1,882,770)
   Gain on disposal of discontinued Volu-Sol, Inc.                      -             -                 -          28,027
NET INCOME                                                         173,913    (1,025,365)          369,555     (1,853,743)
Preferred stock dividends and accretion of
    beneficial conversion feature                                  (49,514)     (732,215)         (105,752)      (769,152)
                                                              ------------   -----------       -----------    -----------
NET INCOME APPLICABLE TO COMMON SHARES                        $    124,399   $(1,757,580)      $   263,803     (2,623,895)
                                                              ============   ===========       ===========    ===========
NET INCOME (LOSS) PER COMMON SHARE  (basic)                   $       0.08   $     (3.60)      $      0.18    $     (6.44)
                                                              ============   ===========       ===========    ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (basic)               1,520,000       488,000         1,451,000        407,000
NET INCOME (LOSS) PER COMMON SHARE (diluted)                  $       0.06   $     (3.60)      $      0.13    $     (6.44)
                                                              ============   ===========       ===========    ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (diluted)             2,059,000       488,000         2,000,000        407,000
</TABLE>

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

                                        -4-
<PAGE>


                     BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                Increase (Decrease) in Cash and Cash Equivalents


<TABLE>
<CAPTION>
                                                                    For the Six Months
                                                                     Ended March 31,

                                                                              1999              1998   
                                                                           ----------        ----------
<S>                                                                     <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                       $   369,555         $  (1,854,743)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
  Gain on disposal of Volu-Sol, Inc.                                             -                (28,027)
  Depreciation and amortization                                              76,497                21,127
  Issuance of common stock, options and warrants for services                    -                524,491
  Amortization of deferred consulting expense                                59,818               386,234
  Gain on sale of investments                                              (270,000)                   -
  Cancellation of stock issued to consultants                                    -                (50,000)
  Income from management fee from equity investment                        (450,000)                   -
  Changes in assets and liabilities:
  Accounts receivable, net                                                  914,677               (56,763)
  Inventories                                                               486,652                36,899
   Prepaid expenses                                                        (938,755)                   -
  Other assets                                                                3,091                    -
  Accounts payable and accrued liabilities                                 (561,729)             (546,433)
  Minority interest                                                          -         -
                                                                        -----------         -------------
    Net cash generated (used) in operating activities                      (310,194)           (1,567,215)
                                                                        -----------         -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment                                           (5,646)                   -
Net (advances) repayments from related parties                                   -               (451,929)
Payments received on notes receivable                                            -               (337,691)
Proceeds from sale of investment                                            431,000                    -
Purchase investments, net                                                  (274,000)                   -
                                                                        -----------         -------------
    Net cash generated (used) cash in investing activities                  151,354              (789,620)
                                                                        -----------         -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock, net                                   -                723,500
Proceeds from issuance of common stock, net                                 848,985               206,303
Net decrease in notes payable                                              (515,500)                   -
                                                                        -----------         -------------
    Net cash provided (used) by financing activities                        333,485               929,803 
                                                                        -----------         -------------
</TABLE>

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

                                        -5-
<PAGE>


                     BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>

                                                                    For the Six Months
                                                                     Ended March 31,

                                                                              1999              1998   
                                                                           ----------        ----------
<S>                                                                       <C>                <C>
NET INCREASE (DECREASE) IN CASH AND CASH
   EQUIVALENTS                                                            $   174,645        $  (427,032)
                                                                                
CASH AND CASH EQUIVALENTS AT  BEGINNING
   OF THE PERIOD                                                               27,701          1,922,790
                                                                          -----------        -----------
CASH AND CASH EQUIVALENTS AT END OF
   THE PERIOD                                                             $   202,346        $   495,758
                                                                          ===========        =========== 
</TABLE>


   SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

The Company had its  ownership in Rockwood  reduced from 52% to 19%. This change
in ownership  increased  the carrying  amount of its  investment  in Rockwood by
$1,231,377 from reclassifying receivables of $1,011,508,  unamortized intangible
assets of $251,150 and reducing minority interest by $31,281.

The Company  reduced notes payable by $559,000 by exchanging  189,000  shares of
its investment in Bioxide Corporation.

The Company  received  178,692  shares of Bioxide  Corporation  in exchange  for
receivables of $402,056.

The Company converted $267,506 of preferred stock to common stock.

The Company paid  preferred  stock  dividends of $123,129 by issuing  additional
shares of preferred stock.















                The accompanying notes are an integral part of
              these unaudited 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
wholly owned subsidiary, Optim Nutrition, Inc.

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 March 31, 1999 and the  results of  operations  for the three
months and six months and cash flows for the six months ended March 31, 1999 and
1998.  The interim  financial  statements  should be read in conjunction with
the following explanatory  notes. The results of operations for the three months
and six ended March  31,  1999  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 pro rata 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 March 31,  1999,  there were  outstanding  options  and  warrants to purchase
15,632 shares of common stock and there were 1,408,662 shares of preferred stock
outstanding, convertible into a minimum of 521,360 shares of common stock.


<TABLE>
<CAPTION>
Preferred Stock         Number of           Convertible into #
                     Preferred Shares        of Common Shares
<S>               <C>                     <C>  
Series A                40,035                    1,360
Series E                    20                   20,000
Series F             1,367,415                  250,000
Series J                 1,192                  250,000
                  ------------            -------------
                     1,408,662                  521,360
                  ============            =============
</TABLE>




                                     -7-

<PAGE>



(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 $59,818
for the six months  ended March 31, 1999 and $21,280 for the three  months ended
March 31, 1999.

(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 six months ended March 31, 1998,  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 six months  ended March 31, 1999,  the Company  recorded a management
fee of $225,000 from its Rockwood subsidiary.

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 to interest  During the
six months  ended March 31, 1999 the Company made  additional  loans to Volu-Sol
totaling  $96,000.  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  $28,813 at March 31,  1999.  On March 31,  1999,  the Company  sold and
assigned  the  Volu-Sol  Note plus accrued  interest to Bioxide  Corporation  in
exchange for 178,205 shares of Bioxide Corporation common stock.

During the six months ended March 31, 1999 the Company  sold  320,000  shares of
Bioxide Corporations stock and recorded a gain of $270,000.

(7) PREFERRED STOCK TRANSACTIONS

During the six months ended March 31, 1999, the Company accrued dividends on its
outstanding Series A, Series E, Series F and Series J Preferred stock of $6,500,
$7,020, $30,400 and $56,750, 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 Company.  On March 31, 1999, accrued dividends on Series A,
E, F and J Preferred stock totaling $100,670,  were paid by issuing 1,300 shares
of Series A  Preferred  stock,  6.0 shares of Series E Preferred  stock,  50,666
shares of Series F Preferred stock and 56.8 shares of Series J Preferred stock.

During the six months ended March 31, 1999, 233.3 shares of the Company's Series
E preferred  stock were  converted into  approximately  230,000 shares of common
stock.  Subsequent to March 31, 1999,  74.1  additional  shares of Series E were
converted into approximately 59,000 shares of common stock.

(8) 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

                                     -8-

<PAGE>



stock (payable if certain  benchmarks in sales were 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 retained the right to redeem a portion
of the Company's  member interest if the Company failed to keep its covenants to
make the loans to Rockwood  LC. As of  December  31,  1998,  the Company had not
advanced  $850,000 of the funds it had  covenanted  to loan to  Rockwood  LC. By
letter dated March 15, 1999 Rockwood exercised its right to reduce the Company's
interest to 19% and to terminate,  effective  December 31, 1998,  other on-going
commitments and agreements between the Company and Rockwood.

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 also markets a medical food bar that 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.  The Company also holds a minority  interest in a
California  company that distributes health and beauty aids and related products
to national wholesale and retail customers.

      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.

      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 six months
and the quarter ended March 31, 1999, 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 Rockwood.



                                     -9-

<PAGE>



      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 March 31, 1999
with the Three Months Ended March 31, 1998

      During the three months ended March 31, 1999,  the Company had revenues of
$501,491  compared to $18,852 for the comparable  three month period ended March
31, 1999.  The increase in sales is due  primarily to the sale of medical  foods
and nutrition bars that commenced during the quarter ended December 31, 1998.

      Cost of sales were  $182,233  for the three  months  ended  March 31, 1999
compared  to cost of sales of $8,388 for the same  period in 1998.  The  overall
gross margin for the quarter in 1999 was 63.7% of revenues,  compared to 30% for
the  comparable  quarter in 1998.  The  increase  in gross  margin is due to the
higher margins from the Company's Optim subsidiary.

      Management,  consulting  and  research  fees were  $235,257  for the three
months ended March 31, 1999,  as compared to $364,524 for the three months ended
March 31, 1998. General and administrative  expenses decreased from $697,220 for
the three  months  ended March 31, 1998 to $222,131  for the three  months ended
March 31,  1999.  The  decrease  in fees and  expenses  is due to the  Company's
efforts to reduce overhead costs.

      During the three months  ended March 31, 1998,  the Company had a net loss
of  $1,025,365  compared to a net profit of $173,913  for the three months ended
March 31, 1999.  This  turnaround from a net loss in 1998 to a net profit in the
same quarter in 1999 is  attributable  primarily to the increase in revenue from
the Company's  nutraceutical  products and medical food bars, the sale of shares
of Bioxide  Corporation  common  stock  held  by the  Company, the  recording of
$225,000 of  management  fee  income from Rockwood, and a reduction in operating
expense discussed above.

      Net (fully  diluted) loss per common share was $(3.60)  during the quarter
ended  March 31, 1998  compared to net income per common  share of $0.06 for the
quarter ended March 31, 1999.  This  turnaround from a net loss in 1998 to a net
profit in the same quarter in 1999 is attributable  primarily to the increase in
revenue from the  Company's  nutraceutical  products and medical food bars,  the
sale of  Bioxide shares, the recording of $225,000 of management fee income from
Rockwood, and a reduction in operating expense discussed above.

Comparison of the Six Months Ended March 31, 1999
with the Six Months Ended March 31, 1998

      During the six months  ended March 31,  1999,  the Company had revenues of
$1,663,318  compared to $70,769 for the  comparable six month period ended March
31,  1998.  The  increase in  revenues  is due to the sales of medical  food and
nutrition bars as well as sales of Rockwood.

      Cost of sales  were  $672,125  for the six  months  ended  March 31,  1999
compared to cost of sales of $39,439  for the same  period in 1998.  The overall
gross margin for 1999 was 59.6 percent of revenues, compared to 44 percent

                                     -10-

<PAGE>



for the  comparable  quarter in 1998. The increase in gross margin is due to the
higher gross margins from the Company's Optim product line.

      Management,  consulting and research fees were $563,662 for the six months
ended March 31, 1999, as compared to $662,375 for the six months ended March 31,
1998.  This  decrease is due to the  Company's  decision to allocate its limited
resources to development and  commercialization  of its  nutraceutical  products
rather than continuing research and development of pharmaceuticals at historical
levels  at  this  time.  General  and  administrative  expenses  decreased  from
$1,308,462  for the six months  ended  March 31,  1998 to  $421,763  for the six
months  ended March 31, 1999.  The decrease in both of these  expenses is due to
the Company's  efforts to reduce overhead costs and a reduction in the number of
employees.

      Interest income was $82,028 for the six months ended March 31, 1999.

      During the six months ended March 31,  1999,  the Company had a net profit
of $172,906,  compared to a net loss of  $1,025,365  during the six months ended
March 31, 1998.  This  turnaround from a net loss in 1998 to a net profit in the
same quarter in 1999 is  attributable  primarily to the increase in revenue from
the Company's  nutraceutical products and medical food bars, the sale of Bioxide
shares,  the  recording  of  management  fees from  Rockwood, and a reduction in
operating expenses discussed above.

      Net income per common  share was $0.13 for the six months  ended March 31,
1999,  compared to a net (fully  diluted)  loss per common share of $6.44 during
the quarter ended March 31, 1998.  This  turnaround from a net loss in 1998 to a
net profit in the same quarter in 1999 is attributable primarily to the increase
in revenue from the Company's  nutraceutical products and medical food bars, the
sale of  Bioxide  shares, the recording of management  fees from Rockwood, and a
reduction in operating expenses discussed above.

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 March  31,  1999,  the  Company  had cash  and cash  equivalents  of
$202,346  and  working  capital  of  $1,807,755  as  compared  to cash  and cash
equivalents of $27,701 and working capital of $981,757 as of September 30, 1998.
The increase in cash is due to the sale of Bioxide shares.

      The  Company  paid  preferred  stock  dividends  of  $123,129  by  issuing
additional shares of preferred stock.

      During the six months ended March 31, 1999 the Company sold 320,000 shares
of its Bioxide Corporation stock and recorded a gain of $270,000.

      During the three  months  ended March 31, 1999,  the  Company's  operating
activities used cash of $310,194.  During the same period in the previous fiscal
year, the Company's  operating  activities  used  $1,567,215 of cash,  which was
provided by the raising of capital from the sale of preferred stock.

      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.

                                     -11-

<PAGE>



Assignment of Note and Sale of Bioxide Shares

      The  Company  borrowed  $600,000  from the Calvin  Black Trust in May 1998
pursuant to a promissory note and line of credit  agreement  ("Note").  On March
31, 1999,  the Company  entered into an agreement with IMG, Ltd., a Utah limited
liability company,  for the sale of 300,000 shares of Bioxide Corporation common
stock owned by the Company.  The purchase price for such securities is $3.00 per
share,  payable $341,000 in cash and the assumption of the Note by IMG. At March
31, 1999, principal and accrued interest due under the Note was $570,552.27. The
Trust and IMG entered into a separate  agreement for the assumption of the Note,
pursuant to which the Trust  released its claims  against the Company  under the
Note.  The sole  member and  manager of IMG is David G.  Derrick,  formerly  the
President, CEO and director of the Company.

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 21E of the  Securities  Exchange Act of
1934, as amended.  The  Company cautions the reader 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;

      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 its nutraceutical products, and successfully develop
            and commercialize other nutraceutical products;


                                     -12-

<PAGE>



      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.

Update on Year 2000 Readiness

      The "Year 2000  problem" is pervasive  and complex,  with the  possibility
that it will affect many  technology  systems.  Systems and embedded  technology
that are  date-sensitive may recognize a date using "00" as the year 1900 rather
than the year 2000.  This could  result in a system  failure or  miscalculations
causing  disruptions of operations,  including,  among other things, a temporary
inability to process  transactions,  send invoices,  or engage in similar normal
business activities.

      The Company has reviewed its operating systems, information technology and
information  management  systems  and  non-information   technology  systems  in
anticipation  of  potential  Year 2000  problems.  To date,  the  review has not
revealed any problems  with the  Company's  internal  systems or  equipment.  In
addition, the Company has not received any notification from significant vendors
or service  providers or other third parties whose  services are  significant to
the business  operations  of the Company of possible Year 2000 problems with the
information  systems and  technology  of such third  parties that may  adversely
affect the  business,  results  of  operations  or  financial  condition  of the
Company.

      There can be no assurance that the Company will not experience operational
difficulties  as a result of Year 2000  issues,  either  arising out of internal
operations,  or caused by third-party  service providers,  which individually or
collectively could have an adverse impact on business  operations or require the
Company to incur unanticipated expenses to remedy any problems.

                         PART II.    OTHER INFORMATION

ITEM 2.   Changes in Securities and Use of Proceeds

Amendment of Conversion Feature of Series F Preferred

      In  January  1999,  the  Company  amended  the  designation  of rights and
preferences  of the Series F Preferred  Stock of the Company.  The amendment was
adopted by consent of the holders of the issued and outstanding shares of Series
F Preferred.  As amended,  the rights and  preferences of the Series F Preferred
permit each share of Series F Preferred to be  converted at the holder's  option
at any time after January 1, 1999 into 3 shares of the Company's

                                     -13-

<PAGE>



Common Stock.  Previously,  the conversion feature of this series was determined
by dividing  $1,000 plus any accrued and unpaid regular or special  dividends by
an amount equal to $.20.

Issuance of Unregistered Equity Securities During the Quarter Ended March 31,
1999

      During the quarter ended March 31, 1999,  the Company issued 19,095 shares
as compensation  for services to an independent  consultant who is otherwise not
affiliated with the Company. During the quarter, the Company also issued 231,036
shares of common stock upon conversion of preferred stock.

ITEM 6.   Exhibits and Reports on Form 8-K

      (a)   Exhibits

            27    Financial Data Schedule

      (b)   Reports on Form 8-K



                                     -14-

<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:   May 17, 1999                      /s/ Michael G. Acton
                                          -----------------------------------
                  Michael G. Acton, Chief Executive Officer and
             Controller (Principal Financial and Accounting Officer)






























                                     -15-