<PAGE>
                                          
                                    UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON D.C. 20549
                                          
                                    FORM 10-K SB
                                          
/ X /     Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

                    For the Fiscal Year ended DECEMBER 31, 1998

/_ /      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: 000-27866
                                 VYREX CORPORATION
            (Name of small business issuer as specified in its charter)
                                          
                 NEVADA                             88-0271109
     (State or other jurisdiction of              (IRS Employer
      corporation or organization)               Identification No.)
                                          
                2159 Avenida de la Playa, La Jolla, California 92037
                      (Address of principal executive offices)
                                          
                                   (619) 454-4446
                  (Issuer's telephone number including area code)
                                          
Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:  Common Stock, Par
                                                             Value $.001
                                                             Warrants 
                                                             (Title of Class)

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 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 
    -----         -----

Check there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K SB or any
amendment to this Form 10-K SB.
[X]

State issuer's revenues for its most recent year: $0.00.

State the aggregate market value of the voting and non-voting common equity held
by non affiliates of the registrant computed by reference to the price at which
the stock was sold, or the average bid and ask prices of such stock equity, as
of a date within the past 60 days: $3,148,669 as of March 30, 1999

State the number of shares outstanding of each of the issuer's classes of common
equity, as of latest practicable date:

Common Stock - 7,423,455 as of March 30, 1999     Warrants to purchase common
stock - 1,156,701 as of March 30, 1999.

                        DOCUMENTS INCORPORATED BY REFERENCE
                                          
The issuer's definitive Proxy Statement for its Annual Meeting of Shareholders
to be submitted to the commission on or before April 30, 1998 **

Transitional Small Business Disclosure Format

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


                                        -1-
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                                       PART I

ITEM 1. BUSINESS

GENERAL

     Certain statements in this Form 10-K SB regarding future expectations 
and financial performance may be regarded as "forward-looking statements" 
within the meaning of the U.S. Securities Litigation Reform Act. They are 
subject to various risks and uncertainties, such as those described in the 
Risk Factors section, and elsewhere, in this Form 10-K SB, and in the 
Company's Securities and Exchange Commission filings. Actual results may vary 
materially.

                                   THE COMPANY

     Vyrex Corporation is a research and development stage company seeking to 
discover and develop pharmaceuticals and nutraceuticals for the treatment and 
prevention of respiratory, cardiovascular and neurodegenerative diseases and 
conditions associated with aging. The Company's current research is focused 
on targeted antioxidant therapeutics for respiratory, neurological and 
cardiovascular diseases and the development of nutraceuticals for the dietary 
support of certain age-related conditions. The Company is also developing a 
proprietary CD-Tagging-TM- gene and protein discovery technology in an effort 
to help accelerate its pharmaceutical and nutraceutical research programs.

     ANTIOXIDANT DRUG PROGRAM. In the Company's opinion, Vantox-Registered 
Trademark- is currently its lead drug candidate. The Company's research with 
Vantox-Registered Trademark- indicates it may have usefulness in the 
treatment of asthma, ARDS, cystic fibrosis, oxygen toxicity, smoke inhalation 
and other respiratory diseases and conditions. Vantox-Registered Trademark- 
is an inhaled antioxidant intended to be used in vapor form. The Company 
believes certain mechanisms in the inflammatory cascade which lead to tissue 
damage may be mediated by free radicals. Free radicals are a by-product of 
oxidation, which can be damaging at high levels. Vantox-Registered Trademark- 
has been shown in laboratory tests to be a free radical scavenger, or 
"antioxidant". The Company has demonstrated Vantox-Registered Trademark-'s 
effects in preventing and treating oxidative lung damage in three different 
animal models. The models evaluated protection from lung damage induced by 
oxygen, paraquat and ozone. Vantox-Registered Trademark- showed protective 
effects in all three models. Based on this data and growing evidence that 
oxidative stress and inflammation may be central to the pathogenesis of 
asthma and other respiratory conditions, the Company believes 
Vantox-Registered Trademark- is an appropriate drug candidate to take forward 
into clinical trials. Before initiating Phase I clinical trials, the Company 
must complete toxicology and pharmacokinetic studies and submit an 
Investigational New Drug (IND) application with the U.S. Food and Drug 
Administration. Due to the expense of completing pre-clinical trials and 
conducting clinical trials, the Company is currently seeking a joint venture 
with a pharmaceutical company to assist in funding clinical development. In 
May of 1998 the Company commenced its marketing effort with a number of 
pharmaceutical companies.  Preliminary pre-clinical data was provided to 
several of these companies,  pursuant to confidentiality and non-disclosure 
agreements. The company is awaiting final review of its data by these 
potential collaborators.  There can be no assurance the Company will be 
successful in funding the further development of Vantox-Registered 
Trademark-, or that pre-clinical trials will be completed,  or that clinical 
trials will be initiated, or if they are initiated that the trials will be 
completed and the Company's claims confirmed. Even if confirmed there is no 
assurance that it will result in the production or marketing a drug. The 
Company holds two patents in connection with Vantox-Registered Trademark-.

     The Company believes oxidative damage is implicated in a variety of 
diseases including cardiovascular, neurological and viral disorders. Based on 
its research in oxidative stress and antioxidants, the Company has designed 
several analogs and pro-drugs of Vantox-Registered Trademark- and 
Panavir-Registered Trademark- another drug candidate being developed by the 
Company. These derivatives are designed to provide improved bioavailability, 
oral delivery and disease targeting. In laboratory tests, some of these 
compounds have been shown to protect mitochondria from oxidative damage and 
have been shown to be potentially potent antioxidants. On the basis of these 
preliminary results, and the Company's view of a body of knowledge 
surrounding certain disorders, the Company believes these derivatives may be 
useful in treating Alzheimer's Disease, Parkinson's Disease, atherosclerosis, 
spinal cord trauma and other disorders. The Company is continuing 
pre-clinical development of these compounds and has filed patent disclosures 
concerning their uses.

     Panavir-Registered Trademark- is an antioxidant drug candidate the Company
believes may inhibit HIV proliferation and may target the events leading to the
slow progressive deterioration of the immune system. The Company believes
Panavir-Registered Trademark- directly inhibits HIV-1 in 


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part by interfering with the attachment of the virus to cells and also by 
inhibiting the syncytia-inducing strains of HIV-1. Many scientists today 
believe the most pathogenic strains of HIV-1 are those that lead to the 
formation of multinucleated giant cells called syncytia. Panavir-Registered 
Trademark- may also prevent activation of HIV-1 in latently and chronically 
infected cells, which is an activity not shown by the approved reverse 
transcriptase inhibitors or protease inhibitors. The Company believes the 
inhibition of viral activation in latently infected cells may be one of the 
most desirable attributes of an anti-HIV/AIDS drug.

     The Company believes the activation of HIV infection from the latent 
state is associated with increased intracellular levels of oxygen free 
radicals. In laboratory tests the antioxidant and free radical scavenging 
activity of Panavir-Registered Trademark- inhibited activation of HIV-1 in 
latently infected cells. Chronic and inappropriate activation of immune cells 
in HIV infection has been linked to abnormal secretion of certain 
immunological hormone-like substances called cytokines. Certain cytokines 
appear to be associated with increased production of oxygen free radicals. 
Based on the results of preliminary tests completed to date,   
Panavir-Registered Trademark- appears to inhibit the activity of certain of 
these cytokines, including interleukin-1 and tumor necrosis factor alpha. The 
Company hopes Panavir-Registered Trademark- may allow HIV positive 
individuals to remain healthy by preventing latently infected cells from 
reactivating, as well as interfering with viral replication and transmission 
to other cells when infected cells are activated by certain processes. 

     In May of 1992, the Company received an Investigational New Drug 
allowance from the FDA for a Phase I/II human clinical trial using 
Panavir-Registered Trademark- to treat patients infected with the HIV virus. 
This phase of the Panavir-Registered Trademark- study began in July of 1992 
and was completed in October of 1995. This trial examined safety, 
bioavailability and pharmacokinetics in a small group of patients. Results 
indicated that Panavir-Registered Trademark- was well tolerated and achieved 
targeted serum levels. CD4 counts, which normally decline in untreated AIDS 
patients, were stabilized, but did not show a significant increase. During 
1996 and 1997, the Company synthesized new Panavir-Registered Trademark- 
analogs and prodrugs in an effort to improve bioavailability and the 
Company's proprietary position. These compounds have undergone initial 
pharmacologic testing and have exhibited antioxidant activity, but will 
require additional testing.  During 1998, the Company focused on seeking a 
collaborative partner or partners to continue its development and clinical 
program involving Panavir-Registered Trademark-

     Ultimately, further trials will be required involving the treatment of 
at least several hundred patients with Panavir-Registered Trademark- alone, 
or in combination with approved drugs. There can be no assurance that funding 
will be secured or such tests will be undertaken or completed, or that any 
form of Panavir-Registered Trademark- will be developed as a marketable 
product.
          
     The Company entered into an agreement with the Immune Response 
Corporation in 1997,  to search for treatments for spinal cord and other 
central nervous system trauma.  In June 1998 the companies agreed to amend 
their collaboration to include research and development of certain 
proprietary Vyrex compounds as potential treatments for spinal cord and 
central nervous system trauma.  During the remainder of 1998 the companies 
initiated a development program to explore potential therapeutic indications 
of the compounds.  Based on the results achieved thus far,  the companies are 
seeking a pharmaceutical partner and / or outside financing for further 
development and commercialization of the compounds.
          
     NUTRACEUTICALS. The nutraceutical market includes nutritional 
supplements and foods, which may deliver health benefits beyond basic 
nutrition. Consumer research seems to indicate consumers may seek out 
nutritional supplements provided they are backed by reliable science, and 
that many consumers prefer to receive their health benefits through foods 
rather than through pills. There are a large number of companies competing in 
the market to provide nutraceuticals to consumers. The Company's research 
programs are currently being directed at developing proprietary formulas of 
nutritional supplements targeted at consumer health concerns and the 
development of proprietary supplements (Pronutrients-TM-) which may be 
marketed as single line supplements, in multi-formulations and in foods.  The 
Company currently has a pipeline of proprietary nutraceutical compounds in 
varying stages of development.
          
     During 1997 the Company entered into an agreement with Retired Persons 
Services, Inc. (RPS), which administers the AARP Pharmacy Service, to design 
and market four nutritional supplement products. The proposed products are 
intended to provide for the dietary support of the heart, the prostate, 
bones, joints and immunity/vitality. The Company has completed pilot 
production of these potential products contract manufacturers and has also 
initiated stability and safety studies. The Company has agreed to license 
these initial four formulas to RPS and allow RPS to manufacture and market 
the products. Pursuant to its agreement with RPS the Company is to receive a 
royalty from RPS based upon a percentage of RPS' sales of the products. The 
Company has granted RPS exclusive rights to market these potential products 
in the U.S.  All products were launched for national distribution by RPS in 
January 1999 and were featured in the AARP Pharmacy Service catalogue, 
which was mailed to all catalogue subscribers in late January.  In addition 
the products are being marketed through inclusion on the AARP Pharmacy 


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Service internet web site.  Pursuant to the agreement between Vyrex and RPS,  
the Company is to be provided reports for purposes of royalty accounting on a 
quarterly basis.  The Company is entitled to a royalty in the amount of 15% 
of gross product sales.  There can be no assurance that a market will develop 
for the products or that any products will be sold and produce revenue for 
the Company
          
     In early 1998 the Company entered into an agreement with Uncle Ben's, 
Inc. to jointly develop "Wellness Foods". Wellness foods are proposed foods 
designed to offer health benefits beyond basic nutrition. Pursuant to an 
Agreement with Uncle Ben's several steps were completed in 1998,  including 
investigation of regulatory issues,  prosecution of the Company's patent 
position and certain animal studies.   There can be no assurance the 
development efforts will be successful, that the parties will proceed to a 
definitive agreement,  or if they are, that any products will be produced or 
achieve acceptance or generate revenues.

     GENE DISCOVERY. A major goal of recent pharmaceutical research is to 
decipher the human genome. With the gene databases rapidly filling, the 
Company and others believe the next step is not only to discover the genes 
but also to discover the genes' functions. The Company acquired an exclusive 
worldwide license to a gene research method, called CD-Tagging-TM-. 
CD-Tagging-TM- is a proprietary functional genomics and proteomics technology 
that incorporates hereditary tags into genes, transcripts and proteins via 
recombinational events at the DNA level. CD-Tagging-TM- can be used to 
analyze known genes and gene products (proteins) and to identify and 
characterize new genes and gene products. The Company believes CD-Tagging-TM- 
may provide advantages over current methods by which genes and proteins are 
discovered and characterized. These advantages may include identification and 
analysis of genes and proteins in their natural cellular and/or organismal 
environments, direct purification of tagged proteins from tagged cells by 
immunoaffinity methods, direct amplification of tagged proteins from tagged 
cells, and assessment of gene function via modulation of gene expression in 
vivo.  Due to capital constraints the Company reduced its research and 
development for CD Tagging activities in the second half of 1998.  The 
Company is currently reviewing several options regarding its genomics 
program,  including seeking a collaborative partnership to undertake 
continuing research and development.  The Company may be unable to continue 
its genomics program without a collaborative partnership or additional 
funding,  for which there is no assurance.

RESEARCH COLLABORATIONS AND LICENSING AGREEMENTS

     As part of its strategy for developing and commercializing certain 
potential products the Company has entered into research collaborations and 
licensing agreements. There can be no assurance the Company will enter into 
additional collaborative, license or similar agreements, or that its existing 
agreements will result in development or successful commercialization of any 
potential product. Some of the agreements that the Company has entered into 
are summarized below:

     JONATHAN W. JARVIK, PH.D. In January, 1996, the Company entered into 
license agreements with Jonathan W. Jarvik, Ph.D.  ( Jarvik Agreement ) 
pursuant to which Dr. Jarvik granted the Company a 99 year exclusive 
world-wide license to develop and market certain technology, processes and 
potential products relating to gene research methods discovered by Dr. Jarvik 
called CD-Tagging -TM- and epitope tagging. Dr. Jarvik presently has had a 
patent issued on the CD-Tagging-TM- technology and universal epitope 
technology. The Company is responsible for all costs and expenses in 
connection with obtaining patent protection and with the future development 
of the licensed technology. Pursuant to the agreement, Dr. Jarvik will 
receive royalties in the amount of 4% of the gross proceeds received from the 
sale by Vyrex of certain defined products developed by  CD-Tagging-TM- and 
universal epitope technology not including sales by sublicensees. Dr. Jarvik 
shall also receive royalties in an amount equal to the lesser of: 7% of the 
gross proceeds received by each sublicensee from products developed with the 
sublicensed technology; or 50% of any royalty received by Vyrex from each 
sublicensee. In addition, Dr. Jarvik shall receive 20% of any sublicense fees 
received by Vyrex. Dr. Jarvik also is entitled to an annual maintenance fee 
in the amount of $35,000 less all other compensation paid to Dr. Jarvik as 
salary or similar compensation. The License Agreement may be terminated by 
Dr. Jarvik or converted to a non-exclusive license in the event Vyrex fails 
to comply with certain obligations under the Agreement.   Dr. Jarvik's 
employment status was converted to a consultant relationship in January of 
1998,  which consultancy terminated later in the year.
          
     DUSAN MILJKOVIC, PH.D. In October 1997, the Company entered into a 
License Agreement with Dusan Miljkovic, Ph.D. ("Miljkovic Agreement") 
pursuant to which Dr. Miljkovic granted the Company an exclusive worldwide 
license to develop, manufacture and sell certain proprietary nutraceutical 
compositions. Dr. Miljkovic originally filed a provisional patent application 
covering the compounds, and subsequently filed a United States patent 
application. Pursuant to the agreement, the Company is responsible for all 
costs and expenses in connection with obtaining patent protection. In the 
case of licensed products sold as bulk compounds or stand-alone supplements, 
Dr. Miljkovic will receive royalties in the amount of 2.5% of gross proceeds 
up to $1 million; 1.75% of gross proceeds of between $1.0 million and $5.0 
million and 1% of gross 

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proceeds in excess of $5 million. In the case of licensed products sold as a 
component of a supplement formulation, Dr. Miljkovic will receive royalties 
according to the preceding schedule based on 34% of gross revenues. The 
License Agreement may be terminated by Dr. Miljkovic or the Company under 
certain circumstances.  During 1998 the Company continued development of the 
compounds licensed from Dr. Miljkovic.  The Company was recently notified 
that the claims set forth in Dr. Miljovic's United States and PCT patent 
applications will be allowed.
          
     THE IMMUNE RESPONSE CORPORATION. During 1997 the Company entered into an 
agreement with The Immune Response Corporation to search for treatments for 
spinal cord and other central nervous system trauma. The Immune Response 
Corporation is a Carlsbad, California-based biopharmaceutical company 
involved with research in T-cell therapy, molecular biology and gene therapy. 
The collaboration is focusing on an effort to discover proteins and small 
molecules, which may lead to the development of drugs for the treatment of 
central and peripheral nervous system injury. The companies have agreed to 
share equally the ownership of potential proprietary discoveries within the 
scope of the collaboration.  In 1998 the companies agreed to amend their 
collaboration to include research and development of certain proprietary 
Vyrex compounds.  The companies are seeking a pharmaceutical partner and / 
outside financing for development and commercialization of technology arising 
from the collaboration.

     UNCLE BEN'S, INCORPORATED. On January 22, 1998, the Company entered into 
an exclusive development agreement with Uncle Ben's, Incorporated to develop 
wellness foods for human and animal consumption. In early 1998 the Company 
entered into an agreement with Uncle Ben's, Inc. to jointly develop "Wellness 
Foods". Wellness foods are proposed foods designed to offer health benefits 
beyond basic nutrition. Pursuant to an Agreement with Uncle Ben's several 
steps were completed in 1998,  including investigation of regulatory issues, 
prosecution of the Company's patent position and certain animal studies.   
There can be no assurance the development efforts will be successful, that 
the parties will proceed to a definitive agreement,  or if they are, that any 
products will be produced or achieve acceptance or generate revenues.

PATENTS AND PROPRIETARY TECHNOLOGY

     A United States Patent was issued in 1991 for methods of inhibiting 
viral and retroviral infections via the use of various  antioxidants 
corresponding to the formulae set forth in the subject patent. The patent has 
been assigned to the Company and describes the primary proprietary technology 
underlying the Company's proposed Panavir-Registered Trademark- products.

     A United States Patent was issued in 1992 for methods of inhibiting 
viral and retroviral replication and for treating viral and retroviral 
infections via the administration of compositions containing tocopherol, or a 
tocopherol derivative, or a pharmaceutically effective product thereof. The 
Company is one of two assignees of this patent, with Biodor U.S. Holding.

     A United States Patent was issued in 1994 directed to certain 
preparations and methods for dilipidation of skin or hair through the use of 
cyclodextrin and cyclodextrin derivative preparations  such as hydroxypropyl 
cyclodextrin. This patent also is directed  to cerumen removal methods 
involving introduction of cyclodextrin preparations to the ear canal, 
resulting in the removal of ear wax and related substances. This patent has 
been assigned to the Company. This patent describes the proprietary 
technology of the Company underlying its proposed Cerex-Registered Trademark- 
products.

     A United States Patent was issued in 1994 involving airborne protectants 
against oxidative tissue damage. This patent is directed to certain methods 
for preventing free radical-induced oxidative damage and inflammatory 
response in biological tissue through the use of vapor-phase, phenolic 
antioxidants such as vaporized 2,6-diisopropylphenol. This patent has been 
assigned to the Company and describes the technology underlying the Company's 
proposed Vantox-Registered Trademark- products.

     A United States Patent was issued in 1995 directed to certain methods 
for delipidation of skin or hair through the use of cyclodextrin and 
cyclodextrin derivative preparations such as hydroxypropyl cyclodextrin. This 
patent is also directed to cerumen removal methods involving introduction of 
cyclodextrins to the ear canal resulting in the removal of ear wax and 
related substances. This patent has been assigned to the Company. This patent 
describes the proprietary technology of the Company underlying its proposed 
Cerex-Registered Trademark-products.

     A United States Patent was issued in 1995 directed to certain methods 
for the prevention and treatment of poison ivy and poison oak dermatitis 
through the use of cyclodextrins in applications to complex urushiols. This 
patent is also directed to methods of desensitizing against urushiol - 
induced dermatitis through cyclodextrin - urushiol complexes. This patent has 
been assigned to the Company and describes the technology underlying the 
Company's proposed Vyderm-TM- products.
          
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     A United States Patent was issued in 1995 involving airborne protectants 
against oxidative tissue damage. This patent is also directed to methods for 
preventing free radical-induced oxidative damage and inflammatory response in 
biological tissue through vapor-phase, phenolic antioxidants, such as 
vaporized 2,6-diisopropylphenol.
          
     A United States Patent was issued in 1996 directed to a certain delivery 
formulation for Probucol, related to the Company's Panavir-Registered 
Trademark-product.
          
     A United States Patent was issued in 1997 directed to a certain method 
for producing tagged genes, transcripts and proteins related to the Company's 
CD-Tagging-TM- technology.
          
     A United States Patent was issued in 1998 directed to the use of 
cyclodextrins to complex urushiols to protect against and to treat irritation 
arising from exposure to urushiols.  This patent has been assigned to the 
Company and relates to the proposed Vyderm-TM- products.
     
     A United States Patent was issued in 1999 relating to compounds, 
compositions, uses and methods for inhibiting viral and retroviral 
replication and for treating viral and retroviral infections via the 
administration of various compounds, including antioxidants. This patent has 
been assigned to the Company and relates to the proposed Panavir-Registered 
Trademark- products.
          
     The Company has patent applications pending in the United States and 
there have been foreign counterparts filed for certain of the Company's-TM- 
patent applications. One of the U.S. patent applications and certain foreign 
patent filings are jointly owned by the Company and Biodor U.S. Holding. 
Pursuant to the Jarvik Agreement the Company is also responsible for 
processing the patent application pending in the name of Dr. Jarvik regarding 
a CD Tagging-TM- method. The Company has filed U.S. and foreign patent 
applications in the name of Dr. Jarvik covering the universal epitope 
technology. Pursuant to the Jarvik License Agreement, the Company is 
responsible for fees and costs associated with the patent applications 
covering the universal epitope technology.

     The protection of proprietary rights relating to the Company's proposed 
products, processes and know-how is critical for the Company's business. The 
Company intends to file patent applications to protect technology, inventions 
and improvements that are considered important to the development of its 
business. The Company also intends to rely on unpatented trade secrets for a 
part of its intellectual property and property rights, and there can be no 
assurance others will not independently develop substantially equivalent 
proprietary information and techniques, or otherwise gain access to the 
Company's trade secrets or disclose such technology, or that the Company can 
meaningfully protect its rights to any patented or unpatented technology.
     
     Although the Company intends to seek patent protection for its 
proprietary technology and potential products in the United States and in 
foreign countries, the patent positions of biotechnology and pharmaceutical 
firms, including the Company, are generally uncertain and involve complex 
legal and factual questions. Consequently, the Company does not know whether 
any of the patent applications pending, or the unfiled patent applications 
which it is considering will result in the issuance of any patents, whether 
the patents which it owns will provide significant proprietary protection, or 
whether they will be circumvented or invalidated. Since patent applications 
in the United States are maintained in secrecy until patents issue, and 
publication of discoveries in the scientific or patent literature tend to lag 
behind actual discoveries by several months, at the time of filing a patent 
application or during the research phase prior to application the Company can 
not be certain it will be deemed the first creator of inventions covered by 
any future patent applications or that it will be deemed the first to file 
patent applications for such inventions. There can be no assurance all United 
States or foreign patents that may pose a risk of infringement can or will be 
identified. If the Company is unable to obtain a license(s) where it may have 
infringed on other patents, it could encounter delays in product market 
introductions while it attempts to design around such intellectual property 
rights, or could find that the development, manufacture or sale of potential 
products requiring such licenses could be prevented. In addition, the Company 
could incur substantial costs in defending against suits brought against it 
in connection with such intellectual property rights or prosecuting suits 
which the Company may bring against other parties to protect its intellectual 
property rights. Competitors or potential competitors may have filed 
applications for, or have received patents and may obtain additional patents 
and proprietay rights relating to, compounds or processes competitive with 
those of the Company. See "Business ) Competition."

     The Company will generally require all or certain of its employees, 
consultants and advisors to execute a confidentiality agreement either upon 
the commencement of an employment or consulting relationship with the Company 
or at a later time. There can be no assurance these agreements will provide 
meaningful protection for the Company's trade secrets in the event of 


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unauthorized use or disclosure of such information.

     The protection of intellectual properties owned by technology firms,
including the Company is subject to uncertainty and involves complex legal and
factual questions. The degree of future protection for the Company's proprietary
technology rights is therefore uncertain. There can be no assurance the
Company's efforts to protect its intellectual property will prove to be
adequate. See "Risk Factors -- Patents and Proprietary Rights."

TRADEMARKS

     The Company owns trademarks registered with the United States Patent and 
Trademark Office (USPTO) for the names Panavir-Registered Trademark- , 
Vantox-Registered Trademark-, and its logo in connection with the name Vyrex. 
Additionally the company is prosecuting a number of trademarks in connection 
with its nutraceutical and genomics programs.  Federally registered 
trademarks have a perpetual life, as long as they are renewed on a timely 
basis, subject to the rights of third parties to seek cancellation of the 
marks. The Company has filed other trademark applications, may claim common 
law trade name rights as to other potential products, and anticipates filing 
additional trademark applications in the future.

EMPLOYEES

     On December 31, 1998, the Company employed ten individuals, three in 
executive positions, three in scientific positions and four in 
administration. In an effort to reduce operating expenses as well as changing 
its strategy to outlicense its CD-Tagging-TM- and epitope tagging technology 
the company either eliminated or did not replace certain positions in the 
Company. None of its employees are currently represented by a union or any 
other form of collective bargaining unit.  The Company may hire an 
undetermined number of new employees over the next 12 to 24 months,  should 
the Company expand its activties.  The Company's success will depend in large 
part upon its ability to retain its current employees and secure additional 
employees to continue its research and development activities.

GOVERNMENT REGULATION

     The research and development, manufacture and marketing of the Company's 
potential products may be subject to extensive regulation by the FDA and by 
other federal, state, local and foreign entities, which regulate, among other 
things, research and development activities and the testing, manufacture, 
labeling, storage, record keeping, safety, advertising and promotion of 
pharmaceutical products. Governmental review of new drugs, devices or 
biologicals is an uncertain, costly and lengthy process.

     The Federal Food, Drug and Cosmetic Act, the Public Health Services Act, 
the Controlled Substances Act and other federal statutes and regulations 
govern or influence all aspects of the Company's business. Noncompliance with 
applicable requirements can result in fines and other judicially imposed 
sanctions, including product seizures, injunction actions and criminal 
prosecutions. In addition, administrative remedies can involve voluntary 
recall of products, and the total or partial suspension of products as well 
as the refusal of the government to approve pending applications or 
supplements to approved applications. The FDA also has the authority to 
withdraw approval of drugs in accordance with statutory due process 
procedures.
          
     Ongoing compliance with these requirements can require the expenditure 
of substantial resources. Any failure by the Company, or possible licensees 
to obtain, or any delay in obtaining required regulatory approvals would 
adversely affect the planned marketing of the Company's proposed products and 
the Company's ability to derive product or royalty revenue.

     The FDA's regulatory system requires an initial determination of whether 
a subsequent filing by the Company for that product will be classified by the 
FDA as a drug, device or biological. The FDA has different approval 
procedures for drugs, devices and biologicals. The Company believes most, if 
not all, of its currently proposed products will be classified as drugs, 
although the Company may develop proposed new potential products or potential 
therapeutic agents in the future which are considered devices or biologicals. 
If the Company is required to submit any application to the FDA as a 
biological, or device, the application process may be significantly longer, 
more expensive and certain different compliance procedures would apply than 
those for a drug as described below.


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     The steps required by the FDA before a new drug may be marketed in the 
United States include: (a) preclinical studies;  (b) submission to the FDA of 
a request for authorization to conduct human clinical trials in an 
Investigational New Drug (IND) application, which includes the test data of 
the preclinical studies and the proposed protocols (study designs) for 
clinical trials (an IND allows evaluation of the new drug in controlled 
clinical studies); (c) adequate and well controlled human clinical trials 
to establish the safety and effectiveness of the drug for its 
intended use; (d) submission to the FDA of a New Drug Application ("NDA"); 
and (e) review and approval of the NDA by the FDA before the drug may be 
shipped or sold commercially.

     In addition to obtaining the FDA's approval of an NDA for each of a 
Company's proposed products, each manufacturing establishment for new drugs 
must receive some form of approval by the FDA. Among the conditions for such 
approval is the requirement that the prospective manufacturer's quality 
control and manufacturing procedures conform to the FDA's Good Manufacturing 
Practices regulations, which must be followed at all times. In complying with 
standards set forth in these regulations, manufacturers must continue to 
expend time, monies and effort in the area of production and quality control 
to ensure full technical compliance. Manufacturing establishments, both 
foreign and domestic, also are subject to inspections by or under the 
authority of the FDA and by other federal, state or local agencies.

     In general, the clinical testing for new compounds required by the FDA 
is an extremely costly, ongoing, multi-year project. The FDA itself estimates 
clinical drug development time requirements average five years, but range 
from two to ten years. Finally, the Company or the FDA may suspend clinical 
trials at any time if it is felt that the subjects or patients are being 
exposed to an unacceptable health risk. Other competitors of the Company have 
had their proposed pharmaceutical clinical trials halted due to safety 
concerns.
     
     The process of completing clinical testing and obtaining FDA approval of 
a NDA is likely to take a number of years and require the expenditure of 
substantial resources. If an application is submitted, there can be no 
assurance the FDA will review and approve the NDA in a timely manner if at 
all. Even after initial FDA approval of the NDA has been obtained, further 
studies, including post-market studies, may be required to provide additional 
data on safety or effectiveness and will be required to gain approval for the 
use of a potential product as a treatment for clinical indications other than 
those for which the potential product was initially tested. Also, the FDA 
will require post-market reporting and may require surveillance programs to 
monitor the side effects of the drug. Results of post-marketing programs may 
limit or expand the further marketing of the potential products. Further, if 
there are any modifications to the drug, including changes in indication, 
manufacturing process, labeling, or a change in manufacturing facility, an 
NDA supplement may be required to be submitted to the FDA.

     Whether or not FDA approval has been obtained, approval of a potential 
product by regulatory authorities in foreign countries must be obtained prior 
to the commencement of marketing of the product in such countries. The 
requirements governing the conduct of clinical trials and product approvals 
vary widely from country to country, and the time required for approval may 
be longer or shorter than that required for FDA approval. Although there are 
some procedures for unified filings for certain European countries, in 
general, each country at this time has its own procedures and requirements.

     Establishments handling controlled substances must be licensed by the 
United States Drug Enforcement Administration. In addition to the regulatory 
framework for potential product approvals, the Company is and may be subject 
to regulation under state and federal law, including requirements regarding 
occupational safety, laboratory practices, environmental protection and 
hazardous substance control, and may be subject to other present and possible 
future local, state, federal and foreign regulation.

SOURCES OF SUPPLY

     The principal raw materials used in the Company's proposed products, 
have been obtained from several large chemical suppliers. If and when the 
Company begins production on a commercial scale, its use of raw materials 
will significantly increase. The Company could experience raw material 
shortages which, in turn, could affect its ability to produce products. The 
Company may, from time to time, rely on a single supplier for one or more of 
the raw materials and may represent a significant portion of any such 
supplier's total output. Although the Company believes there are and will 
continue to be alternative sources for each of its anticipated raw materials, 
there can be no assurance this will be the case or that the qualification of 
additional vendors will not delay the Company's ability to manufacture 
product. The Company does not have any contracts with any suppliers of the 
raw materials used in the development of its proposed products.


                                        8
<PAGE>

COMPETITION

     The biotechnology and pharmaceutical industries are intensely 
competitive. There are many pharmaceutical companies, biotechnology 
companies, public and private universities and research organizations 
actively engaged in research and development of pharmaceutical products. Most 
of the Company's existing or potential competitors have substantially greater 
financial, human and other resources than the Company and may be better 
equipped to develop, manufacture and market products. In addition, many of 
these companies have extensive experience in preclinical testing and human 
clinical trials. These companies may develop and introduce products and 
processes competitive with or superior to those of the Company, and many of 
these companies may be further along in the product development and approval 
process for their potential products.

     The Company's competition will be determined in part by the potential 
indications for which the Company's proposed products are developed and 
ultimately approved, if at all, by regulatory authorities. For most, if not 
all, of the Company's potential products, an important factor in competition 
will be the timing of market introduction of competitive products. 
Accordingly, the relative speed with which the Company can develop potential 
products, complete the clinical trials and approval processes and supply 
commercial quantities of the products to the market are expected to be 
important competitive factors. The Company expects competition among products 
approved for sale will be based, among other things, on product 
effectiveness, safety, reliability, availability, price and the strength of 
the patents on which such products are based.

     The Company's competitive position also depends upon its ability to attract
and retain qualified personnel, obtain patent protection or otherwise develop
proprietary products or processes and secure sufficient capital resources for
the very substantial period between technological conception and any commercial
sales, which may develop. There can be no assurance the Company will be able to
compete successfully.


                                        9
<PAGE>

                                    RISK FACTORS

      THIS REPORT CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, 
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE 
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS DISCUSSED 
IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO 
SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW AS WELL AS THOSE DISCUSSED 
ELSEWHERE IN THIS REPORT.

EARLY STAGE OF DEVELOPMENT; ABSENCE OF PRODUCTS

     The Company is in the development stage. It has not completed the 
development of any product and, accordingly, has not begun to generate 
revenues from operations. Most of the Company's proposed pharmaceutical 
products will require significant additional research and development, 
including in the majority of cases extensive preclinical and clinical 
testing, before the Company will be able to apply for FDA approval. There can 
be no assurance the Company's research and development efforts will be 
successful, that any of the Company's potential pharmaceutical products under 
development will prove to be safe and effective in clinical trials, that the 
Company will be able to obtain FDA approval for any of its proposed 
pharmaceutical products, that any such proposed pharmaceutical products can 
be manufactured at acceptable cost and with appropriate quality, or that any 
such proposed products, if they do receive regulatory approval, can be 
successfully marketed. The Company cannot predict when, if ever, it will 
begin to market any proposed pharmaceutical products which may not occur for 
a number of years. The Company is also developing nutraceutical products 
which the Company believes may be sold before any of its proposed 
pharmaceutical products will be sold. However, as December 31 1998 no 
nutraceutical products have completed testing or been sold,  with the 
exception that in January 1999 RPS commenced commercial sale of the products 
under license from Vyrex.  There can be no assurance such products will 
complete testing, achieve consumer acceptance or generate any revenue. There 
can be no assurance that the Company can successfully complete the product 
development required to initiate its strategies with regard to nutraceutical 
products or to successfully market any nutraceutical product.

NO OPERATING REVENUES; ACCUMULATED DEFICIT; EXPECTATION OF FUTURE LOSSES

     The Company has experienced significant operating losses since its 
inception in 1991. As of December 31, 1998 the Company had a deficit 
accumulated in the development stage of $11,913,000. The Company expects to 
incur substantial additional operating losses over the next several years and 
expects cumulative losses to increase assuming the Company's research and 
development efforts and clinical trials expand. The Company did not earn 
significant revenues from operations. The development of the Company's 
proposed pharmaceutical products will require the commitment of substantial 
resources to prepare and submit applications to the FDA, and to conduct 
research, preclinical and clinical trials, and for both its proposed 
pharmaceutical and nutraceutical products the Company must either establish 
commercial scale manufacturing processes and facilities or contract for such 
manufacturing facilities, and to establish additional quality control, 
regulatory, marketing, sales and administrative capabilities. There can be no 
assurance the Company will be successful in these endeavors, especially in 
light of the high failure rate of development stage pharmaceutical and 
nutrition companies with limited resources. There can be no assurance the 
Company will not incur substantial and continuing net losses beyond the next 
several years or that the Company will ever reach profitability. Furthermore, 
there can be no assurance the Company will apply for or obtain regulatory 
approvals, enter into arrangements with third parties for product development 
and commercialization, or successfully market or license any products. To 
achieve profitable operations, the Company, alone or with others, must 
successfully identify, develop, manufacture and market its proprietary 
products or technologies. There can be no assurance the Company will be able 
to accomplish these tasks. Significant delays in any of these matters could 
materially adversely impact the Company. 

FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING

     Substantial expenditures will be required to enable the Company to 
conduct existing and planned product research and development, continue the 
FDA application process, including conducting preclinical studies and 
clinical trials, and to manufacture and market its proposed products 
including its proposed nutraceutical products. The Company will need to raise 
substantial additional funds to support its long-term proposed product 
development and commercialization programs including its nutraceutical 
product development programs. The Company has no established bank financing 
arrangements and it is not anticipated the Company will secure any bank 
financing in the foreseeable future. Therefore, it is likely the Company will 
need to seek additional financing through subsequent future public or private 
sales of its securities, including equity and debt securities. The Company 
may also seek funding for the development and marketing of its proposed 
products through strategic alliances and other arrangements with corporate 
partners. There can be no assurance such collaborative arrangements or 
additional funds will 


                                        10
<PAGE>

be available when needed, or on terms acceptable to the Company, if at all. 
Any such additional financing may result in significant dilution to existing 
stockholders. If adequate funds are not available, the Company may be 
required to delay, scale back or eliminate one or more of its potential 
product development and drug and nutraceutical discovery programs, halt 
operations, or obtain funds through arrangements with collaborative partners 
or others that may require the Company to relinquish rights to certain of its 
technologies, potential product candidates or potential products that the 
Company would not otherwise relinquish.  The Company has made a strategic 
decision to commercialize its existing technologies,  and has placed new 
technology research and development on hold until such time as revenues,  if 
any,  from its existing technology generate sufficient cash to warrant 
additional new research.  The Company's future cash position will be affected 
by results of research and development, pre-clinical studies and clinical 
trials, nutraceutical product development and marketing costs, relationships 
with corporate partners, changes in the focus and direction of the Company's 
research and development programs, competitive and technological advances, 
the regulatory approval process and other factors.

INTENSE COMPETITION AND RAPID TECHNOLOGICAL CHANGE

     The Company is engaged in rapidly evolving and highly competitive fields 
and competition is expected to increase. There are many companies, including 
large pharmaceutical, chemical, and vitamin and nutrition supplement 
companies, engaged in developing, manufacturing and marketing products 
similar to those proposed to be developed by the Company, many of which have 
established a significant presence in the markets which the Company's 
proposed products are designed to address. Virtually all of these companies 
have substantially greater capital resources, research and development 
staffs, facilities and experience in obtaining regulatory approvals, as well 
as in the manufacturing, marketing and distribution of products, than the 
Company. There can be no assurance the Company's competitors will not succeed 
in developing technologies and products that are more effective and less 
costly than any potential products under research and development by the 
Company or which could render the Company's proposed products or technology 
obsolete.

DEPENDENCE UPON KEY PERSONNEL

     The Company's success in developing marketable products and achieving a 
competitive position will depend, in large part, on its ability to attract 
and retain qualified scientific and management personnel and in particular, 
to retain Dr. Sheldon S. Hendler. The proprietary technology which has been 
transferred to the Company was primarily developed by Dr. Hendler. The 
Company does not currently maintain life insurance on Dr. Hendler, who is the 
largest stockholder in the Company. The loss of Dr. Hendler or other 
scientists and management personnel would likely have a material adverse 
impact on the business and operations of the Company. The shortage of 
operating cash,  together with the short term strategy to commercialize 
existing technology resulted in a reduction of the workforce during the 
second half of 1998.  In addition, salaries to management and science staff 
were deferred until such time as the Company has the funds to fund the 
payroll.  As of December 31, 1998 deferred payroll amounted to approximately 
$113,000.
      
RELIANCE ON COLLABORATIVE PARTNERS

     The Company has relied in the past on certain established companies 
interested in its technology to fund a portion of its research and 
development expenses. In March of 1997 the Company entered into a 
collaboration with The Immune Response Corporation to utilize the Company's 
CD-Tagging-TM- technology, along with other technologies, to discover small 
molecules to develop therapies for spinal cord and other central nervous 
system traumas.  The Company is utilizing laboratory facilities and services 
at The Immune Response Corporation. The Company has also entered into license 
agreements with Dr. Jarvik regarding the Company's CD-Tagging-TM- technology. 
The Company also has license agreements with Dusan Milkjovic Ph.D and RPS.  
The Company anticipates that it may need to enter into collaborative 
arrangements with certain parties to further its development of nutraceutical 
and pharmaceutical products. To date the Company has not entered into any 
collaborative agreements with regard to the development of its proposed 
nutraceuticals.

     There can be no assurance the Company will be able to negotiate 
acceptable collaborative arrangements in the future, or that any 
collaborative arrangements will be successful. In addition, there can be no 
assurance the Company's collaborative partners will not pursue alternative 
technologies or develop alternative compounds either on their own or in 
collaboration with others, including the Company's competitors, as a means of 
developing treatments for the diseases targeted by the collaborative programs.


                                        11
<PAGE>

PATENTS AND PROPRIETARY RIGHTS
      
     The Company's success will depend in large part on its ability to obtain 
patent protection for its proposed products, both in the United States and 
other countries. The patent position of biotechnology and pharmaceutical 
companies is highly uncertain and involves complex legal and factual 
questions. There is no consistent policy regarding the breadth of claims 
allowed in biotechnology and pharmaceutical patents. The Company currently 
has eleven (includes CD-Tagging-TM-) patents issued and several patent 
applications pending in the United States. There have been foreign 
counterparts of certain of these applications filed in other countries on 
behalf of the Company. The Company intends to file additional applications as 
appropriate for patents covering both its proposed products and processes. 
There can be no assurance patents will issue from any of the pending 
applications, or for patents that have issued or may be issued, the claims 
allowed will be sufficiently broad to protect the Company's technology. In 
addition, there can be no assurance any patents issued to the Company will 
not be challenged, invalidated or circumvented, or the rights granted 
thereunder will provide proprietary protection to the Company. In addition, 
any patents obtained by the Company will be of limited duration. All United 
States patents issuing from patent applications applied for June 8, 1995 or 
thereafter will have a term of 20 years from the date of filing. All United 
States patents in force before June 8, 1995 will have a term of the longer 
of: (1) 17 years from the date of issuance; or (2) 20 years from the date of 
filing. All United States patents issuing from patent applications applied 
for before June 8, 1995 will have a term of the longer of (1) 17 years from 
the date of issuance; or (2) 20 years from the date of filing. The commercial 
success of the Company will also depend in part on the Company's neither 
infringing patents issued to competitors nor breaching the technology 
licenses upon which the Company's proposed products might be based.

     It may become necessary for the Company to obtain licenses of potential 
products or other proprietary rights or trade secrets from other parties. 
Failure by the Company to obtain such licenses may have a material adverse 
impact on the Company. Litigation, which could result in substantial costs to 
the Company, may also be necessary to enforce any patents issued to the 
Company or to determine the scope and validity of others' proprietary rights. 
In addition, the Company may have to participate in interference proceedings 
declared by the U.S. Patent and Trademark Office to determine the priority of 
inventions which could result in substantial costs to the Company.

     The Company also attempts to protect its proprietary technology and 
processes by seeking to obtain confidentiality agreements with its 
contractors, consultants, employees, potential collaborative partners, 
licensees, licensors and others. There can be no assurance these agreements 
will adequately protect the Company, that these agreements will not be 
breached, or the Company will have adequate remedies for any breach, or that 
the Company's trade secrets will not otherwise become known or be 
independently discovered by competitors. In addition the Company does not 
generally require its principal scientific advisors to enter into 
confidentiality agreements, and to the extent there is collaboration between 
any of the scientific advisors and the Company, the aspects of such 
collaboration will not necessarily remain the trade secrets of the Company. 
This approach could increase the risk to the Company that it may not be able 
to protect its proprietary information.

     There can be no assurance others will not independently develop similar 
or more advanced technologies or design around aspects of the Company's 
technology which may be patented, or duplicate the Company's trade secrets. 
In some cases, the Company may rely on trade secrets to protect its 
innovations. There can be no assurance trade secrets will be established, or 
secrecy obligations will be honored, or that others will not independently 
develop similar or superior technology. To the extent consultants, key 
employees or other third parties apply technological information 
independently developed by them or by others to Company projects, disputes 
may arise as to the proprietary rights to such information which may not be 
resolved in favor of the Company.

GOVERNMENTAL REGULATION AND UNCERTAINTY OF PRODUCT APPROVALS

     The production and marketing of the Company's proposed products are 
subject to strict regulation by federal and state governmental authorities in 
the United States and in foreign countries where such potential products may 
be produced and marketed. In the United States, the FDA regulates, where 
applicable, development, testing, labeling, manufacturing, registration, 
notification, clearance or approval, marketing, distribution, record keeping 
and reporting requirements for human and animal drugs, medical devices, 
biologies, cosmetics and food additives. Most, if not all, of the Company's 
proposed products, including its proposed Panavir-Registered Trademark-, 
Vantox-Registered Trademark-, and other products may require FDA clearance 
prior to marketing. The Federal Environmental Protection Agency ("EPA") has 
regulations covering certain areas for some of the Company's proposed 
products. Comparable state and local agencies may have similar regulations. 
The FDA and EPA regulatory approval processes may take a number of years and 
both FDA and EPA regulatory approval may require the expenditure of 
substantial resources. The processing, 


                                        12
<PAGE>

formulation, packaging, labeling and advertising of the Company's proposed 
nutraceutical products is subject to regulation by one or more federal 
agencies, including the FDA, the Federal Trade Commission (the "FTC"), the 
Consumer Product Safety Commission, the United States Department of 
Agriculture and the Environmental Protection Agency. These activities are 
also regulated by various agencies of the state and localities in which the 
Company's nutraceutical products may be sold, including without limitation 
the California Department of Health and Human Services, Food and Drug branch. 
The Nutrition Labeling and Education Act and the Dietary Supplement Act 
provide regulations which require that vitamin, mineral and dietary 
supplements labels have to provide the same basic nutritional information 
found on the labels on most conventional foods. The regulations also require 
that health claims made for vitamins, minerals and dietary supplements be 
scientifically valid, and mandate nutrition information found on the label to 
state the nutrition content per serving. Compliance with these regulations 
could adversely affect the Company's operations and its financial condition. 
There can be no assurance the production and marketing of the Company's 
proposed products or other potential products which may be developed by the 
Company in the future, if any, will satisfy then current requirements of the 
FDA, EPA, FTC, or comparable state, local and foreign authorities. Delays in 
receiving or failure to receive governmental approvals may have a material 
adverse impact on the Company. In addition, there can be no assurance that 
government regulations applicable to the Company or its proposed products or 
the interpretation thereof will not change and thereby prevent the Company 
from marketing some or all of its potential products for a period of time or 
permanently, or otherwise materially and adversely affect the Company. 
Moreover, if regulatory approval of a drug is granted, such approval may 
entail limitations on the indicated uses for which the drug may be marketed. 
Even if such regulatory approval is obtained, a marketed drug, its 
manufacturer and the facilities in which the drug is manufactured are subject 
to continual review and periodic inspections. Later discovery of previously 
unknown problems with a product, manufacturer or facility may result in 
restrictions on such product or manufacturer, including withdrawal of the 
potential product from the market, product seizures, a halt in operation and 
other materially adverse consequences. The Company is unable to predict the 
extent of adverse governmental regulation which might arise from future 
federal, state or foreign legislative or administrative action, or the extent 
of the impact of such legislative changes on the business of the Company.

DEBT SERVICE AND PENALTIES
      
     On March 22, 1999, the Company obtained a loan for $100,000 at 10% 
interest.  The Company does not have any revenue to service the debt, and 
must obtain additional financing to pay the principal and interest on this 
debt when due.  The loan is due and payable on March 22, 2000, and is secured 
by the general assets of the Company pursuant to applicable provisions of the 
Uniform Commercial Code.  The Company does not have an existing bank line of 
credit or other form of revolving or renewable credit facility.

DILUTIVE AND OTHER ADVERSE EFFECTS OF OUTSTANDING OPTIONS AND WARRANTS
      
     Under the terms of the existing warrants, options issued under the 
Company's stock option plan and other outstanding options and warrants, the 
holders thereof are given an opportunity to profit from a rise in the market 
price of the Common Stock with a resulting dilution in the interests of the 
other stockholders. The terms on which the Company may obtain additional 
financing may be adversely affected by the existence of such options and 
warrants. The holders of the warrants may exercise them at a time when the 
Company might be able to obtain additional capital through a new offering of 
securities on terms more favorable than those provided by the warrants. In 
addition, holders of certain Common Stock of the Company have registration 
rights, and the exercise of such rights may involve substantial expense to 
the Company.

POSSIBLE DEPRESSIVE EFFECT ON PRICE OF SECURITIES OF FUTURE SALES OF COMMON 
STOCK
      
     Actual sales or the prospect of sales of Common Stock under Rule 144 or 
otherwise in the future may depress the prices of the Company's securities or 
any market that may develop, and also make it difficult to sell the Company's 
securities purchased by investors herein. There are options outstanding both 
pursuant to the Company's Stock Option Plan and options not pursuant to any 
plan which are exercisable for up to 1,846,259 shares of Common Stock. The 
vast majority of all of these options and warrants are currently exercisable. 
Exercise of any of these warrants or options would result in additional 
dilution to the purchaser of the shares offered herein, and exercise of any 
significant amount of these options or warrants will result in substantial 
additional dilution. Resale of shares acquired upon the exercise of these 
options may depress the prices of the Company's securities or make them more 
difficult to sell by the investors herein. The sale or availability for sale 
of substantial amounts of Common Stock in the public market after this 
offering could adversely affect the prevailing market prices of the Company's 
securities and could impair the Company's ability to raise additional capital 
through the sale of its equity securities.


                                        13
<PAGE>

POSSIBLE ADVERSE EFFECTS OF AUTHORIZATION AND ISSUANCE OF PREFERRED STOCK

     The Company's Board of Directors is authorized to issue up to 10,000,000 
shares of preferred stock. The Board of Directors has the power to establish 
the dividend rates, liquidation preferences, voting rights, redemption and 
conversion terms and privileges with respect to any series of preferred 
stock. The issuance of any series of preferred stock having rights superior 
to those of the common stock may result in a decrease in the value or market 
price of the common stock and could further be used by the Board as a device 
to prevent a change in control favorable to the Company. Holders of preferred 
stock to be issued in the future may have the right to receive dividends and 
certain preferences in liquidation and conversion rights. The issuance of 
such preferred stock could make the possible takeover of the Company or the 
removal of management of the Company more difficult, and adversely affect the 
voting and other rights of the holder of the common stock, or depress the 
market price of the warrants,  Common Stock or IPO Warrants.

DELISTING FROM NASDAQ STOCK MARKET

     The Company was notified that it had been delisted from the NASDAQ 
SmallCap Market,  effective with the close of business October 21,  1998.  As 
of October 22,  1998,  the Company's securities commenced trading over the 
counter under the symbols OTC:BB - VYRX and OTC:BB - VYRXW.  As a result, 
investors may find it more difficult to dispose of, or to obtain accurate 
quotations as to the value of, the Company's securities.

POSSIBLE VOLATILITY OF STOCK PRICE

     The market prices for securities of emerging and development stage 
companies such as Vyrex have historically been highly volatile. Future 
announcements concerning the Company or its competitors, including the 
results of testing, technological innovations or new commercial products, 
government regulations, developments concerning proprietary rights, 
litigation or public concern as to safety of potential products developed by 
the Company or others, may have a significant impact on the market price of 
the Company's securities.
      
DISCLOSURES RELATING TO LOW PRICED STOCKS; RESTRICTIONS ON RESALE OF LOW 
PRICE STOCKS AND ON BROKER-DEAL SALE; POSSIBLE ADVERSE EFFECT OF "PENNY 
STOCK" RULES ON LIQUIDITY FOR THE COMPANY'S SECURITIES

     Since the Company's securities were delisted from the NASDAQ SmallCap 
Market and the Company has net tangible assets of less than $2,000,000 
transactions in the Company's securities are subject to Rule 15g-9 under the 
Exchange Act, which imposes additional sales practice requirements on 
broker-dealers who sell such securities to persons other than established 
customers and "accredited investors" (generally, individuals with a net worth 
in excess of $1,000,000 or annual incomes exceeding $200,000 or $300,000 
together with their spouses).  For transactions covered by this Rule, a 
broker-dealer must make a special suitability determination for the purchaser 
and have received the purchaser's written consent to the transaction prior to 
the sale. Consequently, this Rule may affect the ability of broker-dealers to 
sell the Company's securities, and may affect the ability of purchasers in 
this offering to sell any of the securities acquired hereby in the secondary 
market.

     The Commission has adopted regulations which generally define a "penny 
stock" to be any non-NASDAQ equity security of a small company that has a 
market price (as therein defined) less than $5.00 per share, or with an 
exercise price of less than $5.00 per share subject to certain exceptions, 
and which is not traded on any exchange or quoted on NASDAQ.  For any 
transaction by broker-dealers involving a penny stock (unless exempt), the 
rules require delivery, prior to a transaction in a penny stock, of a risk 
disclosure document relating to the penny stock market.  Disclosure is also 
required to be made about compensation payable to both the broker-dealer and 
the registered representative and current quotations for the securities.  
Finally, monthly statements are required to be sent disclosing recent price 
information for the penny stock held in an account and information on the 
limited market in penny stocks.


                                        14
<PAGE>

CONTROL BY PRESENT STOCKHOLDERS; POSSIBLE DEPRESSIVE EFFECT ON THE COMPANY'S
SECURITIES

     The current officers and directors of the Company will be able to elect 
all of the Company's directors and otherwise control the Company's 
operations. This concentration of ownership by the Company's officers and 
directors may discourage potential purchasers from seeking control of the 
Company through the purchase of Common Stock, and this possibility could have 
a depressive effect on the price of the Company's securities.
      
     In addition, Dr. Sheldon S. Hendler, Chairman of the Board and Chief 
Executive Officer of the Company owns approximately 41% of the outstanding 
Common Stock of the Company. As a result thereof Dr. Hendler alone may 
control or exert overwhelming influence over the Company's operations.

ANTI-TAKEOVER PROVISIONS - LIMITATION ON VOTING RIGHTS

     The Company's Articles of Incorporation and Bylaws contain provisions 
that may make it more difficult to acquire control of the Company by means of 
tender offer, over-the-counter purchases, a proxy fight, or otherwise. The 
Articles of Incorporation also include provisions restricting stockholder 
voting rights. The Company's Articles of Incorporation include a provision 
that requires that any action required by the stockholders may not be 
affected by a written consent, and that special meetings of the stockholders 
may only be called by the Board of Directors. This provision makes it 
difficult for stockholders to pass any resolution not supported by the Board 
of Directors except at a regularly called meeting. The Company's Articles of 
Incorporation provide for a staggered term of the Board of Directors, thus 
eliminating the ability to elect all of the directors in any one year. This 
provision may make the implementation of a change in management a process 
requiring more than one year even if supported by a majority of the 
stockholders. The Company's Articles of Incorporation provide directors may 
only be removed for cause and a vote of 70% of the shareholders. Certain 
provisions of the Articles of Incorporation may only be amended by a vote of 
70% of the stockholders. As a result of the number of shares currently owned 
by management, this provision may for some time have the effect of indirectly 
eliminating any possibility stockholders could pass a resolution unless 
approved by management, in connection with any question submitted or required 
to be submitted to a vote of the stockholders. The Company's Articles of 
Incorporation also require that stockholders give advance notice to the 
Company of any directorship nominations or other business to be brought by 
the stockholders at any stockholder's meeting. This provision makes it more 
difficult for stockholders to nominate candidates for the Board of Directors 
who are not supported by management. In addition, the Articles of 
Incorporation require advance notice for stockholder proposals to be brought 
before the annual meeting. The requirements include that the notice must 
specify certain information regarding the stockholder and the meeting. This 
provision to implement stockholder proposals makes it more difficult even if 
a majority of stockholders are in support thereof. The Company is also 
subject to certain provisions of California law if more than 50% of its 
outstanding securities are held of record by persons with addresses in 
California, and if more than 50% of its property, payroll and sales are from 
California. These provisions of California law will control the operations of 
the Company with respect to certain of the anti-takeover provisions discussed 
herein, until such time as either (i) the Company is listed on the New York 
or American Stock Exchange or the National Market System of Nasdaq, and it 
has 800 stockholders; or (ii) the Company no longer has either more than 50% 
of its outstanding securities held by persons with addresses in California, 
or less than 50% of its property, payroll and sales are in California. Each 
of these provisions may also have the effect of deterring hostile take-overs 
or delaying changes in control or management of the Company. In addition, the 
indemnification provisions of the Company's Bylaws and Articles of 
Incorporation may represent a conflict of interest with the stockholders 
since officers and directors may be indemnified prior to any judicial 
determinations as to their conduct. 

CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS

     Holders of the Company's outstanding warrants will only be able to 
exercise the warrants if: (i) a current prospectus under the Securities Act 
relating to the securities underlying the warrants is then in effect and (ii) 
such securities are qualified for sale or exempt from qualification under the 
applicable securities laws of the states in which the various holders of the 
warrants reside. Although the Company has undertaken to use its best efforts 
to maintain the effectiveness of a current prospectus covering the securities 
underlying the warrants, there can be no assurance the Company will be able 
to do so. The warrants may have no value if a current prospectus, covering 
the securities issuable upon the exercise of the warrants, is not kept 
effective or if such securities are not qualified, or exempt from 
qualification, in the states in which the holders of the warrants reside.


                                        15
<PAGE>

LACK OF MARKETING EXPERIENCE; DEPENDENCE ON OUTSIDE PARTIES FOR MARKETING AND 
DISTRIBUTION; UNCERTAINTY OF MARKET ACCEPTANCE OF PROPOSED PRODUCTS

     If successfully developed and approved by applicable regulatory 
agencies, the Company intends to market its proposed products currently under 
development through contractual arrangements with others such as joint 
venture, licensing or similar collaborative agreements and distribution 
agreements. This may result in a lack of control by the Company over some or 
all of the marketing and distribution of such potential products. There can 
be no assurance the Company will be able to enter into any marketing 
arrangements on terms acceptable to the Company or that any marketing efforts 
undertaken on behalf of the Company will be successful. The Company may, in 
the future, determine to directly market certain of its proposed products. 
The Company has limited marketing experience and significant additional 
capital expenditures and management resources would be required to develop a 
direct sales force. In the event the Company elects to engage in direct 
marketing activities, there can be no assurance the Company would be able to 
obtain the requisite funds or attract and retain the human resources 
necessary to successfully market any of its potential products.

     The Company's future growth and profitability will depend, in large 
part, on the success of its personnel and others conducting marketing efforts 
on behalf of the Company in fostering acceptance among the various markets of 
the use of the Company's potential products as an alternative to other 
available products or otherwise. The Company's success in marketing its 
potential products will be substantially dependent on educating its targeted 
markets as to the distinctive characteristics and perceived benefits of the 
Company's potential products. There can be no assurance that the Company's 
efforts or the efforts of others will be successful or that any of the 
Company's proposed products will be favorably accepted among the targeted 
markets.

LACK OF MANUFACTURING CAPABILITY; DEPENDENCE ON OUTSIDE PARTIES FOR 
MANUFACTURING OF PROPOSED PRODUCTS

     The Company has no manufacturing facilities or expertise, and does not 
intend to manufacture any potential product or products. The Company 
initially intends to enter into arrangements with others to manufacture all 
of its proposed products and has done so with respect to its nutraceutical 
products. The Company does not have any contracts or agreements obligating 
any party to manufacture any quantity of nutraceuticals for any price. 
Failure to secure such contracts or agreements could have a material adverse 
impact on the business and operations of the Company. There can be no 
assurance the Company will be able to enter into satisfactory arrangements 
for the manufacture of its proposed products with manufacturers whose 
facilities and procedures comply with FDA or other regulatory requirements, 
that the manufacturers will continue to comply with such standards, or that 
such manufacturers will be able to adequately supply the Company with its 
product needs. The Company's dependence on third parties for manufacturing 
may adversely affect the Company's ability to develop and deliver products on 
a timely and competitive basis. The Company may in the future undertake to 
manufacture some or all of its proposed products directly. The Company has no 
experience with the manufacture of any of its proposed products under 
development. In the event the Company were to undertake to manufacture any of 
its proposed products, the Company would be required to finance considerable 
additional capital expenditures, attract and retain experienced personnel, 
develop a manufacturing capability, and comply with extensive government 
regulations with respect to its facilities, including among others, FDA 
manufacturing requirements. The Company would not be able to develop any 
reasonable manufacturing capability without obtaining significant capital in 
excess of the funds anticipated from this offering. There can be no assurance 
the Company would be able to successfully establish manufacturing operations.

DEPENDENCE ON SUPPLIERS

     The materials used in the Company's potential products are currently 
available only from a limited number of suppliers. The Company anticipates 
there will continue to be a limited number of suppliers for its proposed 
products. In the event the Company could not obtain adequate quantities of 
necessary materials from its existing suppliers, there can be no assurance 
the Company would be able to access alternative sources of supply within a 
reasonable period of time or at commercially reasonable rates. Regulatory 
requirements applicable to pharmaceutical products tend to make the 
substitution of suppliers costly and time-consuming. The Company does not 
have any contracts or agreements with any of its raw material suppliers for 
its proposed nutraceutical products to provide quantities of raw materials at 
specific prices. The Company believes there are numerous suppliers of its raw 
materials for its proposed nutraceutical products. There can be no assurance 
adequate suppliers will be available or that the lack of such contracts or 
agreements will not have a material adverse impact on the business and 
operations of the Company. The unavailability of adequate commercial 
quantities, the inability to develop alternative sources, a reduction or 
interruption in supply or a significant increase in the price of materials 
could have a material adverse effect on the Company's 


                                        16
<PAGE>

ability to manufacture and market its proposed products.

PRODUCT LIABILITY; AVAILABILITY OF INSURANCE

     The design, development and manufacture of the Company's proposed 
products involve an inherent risk of product liability claims and associated 
adverse publicity. The Company obtained clinical trial product liability 
insurance for its Panavir-Registered Trademark- Phase I human clinical trial 
and intends to obtain insurance for future clinical trials of 
Panavir-Registered Trademark-, Vantox-Registered Trademark-, and other 
potential products under development, and for potential product liability 
associated with the commercial sale of the Company's proposed products. There 
can be no assurance the Company will be able to obtain or maintain insurance 
for any of its clinical trials or proposed commercial products. Although the 
Company currently maintains liability insurance in connection with its 
Panavir-Registered Trademark- trials, there can be no assurance the coverage 
limits of the Company's insurance policies will be adequate. Such insurance 
is expensive, difficult to obtain and may not be available in the future on 
acceptable terms or at all. The Company will also be exposed to product 
liability claims in the event that, among other things, the use of its 
proposed nutraceutical products result in injury. The Company is required by 
the Retired Person's Services, Inc. agreement to have at least $1.0 million 
in insurance coverage for product liability on its proposed nutrition 
products. The Company intends to require the manufacturers of its 
nutraceutical products to add the Company as a named insured to their 
existing issuance policies. The Company has not yet received endorsements as 
named insured for any insurance policies. The Company also plans to seek 
additional coverage of its own. There can be no assurance the Company will be 
able to procure additional coverage or that existing or future coverage will 
be sufficient to cover potential liabilities. A successful claim brought 
against the Company in excess of the Company's insurance coverage would have 
a material adverse effect upon the Company.

HAZARDOUS MATERIAL; ENVIRONMENTAL MATTERS

     The Company, at present, contracts with outside vendors for manufacture 
of its proposed products. However, the Company's research and development 
processes at times involve the controlled use of hazardous materials, 
chemicals, viruses and various radioactive compounds. In addition, various of 
such materials, chemicals, viruses and compounds may be used by the Company 
in the future to the extent Vyrex undertakes to perform its own 
manufacturing. To the extent certain such materials, chemicals, viruses and 
compounds are or will be used by the Company, Vyrex will be subject to 
federal, state and local laws and regulations governing the use, manufacture, 
storage, handling and disposal of certain materials and waste products. 
Although the Company believes its safety procedures for handling and 
disposing of materials would comply with the standards prescribed by such 
laws and regulations, the risk of accidental contamination or injury from 
these materials cannot be completely eliminated. In the event of such an 
accident, the Company could be held liable for any damages that result, and 
any such liability could exceed the resources of the Company. There can be no 
assurance the Company will not be required to incur significant costs to 
comply with environmental laws and regulations in the future, or that the 
operations, business or assets of the Company will not be affected adversely 
or materially by current or future environmental laws or regulations.

HEALTH CARE REFORM

     Political, economic and regulatory influences are subjecting the health 
care industry in the United States to fundamental changes. Reforms under 
consideration may include mandated basic health care benefits, controls on 
health care spending through limitations on the growth of private health 
insurance premiums and Medicare and Medicaid spending, the creation of large 
insurance purchasing groups and fundamental changes to the health care 
delivery system. The Company anticipates Congress and certain state 
legislatures will continue to review and assess alternative health care 
delivery systems and payment methods and public debate of these issues will 
likely continue in the future. Due to uncertainties regarding the ultimate 
features of reform initiatives and their enactment and implementation, the 
Company cannot predict which, if any, of such reform proposals will be 
adopted, when they may be adopted or what impact they may have on the Company.

UNCERTAINTY OF HEALTH CARE REIMBURSEMENT

     Vyrex's ability to commercialize its proposed products successfully may 
depend in part on the extent to which reimbursement for the cost of such 
proposed products and related treatment will be available from government 
health administration authorities, private health insurers and other 
organizations. Third-party payers are increasingly challenging the price of 
medical products and services. Significant uncertainty exists as to the 
reimbursement status of newly approved health care products, and there can be 
no assurance adequate third-party coverage will be available to enable Vyrex 
to maintain price levels sufficient to realize an appropriate return on its 
investment in product development.


                                        17
<PAGE>

FORWARD-LOOKING STATEMENTS

     Prospective investors are cautioned that the statements in this 
Prospectus that are not descriptions of historical facts may be 
forward-looking statements that are subject to risks and uncertainties. 
Actual results could differ materially from those currently anticipated due 
to a number of factors, including those identified under "Risk Factors" and 
elsewhere in this Prospectus or documents incorporated by reference herein.

ITEM 2.   PROPERTIES

     Vyrex Corporation leases a 2,000 square foot administrative facility 
located in La Jolla, California. Current monthly rental on all the facilities 
is approximately $3,000.

ITEM 3.   LEGAL PROCEEDINGS

None 

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

                                      PART II
                                          
ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock began trading  on the Over-The-Counter Bulletin Board
on October 22 1998 under the symbol "VYRX". The Company's Common Stock Warrants
are traded in the over-the-counter market under the symbol "VYRXW."  The
Company's Units sold as part of the initial public offering were separated into
Common Stock and Warrants on May 16, 1996.  The over-the-counter market
quotations provided reflect inter-dealer prices, without retail mark-ups,
mark-down or commission and may not represent actual transactions.
The following table sets forth the range of high and low sales prices for the
Common Stock on the Nasdaq Small Capitalization Market for the periods
indicated:

<TABLE>
<CAPTION>
                                                   HIGH               LOW
                                                   ----               ---
<S>                   <C>                        <C>                 <C>
January 1,  1997      March 30,  1997            $ 12.75             $ 6.00
April 1,  1997        June 30,  1997             $  6.875            $ 6.00
July 1,  1997         September 30,  1997        $  7.625            $ 5.19
October 1,  1997      December 31,  1997         $  7.56             $ 4.875
January 1, 1998       March 30, 1998             $  7.00             $ 5.0625
April 1, 1998         June 30, 1998              $  6.875            $ 3.875
July 1, 1998          September 30, 1998         $  4.25             $ 0.31
October 1, 1998       December 31, 1998          $  1.41             $ 0.16
</TABLE>


As of March 29 1999, the Company's Common Stock was held by approximately 600 
stockholders of record. The Company has never paid cash dividends and does 
not anticipate paying any cash dividends in the foreseeable future.


                                        18
<PAGE>

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND    
          RESULTS OF OPERATIONS AND PLAN OF OPERATION

          THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
          WITH THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE
          HEREIN

OVERVIEW

     Since its inception in January 1991, the Company has devoted 
substantially all of its efforts and resources to research and development 
related to the study of biological oxidation and antioxidation directed to 
the development of potential therapeutic products for the treatment of 
various diseases and conditions. Currently the Company's research focuses 
mainly on targeted antioxidant therapeutics, nutraceuticals and gene 
discovery.  The Company is a development stage company, has never generated 
any revenue from product sales and has relied primarily on equity financing, 
licensing revenues, and various debt instruments for its working capital. The 
Company has been unprofitable since its inception, and expects to incur 
substantial additional operating losses over at least the next several years.

     With the ever increasing difficulty of biotechnology companies being 
able to raise  funds in the capital markets,  the Company has and is 
continuing to seek collaborative partners to license its existing technology 
with a view to raising funding.  In addition in line with the short term 
strategy of seeking to commercialize existing technology and defer research 
and development activity until such time as the Company has adequate 
operating funds.  During 1998  the Company closed down its research 
laboratories,  scaled back staff in all areas, as well as reducing other 
operating expenses.  The net loss for 1998 amounted to $3,388,000 compared to 
$3,296,000 in 1997.  The 1998 net loss includes $484,000 of non cash charges 
relating to cashless exercise of stock options and stock options granted to 
consultants.  As of December 31, 1998, the Company's accumulated deficit was 
approximately  $11,913,000.

     The Company's business is subject to significant risks, including the 
risks inherent in its research and development efforts, uncertainties 
associated with obtaining and enforcing patents, the lengthy and expensive 
regulatory approval process and competition from other biotechnology 
companies. See "Risk Factors."

YEAR 2000 EXPOSURE

     The Company has determined that it will not need to modify or replace 
significant portions of its hardware or software so that its computer systems 
will function properly with respect to the Year 2000 issue.  The vendor of 
the Company's accounting system has confirmed that the software used by the 
Company is Year 2000 compliant.  The other automated systems are used 
primarily for non-essential word processing and spreadsheet work.  The 
automated systems are supported by a staff member with additional support 
being provided by an outside consultant.  The Company is in the process of 
verifying that there is no adverse effect on the Company's core business 
operations due to non-Year 2000 compliance of customers, suppliers, and 
financial institutions.  The Company expects to have any necessary changes 
implemented by December 31 1999.  While the Company believes its planning 
efforts are adequate to address its Year 2000 concerns, there can be no 
guarantee that the systems of other companies on which the Company's systems 
and operations rely will be converted on a timely basis and will not have a 
material effect on the Company. The cost of the Year 2000 initiatives is not 
expected to exceed $10,000.

RESULTS OF OPERATIONS

     YEARS ENDED DECEMBER 31, 1998 AND 1997

     Royalties of $1,600 were earned in 1998.  No revenues were earned in 1997.

     Research and Development expense decreased $168,000 to $1,779,000 in 
1998 compared to $1,947,000 for 1997. The decrease was due to various 
factors. Firstly Consulting fees decreased by $135,000,  and other research 
and development  expenses were down by $276,000.  The reduction in consulting 
fees and other research and development expenses was due to a strategic 
change in financing strategy related to the Company's CD-Tagging-TM- and 
epitope tagging projects.  The Company is planning to outlicense the 
technology and is currently in negotiation with a prospective licensee.  The 
Company expects research 

                                        19
<PAGE>

and development costs to increase if funding can be obtained and the 
candidate drug and nutrition products proceed towards or commence human 
clinical trials.  These decreases were partially offset by an increase in 
salary expense of $243,000, due to a cashless exercise of employee stock 
options resulting in a non cash salary expense of $394,000.  Excluding the 
non-cash exercise,  salary expense would have decreased by $151,000.

     Marketing expenses were reduced by $15,000 to $207,000 in 1998 compared 
to $222,000 for 1997.  The decrease arises from a decrease in consulting fees 
of $50,000 and a decrease in other marketing expenses of $21,000,  partially 
offset by an increase in marketing payroll of $56,000.  General and 
administrative expenses increased $140,000 to $1,444,000 in 1998 compared to 
$1,304,000 in 1997.  The increase in other general and administrative 
expenses was due to a non-cash patent impairment charge of $107,000 as well 
as increases in financial related expenses to support increased investor 
relations,  public relations, and fund raising activities.

     Interest income decreased $130,000 to $66,000 in 1998 compared to 
$196,000 for 1997. The decrease was as a result of lower cash balances.  The 
Company incurred interest expense of $27,000 in 1998 compared to $20,000 in 
1997.  The increase in interest expense related to the issuance of the 
Company's convertible debentures in November of 1997.  The debentures were 
converted to equity in March 1998.

     Basic and diluted loss per share was $0.46 per share in both 1998 and 
1997. The higher net loss was offset by an increase in the weighted average 
shares outstanding.

LIQUIDITY AND CAPITAL RESOURCES

     The Company has financed its operation since inception through the sale 
of debt and equity securities. As of December 31, 1998, the Company had a 
working capital deficit of ($275,000) compared to with working capital of 
$2,445,000 at December 31, 1997. The decrease in working capital is the 
result of the Company's operating loss.

     For the twelve months ended December 31, 1998, the Company used 
$2,975,000 of cash in operating activities, compared to $3,112,000 during 
1997. The decrease in cash usage was primarily related  to decreases in 
salaries, consulting fees and other expenses.  In addition salaries to 
management and science staff were deferred until such time as the company has 
the funds to fund the payroll.  As of December 31, 1998 deferred payroll 
amounted to approximately $113,000.

     The Company generated $999,000 and $1,090,000 of cash in investing 
activities during 1998 and 1997,  primarily from the sale of short term 
investments.  The Company generated $14,000 of cash in financing activities 
during 1998 compared to $875,000 during 1997. The Company did not raise 
additional financing in 1998.  During 1997, the Company issued $1.0 million 
in convertible debentures.

     While the Company expects revenues during 1999,  it is not anticipated 
that they will be significant and therefore without additional financing it 
is uncertain whether the Company can continue as a going concern.  The 
Company is actively pursuing collaborations with potential partners in both 
the pharmaceutical and nutraceutical divisions with the objective of raising 
financing to enable the Company to continue operations.  As of March 30,  
1999 the Company does not have any commitments for financing.  On March 22,  
1999, the Company obtained a 10% loan for $100,000.  The loan is due and 
payable on March 22,  2000,  and is secured by a pledge of the company's 
assets.  It is anticipated that this loan will enable the Company to continue 
operating until the summer of 1999,  at which time it is anticipated that 
additional funds will have been raised through strategic collaborations,  
which in turn should allow the Company to generate further revenues.  The 
Company does not have any lease or other commitments,  other than a lease on 
a secondary office which expires on April 30,  1999.  The Company does not 
have an existing bank line of credit or other form of revolving or renewable 
credit facility.  There can be no assurance the company will generate revenue 
during 1999,  or that funds will be available through the public or private 
markets.
 
PLAN OF OPERATION

     During the 12 month period following the balance sheet date, the Company 
intends to focus substantially all of its efforts and resources on research 
and development related to the study of targeted antioxidant therapeutics, 
gene discovery and nutraceuticals. Most of these efforts will involve 
development of its potential products, and the remainder will involve other 
current projects developed from its ongoing research. During such 12 month 
period, the Company expects to retain additional staff,  and lease additional 
facilities as the demands of the business requires. The Company will also 
continue discussions with 


                                        20
<PAGE>

potential collaborative partners concerning development, manufacture and 
marketing of anti-oxidant pharmaceutical compounds, epitope tagging, 
CD-Tagging-TM-, nutraceuticals and possibly other potential products which 
may include joint ventures and acquisitions.

ITEM 7.   FINANCIAL STATEMENTS

The financial statements of the Company and other information required by this
item are set forth herein in a separate section beginning with the Index to the
Financial Statements on page F1.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not applicable

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
          FINANCIAL DISCLOSURE:

None.
                                          
                                      PART III
         
ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
          COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

The information required by Item 9 of Form 10-K SB is incorporated by 
reference to the information contained in the section captioned "Election of 
Directors" and "Compliance with Section 16(a) of the Exchange Act" in the 
Registrants definitive proxy statement for the Annual Meeting of Shareholders 
("Proxy Statement") to be filed with the Commission on or before April 30, 
1998.

ITEM 10.  EXECUTIVE COMPENSATION.

The information required by Item 10 of Form 10-K SB is incorporated by 
reference to the information contained in the section captioned "Executive 
Compensation" in the Proxy Statement to be filed with the Commission on or 
before April 30, 1998.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required by Item 11 of Form 10-K SB is incorporated by 
reference to the information contained in the section captioned "Security 
Ownership of Certain Beneficial Owners and Management" in the Proxy Statement 
to be filed with the Commission on or before April 30, 1998.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by Item 12 of Form 10-K SB is incorporated by 
reference to the information contained in the section captioned "Certain 
Relationships and Related Transactions" in the Proxy Statement to be filed 
with the Commission on or before April 30, 1998.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

Exhibit 23.1:  Consent of Ernst & Young LLP


                                        21
<PAGE>

                                     SIGNATURES
                                          
     In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has duly caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                       VYREX CORPORATION
                                       Registrant
                                  
                                  
                                       By: /s/ SHELDON S. HENDLER
                                            Sheldon S. Hendler,
                                            President, Chief Executive Officer,
                                            and Chairman of the Board
                                  
                                  
                                       By: /s/ MARTIN MALK
                                            Martin Malk,
                                            Chief Financial Officer
                                  
Date: March 29, 1999

     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Sheldon S. Hendler, as his or her true and lawful
attorney-in-fact and agents, with full power of substitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same offering covered
by this Registration Statement, and to sign any registration statement for the
same offering covered by this Registration Statement that is to be effective
upon filing pursuant to Rule 462(b) promulgated under the Securities Act of
1933, and all post-effective amendments thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agents, or their substitutes
may lawfully do or cause to be done by virtue hereof.

     In accordance with the Exchange Act, this Report has been SIGNED by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.

       Signature                Title                                Date
       ---------                -----                                ----

/s/ CARL M. LEWIS           General Counsel, Secretary           March 29, 1999
------------------------    and Director
Carl M. Lewis               

/s/ JOYCE M. HENDLER        Director                             March 29, 1999
------------------------    
Joyce M. Hendler         

/s/ DENNIS J. CARLO         Director                             March 29, 1999
------------------------    
Dennis J. Carlo          

/s/ NOLAN E. PENN           Director                             March 29, 1999
------------------------    
Nolan E. Penn       

/s/ GREGORY F. GILBERT      Director                             March 29, 1999
------------------------    
Gregory F. Gilbert


                                        22
<PAGE>

                                Vyrex Corporation
                        (a development stage enterprise)





                          Index to Financial Statements


Report of Ernst & Young, LLP, Independent Auditors................F-2
Balance Sheets....................................................F-4
Statements of Operations..........................................F-5
Statements of Stockholders' Equity (Net Capital Deficiency).......F-6
Statements of Cash Flows..........................................F-8
Notes to Financial Statements.....................................F-9


                                       F-1
<PAGE>


               Report of Ernst & Young LLP, Independent Auditors


The Board of Directors and Stockholders
Vyrex Corporation

We have audited the accompanying balance sheets of Vyrex Corporation (a 
development stage enterprise) as of December 31, 1998 and 1997, and the 
related statements of operations, stockholders' equity (net capital 
deficiency) and cash flows for the years then ended, and for the period from 
January 2, 1991 (inception) through December 31, 1998. These financial 
statements are the responsibility of the Company's management. Our 
responsibility is to express an opinion on these financial statements based 
on our audits. The financial statements for the period from January 2, 1991 
(inception) through December 31, 1995, were audited by other auditors whose 
report dated February 9, 1996 expressed an unqualified opinion on those 
statements. The financial statements for the period January 2, 1991 
(inception) through December 31, 1995 include total revenues and net loss of 
$310,000 and $3,408,199, respectively. Our opinion on the statements of 
operations, stockholders' equity (net capital deficiency) and cash flows for 
the period January 2, 1991 (inception) through December 31, 1995, insofar as 
it relates to amounts for prior periods through December 31, 1995, is based 
solely on the report of other auditors.

We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits and the report 
of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the 
financial statements referred to above present fairly, in all material 
respects, the financial position of Vyrex Corporation (a development stage 
enterprise) at December 31, 1998 and 1997, and the results of its operations 
and its cash flows for the years then ended and the period from January 2, 
1991 (inception) through December 31, 1998 in conformity with generally 
accepted accounting principles.

The accompanying financial statements have been prepared assuming that the 
Company will continue as a going concern. As more fully described in Note 1, 
the Company has incurred recurring operating losses, has a working capital 
deficiency and has a net capital

                                       F-2
<PAGE>



deficiency. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classifications of liabilities that
may result from the outcome of this uncertainty.


                                                               ERNST & YOUNG LLP


San Diego, California
March 15, 1999,
except for Note 10, as to which the date is
March 29, 1999

                                        F-3
<PAGE>

                                Vyrex Corporation
                        (a development stage enterprise)

                                 Balance Sheets

<TABLE>
<CAPTION>
                                                                                      DECEMBER 31
                                                                                 1998             1997
                                                                             ------------     ------------
<S>                                                                          <C>              <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                 $     80,007     $  2,041,339
   Short-term investments, available-for-sale                                           -        1,013,575
   Other assets                                                                    24,979          117,341
                                                                             ------------     ------------
Total current assets                                                              104,986        3,172,255

Furniture and equipment, net of accumulated depreciation 
   of $107,037 in 1998 and $71,495 in 1997                                         79,903          105,810

Notes receivable from related parties                                              32,117           49,506
Debt issue costs                                                                        -          119,147

Patents, trademarks and copyrights, net of accumulated 
   amortization and impairment charges totaling $140,219
   in 1998 and $24,449 in 1997                                                          -          115,770
                                                                             ------------     ------------
Total assets                                                                 $    217,006       $3,562,488
                                                                             ------------     ------------
                                                                             ------------     ------------

LIABILITIES AND STOCHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) 
Current liabilities:
   Accounts payable and accrued liabilities                                  $    279,570     $    627,583
   Deferred revenue                                                               100,000          100,000
                                                                             ------------     ------------
Total current liabilities                                                         379,570          727,583

Convertible debentures, net including accrued interest                                  -          950,278

Stockholders' equity (net capital deficiency):
   Preferred stock, $.001 par value; 10,000,000 shares authorized; 
     none issued                                                                        -                -
   Common stock, $.001 par value; 50,000,000 shares authorized; 
     7,423,455 and 7,121,409 issued and outstanding in 1998 and 
     1997, respectively
                                                                                    7,423            7,121
   Additional paid-in capital                                                  11,743,078       10,402,159
   Deficit accumulated during the development stage                           (11,913,065)      (8,524,653)
                                                                             ------------     ------------
Total stockholders' equity (net capital deficiency)                              (162,564)       1,884,627
                                                                             ------------     ------------
Total liabilities and stockholders' equity (net capital deficiency)          $    217,006     $  3,562,488
                                                                             ------------     ------------
                                                                             ------------     ------------
</TABLE>

SEE ACCOMPANYING NOTES.

                                        F-4
<PAGE>



                                Vyrex Corporation
                        (a development stage enterprise)

                            Statements of Operations

<TABLE>
<CAPTION>
                                                                                         CUMULATIVE
                                                      YEARS ENDED DECEMBER 31               FROM
                                                      1998               1997             INCEPTION
                                                   -----------        -----------       ------------
<S>                                                <C>                <C>               <C>
Licensing and royalty revenue                      $     1,600        $         -       $    311,600

Operating expenses:
   Research and development                          1,779,009          1,946,925          6,119,719
   Marketing and selling                               206,523            221,570            428,093
   General and administrative                        1,443,719          1,303,876          4,745,143
                                                   -----------        -----------       ------------
Total operating expenses                             3,429,251          3,472,371         11,292,955
                                                   -----------        -----------       ------------

Loss from operations                                (3,427,651)        (3,472,371)       (10,981,355)

Other income (expense):
   Interest income                                      65,748            196,038            464,206
   Interest expense                                    (26,509)           (19,507)           (46,016)
   Charge from issuance of stock options for
     bridge financing                                        -                  -         (1,349,900)
                                                   -----------        -----------       ------------
Totals other income (expense)                           39,239            176,531           (931,710)
                                                   -----------        -----------       ------------
Net loss                                           $(3,388,412)       $(3,295,840)      $(11,913,065)
                                                   -----------        -----------       ------------
                                                   -----------        -----------       ------------

Net loss per share - basic and diluted             $     (0.46)       $     (0.46)      $      (1.88)
                                                   -----------        -----------       ------------
                                                   -----------        -----------       ------------
Shares used in per share computations                7,357,211          7,121,332          6,342,001
                                                   -----------        -----------       ------------
                                                   -----------        -----------       ------------
</TABLE>

SEE ACCOMPANYING NOTES.

                                        F-5
<PAGE>

                                Vyrex Corporation
                        (a development stage enterprise)

           Statements of Stockholders' Equity (Net Capital Deficiency)

                       From inception to December 31, 1998

<TABLE>
<CAPTION>
                                                                                    COMMON STOCK           ADDITIONAL 
                                                                              ------------------------      PAID-IN   
                                                                                SHARES         AMOUNT       CAPITAL   
                                                                              ---------        -------    ----------- 
   <S>                                                                        <C>              <C>        <C>
   Issuance (at $.002 per share) for acquisition of technology           
     retroactively reduced for 150,000 shares returned and retired on
     October 1, 1995                                                          3,350,000        $ 3,350    $     3,350 
   Issuance (at $.002 per share) for cash                                       500,000            500            500 
   Issuance (at $1.00 per share) for cash                                       800,000            800        799,200 
   Issuance as compensation (at $1.00 per share)                                 32,500             33         32,467 
   Issuance (at $2.00 per share) upon conversion of note payable                100,000            100        199,900 
   Issuance (at $3.00 per share) for cash, net of issuance costs of $4,086       33,000             33         94,881 
   Net loss                                                                           -              -              - 
                                                                              ---------        -------    ----------- 

Balance at December 31, 1993                                                  4,815,500          4,816      1,130,298 
   Issuance (at $3.00 per share) for cash, net of issuance costs of $21,000      99,000             99        275,901 
   Issuance (at $3.00 per share) in lieu of finder's fee                          7,000              7         20,993 
   Issuance (at $3.00 per share) in lieu of finder's fee                          5,000              5         14,995 
   Issuance (at $3.00 per share) for cash, net of issuance costs of $41,844      24,990             25         33,101 
   Net loss                                                                           -              -              - 
                                                                              ---------        -------    -----------
                                                                                                                      
Balance at December 31, 1994                                                  4,951,490          4,952      1,475,288 
   Issuance (at $3.00 per share) for cash, net of issuance costs of $46,976     149,940            150        402,694 
   Issuance (at $3.00 per share) in settlement of account payable                 6,041              6         18,117 
   Issuance (at par value) as compensation for services related to prior
     issuances of common stock                                                   83,000             83            (83)
   Issuance (at $3.00 per share) as compensation for services related to
     offering                                                                    13,334             13         39,989 
   Issuance (at $3.00 per underlying share) of options for 450,000
     shares as compensation for arranging bridge financing                            -              -      1,349,900 
   Net loss                                                                           -              -              - 
                                                                              ---------        -------    ----------- 

Balance at December 31, 1995                                                  5,203,805          5,204      3,285,905 
   Proceeds from initial public offering (at $6.50 per unit), net of
     issuance costs of $1,135,453                                             1,057,097          1,057      5,734,620 
   Sale of option to purchase 300,000 shares at $3.00 per share                       -              -         50,000 
   Exercise of stock options (at $3.00 per share) for cash                      300,000            300        899,700 
   Conversion of notes payable and related accrued interest (at $3.00
     per share)                                                                  86,015             86        257,959 
   Exercise of stock options (at $.00022 per share) for cash                    450,000            450           (350)
   Issuance of units as compensation for legal services (at $4.55 per
     share)                                                                      24,292             24        110,505 
   Net loss                                                                           -              -              - 
                                                                              ---------        -------    -----------
Balance at December 31, 1996                                                  7,121,209          7,121     10,338,339 

<CAPTION>
                                                                                DEFICIT           TOTAL 
                                                                              ACCUMULATED     STOCKHOLDERS'
                                                                              DURING THE       EQUITY (NET
                                                                              DEVELOPMENT        CAPITAL
                                                                                 STAGE         DEFICIENCY)
                                                                              -----------    ------------
   <S>                                                                        <C>            <C>
   Issuance (at $.002 per share) for acquisition of technology
     retroactively reduced for 150,000 shares returned and retired on
     October 1, 1995                                                          $         -    $      6,700 
   Issuance (at $.002 per share) for cash                                                           1,000 
   Issuance (at $1.00 per share) for cash                                               -         800,000 
   Issuance as compensation (at $1.00 per share)                                        -          32,500 
   Issuance (at $2.00 per share) upon conversion of note payable                        -         200,000 
   Issuance (at $3.00 per share) for cash, net of issuance costs of $4,086              -          94,914 
   Net loss                                                                    (1,085,932)     (1,085,932)
                                                                              -----------    ------------

Balance at December 31, 1993                                                   (1,085,932)         49,182 
   Issuance (at $3.00 per share) for cash, net of issuance costs of $21,000             -         276,000 
   Issuance (at $3.00 per share) in lieu of finder's fee                                -          21,000 
   Issuance (at $3.00 per share) in lieu of finder's fee                                -          15,000 
   Issuance (at $3.00 per share) for cash, net of issuance costs of $41,844             -          33,126 
   Net loss                                                                      (467,683)       (467,683)
                                                                              -----------    ------------

Balance at December 31, 1994                                                   (1,553,615)        (73,375)
   Issuance (at $3.00 per share) for cash, net of issuance costs of $46,976             -         402,844 
   Issuance (at $3.00 per share) in settlement of account payable                       -          18,123 
   Issuance (at par value) as compensation for services related to prior                                  
     issuances of common stock                                                          -               - 
   Issuance (at $3.00 per share) as compensation for services related to
     offering                                                                           -          40,002 
   Issuance (at $3.00 per underlying share) of options for 450,000                                        
     shares as compensation for arranging bridge financing                              -       1,349,900 
   Net loss                                                                    (1,854,584)     (1,854,584)
                                                                              -----------    ------------ 

Balance at December 31, 1995                                                   (3,408,199)       (117,090)
   Proceeds from initial public offering (at $6.50 per unit), net of                                      
     issuance costs of $1,135,453                                                       -       5,735,677 
   Sale of option to purchase 300,000 shares at $3.00 per share                         -          50,000 
   Exercise of stock options (at $3.00 per share) for cash                              -         900,000 
   Conversion of notes payable and related accrued interest (at $3.00
     per share)                                                                         -         258,045 
   Exercise of stock options (at $.00022 per share) for cash                            -             100 
   Issuance of units as compensation for legal services (at $4.55 per
     share)                                                                             -         110,529 
   Net loss                                                                    (1,820,614)     (1,820,614)
                                                                              -----------    ------------ 

Balance at December 31, 1996                                                   (5,228,813)      5,116,647 
</TABLE>

(CONTINUED)
SEE ACCOMPANYING NOTES.

                                        F-6
<PAGE>

<TABLE>
<CAPTION>
                                                                                    COMMON STOCK           ADDITIONAL 
                                                                              ------------------------      PAID-IN   
                                                                                SHARES         AMOUNT       CAPITAL   
                                                                              ---------        -------    ----------- 
<S>                                                                           <C>              <C>        <C>
Balance at December 31, 1996                                                   7,121,209          7,121     10,338,339
   Exercise of warrants, 200 shares at $8.00 per share                               200              -          1,600
   Warrants issued in conjunction with debenture offering                              -              -         62,220
   Net loss                                                                            -              -              -
                                                                               ---------        -------    -----------

Balance at December 31, 1997                                                   7,121,409          7,121     10,402,159
   Issuance of stock as partial consideration for placement of debentures          8,000              8         49,992
   Issuance of stock on conversion of debentures                                 227,222            227        807,414
   Issuance of shares upon cashless exercise of stock options                     66,824             67        396,513
   Issuance of 375,000 stock options for services                                      -              -         87,000
   Net loss                                                                            -              -              -
                                                                               ---------        -------    -----------
Balance at December 31, 1998                                                   7,423,455        $ 7,423    $11,743,078
                                                                               ---------        -------    -----------
                                                                               ---------        -------    -----------

<CAPTION>

                                                                                DEFICIT           TOTAL              
                                                                              ACCUMULATED     STOCKHOLDERS'          
                                                                              DURING THE       EQUITY (NET           
                                                                              DEVELOPMENT        CAPITAL             
                                                                                 STAGE         DEFICIENCY)
                                                                              -----------    ------------
   <S>                                                                        <C>            <C>
Balance at December 31, 1996                                                   (5,228,813)      5,116,647 
   Exercise of warrants, 200 shares at $8.00 per share                                  -           1,600 
   Warrants issued in conjunction with debenture offering                               -          62,220 
   Net loss                                                                    (3,295,840)     (3,295,840)
                                                                              -----------    ------------ 
Balance at December 31, 1997                                                   (8,524,653)      1,884,627 
   Issuance of stock as partial consideration for placement of debentures               -          50,000 
   Issuance of stock on conversion of debentures                                        -         807,641 
   Issuance of shares upon cashless exercise of stock options                           -         396,580 
   Issuance of 375,000 stock options for services                                       -          87,000 
   Net loss                                                                    (3,388,412)     (3,388,412)
                                                                              -----------    ------------ 
Balance at December 31, 1998                                                 $(11,913,065)   $   (162,564)
                                                                             ------------    ------------ 
                                                                             ------------    ------------ 
</TABLE>

SEE ACCOMPANYING NOTES.


                                        F-7

<PAGE>

                                Vyrex Corporation
                        (a development stage enterprise)

                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                             CUMULATIVE
                                                          YEARS ENDED DECEMBER 31,              FROM
                                                          1998               1997             INCEPTION
                                                       -----------        -----------       ------------
<S>                                                    <C>                <C>               <C>
OPERATING ACTIVITIES
Net loss                                               $(3,388,412)       $(3,295,840)      $(11,913,065)
Adjustments to reconcile net loss to net cash
   used in operating activities:
   Depreciation, amortization and impairment               160,602             35,815            266,724
     charges
   Interest receivable                                      17,854             33,631              3,506
   Loss on disposal of fixed assets                          7,366                  -              7,366
   Issuance of compensatory notes, stock and
     stock options                                         483,580                  -          2,044,632
   Other assets                                             92,362            (17,341)            75,021
   Accounts payable and accrued liabilities               (348,013)           122,937            279,574
   Accrued interest on convertible debentures                    -              9,041              9,041
                                                       -----------        -----------       ------------
Net cash used in operating activities                   (2,974,661)        (3,111,757)        (9,227,201)
                                                       -----------        -----------       ------------

INVESTING ACTIVITIES
Purchase of short-term investments                               -         (3,499,227)        (8,440,442)
Sale of short-term investments                           1,025,736          4,393,830          8,467,931
Purchases of furniture and equipment                       (32,290)           (68,655)          (209,595)
Proceeds on sale of fixed assets                             6,000                  -              6,000
Patent, trademark, and copyrights costs                          -                  -           (133,519)
Other assets, including notes receivable from
   related parties                                               -            263,798            (50,202)
                                                       -----------        -----------       ------------
Net cash provided by (used in) investing activities        999,446          1,089,746           (359,827)
                                                       -----------        -----------       ------------

FINANCING ACTIVITIES
Net proceeds from issuance of common stock                       -              1,600          7,429,208
Exercise of stock options and sale of options                    -                  -            950,100
Proceeds from issuance of convertible debentures                 -            873,844            873,844
Proceeds from note payable                                  13,883                  -            413,883
Advances from potential investors                                -                  -            100,000
Repayment of advances                                            -                  -           (100,000)
                                                       -----------        -----------       ------------
Net cash provided by financing activities                   13,883            875,444          9,667,035
                                                       -----------        -----------       ------------

Net increase (decrease) in cash and cash                (1,961,332)        (1,146,567)            80,007
   equivalents

Cash and cash equivalents, beginning of the  period      2,041,339          3,187,906                  -
                                                       -----------        -----------       ------------
Cash and cash equivalents, end of the period           $    80,007        $ 2,041,339       $     80,007
                                                       -----------        -----------       ------------
                                                       -----------        -----------       ------------

SUPPLEMENTAL CASH FLOW INFORMATION
Conversion of notes payable and related accrued
   interest                                            $         -        $         -       $    258,045
                                                       -----------        -----------       ------------
                                                       -----------        -----------       ------------
Issuance of stock as consideration for
   conversion of debentures                            $   857,641        $         -       $    857,641
                                                       -----------        -----------       ------------
                                                       -----------        -----------       ------------
Issuance of stock upon cashless exercise of
   stock option                                        $   396,580        $         -        $   396,580
                                                       -----------        -----------       ------------
                                                       -----------        -----------       ------------
Stock options issued for services                      $    87,000        $         -        $    87,000
                                                       -----------        -----------       ------------
                                                       -----------        -----------       ------------
Warrants issued in connection with convertible
   debentures                                          $         -        $    62,220        $    62,220
                                                       -----------        -----------       ------------
                                                       -----------        -----------       ------------
</TABLE>

SEE ACCOMPANYING NOTES.


                                        F-8
<PAGE>


                                Vyrex Corporation
                        (a development stage enterprise)

                          Notes to Financial Statements

                                December 31, 1998


1. BASIS OF PRESENTATION AND THE COMPANY

BASIS OF PRESENTATION

The accompanying financial statements have been prepared assuming that the 
Company will continue as a going concern. This basis of accounting 
contemplates the recovery of the Company's assets and the satisfaction of its 
liabilities in the normal course of business. As of December 31, 1998, the 
Company has an accumulated deficit of $11,913,065, net capital deficiency of 
$162,564 and negative working capital of $272,584. Due to the Company's 
recurring losses and net capital deficiency, there can be no assurance that 
the Company will be able to obtain additional operating capital, which may 
impact the Company's ability to continue as a going concern. The accompanying 
financial statements do not include any adjustments to reflect the possible 
future effects on the recoverability and classification of assets or the 
amounts and classification of liabilities that may result from the possible 
inability of the Company to continue as a going concern.

The Company is seeking collaborative or other arrangements with larger 
pharmaceutical and nutraceutical companies, under which such companies would 
provide additional capital to the Company in exchange for exclusive or 
non-exclusive licensees or other rights to certain of the technologies and 
products the Company is developing. Competition for corporate partnering 
arrangements with major pharmaceutical and nutraceutical companies is 
intense, with a large number of biopharmaceutical companies attempting to 
arrive at such arrangements. Accordingly, although the Company is presently 
engaged in discussions with a number of candidate companies, there can be no 
assurance that an agreement will arise from these discussions in a timely 
manner, or at all, or that any agreement that may arise from these 
discussions will successfully reduce the Company's short-term or long-term 
funding requirements.

The Company's major activities through December 31, 1998 have been limited to 
conducting research and development related to its proposed products and 
raising funds for such activities. These activities have not generated any 
recurring revenues; accordingly, the Company has been in the development 
stage since its inception. Successful completion of the Company's development 
program and its transition, ultimately, to attaining profitable operations is 
dependent upon obtaining additional financing adequate to fulfill its 
research and development activities, and achieving a level of revenue 
adequate to support the Company's cost structure. There can be no assurance


                                     F-9
<PAGE>



                                Vyrex Corporation
                        (a development stage enterprise)

                    Notes to Financial Statements (continued)


1. BASIS OF PRESENTATION AND THE COMPANY (CONTINUED)

that the Company will be successful in these areas. To supplement its 
existing resources, the Company will require additional capital through the 
sale of debt or equity. There can be no assurance that such capital will be 
available on favorable terms, or at all, and if additional funds are raised 
by issuing equity securities, dilution to existing stockholders is likely to 
result.

THE COMPANY

Vyrex Corporation (the "Company") was incorporated on January 2, 1991 in the 
State of Nevada. The Company's operations focus primarily on the discovery 
and development of biopharmaceuticals for the treatment and prevention of 
various disorders including AIDS, respiratory diseases, cancer and aging and 
it is involved in various stages of the investigation and development of 
several potential therapeutic products. The Company is using contractors for 
manufacturing and testing of the products it is developing and is seeking 
strategic partners to market and distribute them. Management expects the 
Company to continue to use contractors and strategic partners until such 
time, if any, that it has sufficient resources to conduct such activities on 
its own.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consists of cash and highly liquid U.S. Government 
Securities with remaining maturities, when acquired, of three months or less.

SHORT-TERM INVESTMENTS

Short-term investments classified as available-for-sale consist of U.S. 
Government Securities and are carried at amounts which approximate fair 
value. As of December 31, 1997, the difference between amortized cost and the 
estimated fair value of investments was not material. Realized gains and 
losses and declines in value judged to be other-than temporary, if any, in 
available-for-sale securities are included in interest income. The cost of 
securities is based on the specific identification method.

FURNITURE AND EQUIPMENT

Furniture and equipment are stated at cost. Depreciation is provided using 
the straight- line method over the estimated useful lives of the assets which 
range from 3 to 5 years.


                                        F-10
<PAGE>



                                Vyrex Corporation
                        (a development stage enterprise)

                    Notes to Financial Statements (continued)


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PATENTS, TRADEMARKS AND COPYRIGHTS

Certain costs of filing for patents, trademarks and copyrights are 
capitalized as incurred. Such costs are amortized on a straight-line basis 
over the lesser of their statutory lives or estimated useful lives commencing 
on the date of issuance.

INTEREST EXPENSE

Interest expense includes the amortization of debt discount and debt issuance 
cost.

IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived 
Assets to Be Disposed Of", the Company records impairment losses on 
long-lived assets used in operations when indicators of impairment are 
present and the undiscounted cash flows estimated to be generated by those 
assets are less than the assets' carrying amount. In December 1998, the 
Company recorded an impairment loss on patents totaling approximately 
$107,000 due to indicators of impairment resulting from the net capital 
deficiency. The impairment loss is reflected in general and administrative 
expenses.

STOCK OPTIONS

Statement of Financial Accounting Standards ("SFAS") No. 123, ACCOUNTING FOR 
STOCK-BASED COMPENSATION, establishes the use of the fair value based method 
of accounting for stock-based compensation arrangements, under which 
compensation cost is determined using the fair value of stock-based 
compensation determined as of the grant date, and is recognized over the 
periods in which the related services are rendered. The statement also 
permits companies to elect to continue using the implicit value accounting 
method specified in Accounting Principles Board Opinion No. 25 to account for 
stock-based compensation. The Company has elected to retain the implicit 
value based method, and has disclosed the pro forma effect of using the fair 
value based method to account for its stock-based compensation to employees 
and directors of the Company.

Options granted to consultants are valued based on the fair value of the 
consideration received or the fair value of the equity instruments issued, 
whichever is more reliably measurable, and expensed over the term of the 
consulting agreement.


                                        F-11
<PAGE>

                                Vyrex Corporation
                        (a development stage enterprise)

                    Notes to Financial Statements (continued)


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

NET LOSS PER SHARE

Net loss per share is computed using the weighted-average number of common 
shares outstanding during the periods presented. Shares issuable upon 
conversion of preferred stock and upon exercise of outstanding stock options 
and warrants are not included since the effect would be antidilutive.

NEW ACCOUNTING PRONOUNCEMENTS

During 1998, the Company adopted SFAS 130, REPORTING COMPREHENSIVE INCOME. 
SFAS 130 establishes new rules for the reporting and display of comprehensive 
income and its components; however, the adoption of this statement has no 
impact on the Company's net loss or stockholders' equity. SFAS 130 requires 
unrealized gains or losses on the Company's available-for-sale securities and 
foreign currency translation adjustments. The Company did not have any 
components of comprehensive income at December 31, 1998 or 1997.

During 1998, the Company adopted SFAS 131, SEGMENT INFORMATION. SFAS 131 
amends the requirements for public enterprise to report financial and 
descriptive information about its reportable operating segments. The Company 
currently operates in one business and operating segment and the adoption of 
this standard did not have a material impact on the Company's financial 
statements as reported.

3.  FURNITURE AND EQUIPMENT

Furniture and equipment consist of the following:

<TABLE>
<CAPTION>
                                                  DECEMBER 31,
                                              1998             1997
                                           ---------         ---------
<S>                                        <C>               <C>
Office furniture and equipment             $ 120,611         $ 119,593
Laboratory equipment                          66,329            57,712
                                           ---------         ---------
                                             186,940           177,305
Less accumulated depreciation                107,037            71,495
                                           ---------         ---------
Total                                      $  79,903         $ 105,810
                                           ---------         ---------
                                           ---------         ---------
</TABLE>

Depreciation expense was $44,832 and $17,100 for the years ended December 31, 
1998 and 1997, respectively.


                                        F-12
<PAGE>

                                Vyrex Corporation
                        (a development stage enterprise)

                    Notes to Financial Statements (continued)

4. RELATED PARTY TRANSACTIONS

NOTES RECEIVABLE

On December 23, 1996, the Company loaned $50,000 to its then Vice President,
Chemistry. The loan was in the form of a secured note bearing 7% interest, with
principal and interest payable on demand. The loan was repaid in full in January
1999.

EMPLOYMENT AGREEMENT

Dr. Sheldon Hendler, the Company's Chairman and CEO entered into a one year 
employment agreement on October 1, 1995. The agreement automatically renews 
on the anniversary date for an additional year unless previously terminated 
by the Company. Dr. Hendler's salary under the agreement is set by the Board 
of Directors and is currently $226,013 per year. The Company has the right to 
terminate Dr. Hendler's employment agreement for cause or as a result of 
death or permanent disability. In certain events relating primarily to merger 
or reorganization and similar changes in the nature of the Company, Dr. 
Hendler is entitled to continue his employment or voluntarily terminate the 
agreement and receive a severance payment of 2.99 times his annual average 
salary and fringe benefits during the five years preceding the date of 
termination.

5.  WARRANTS

As of December 31, 1998, the Company had outstanding warrants to purchase a 
total of 1,156,701 shares of common stock. 1,139,701 of the warrants with an 
exercise price of $8.00 will expire on January 31, 2000 and the remaining 
17,000 warrants with an exercise price of $7.50 will expire on November 6, 
2000. The warrants are subject to adjustments in the event of stock splits, 
stock dividends and similar events.

6. LICENSE AND COLLABORATION AGREEMENTS

On October 7, 1997, the Company entered into an agreement with Retired 
Persons Services, Inc. (RPS), the entity which administers the AARP Pharmacy 
Service. The agreement called for the Company to provide $100,000 worth of 
dietary supplement products. The Company designed and contract manufactured 
pilot batches of the products and initiated safety and stability studies. RPS 
will manufacture the final product and pay the Company royalty based on 
sales. The Company recorded $100,000 of deferred revenue since the amount 
represents an advance against royalties.



                                        F-13
<PAGE>

                                Vyrex Corporation
                        (a development stage enterprise)

                    Notes to Financial Statements (continued)

6. LICENSE AND COLLABORATION AGREEMENTS (CONTINUED)

On August 1, 1997, the Company entered into a collaboration agreement with 
The Immune Response Corporation, Inc. to develop treatments for spinal cord 
and other central nervous system traumas. The agreement calls for a 50/50 
split of any funds raised or profits realized in connection with the venture. 
As part of the agreement, the Company licensed its CD-Tagging technology to 
The Immune Response Corporation for use in the research and development on 
products within the scope of the venture of the treatments mentioned above.

7. DEBENTURES

On November 6, 1997, the Company entered into two securities purchase 
agreements (the "Debenture Agreements') with two investors (the "Debenture 
Holders') and pursuant thereto, the Company issued each Debenture Holder a 
debenture in the amount of $500,000 (the "Initial Debenture"), resulting in 
proceeds, net of $125,156 of issuance costs of $873,844. The debentures were 
converted to common stock in 1998.

8.  INCOME TAXES

At December 31, 1998, the Company had net operating loss carryforwards 
available to reduce future taxable income, if any, of approximately 
$15,760,000 and $13,126,000 for federal and California income tax purposes, 
respectively. The federal net operating loss begins to expire in 2006. 
California net operating losses of approximately $386,000 expired in 1998 and 
will continue to expire in 1999. The difference between the federal and 
California tax loss carryforwards is primarily related to the expiration of 
California loss carryforwards and capitalization of research and development 
expenditures for California tax purposes. At December 31, 1998, the Company 
also had research and development credit carryforwards of approximately 
$459,000 and $234,000 for federal and state income tax reporting purposes, 
respectively. Pursuant to Internal Revenue Code Sections 382 and 383 use of 
the Company's net operating loss and credit carryforwards may be limited if a 
cumulative change in ownership of more than 50% occurs with in a three year 
period.


                                        F-14
<PAGE>

                                Vyrex Corporation
                        (a development stage enterprise)

                    Notes to Financial Statements (continued)

8.  INCOME TAXES (CONTINUED)

Temporary differences between the carrying amounts of assets and liabilities 
for financial reporting purposes and the amounts used for income tax purposes 
(the loss and tax credit carryforwards described above) give rise to the 
Company's deferred income taxes. The components of the Company's deferred tax 
assets as of December 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                          1998             1997
                                                      -----------       ----------- 
<S>                                                   <C>               <C>
Net operating loss carryforwards                      $ 6,271,000       $ 4,349,000
Research and development credit carryforwards             612,000           452,000
Other                                                     117,000                 -
                                                      -----------       ----------- 
                                                        7,000,000         4,801,000
Valuation allowance                                    (7,000,000)       (4,801,000)
                                                      -----------       ----------- 
                                                      -----------       ----------- 
                                                      $         -       $         -
                                                      -----------       ----------- 
                                                      -----------       ----------- 
</TABLE>

A valuation allowance has been recorded against the deferred tax assets as the
ultimate realization of these assets is uncertain.

9.  STOCK OPTION PLAN

The Company's 1993 Stock Option Plan (the "Plan") was adopted by the Board of
Directors in February 1994. Pursuant to the Plan, the Company may grant both
incentive stock options and nonstatutory stock options. Incentive stock options
may be granted only to employees, while consultants, employees, officers and
directors are eligible for the grant of nonstatutory options. The total number
of shares of common stock of the Company reserved and available for grant under
the Plan is 2,875,000 shares.

The maximum term of stock options granted under the Plan is ten years, but if
the optionee at the time of the grant has voting power over more than 10% of the
Company's outstanding capital stock, the maximum term is five years. The
exercise price of incentive stock options granted under the Plan must be at
least equal to the fair market value of such shares on the date of grant. The
exercise price of nonstatutory stock options granted under the Plan must be at
least 85%, or 110% with respect to holders of 10% of the voting power of the
Company's outstanding capital stock, of the fair market value of the stock
subject to the option on the date of the grant.


                                        F-15
<PAGE>

                                Vyrex Corporation
                        (a development stage enterprise)

                    Notes to Financial Statements (continued)

9.  STOCK OPTION PLAN (CONTINUED)

Activity with respect to the stock option plan is summarized as follows:

<TABLE>
<CAPTION>
                                                                                          WEIGHTED-
                                         SHARES        STOCK                               AVERAGE
                                       AVAILABLE      OPTIONS          OPTION EXERCISE     EXERCISE
                                       FOR GRANT    OUTSTANDING             PRICE           PRICE
                                      --------------------------------------------------------------
<S>                                     <C>           <C>             <C>                   <C>
Balance at December 31, 1996              916,191     1,958,809       $3.00  -   $7.50      $3.01
   Granted                               (658,800)      658,800       $6.00  -  $10.25      $3.01
   Canceled                             1,021,400    (1,021,400)      $3.00  -   $7.13      $3.01
                                        ---------    ----------                      
Balance at December 31, 1997            1,278,791     1,596,209       $3.00  -   $8.63      $4.26
   Granted                               (962,000)      962,000       $0.41  -   $5.97      $1.64
   Exercised                              134,441      (134,441)      $5.50  -   $5.94      $5.94
   Canceled                               577,509      (577,509)      $3.00  -   $8.65      $2.91
                                        ---------    ----------
Balance at December 31, 1998            1,028,741     1,846,259
                                        ---------    ----------
                                        ---------    ----------
</TABLE>

Following is a further breakdown of the options outstanding as of December 31,
1998:

<TABLE>
<CAPTION>
                                                                                            
                                                                                               WEIGHTED-   
                                          WEIGHTED-                                             AVERAGE    
      RANGE OF                             AVERAGE          WEIGHTED-                        EXERCISE PRICE
      EXERCISE          OUTSTANDING       REMAINING          AVERAGE            OPTIONS        OF OPTIONS  
      PRICES              OPTIONS       LIFE IN YEARS     EXERCISE PRICE     EXERCISABLE       EXERCISABLE 
------------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S>                 <C>               <C>               <C>               <C>               <C>
$0.41 - $0.53             425,000           9.77              0.44              150,000           0.44
        $3.00             617,968           3.61              3.00              577,874           3.00
$5.63 - $7.60             803,291           9.08              5.87              677,768           5.87
                    ----------------- ----------------- ----------------- ----------------- -----------------
                        1,846,259           7.41              3.66            1,405,842           3.66
                    ----------------- ----------------- ----------------- ----------------- -----------------
                    ----------------- ----------------- ----------------- ----------------- -----------------
</TABLE>

The Company has elected to follow Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25). Under APB 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of the grant, no compensation expense is
recognized. Pro forma information regarding net loss and loss per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of SFAS 123. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions: risk-free
interest rate of 6.0%; divided yield of 0%; the volatility factor of the
expected market price of the Company's common stock of 145% and 78% in 1998 and
1997, respectively and a weighted-average expected life of the options of 60
months.

                                        F-16

<PAGE>

                                Vyrex Corporation
                        (a development stage enterprise)

                    Notes to Financial Statements (continued)

9.  STOCK OPTION PLAN (CONTINUED)

The Black-Scholes option valuation model was developed for use in estimating 
the fair value of traded options which have no vesting restrictions and are 
fully transferable. In addition, option valuation models require the input of 
highly subjective assumptions including the expected stock price volatility. 
Because the Company's employee stock options have characteristics 
significantly different from those of traded options, and because changes in 
the subjective input assumptions can materially affect the fair value 
estimate, in management's opinion, the existing models do not necessarily 
provide a reliable single measure of the fair value of its employee stock 
options. For purposes of pro forma disclosures, the estimated fair value of 
the options is amortized to expense over the options' vesting period. The 
Company's pro forma information follows (in thousands except for earnings per 
share information).

<TABLE>
<CAPTION>
                                            1998              1997
                                      ----------------- -----------------
<S>                                       <C>               <C>
Pro forma net loss                        $(4,577,000)      $(4,079,000)
Pro forma net loss per share              $    (0.62)       $    (0.57)
</TABLE>


The weighted-average fair value of options granted in 1998 and 1997 is $2.73 
and $5.36, respectively.

The pro forma effect on net loss for 1998 and 1997 is not representative of 
the pro forma effect on net loss in future years because it does not take 
into consideration pro forma compensation expense related to grants made 
prior to 1995.

10. SUBSEQUENT EVENT

In March 1999, the Company received $100,000 through the issuance of a note 
payable to an individual. The loan accrues interest at 10% and matures in 
March 2000.



                                        F-17