UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)
(X)  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998

                                       OR

( )  TRANSITION   REPORT   PURSUANT   TO   SECTION   13  OR   15(d)  OF  THE
     SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________
     TO _____________


                         COMMISSION FILE NUMBER 0-11472

                              BIOMUNE SYSTEMS, INC.
             (Exact name of registrant 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
                                 (801) 466-3441
          (Address and telephone number of principal executive offices)



Indicate  by a check mark  whether  the  registrant:  (1) has filed all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No


As of July 31, 1998, 1998, there were issued and outstanding  10,410,890  shares
of the Company's Common Stock.



                                        1

<PAGE>




                                TABLE OF CONTENTS


                                                                      Page No.

PART I.           FINANCIAL INFORMATION

         1.       Financial Statements

Unaudited Condensed Consolidated Balance Sheets as of
  June 30, 1998 and September 30, 1997                                       3

Unaudited Condensed Consolidated Statements of Operations for
the three and nine months ended June 30, 1998 and 1997                       4

Unaudited Condensed Consolidated Statements of Cash Flows for
the nine months ended June 30, 1998 and 1997                                 5

Notes to Unaudited Condensed Consolidated Financial Statements               8

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

PART II. OTHER INFORMATION                                                  16


                                        2

<PAGE>



PART I                     ITEM 1 - FINANCIAL STATEMENTS

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

PART I                     ITEM 1 - FINANCIAL STATEMENTS

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

ASSETS

<TABLE>
<S>                                                                               <C>                  <C>

                                                                                    June 30, 1998      September 30, 1997

Current assets:
   Cash and cash equivalents                                                                 $54,909             $1,585,099
   Interest receivable                                                                        28,593                      -
  Accounts receivable, net                                                                   591,755                 40,258
  Inventories                                                                                713,397                342,768
  Amounts due from related parties, net                                                      276,140                266,525
  Receivable from Volu-Sol, Inc.                                                             333,744                     --
 Other current assets                                                                         79,520
  Net current assets of discontinued operations                                                   --                 79,029
                                                                                  ------------------
       Total current assets                                                                2,078,058              2,313,679
Property and equipment, net                                                                   77,400                 96,041
Other assets, net                                                                             41,146                 39,334
Long-term assets of discontinued operations                                                       --                283,444
Goodwill, net                                                                                979,966                     --
Long-term note receivable from related party                                                 500,000                     --
       Total assets                                                                       $3,676,570             $2,732,498
                                                                                          ==========             ==========


LIABILITIES AND SHAREHOLDERS' EQUITY


                                                                                    June 30, 1998      September 30, 1997

Current liabilities:
Cash overdraft                                                                               144,636
Accounts payable                                                                             460,923      $  759,915
  Preferred Stock dividends payable                                                                         337,766
  Accrued liabilities                                                                        257,324         290,832 
  Notes payable                                                                              620,141
      Total current liabilities                                                            1,483,024       1,388,513
Shareholders' equity:
  Convertible Preferred Stock:
    Series A, 38,474 and 34,802 shares outstanding (liquidation preference
       of $244,525 and $217,513), respectively                                               190,429            168,583
    Series B, 449 and 0 shares outstanding (liquidation preference of
       $8,419 and $0), respectively                                                            6,740
    Series C, 1,719 and 1,683 shares outstanding (liquidation preference
       of $21,280 and $2,238,390), respectively                                               21,964          2,309,838
    Series E, 565 and 0 shares outstanding (liquidation preference of                               
       $765,575 and $0), respectively                                                      1,003,998
    Series F, 1,176,749 and 0 shares outstanding (liquidation preference of 
       $718,049 and $0), respectively                                                        668,699
  Common Stock, 10,410,890 and 3,238,813 shares outstanding, respectively                      1,041                324
  Additional paid-in capital                                                              38,483,888         33,633,608
  Accumulated deficit                                                                    (38,396,521)     (35,480,749)
  Common stock warrants                                                                      338,500           883,273
  Deferred consulting expense                                                                (70,000)          (69,500)
  Stock subscriptions receivable                                                             (55,192)         (101,392)

</TABLE>

                                                         3

<PAGE>


<TABLE>
<S>                                                                               <C>                  <C>

       Total shareholders' equity                                                          2,193,546         1,343,985


                                                         4
</TABLE>

<PAGE>


<TABLE>
<S>                                                                               <C>                  <C>

       Total liabilities and shareholders' equity                                          3,676,570       $2,732,498

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

                                                         5
</TABLE>

<PAGE>




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

<TABLE>
<S>                                                                             <C>          <C>         <C>             <C>

                                                                         For the Three Months Ended      For the Nine Months Ended
                                                                                         June 30,                  June 30,
                                                                                         --------                  --------
                                                                                1998         1997        1998               1997
                                                                                ----         ----        ----               ----
REVENUES                                                                        1,372,751       103,804     1,443,520       305,137
OPERATING EXPENSES:
  Cost of revenues                                                                753,591        51,906       793,029        82,117
  Management, consulting and research fees                                        120,313       523,310       782,687     1,897,141
  Other general and administrative                                                538,926
  Amortization of goodwill                                                        101,638       101,638
         Total operating expenses                                               1,514,468     1,366,275     2,731,714     4,447,668
LOSS FROM OPERATIONS                                                             (141,717)   (1,262,471)   (2,081,223)   (4,142,531)
OTHER INCOME (EXPENSE):
  Interest income, net                                                             54,144        55,821       110,881       201,306
  Other, net
         Total other income, net                                                   54,144        55,821       110,881       201,306
NET LOSS FROM CONTINUING  OPERATIONS                                              (87,573)   (1,206,650)   (1,970,342)   (3,941,225)
Gain on disposal of discontinued  Volu-Sol, Inc.                                   28,027
Loss from operations of discontinued Volu-Sol, Inc.                              (140,558)     (435,496)
NET LOSS                                                                          (87,573)   (1,347,208)   (1,942,315)   (4,376,721)
Preferred  Stock  dividends and accretion of beneficial  conversion  feature      (36,752)     (103,895)     (123,621)   (1,043,198)
NET LOSS APPLICABLE TO COMMON SHARES                                             (124,325)   (1,451,103)   (2,065,936)   (5,419,919)

NET INCOME  (LOSS) PER COMMON  SHARE (basic and  diluted)
Continuing  operations                                                              (0.02)        (0.60)        (0.40)        (2.36)
Discontinued operations                                                                           (0.07)          .01         (0.21)
Net loss per common share                                                           (0.02)        (0.67)        (0.39)        (2.57)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                                      5,491,560     2,152,914     5,253,475     2,112,055

</TABLE>



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



                                                         6

<PAGE>




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

                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

<TABLE>
<S>                                                                                                <C>                  <C>


                                                                                                For the Nine Months Ended June 30,
                                                                                                   1998                     1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                                       (1,942,316)              (4,376,721)
    Adjustments to reconcile net loss to net cash used in operating  activities:
      Interest expense recognized on grant of options
      Interest income imputed on note receivable                                                  (33,562)
      Interest  expense paid by transfer of non-monetary  asset
      Interest  expense  imputed on note payable
      Issuance of long-term debt for services
      Gain on disposal of Volu-Sol,  Inc.                                                          (28,027)
      Depreciation and amortization                                                                 83,355                 134,897
      Write-down  of  technology
      Issuance of stock,  options and  warrants  for services                                      671,526                  608,800
      Amortization of deferred consulting expense                                                  447,084                1,121,165
      Cancellation of stock issued to consultants                                                  (50,000)
      Loss on disposal of property and equipment
      Reduction in related-party note receivable                                                    24,671
  Changes in assets and liabilities:
        Accounts receivable, net                                                                    31,431                          
        Other current assets                                                                        40,983                  148,578 
        Inventories                                                                                 68,834                  (10,546)
        Other assets                                                                                (7,071)                      49
        Cash overdraft                                                                              (6,869)
        Accounts payable and accrued liabilities                                                (1,199,091)                (139,333)
        Unearned revenue                                                                                                    (84,000)
Net  cash  used  in  operating   activities                                               (1,899,052)              (2,894,267)
CASH  FLOWS  FROM  INVESTING ACTIVITIES:
   Distribution of Volu-Sol, Inc. cash                                                            (337,691)
   Proceeds from sale of technology
   Investment in technology
   Cash  acquired in  non-monetary  asset  acquisition
   Purchase of property and equipment                                                               (3,721)                 (38,721)
   Proceeds from sale of equipment
   Net (advances to) repayments  from related  parties                                            (837,561)                (537,613)
   Payments  received  on notes  receivable
   Increase in goodwill                                                                           (193,000)
     Net cash used in investing activities                                                      (1,371,973)                (576,334)

</TABLE>

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


                                                         7

<PAGE>



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

                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


<TABLE>
<S>                                                                                            <C>                      <C>    


                                                                                                 For the Nine Months Ended June 30,
                                                                                                   1998                     1997


CASH FLOWS FROM FINANCING ACTIVITIES:
  Increase in notes payable                                                                             427,141
  Proceeds from issuance of common stock                                                                206,303
  Payments received on notes receivable from stock sales                                                 46,200
  Proceeds  from issuance of Series C and D preferred  stock and  warrants                            3,500,000
  Offering  costs for Series A and B  preferred  stock
  Offering  costs for Series C and D preferred stock
  Proceeds from issuance of Series E and Series F preferred stock                                       873,500
  Offering costs for Series E and Series F  preferred  stock                                           (150,000)
  Proceeds  from  issuance of warrants                                                                  123,750
  Redemption  of Series C preferred  stock                                                           (2,000,000)
  Proceeds  from issuance of long-term debt
  Increase in amounts due to related parties
  Principal  payments on notes payable
  Cash settlement for shares of common stock
   Net cash provided by financing activities                                                          1,403,144           1,623,750

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                 (1,867,881)         (1,846,851)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD                                                  1,922,790           4,192,868
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD                                                           54,909           2,346,017


</TABLE>






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


                                                                 8
<PAGE>



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

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

During the nine  months  ended June 30, 1998 and 1997,  0 and 114,779  shares of
Series A Preferred Stock with a recorded value of $0 and $553,769 were converted
into 0 and 344,337 shares of Common Stock.

During  the nine  months  ended  June 30,  1998,  1,800,000  shares  of Series C
Preferred  Stock  with a  recorded  value  of  $1,800,000  were  converted  into
5,000,000 shares of Common Stock.

During the nine  months  ended June 30,  1998,  100 shares of Series C Preferred
Stock with a recorded  value of $100,000 were  exchanged  for 166,667  shares of
Series F Preferred Stock.

During the nine months ended June 30, 1998,  100,647 shares of Common Stock were
issued to employees in exchange  for a reduction  of accrued  vacation  totaling
$59,136.

During the nine months ended June 30,  1998,  6,313 shares of Series A Preferred
Stock,  449  shares  of  Series B  Preferred  Stock,  472.3  shares  of Series C
Preferred  Stock,  23 shares of Series E  Preferred  Stock and 32,082  shares of
Series F  preferred  Stock were  issued as payment  of accrued  Preferred  Stock
dividends.

During the nine months ended June 30, 1998,  150,000 shares of Common Stock were
issued to ADP Management as settlement of accrued liabilities totaling $75,000.

During the nine  months  ended June 30,  1998,  280 shares of Series E Preferred
Stock were issued to satisfy accounts payable of $280,000.

During the nine months ended June 30, 1998,  the Company  recorded  accretion of
$341,737 and $416,828 related to the issuance of Series C and Series E Preferred
Stock, respectively.

During the nine months ended June 30, 1997,  12,058 shares of Series B Preferred
Stock with a recorded  value of $178,837  were  converted  into 36,174 shares of
Common Stock.

During the nine months ended June 30,  1997,15,240  shares of Series A Preferred
Stock and 1,000  shares of Series B  Preferred  Stock were  issued as payment of
accrued Preferred Stock dividends.

During the nine months ended June 30,  1997,  an employee  exercised  options to
purchase  100,000  shares of  Common  Stock at $1.16  per  share,  for which the
Company accepted payment in the form of a note receivable for $116,000.

During the nine months ended June 30, 1997,  the Company  recorded  accretion of
$748,550 related to the redemption of Series C Preferred Stock.










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


                                                         9

<PAGE>



                      BIOMUNE SYSTEMS, INC. AND SUBSIDIARY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

(1)      PRESENTATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying  condensed consolidated financial statements have been prepared
by the Company,  without  audit,  pursuant to the rules and  regulations  of the
Securities and Exchange Commission. Certain information and disclosures normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles have been condensed or omitted pursuant to such rules and
regulations,  although the Company  believes that the following  disclosures are
adequate to make the  information  presented  not  misleading.  These  condensed
financial  statements  reflect  all  adjustments   (consisting  only  of  normal
recurring  adjustments)  that,  in the opinion of  management,  are necessary to
present  fairly the financial  position and results of operations of the Company
for the periods presented. Operating results for the three and nine months ended
June 30, 1998 are not necessarily indicative of the results that may be expected
for the year ending  September  30, 1998. It is suggested  that these  condensed
consolidated  financial  statements  be read in  conjunction  with the financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1997, as amended.

(2)      DIVESTITURE OF VOLU-SOL, INC.

On October 1, 1997, the Company divested itself of its wholly owned  subsidiary,
Volu-Sol,  Inc. The Common Stock of Volu-Sol,  Inc. was  distributed pro rata to
the  Company's  shareholders  of record as of March 5, 1997.  The  operations of
Volu-Sol, Inc. are reflected herein as discontinued operations. (See note 11)

(3)      NET 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.  Because  the Company has
incurred a loss for the periods presented, no exercises or conversions have been
considered  as they  would be  anti-dilutive,  thereby  decreasing  the net loss
applicable to common shares.

At June 30,  1998,  there were  outstanding  options  and  warrants  to purchase
876,529  shares of Common  Stock and there were  1,339,000  shares of  Preferred
Stock convertible into approximately  3,205,000 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

During the nine months ended June 30, 1998, the Company issued 973,000 shares of
Common Stock for services rendered or to be rendered to the Company and recorded
expense of $554,984 associated with those shares. Of this expense,  $479,984 was
initially  deferred  and  will  be  recognized  over  the  term  of the  related
consulting agreements.  The Company also has deferred consulting expense related
to shares issued under consulting agreements entered into prior to September 30,
1997.  These  deferred  amounts  are  being  recognized  over  the  terms of the
agreements  as services  are  provided.  Total  amortization  of these  deferred
consulting expenses was $409,984 for the nine months ended June 30, 1998.

During the nine months  ended June 30,  1998,  accrued  vacation  payable to two
officers  totaling $58,539 was settled by issuing 100,007 shares of Common Stock
valued  at the  market  price  on the date of  issuance.  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.


                                                        10

<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 exercise  their options or warrants,  as the case may
be,  until  February  28, 1998 at a price of $.50 per share.  Option and warrant
holders who declined to exercise their outstanding  options or warrants prior to
such  date  retained  their  options  or  warrants,  without  any  change in the
previously  stated exercise terms and price.  For the nine months ended June 30,
1998,  as a result of this exchange  offer,  the Company  recorded  compensation
expense of $449,490  related to options held by employees and directors.  During
the nine months ended June 30, 1998,  option holders  exercised  their rights to
purchase  412,606  shares  of Common  Stock at $0.50  per share and the  Company
received $206,303 in cash.

During the nine months ended June 30, 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."

(6)      RELATED-PARTY TRANSACTIONS

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. These loans bear an annual interest rate of ten percent and are due on
demand.  Accrued but unpaid  interest income on these loans totaled $4,602 as of
June 30, 1998 and is included in interest  receivable in the  accompanying  June
30, 1998 balance sheet.

During  the nine  months  ended  June 30,  1998,  the  Company  entered  into an
investment banking arrangement with MK Financial, Inc., an entity owned by David
G. Derrick,  the Company's  former 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 issuance of Preferred Stock
and the $150,000  advance was offset against the gross proceeds  received by the
Company.

During the quarter  ended June 30, 1998,  the Company made loans to James Dalton
(a former Director of the Company) totaling  $105,192 which remain  outstanding.
These loans bear an annual interest rate of seven percent and are due on demand.
Accrued but unpaid  interest income on these loans totaled $1,615 as of June 30,
1998.

During the quarter  ended June 30,  1998,  the Company  made loans to Wilford W.
Kirton (a shareholder of the Company) totaling $50,000 which remain outstanding.
These loans bear an annual  interest  rate of ten percent and are due on demand.
Accrued but unpaid  interest income on these loans totaled $1,568 as of June 30,
1998.

(7)      CONSULTING AGREEMENTS

David Pomerantz

Effective October 1, 1997, the Company entered into a consulting  agreement with
David  Pomerantz,  whereby Mr. 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 $22,500 is
deferred as of June 30, 1998 and will be recognized  over the remaining  term of
the consulting agreement.

Robert Pomerantz

On December 16, 1997,  the Company  entered  into a  consulting  agreement  with
Robert Pomerantz,  whereby Mr. Pomerantz was issued a total of 40,000 restricted
shares  of the  Company's  Common  Stock in  exchange  for  consulting  services
consisting  primary  of  investor  relation  services,  to be  provided  through
December 31, 1998. The Company recorded  consulting expenses of $20,000 of which
$10,000  is  deferred  as of June  30,  1998  and  will be  recognized  over the
remaining term of the consulting agreement.

                                                        11

<PAGE>





Christopher D. Illick

On December 16, 1997,  the Company  entered  into a  consulting  agreement  with
Christopher  D.  Illick,  Chairman  of the board of  directors  of the  Company,
whereby Mr. Illick was issued a total of 150,000 shares of the Company's  Common
Stock in exchange for consulting services as a member of the Board of Directors,
to be provided  through  December  31,  1998.  The Company  recorded  consulting
expense of $75,000 of which  $37,500 is deferred as of June 30, 1998 and will be
recognized over the remaining term of the consulting agreement.

(8)      PREFERRED STOCK TRANSACTIONS

During the nine months ended June 30, 1998, the Company accrued dividends on its
outstanding  Series A, Series B,  Series C,  Series E and Series F Preferred  of
$9,723  $0,  $162,798,  $23,120  and  $19,854,  respectively.   Preferred  Stock
dividends are payable in either additional shares of Preferred Stock or in cash,
at the option of the  Company.  During  the nine  months  ended  June 30,  1998,
dividends  on  Preferred  Stock  were paid by issuing  6,317  shares of Series A
Preferred, 449 shares of Series B Preferred, 162.8 shares of Series C Preferred,
23.1 shares of Series E Preferred and 33,090 shares of Series F Preferred.

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"),  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  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  will be paid  either  in cash or in  additional  shares  of  Series E
Preferred at the discretion of the Board of Directors of the Company. Each share
of  Series E  Preferred  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 less 42%,
subject to the Company's right of redemption.  The holders of Series E Preferred
are also entitled to certain rights and preferences upon liquidation. During the
nine months  ended June 30, 1998,  273.5 shares of Series E Preferred  were sold
for  $273,500 in cash.  In  addition,  280.0  shares of Series E Preferred  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"),  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  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  will 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 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.  During the nine months ended June 30, 1998,
1,000,000  shares  of Series F  Preferred  were sold for  $600,000  in cash.  In
addition,  166,667 shares of Series F Preferred were exchanged for 100 shares of
Series C Preferred.

During the nine months ended June 30, 1998,  the Company  recorded  accretion of
$341,737  and $416,828  related to the issuance of Series C Preferred  Stock and
Series E Preferred Stock, respectively.

(9)      1997 ROCKWOOD TRANSACTION

On July 9, 1997, the Company  entered into an agreement by which it purchased an
option to acquire all of the issued and outstanding  shares of the capital stock
of Rockwood  Investments,  Inc.  ("Rockwood"),  a  California  corporation  (the
"Agreement").  Under the terms of the Agreement, as amended, the Company had the
right to acquire the capital stock of Rockwood for $5,960,000 at any time during
the one-year  option term of the Agreement.  Of this purchase price $460,000 was
to be paid from Rockwood  operating  profits for the period October 1997 through
January 1998. The

                                                        12

<PAGE>



purchase price was to be reduced by the difference between $4,000,000 and actual
sales of Rockwood,  if less than $4,000,000 for the twelve months  preceding the
closing.  The Company agreed to make nonrefundable  quarterly option payments of
$105,000  during the term of the Agreement  which would be credited  against the
purchase price if the acquisition were consummated. The Company had the right to
terminate the Agreement at any time. On July 9, 1997, the Company entered into a
consulting  agreement with Andela Group, Inc. ("Andela") for consulting services
to be provided by Ira E. Ritter  ("Ritter"),  the sole shareholder of Andela and
Rockwood. Under the consulting agreement,  Ritter was named President of Biomune
effective  July 9,  1997.  Andela  was to  receive a monthly  consulting  fee of
$15,000 during the one-year term of the agreement.  During fiscal year 1997, the
Company paid Andela $45,000 for the services of Ritter. During the quarter ended
December  31,  1997,  this  agreement  was  canceled  and  the  Company  paid an
additional $45,000. In addition, Rockwood and certain of its employees performed
marketing  and other  business  services  for the  Company for which the Company
incurred costs of  approximately  $440,000  during fiscal year 1997 and $150,000
during the first quarter of fiscal year 1998. Of these amounts, $169,900 relates
to the  issuance  of 400,000  shares of common  stock in fiscal  year 1997.  The
Company agreed to pay Ritter a royalty of five percent of gross revenues for the
sales and distribution of certain products through his efforts.

After the Company exercised its option in October 1997 to acquire Rockwood,  the
Company  withdrew from the transaction  and terminated the Agreement.  A primary
factor in the Company's  decision to terminate the Agreement was the significant
dilution that would result to the Company's  existing  shareholders  in light of
the decline in the market price of the  Company's  common stock between the time
the Agreement was executed and the planned closing date.  Under the terms of the
Agreement,  Ritter  retained all cash  payments made to him or Rockwood or their
affiliates  prior to the date of  termination.  Rockwood  agreed to  continue to
distribute the Company's  products under the terms of certain agreements entered
into in connection with the proposed purchase. As a result of the termination of
the  Agreement,  Ritter was  replaced  as the  Company's  President  by David G.
Derrick,  who served as the  Company's  President  prior to the execution of the
Agreement. (See Note 11.)

(10)     RECLASSIFICATIONS

Certain  reclassifications  have been made to the 1997 fiscal quarter  financial
statements quarter to conform with current quarter presentation.

(11)     SUBSEQUENT EVENTS

Divestiture Related Matter

The Company  established a record date and ex-dividend  date for the divestiture
of Volu-Sol,  Inc. of March 5, 1997.  Notwithstanding the Company's announcement
of the record  and  ex-dividend  date and the  dissemination  of an  information
statement  containing  disclosure of such record and  ex-dividend  date,  Nasdaq
erroneously  announced  an  ex-dividend  date of  February  17,  1998.  This has
resulted in confusion  on the part of some  stockholders,  brokerage  houses and
clearing houses who mistakenly believed they, or their clients, were entitled to
receive  Volu-Sol  Common Stock,  despite the fact that they were not holders of
record as of the March 5, 1997 date  announced by the  Company.  Pursuant to the
agreement  entered into by the Company and Volu-Sol at the time of the spin-off,
Volu-Sol has agreed to issue an additional  3,115,436 shares of its common stock
to cover the Nasdaq due bill date and shares  issuable  in  connection  with the
conversion of Biomune  Preferred  Stock after March 5, 1997,  all as part of the
spin-off.

1998 Rockwood Transactions

In anticipation of a possible business transaction  involving the acquisition of
a controlling  interest in Rockwood by the Company,  the Company loaned Rockwood
$350,000 during the quarter ended June 30, 1998 and subsequently loaned Rockwood
an  additional  $450,000.  These  loans are  payable  upon demand and secured by
certain assets of Rockwood, including its accounts receivable and inventory. The
Company acquired 52% of Rockwood  effective May 27, 1998. Under the terms of the
purchase  agreement,  as amended,  the Company paid  $360,000 cash and agreed to
issue  3,750,000  shares of  convertibel  preferred  stock  (subject to Rockwood
generating $750,000 in the next 2 years).



                                                        13

<PAGE>



PART I            ITEM 2

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

         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-Q.

General

         The Company believes that in the future its results of operations could
be  impacted  by  factors  such  as the  availability  of  cash  from  financing
activities  with which to fund its  operations,  the  results  of the  Company's
research and development  efforts and the clinical trials on BWPT-301,  BWPT-302
and any other future pharmaceutical drug candidates based on or derived from the
Company's   technology,   as  well  as  market   acceptance   of  the  Company's
nutraceutical products (particularly Optimune, the Company's first nutraceutical
product) and pharmaceutical drug candidates,  increased  competitive  pressures,
changes in raw  material  sources  and  costs,  and  adverse  changes in general
economic  conditions in any of the countries in which the Company conducts or is
able to conduct  business  under the license with PTI. The Company's  ability to
develop and market  nutraceutical  products and pharmaceutical drugs will have a
significant  and  direct  impact on the  Company's  results of  operations.  The
Company believes that the majority of its anticipated  future revenues will come
from new  nutraceutical  products and  pharmaceutical  drugs. The Company cannot
determine the ultimate effect that new nutraceutical products and pharmaceutical
drugs will have on revenues, earnings or the price of the Company's Common Stock
 .

         Due to factors  noted above and elsewhere in  "Management's  Discussion
and Analysis of Financial  Condition and Results of  Operations,"  the Company's
future  earnings  and stock  price may be  subject  to  significant  volatility,
particularly  on a quarterly  basis.  Any  shortfall  in  revenues,  earnings or
greater than projected losses from the levels anticipated by securities analysts
could have an  immediate  and  significant  effect on the  trading  price of the
Company's  Common Stock in any given period.  Additionally,  the Company may not
learn of such  shortfalls  or increased  losses until late in a fiscal  quarter,
which could result in an even more  immediate and adverse  effect on the trading
price of the Company's Common Stock.

         The Company's  primary  focus and efforts have been on  commercializing
the Biomune  nutraceutical  products.  In  addition,  the Company has two active
IND's on file with the FDA on BWPT-301 for the treatment of cryptosporidiosis in
people with AIDS and on BWPT-302 for the treatment of E. coli,  strain  0157:H7.
There is no  established  date on which a decision  of the FDA is expected to be
made.  The Company  believes that its technology is now  sufficiently  developed
that any future research and development efforts will be made only to the extent
funding is made  available  from joint venture  partners,  strategic  alliances,
private  or  governmental  grants or other  third-party  funding,  for which the
Company currently has no prospects.

         The Company  anticipates that it will incur  significant  losses during
fiscal  1998 as a direct  result of: (a)  marketing  costs  associated  with the
Company's  on-going efforts to market the Biomune  nutraceutical  products;  (b)
maintaining general and administrative  expenses at present levels to facilitate
the Company's financing efforts,  its search for and, if possible,  negotiations
with  potential   joint  venture   partners  or  other  sources  of  private  or
governmental  funding;  (c) minimal  levels of research  and  development  costs
associated with identifying  additional  nutraceutical  products;  and (d) costs
associated  with  identifying  and pursuing  acquisitions  of new  nutraceutical
products.

         The Company is currently  focusing its resources and efforts on (a) the
commercialization of the Biomune nutraceutical  products and (b) the development
of one or more additional nutraceutical products based on the technology.



                                                        14

<PAGE>



Results of Operations

Three Months Ended June 30, 1998 and 1997

         During the three months  ended June 30, 1998,  the Company had revenues
of $1,372,751  compared to $103,804 for the comparable  three month period ended
June 30, 1997. The increase in sales is due to the Rockwood acquisition.

         Cost of sales were  $753,591  for the three  months ended June 30, 1998
compared to cost of sales of $51,906  for the same  period in 1997.  The overall
gross margin for the quarter in 1998 was 45 percent of revenues,  compared to 36
percent for the comparable  quarter in 1997. The increase in gross margin is due
to the the products that are sold by the Rockwood subsidiary.

         Management,  consulting  and research  fees were $120,313 for the three
months ended June 30,  1998,  as compared to $523,310 for the three months ended
June 30, 1997.  General and  administrative  expenses decrease from $791,059 for
the three months ended June 30, 1997 to $538,926 for the three months ended June
30, 1998. The decrease in management, consulting and research expenses is due to
the  Company's  efforts to reduce  overhead  costs.  The decrease in general and
administrative  expenses is due to a decrease in expenditures related to efforts
to reduce overhead costs and a reduction in the number of employees.

         Interest  income was $54,144 for the three  months  ended June 30, 1998
and resulted from the investment of the Company's cash proceeds from the sale of
Series C Preferred Stock.  Interest income is decreasing because the Company has
less cash to invest in interest bearing accounts.

         The net loss applicable to common shares  decreased from $1,451,103 for
the three months ended June 30, 1997 to $122,104 for the three months ended June
30,  1998.  The  decrease  in the net  loss  applicable  to  common  shares  was
attributable  to a decrease in Preferred  Stock dividends and the accretion of a
beneficial  conversion  feature, the decrease in  management,  consulting and
research  expenses,  and a  decrease  in  general  and  administrative  expenses
previously discussed.

         The  decrease  in the net loss per common  share from  $(0.67)  for the
period  ended June 30, 1997 to $(0.02) for the period ended June 30, 1998 is due
to a decrease in expenses, and an increase in the weighted average common shares
outstanding of 3,338,646.

Nine months Ended June 30, 1998 and 1997

         During the nine months ended June 30, 1998, the Company had revenues of
$1,443,520  compared to $305,137 for the  comparable six month period ended June
30, 1997. The increase in sales is due to the Rockwood acquisition.

         Cost of sales were  $793,029  for the nine  months  ended June 30, 1998
compared to cost of sales of $82,117  for the same  period in 1997.  The overall
gross margin for 1998 was 45 percent of revenues, compared to 73 percent for the
comparable  quarter in 1997.  The decrease in gross margin is due to the type of
products the Rockwood subsidiary sells.

         Management,  consulting  and research  fees were  $782,687 for the nine
months ended June 30, 1998, as compared to $1,897,141  for the nine months ended
June 30,  1997.  Research  fees were $3,618 for the nine  months  ended June 30,
1998,  compared  to  $242,283  for the nine  months  ended June 30,  1997.  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 $2,468,410 for the
nine months ended June 30, 1997 to $1,847,349 for the nine months ended June 30,
1998. 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.

                                                        15

<PAGE>



         Interest  income was  $110,881  for the nine months ended June 30, 1998
and resulted from the investment of the Company's cash proceeds from the sale of
Series C Preferred Stock.  Interest income is decreasing because the Company has
less cash to invest in interest bearing accounts.

         The net loss applicable to common shares decreased from $(2.57) for the
nine months  ended June 30,  1997 to $(0.39) for the nine months  ended June 30,
1998. The decrease in the net loss applicable to common shares was  attributable
to a decrease in preferred  stock  dividends  and the  accretion of a beneficial
conversion  feature and the  decrease in  management,  consulting  and  research
expense and general and administrative expenses previously discussed.

         The  decrease  in the net loss per common  share from  $(2.57)  for the
period  ended June 30, 1997 to $(0.39) for the period ended June 30, 1998 is due
to a decrease in expenses, and an increase in the weighted average common shares
outstanding of 3,141,420.

Liquidity and Capital Resources

         The Company has been unable to finance its  operations  from cash flows
from  operating  activities.  Substantial  funds  and time will be  required  to
commercialize the Biomune nutraceutical products, to complete Phase II and Phase
III clinical  trials on BWPT-301  (assuming  efficacy is established  during the
Phase II  clinical  trials),  to  complete  the  necessary  clinical  trials  on
BWPT-302, to obtain regulatory approval for and commercialize products utilizing
the  Company's   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.  There can be no assurance that
such grants or funding will be obtained.

         As of June 30,  1998,  the  Company  had cash and cash  equivalents  of
$54,909 and working capital of $595,034 as compared to cash and cash equivalents
of $1,585,099 and working capital of $925,166 as of September 30, 1997.

         During the nine months ended June 30,  1998,  the  Company's  operating
activities  used  $1,899,052 of cash,  which had previously been provided by the
issuance of shares of  Preferred  Stock.  During the same period in the previous
fiscal year, the Company's  operating  activities  used $2,894,267 of cash, also
principally  provided by the raising of capital  from the  issuance of shares of
Preferred Stock.

         The  Company   currently   estimates  that   additional   research  and
development, general and administrative,  and other direct costs associated with
reaching  the stage of  obtaining  final FDA  approval  on  BWPT-301 in treating
cryptosporidiosis  in people with AIDS will  approximate  $5 - $7  million.  The
Company  believes that its  technology is now  sufficiently  developed  that any
future research and development  efforts will be made only to the extent funding
is made available from joint venture partners,  strategic alliances,  private or
governmental  grants  or  other  third-party  funding,  for  which  the  Company
currently has no prospects.

         The  Company   currently   estimates  that   additional   research  and
development, general and administrative,  and other direct costs associated with
reaching  the stage of  obtaining  final FDA approval on BWPT-302 in treating E.
coli,  strain 0157:H7,  will  approximate $7 - $9 million,  although the Company
presently  is  unable  to  fund  such  amounts   independently  and  anticipates
proceeding with such research and development efforts only to the extent funding
is made available from joint venture partners,  strategic alliances,  private or
governmental  grants or other third-party  funding,  although the Company has no
prospects for such funding at this time.

         The Company  must  continue  to raise  funds to finance  the  continued
commercialization  of products  utilizing its  technology,  including  BWPT-301,
BWPT-302, the Biomune nutraceutical  products and any additional  pharmaceutical
or  nutraceutical   products  that  the  Company  may  develop  and  attempt  to
commercialize. There can be

                                                        16

<PAGE>



no assurance that such funds will be raised or obtained.

         The  Company has not  established  a credit  facility  with any lending
institution. The Company has in the past, from time to time, borrowed money from
certain  shareholders,  but has no formal  financing  arrangement,  agreement or
understanding  with any of its  shareholders  or any other  related or unrelated
party to do so in the future.

         The  unaudited  condensed  consolidated  financial  statements  of  the
Company have been prepared on the assumption that the Company will continue as a
going concern.  The Company's  product line is limited and it has been necessary
to rely  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 is 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.

Forward-looking Statements

         All  forward-looking  statements  contained  herein  are  deemed by the
Company to be covered by and to qualify for the safe harbor protection  provided
by the  Private  Securities  Litigation  Reform  Act of 1995 (the  "1995  Act").
Shareholders and prospective shareholders should understand that several factors
govern whether any forward-looking  statement contained herein will be or can be
achieved.  Any one of  those  factors  could  cause  actual  results  to  differ
materially from those projected herein. 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
Biomune and its wholly owned subsidiary,  Optim. The forward-looking  statements
and  associated  risks  set forth  herein  relate to (i)  market  acceptance  of
Optimune,  Maximune and Jump!  (The "Biomune  Nutraceutical  Products")  and the
development  of other  nutraceutical  products  by  Optim;  (ii) the  additional
research  and  development,  general and  administrative  and other direct costs
associated with obtaining  final FDA approval of BWPT-301;  (iii) the additional
dollar  amount  expected to be expended on the BWPT-301  and  BWPT-302  clinical
trials until final FDA approval has been  received;  (iv) the estimated  date of
receipt of final FDA approval on BWPT-301;  (v) the estimated  commencement date
of Phase III clinical  trials and the  completion  of those  clinical  trials on
BWPT-301;  and (vi) the Company  having  sufficient  cash to fund its  projected
operations  and budgeted  research  and  development  for fiscal year 1998.  The
forward-looking  statements  included  herein are based on current  expectations
that involve a number of risks and uncertainties. The forward-looking statements
included herein are based on assumptions, among others, (a) that the efficacy of
BWPT-301 will be established during the ongoing Phase II clinical trials and the
Phase III clinical  trials;  (b) that the Company  will be able to  successfully
undertake and complete clinical trials on BWPT-302; (c) that the Company will be
able to  successfully  commercialize  the Biomune  Nutraceutical  Products,  and
successfully  develop and commercialize other nutraceutical  products;  (d) that
the  Company  will  be  able  to  successfully  develop  and  commercialize  the
technology;  (e) that the  Company  will  need to  conduct  additional  Phase II
clinical  trials on bwpt-301  and 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 (f) that the Company will be able to timely and
properly  quantify  and  analyze  the data  derived  from its  clinical  trials.
Assumptions  relating to the foregoing  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  contained  herein  are  reasonable,  any  of  those
assumptions  could prove  inaccurate and,  therefore,  there can be no assurance
that the results contemplated in any of the forward-looking statements contained
herein will be realized.  This is particularly  true given the dynamic nature of
the  process in which the  Company is  involved  with  respect to  BWPT-301  and
BWPT-302.  Budgeting  and other  management  decisions  are  subjective  in many
respects and thus 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,
which may in turn affect the Company's  results of  operations.  In light of the
significant  uncertainties  inherent in the forward-looking  statements included
herein,  the  inclusion  of 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.

Year 2000 Issues

The Year 2000 issue is the result of computer  programs  being written using two
digits  rather  than four to define the  applicable  year.  These  programs  and
databases  were  developed and designed  without  considering  the impact of the
upcoming millennium.  If not corrected, many computer systems may fail or create
erroneous  results at the turn of the  century.  Any of the  Company's  computer
programs  that have  date-sensitive  software 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.  In addition to computer software,  some
machines  and  devices  used by the  Company  and  others may  contain  embedded
technology that is not Year 2000 compliant,  which could result in a malfunction
or failure of such devices.

The Company is in the process of ensuring that its internal computer systems are
Year 2000 compliant.  The Company presently believes that with readily available
modifications or upgrades to existing  software and conversions to new software,
any Year 2000 issues  internally  can be mitigated.  The Company  intends to use
both  internal and external  resources to  reprogram,  or replace,  and test its
software for Year 2000 modifications. The Company intends to obtain certificates
of compliance  from the vendors of such software.  Where  possible,  the Company
will initiate formal  communications with its significant  suppliers and vendors
to determine the extent to which the Company may be vulnerable to third parties'
failure to remediate their own Year 2000 problems.

The Company relies on third parties to manufacture  its products and to package,
label and ship them to  customers.  If these third  parties  rely on  computers,
software  or  devices  with  embedded  technologies  which  are  not  Year  2000
compliant, they may suffer failures, errors or delays in performing services for
the Company.  This would cause serious and perhaps  material  adverse effects on
the Company, its results of operations and financial condition.

The  Company  is not  presently  aware of any Year  2000  issues  that have been
encountered by any such third party which could materially  affect the Company's
operations.  Notwithstanding  the foregoing,  there can be no assurance that the
Company  will not  experience  operating  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
effect on business  operations  or require  the  Company to incur  unanticipated
costs to remedy any  problems.  The Company has not yet  determined  the cost of
completing its  investigation  and any  modification or remediation  that may be
required to correct Year 2000 issues in its operations.


                                                        17

<PAGE>



PART II.          OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

         Sterlin  v.  Biomune  Systems,  et al.,  Case  No.  2:95-CV-944G  (U.S.
District Court for the District of Utah,  Central  Division).  On April 2, 1997,
the court  dismissed  with  prejudice  all claims of the  plaintiff  against the
Company and the other  defendants  in the action and  assessed  the costs of the
litigation against the plaintiff. The final judgment on the court's decision and
order was entered on May 6, 1997. The plaintiff has appealed the decision of the
District  Court to the  United  States  Court of Appeals  for the Tenth  Circuit
(Denver, Colorado). The arguments of the parties were made to the Court in March
1998,  and a decision  is  pending.  There is no date  established  by which the
decision  of the Court is expected to be  received.  While the Company  believes
that the  allegations  made in the Complaint are wholly  without  merit,  and it
intends to vigorously oppose the appeal of the favorable  verdict,  there can be
no assurance that the Company's defense will be successful. The Company has paid
the legal fees and related  expenses  associated with the defense of this action
on behalf of the Company and the other named defendants.

ITEM 5 - OTHER INFORMATION

Stockholder Proposals for 1999 Annual Meeting

Shareholder  proposals  submitted  pursuant to Rule 14a-8  under the  Securities
Exchange  Act of  1934,  as  amended  ("Exchange  Act"),  for  inclusion  in the
Company's proxy  materials for its 1999 Annual Meeting of  Shareholders  must be
received by the Secretary of the Company at the principal offices of the Company
no later than December 31, 1998.

In addition,  in accordance  with recent  amendments  to Rules 14a-4,  14a-5 and
14a-8 under the Exchange Act, written notice of shareholder  proposals submitted
outside  the  procedures  of Rule  14a-8 for  consideration  at the 1999  Annual
Meeting of  Shareholders  must be received by the Company on or before April 15,
1999 in order to be  considered  timely for purposes of Rule 14a-4.  The persons
designated in the Company's  proxy  statement and management  proxy card will be
granted  discretionary  authority with respect to any shareholder  proposal with
respect to which the Company does not receive  timely  notice.  ITEM 6. EXHIBITS
AND REPORTS ON FORM 8-K

                  (a)      Exhibits

                           27  Financial Data Schedule

                  (b)      Reports on Form 8-K


On June 19, 1998,  the Company filed a current  report on Form 8-k to report its
agreement to purchase 52% of Rockwood, a change in the Company's auditors, and a
change of management.  This report was amended by a subsequent Current Report on
form 8-K/A on June 29, 1998.

                                                        18

<PAGE>


                          SIGNATURES

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


                          BIOMUNE SYSTEMS, INC.
                          (Registrant)



Date: August 19, 1998     /s/ Michael G. Acton
                          --------------------
                          Michael G. Acton, Chief Executive Officer
                          (Principal Executive Officer and Principal Accounting
                          Officer)