UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


(X)     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000

                                       OR

( )     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934


        Commission File Number:     0-21022



                          Shaman Pharmaceuticals, Inc.
             (Exact name of registrant as specified in its charter)

                Delaware                                  94-3095806
      (State or other jurisdiction of       (IRS Employer Identification Number)
      incorporation or organization)

   213 East Grand Avenue, South San Francisco, California          94080
      (Address of principal executive offices)                   (ZIP Code)

        Registrant's telephone number, including area code: 650-952-7070


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                         Yes    X           No


Number of shares of Common Stock, $.001 par value, outstanding as of July 31,
2000:  88,381,206

<PAGE>

                          SHAMAN PHARMACEUTICALS, INC.

                               INDEX FOR FORM 10-Q

                                  JUNE 30, 2000

                                                                           PAGE
                                                                          NUMBER
                                                                          ------

PART I         FINANCIAL INFORMATION

Item 1.        Financial Statements and Notes

               Condensed Balance Sheets as of June 30, 2000 (unaudited)
               and December 31, 1999                                          3

               Condensed Statements of Operations for the three months
               and six months ended June 30, 2000 and June 30, 1999
               (unaudited)                                                    4

               Condensed Statements of Cash Flows for the six months
               ended June 30, 2000 and June 30, 1999 (unaudited)              5

               Notes to Condensed Financial Statements                        6

Item 2.        Management's Discussion and Analysis of
               Financial Condition and Results of Operations                  8

Item 3.        Quantitative and Qualitative Disclosures About Market Risk    11


PART II        OTHER INFORMATION

Item 1.        Legal Proceedings                                             20

Item 2.        Changes in Securities; Use of proceeds                        20

Item 3.        Defaults in Senior Securities                                 20

Item 4.        Submission of Matters to a Vote of Security Holders           20

Item 5.        Other Information                                             20

Item 6.        Exhibits and Reports on Form 8-K                              20


SIGNATURES                                                                   21

                                       2
<PAGE>

     All information contained in this Report on Form 10-Q reflects a 1-for-20
reverse stock split of the common stock effected on June 22, 1999 and a 1-for-50
reverse stock split of the common stock effected on January 31, 2000.


PART I   FINANCIAL INFORMATION

      Item 1.  Financial Statements and Notes

<TABLE>
<CAPTION>

                                                    SHAMAN PHARMACEUTICALS, INC.
                                                      CONDENSED BALANCE SHEETS


                                                                                               June 30,                December 31,
                                                                                                 2000                      1999
                                                                                             ------------              ------------
                                                                                              (Unaudited)
<S>                                                                                          <C>                       <C>

                                   A S S E T S

   Current assets:
     Cash and cash equivalents .................................................            $     631,940             $   1,171,798
     Restricted cash ...........................................................                  214,186                        --
     Accounts receivable (net allowance for uncollectible accounts of $196,000
       as of June 30, 2000 and of $116,000 as of December 31, 1999).............                  194,313                   337,537
     Other accounts receivable .................................................                  315,775                        --
     Inventory .................................................................                1,771,729                 1,718,491
     Amounts due from employees ................................................                  142,373                   153,392
     Prepaid debt issuance cost ................................................                1,067,916                        --
     Prepaid expenses and other current assets .................................                  555,549                   127,662
                                                                                            -------------             -------------
                          Total current assets .................................                4,893,781                 3,508,880

   Property and equipment, net .................................................                1,487,484                 1,818,712
   Other assets ................................................................                  248,080                   308,080
                                                                                            -------------             -------------
         Total assets ..........................................................             $  6,629,345              $  5,635,672
                                                                                            =============             =============


          LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)

   Current liabilities:
     Accounts payable and other accrued expenses ...............................             $    920,098              $  1,528,746
     Accrued clinical trial costs ..............................................                  544,339                   585,040
     Accrued professional fees .................................................                  798,374                   888,553
     Accrued compensation ......................................................                  175,613                   202,207
     Accrued interest ..........................................................                  458,026                   334,863
     Accrued restructuring costs ...............................................                1,010,000                 1,010,000
     Current installments of long-term obligations .............................                2,019,019                 1,927,366
                                                                                            -------------             -------------
         Total current liabilities .............................................                5,925,469                 6,476,775

   Long-term obligations, excluding current installments .......................                1,065,614                 1,194,991
   Stockholders' equity (net capital deficiency):
     Preferred Stock ...........................................................                       25                       877
     Common Stock ..............................................................                   82,301                     1,584
     Additional paid-in capital ................................................              194,182,018               176,594,549
     Deferred compensation and other adjustments ...............................               (1,023,507)                  (14,691)
     Accumulated deficit .......................................................             (193,602,575)             (178,618,413)
                                                                                            -------------             -------------
         Total stockholders' equity (net capital deficiency)....................                 (361,738)               (2,036,094)
                                                                                            -------------             -------------
         Total liabilities and stockholders' equity (net capital deficiency)....             $  6,629,345              $  5,635,672
                                                                                            =============             =============
</TABLE>

NOTE: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.

   See Notes to Condensed Financial Statements.

                                       3
<PAGE>


<TABLE>
<CAPTION>

                                                  SHAMAN PHARMACEUTICALS, INC.
                                               CONDENSED STATEMENTS OF OPERATIONS
                                                         (UNAUDITED)


                                                                            Three Months                    Six Months Ended
                                                                            Ended June 30,                      June 30,
                                                                    -----------------------------     -----------------------------
                                                                        2000              1999            2000              1999
                                                                    -----------       -----------     ------------      -----------
<S>                                                               <C>               <C>              <C>              <C>

  Revenues:
     Product Sales ............................................... $     29,757      $         --     $     82,626     $         --

  Operating expenses:
     Cost of goods sold ..........................................        8,500                --           21,866               --
     Research and development ....................................    1,049,043         1,181,204        2,042,204        3,649,322
     Marketing, general and administrative........................    2,272,275         1,324,954        3,493,410        2,818,739
     Restructuring costs                                                     --          (136,199)              --        2,052,658
                                                                   ------------      ------------     ------------     ------------
         Total operating expense .................................    3,329,818         2,369,959        5,557,480        8,520,719

  Loss from operations ..........................................    (3,300,061)       (2,369,959)      (5,474,854)      (8,520,719)

     Interest income .............................................       26,431            16,455           42,624           90,333
     Interest expense (cash) .....................................     (116,285)         (137,842)        (269,804)        (328,410)
     Interest expense (non-cash) .................................   (3,921,908)          (72,641)      (6,802,069)        (141,248)
                                                                   ------------      ------------     ------------     ------------
  Net (loss)......................................................   (7,311,823)       (2,563,987)     (12,504,103)      (8,900,044)
  Preferred Stock dividends ......................................       (1,539)               --       (2,480,059)      (2,273,614)
                                                                   ------------      ------------     ------------     ------------
  Net loss applicable to common stockholders ..................... $ (7,313,362)     $ (2,563,987)    $(14,984,162)    $(11,173,658)
                                                                   ============      ============     ============     ============

  Basic and diluted net loss per common share.....................        (0.12)           (53.43)           (0.35)         (275.07)

  Shares used in the calculation of basic
     and diluted net loss per common share........................   61,662,884            47,987       42,939,679           40,621

</TABLE>

     See Notes to Condensed Financial Statements.

                                       4
<PAGE>

<TABLE>
<CAPTION>

                                                  SHAMAN PHARMACEUTICALS, INC.
                                               CONDENSED STATEMENTS OF CASH FLOWS
                                         Increase (Decrease) in Cash and Cash Equivalents
                                                         (Unaudited)

                                                                                           Six Months Ended June 30,
                                                                                     ------------------------------------
                                                                                          2000                 1999
                                                                                     -------------        ---------------
<S>                                                                                 <C>                     <C>

Operating activities:

Net loss .......................................................................     $ (12,504,103)         $  (8,900,044)
Adjustments to reconcile net loss applicable to Common Stockholders
     to net cash used in operating activities:
   Depreciation ................................................................            337,744               400,518
   Non-cash interest expense on amortization of debt discounts and
       beneficial conversions ...................................................         6,788,122               193,268
   Payment of interest in Common Stock .........................................             13,947                33,248
   (Gain) on disposal of fixed assets ..........................................                 --               (14,502)
   Other stock-based compensation expense ......................................             53,430                    --
   Payment of consulting expenses in Common Stock ..............................            955,019                    --
Changes in operating assets and liabilities:
   Restricted cash .............................................................           (214,186)                   --
   Trade accounts receivable ...................................................            142,918                    --
   Other accounts receivable ...................................................           (315,469)                   --
   Inventory ...................................................................            (53,238)                   --
   Prepaid expenses, current assets and other assets ...........................            656,844               (26,746)
   Accounts payable, accrued professional fees, accrued compensation,
       accrued clinical trial costs and contract research advances .............           (555,178)              298,100
                                                                                       ------------          ------------
Net cash used in operating activities ..........................................         (4,694,150)           (8,016,158)

Investing activities:
   Sales of available-for-sale investments .....................................                 --             3,292,259
   Proceeds on sale of fixed assets due to restructuring .......................                 --               658,325
   Capital expenditures ........................................................             (6,516)              (86,972)
   Employee loans, net of repayments and forgiveness of interest................             11,019                34,885
                                                                                       ------------          ------------
Net cash provided by investing activities ......................................              4,503             3,898,497
                                                                                       ------------          ------------
Financing activities:
  Other Preferred Stock costs ..................................................            (18,143)              (26,015)
  Proceeds from exercise of stock options and warrants .........................            721,098                    --
  Principal payments on long-term obligations ..................................           (787,602)           (1,226,609)
  Proceeds from the issuance of convertible promissory notes ...................          4,234,436                    --
                                                                                       ------------          ------------
Net cash provided by (used in) financing activities ............................          4,149,789            (1,252,624)
                                                                                       ------------          ------------
Net increase (decrease) in cash and cash equivalents ...........................           (539,858)           (5,370,285)
Cash and cash equivalents at beginning of period ...............................          1,171,798             5,887,496
                                                                                       ------------          ------------
Cash and cash equivalents at end of period .....................................      $     631,940         $     517,211
                                                                                       ============          ============
</TABLE>

     See Notes to Condensed Financial Statements.

                                       5
<PAGE>


                          SHAMAN PHARMACEUTICALS, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

                                  June 30, 2000
                                   (Unaudited)


1.    BASIS OF PRESENTATION

     The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation have been included. The results of operations for the interim
periods shown herein are not necessarily indicative of operating results for the
entire year. This unaudited financial data should be read in conjunction with
the audited financial statements and notes thereto included in our Annual Report
on Form 10-K and 10-K/A for the fiscal year ended December 31, 1999.

     These unaudited interim financial statements have been prepared assuming
that we will continue as a going concern. We need substantial working capital to
fund our operations. As of June 30, 2000, we had cash and cash equivalents of
approximately $632,000. Our long-term capital requirements will depend on
numerous factors, including among others, the extent and progress of additional
development activities related to the botanicals products, the success of any
marketing efforts related to the botanicals products, the success of any
out-licensing efforts with respect to the pharmaceuticals programs and the
extent and timing of additional costs associated with patents and other
intellectual property rights. Our projections show that cash on hand plus the
additional $400,000 received in August 2000 for exercise of warrants will be
sufficient to fund operations at the current level through the third quarter
2000. There are an additional $1.4 million of warrants potentially exercisable
through end August 2000. Unless we are successful in our efforts to sell or
out-license our pharmaceutical products or to sell or establish collaborative
agreements to sell our botanical products, we will be unable to fund our current
operations beyond the third quarter 2000. In addition, unless we are successful
in our efforts to sell or out-license our pharmaceutical products, or to sell or
establish collaborative agreements to sell our botanical products, our cash
resources will be used to satisfy our existing liabilities, including a default
payment on a leasehold improvement financing, and we will be unable to fund our
operations, which may result in significant delay of our planned activities or
the cessation of operations. Even if we are successful in these efforts to raise
additional funds, such funds may not be adequate to fund our operations on a
long-term basis.

     We will need to obtain additional funding through public or private equity
or debt financing, collaborative agreements or from other sources to continue
our research and development activities, fund operating expenses and
commercialize products. If we raise additional funds by issuing equity
securities, current stockholders may experience significant dilution. If we
obtain additional funds through collaborative agreements, we may be required to
relinquish rights to certain of our technologies, product candidates, products
or marketing territories that we would otherwise seek to develop or
commercialize ourselves. We may be unable to obtain adequate financing on
acceptable terms when needed. If we are unable to obtain adequate funds, we may
be required to reduce significantly our spending and delay, scale back or
eliminate one or more of our research, development or commercialization
programs, which would have a material adverse effect on our business, financial
condition and results of operations.

2.    ISSUANCE OF CONVERTIBLE PROMISSORY NOTES AND WARRANTS

     In February 2000, Shaman and a wholly-owned subsidiary of Shaman (the
"Subsidiary") entered into a convertible note and warrant purchase agreement
(the "Note Agreement") with certain investors (the "Note Holders") in connection
with a bridge loan financing raising cash proceeds of approximately $3.0
million. Interest on the convertible notes (the "Notes") was accrued at a rate
of 12% per annum. The principal amount and accrued interest was to automatically
convert at the sole election of the Note Holders on April 30, 2000 into (i)
shares of Shaman's Common Stock with a conversion price of $0.497 per share or
(ii) capital stock of the Subsidiary sold in the first equity financing raising
at least $5.0 million. Warrants were issued in an amount equivalent to 40% of
the dollar value of each Note Holders' loan participation. The exercise price of
the warrants is equal to the conversion price of the Notes. These warrants are
exercisable through April 2005. In March 2000, Shaman and the Note Holders
amended the Note Agreement to increase the amount of the Notes to be issued from
$3.0 million to $4.0 million. In consideration for amending the Note Agreement,
we amended the conversion price of the Notes into Shaman's Common Stock from a
conversion price of $0.497 to the lower of (i) $0.497 per share or (ii) 10 days
weighted average price, with a floor of $0.30 per share. In April 2000, Shaman
further amended the Note Agreement to increase the amount of the Notes to be
issued from $4.0 million to a total of $5.5 million. In consideration for such


                                       6
<PAGE>

amendment, we further reduced the conversion price of the Notes such that the
unpaid principal and accrued interest automatically converted into Shaman's
Common Stock with a conversion price of $0.15 per share. The Note Holders
received additional warrants to purchase shares of Common Stock equal to 50% of
the dollar value of their loan participation with an exercise price of $0.10 per
share, which warrants are exercisable through August 30, 2000. Of the $5.5
million raised, we issued approximately $3.5 million to investors for cash and
approximately $2.0 million to creditors and consultants of Shaman in exchange
for services rendered. The initial sale and subsequent sale of such Notes and
warrants gave rise to a total of $5.5 million non-cash interest expense due to
the value of the warrants and beneficial conversion features. In May 2000, the
Notes and all accrued interest thereon, a total of $5,587,781, were converted
into 37,251,874 shares of Shaman's Common Stock.

     In February 2000, Shaman and the Subsidiary entered into a convertible
promissory note agreement with an existing stockholder in connection with a
bridge loan financing raising cash proceeds of $500,000. Interest was accrued at
a rate of 12% per annum. The principal amount and accrued interest was to be
automatically converted at a 40% discount on April 30, 2000 into capital stock
of the Subsidiary sold in the first equity financing raising at least $5.0
million. In April 2000, Shaman and the stockholder amended the agreement to
extend payment terms by an additional 12 months. In consideration for amending
the agreement, we issued warrants to this stockholder to purchase 5,000,000
shares of Shaman's Common Stock at an exercise price of $0.10 per share. These
warrants are exercisable through April 30, 2001. The sale of such note and
warrant gave rise to a total of $1.8 million in financing costs due to the value
of the warrants and beneficial conversion features, of which $714,000 was
amortized to interest expense as of June 30, 2000.

3.    SUBSEQUENT EVENT

          WORLDWIDE LICENSING AGREEMENT

     In July 2000, Shaman entered into an exclusive worldwide licensing
agreement with General Nutrition Corporation ("GNC") to market our Normal Stool
Formula ("NSF") as an anti-diarrheal dietary supplement product in the health
and specialty retail store channels. GNC also markets NSF through its alliance
with Rite Aid Corporation in 500 plus store-in-store locations and through
Drugstore.com. Shaman will retain the right to sell, market and distribute NSF
under its own brand through direct sell channels.

                                       7
<PAGE>


                          SHAMAN PHARMACEUTICALS, INC.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

OVERVIEW

     Shaman Pharmaceuticals, Inc. is focused on the discovery, development and
marketing of novel, proprietary botanical dietary supplements derived from
tropical plant sources. By isolating active compounds from tropical plants with
a history of medicinal use, we have identified, and have available, a number of
candidates for botanical and pharmaceutical products, some with potentially
novel mechanisms of actions. The Company also provides cultural educational
programs with rainforest communities. The Company was incorporated in Delaware
on December 21, 1992 and maintains its offices in South San Francisco,
California.

     In September 1999, we began implementing our commercialization efforts with
the launch of our first product. Our current and planned products are targeted
at specific communities of consumers. Our commercialization plans include
outreach efforts to existing communities of consumers of our products and the
identification and building of communities among potential consumers. These
outreach efforts can include presentations in medical journals, attendance at
peer group sessions and direct marketing to physicians, case managers,
nutritionists and other healthcare providers.

     We are also actively involved in seeking corporate partners for the further
commercialization of our proprietary botanical products. Such collaboration may
take the form of a partnership, licensing relationship, distribution agreement
or other marketing arrangements. We recently entered into an exclusive worldwide
licensing agreement with a leader in the specialty retail segment to market our
NSF product as an anti-diarrheal dietary supplement product in health and
specialty retail store channels. In addition, we recently completed a
direct-sell cable program for the promotion and sale of our Normal Stool Formula
IB product (NSF-IB), a line extension of NSF, on television to the estimated 50
million U.S. sufferers of recurrent diarrhea.

     We anticipate that Shaman will provide information, education and
entertainment over the channels of the Internet, cable and television. Such
efforts are intended to create and reinforce the brand identity of Shaman and
generate non-product related revenues. As an example of such community content
efforts, we recently expanded our web site to include original content
information about Syndrome X, a cluster of metabolic disorders that can lead to
a heart attack. In a short period of time, the Syndrome X community installed
consumer base has grown to several thousand names and email addresses, with the
potential to reach many more. We expect to expand and syndicate customized
content information to other health-oriented and employee wellness web sites as
well. We are also celebrating our relationships with rainforest communities with
our education program known as Bara's Rainforest Adventure Program. This is a
cultural enrichment program available to young children in public and private
schools.


RESULTS OF OPERATIONS FOR THE QUARTERS ENDED JUNE 30, 2000 AND 1999

     Net sales from our first botanical dietary supplement product, NSF, were
approximately $30,000 for the quarter ended June 30, 2000. These sales were
predominantly direct sales by Shaman. As part of our Wholesale Distribution
Agreement with Cardinal Distribution ("Cardinal"), Shaman agreed to exclusively
distribute NSF to Medicine Shoppe retailers and certain HIV specialty pharmacies
for a period of six months. This exclusivity expired on June 15, 2000.
Cardinal's purchases in the fourth quarter 1999 were to fill the Medicine Shoppe
distribution channel. Since the wholesale distribution agreement expired, we are
free to expand distribution and sales of NSF to other retailers. As of July
2000, Shaman entered into a worldwide licensing agreement with GNC to distribute
NSF in the health and specialty retail store channels, which increase our retail
distribution by 500% going forward. We plan to turn inventory through sales to
Cardinal, GNC and other distribution channels. NSF was available via Internet
and 800 telephone channels starting July 30, 1999, but limited promotional
support for NSF began in late September 1999.

     We incurred research and development expenses of $1.0 million and $1.2
million for the quarters ended June 30, 2000 and 1999, respectively, and $2.0
million and $3.6 million for the six months ended June 30, 2000 and 1999,
respectively. Of the total research and development expenses incurred in the six
months ended June 30, 1999, $1.6 million was related to research and development
of the botanical business. The decrease from the June 30, 1999 to June 30, 2000
was primarily attributable to the wind-up of our pharmaceutical business, which
occurred in the first quarter of 1999. We believe research and development
expenses will vary in 2000 as we develop and commercialize new botanical
products in the second half of the year. We plan to introduce a new weight loss
product containing a proprietary ingredient from our library of 2,600 plant
species.

     Marketing, general and administrative expenses were $2.3 million and $1.3
million for the quarters ended June 30, 2000 and 1999, respectively and $3.5
million and $2.8 million for the six months ending June 30, 2000 and 1999,
respectively. The increase was primarily attributable to production of the


                                       8
<PAGE>

direct-sell cable program for the NSF-IB Product. Marketing, general and
administrative expenses are expected to increase in 2000 as we continue to focus
our efforts in our botanicals business and continue to promote NSF and other
future product candidates.

     Interest income was $26,000 and $16,000 for the quarters ended June 30,
2000 and 1999, respectively, and $43,000 and $90,000 for the six months ended
June 30, 2000 and 1999, respectively. Cash interest expense was $116,000 and
$210,000 for the quarters ended June 30, 2000 and 1999, respectively, and
$270,000 and $470,000 for the six months ended June 30, 2000 and 1999,
respectively. An additional $3.9 million and $6.8 million in non-cash interest
expense was incurred in connection with the issuance of convertible promissory
notes and warrants for the quarter and six months ended June 30, 2000.


RESTRUCTURING EXPENSES

     On February 1, 1999, we initiated a restructuring plan in which we
wound-up the operations of our pharmaceutical business. We now intend to
out-license worldwide marketing rights to all of our pharmaceutical compounds
and focus our efforts on the development and commercialization of botanical
dietary supplements. The restructuring plan included: cessation of
pharmaceutical research and development activities and related operations;
outlicensing of all of our current pharmaceutical research programs; reduction
in force of approximately 60 employees (65% of workforce); sale or disposal of
all of our fixed assets that are not needed for our botanicals business; and the
sub-lease of a portion of our facility.

     The termination of 60 employees occurred on February 1, 1999. The following
table summarizes the Company's restructuring activities as of June 30, 2000.


 <TABLE>
<CAPTION>
                                                                                                       Accrued
                                                               Total        Net Cash                  Balance at
                                                           Restructuring    Outflow       Non-Cash     June 30,
               Category                                       Charges       (Inflow)        Items        2000
    ---------------------------------------------------------------------------------------------------------------
<S>                                                          <C>            <C>           <C>           <C>
     Severance and related charges......................     $    325       $   325       $    --       $    --
     Cancellation of contracts .........................        1,310           300            --         1,010
     Lipha S.A. settlement of claims....................        1,031         1,031            --            --
     Gain on disposal of fixed assets...................          (38)          (38)           --            --
     Reversal of estimated liabilities
       related to pharmaceutical operations.............         (450)           --          (450)           --
                                                             --------      --------       -------       -------
                                                             $  2,178      $  1,618       $  (450)      $ 1,010
                                                             ========      ========       =======       =======
</TABLE>


LIQUIDITY AND CAPITAL RESOURCES

     As of June 30, 2000, our cash and cash equivalents totaled approximately
$632,000, compared with $1.2 million at December 31, 1999. We invest excess cash
according to our investment policy which provides guidelines with regard to
liquidity, type of investment, credit ratings and concentration limits.

     In April 2000, Cardinal Distribution provided Shaman with a $214,000
Marketing Loan to provide incremental market support for sales of Shaman's
Normal Stool Formula at Medicine Shoppe pharmacies across the country. The loan
is due in September 2000 and the interest rate is ten percent (10%) per annum.
The loan is secured by a Certificate of Deposit and is classified on the balance
sheet as restricted cash.

     In February 2000, Shaman and the Subsidiary entered into a convertible note
and warrant purchase agreement (the "Note Agreement") with certain investors
(the "Note Holders") in connection with a bridge loan financing raising cash
proceeds of approximately $3.0 million. Interest on the convertible promissory
notes (the "Notes") was accrued at a rate of 12% per annum. The principal amount
and accrued interest was to automatically convert at the sole election of the
Note Holders on April 30, 2000 into (i) shares of Shaman's Common Stock with a
conversion price of $0.497 per share or (ii) capital stock of the Subsidiary
sold in the first equity financing raising at least $5.0 million. Warrants were
issued in an amount equivalent to 40% of the dollar value of each Note Holders'
loan participation. The exercise price of the warrants is equal to the
conversion price of the Notes. These warrants are exercisable through April
2005. In March 2000, Shaman and the Note Holders amended the Note Agreement to
increase the amount of the Notes to be issued from $3.0 million to $4.0 million.
In consideration for amending the Note Agreement, we amended the conversion
price of the Notes into Shaman's Common Stock from a conversion price of $0.497
to the lower of (i) $0.497 per share or (ii) 10 days weighted average


                                       9
<PAGE>

price, with a floor of $0.30 per share. In April 2000, Shaman further amended
the Note Agreement to increase the amount of the Notes to be issued from $4.0
million to a total of $5.5 million. In consideration for such amendment, we
further reduced the conversion price of the Notes such that the unpaid principal
and accrued interest automatically converted into Shaman's Common Stock with a
conversion price of $0.15 per share. The Note Holders received additional
warrants to purchase shares of Common Stock equal to 50% of the dollar value of
their loan participation with an exercise price of $0.10 per share, which
warrants are exercisable through August 30, 2000. Of the $5.5 million raised, we
issued approximately $3.5 million to investors for cash and approximately $2.0
million to creditors and consultants of Shaman in exchange for services
rendered. The initial sale and subsequent sale of such notes and warrants gave
rise to a total of $5.5 million non-cash interest expense due to the value of
the warrants and beneficial conversion features. In May 2000, the Notes and all
accrued interest thereon, a total of $5,587,781, were converted into 37,251,874
shares of Shaman's Common Stock.

     In February 2000, Shaman and the Subsidiary entered into a convertible
promissory note agreement with an existing stockholder in connection with a
bridge loan financing raising cash proceeds of $500,000. Interest was accrued at
a rate of 12% per annum. The principal amount and accrued interest was to be
automatically converted at a 40% discount on April 30, 2000 into capital stock
of the Subsidiary sold in the first equity financing raising at least $5.0
million. In April 2000, Shaman and the stockholder amended the agreement to
extend payment terms by an additional 12 months. In consideration for amending
the agreement, we issued warrants to this stockholder to purchase 5,000,000
shares of Shaman's Common Stock at an exercise price of $0.10 per share. These
warrants are exercisable through April 30, 2001. The sale of such note and
warrant gave rise to a total of $1.8 million non-cash interest charge due to the
value of the warrants and beneficial conversion features, of which $714,000 was
amortized to interest expense as of June 30, 2000.

     We expect to continue to incur losses through 2000. We need substantial
working capital to fund our operations. As of June 30, 2000, we had cash and
cash equivalents of approximately $632,000. Our long-term capital requirements
will depend on numerous factors, including among others, the extent and progress
of additional development activities related to the botanicals products, the
success of any marketing efforts related to the botanicals products, the success
of any out-licensing efforts with respect to the pharmaceuticals programs and
the extent and timing of additional costs associated with patents and other
intellectual property rights. Our projections show that cash on hand and the
additional $400,000 received in August 2000 for exercise of warrants will be
sufficient to fund operations at the current level through the third quarter
2000. There are an additional $1.4 million of warrants potentially exercisable
through end August 2000. Unless we are successful in our efforts to sell or
out-license our pharmaceutical products, or to sell or establish collaborative
agreements to sell our botanical products, we will be unable to fund our current
operations beyond the third quarter 2000. In addition, unless we are successful
in our efforts to raise additional capital through offerings of equity
securities, to sell or out-license our pharmaceutical products or to sell or
establish collaborative agreements to sell our botanical products, our cash
resources will be used to satisfy our existing liabilities, including a default
payment on a leasehold improvement financing, and we will be unable to fund our
operations, which may result in significant delay of our planned activities or
the cessation of operations. Even if we are successful in these efforts to raise
additional funds, such funds may not be adequate to fund our operations on a
long-term basis. Our auditors have included a paragraph in their report on the
audited financial statements as of and for the year ended December 31, 1999,
indicating that substantial doubt exists as to our ability to continue as a
going concern.

     We will need to obtain additional funding through public or private equity
or debt financing, collaborative agreements or from other sources to continue
our research and development activities, fund operating expenses and prepare for
commercialization of products. If we raise additional funds by issuing equity
securities, current stockholders may experience significant dilution. If we
obtain additional funds through collaborative agreements, we may be required to
relinquish rights to certain of our technologies, product candidates, products
or marketing territories that we would otherwise seek to develop or
commercialize ourselves. We may be unable to obtain adequate financing on
acceptable terms when needed. If we are unable to obtain adequate funds, we may
be required to reduce significantly our spending and delay, scale back or
eliminate one or more of our research, development or commercialization
programs, which would have a material adverse effect on our business, financial
condition and results of operations.


PER SHARE DATA

     Net loss per share is computed using the weighted average number of shares
of common stock outstanding. The impact of stock options and other common stock
equivalents have been excluded from the computation in all years presented as
they are antidilutive. At June 30, 2000, we had substantial options, convertible
preferred stock and convertible warrants outstanding which will further dilute
our stockholders' loss per share.

                                       10
<PAGE>

YEAR 2000 COMPLIANCE

     We have completed the assessment of all internal information technology and
non-information technology systems that could be significantly affected by Year
2000 issues. We have incurred approximately $10,000 related to Year 2000 issue
compliance and completed our internal Year 2000 readiness program in December
1999. We also completed the querying of our significant suppliers and
subcontractors regarding their Year 2000 remediation activities. To date, we are
not aware of any external agent with a Year 2000 Issue that would materially
impact our results of operations, liquidity or capital resources. However, we
have no means of ensuring that external agents were Year 2000 ready. The
inability of external agents to complete their Year 2000 resolutions to process
in a timely fashion could materially impact us.

     We did not experience nor do we currently anticipate any material adverse
effects on our business, results of operations or financial condition as a
result of Year 2000 issues involving its internal use systems, third party
products nor any of its software products. Costs incurred in readying for Year
2000 uncertainties, including contingency planning and remediation efforts were
expensed as incurred. We do not anticipate any material costs remaining in
connection with Year 2000 uncertainties.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

     Our primary market risks include fluctuations in interest rates,
variability in interest rate spread relationships (i.e., Prime to LIBOR
spreads).

     We believe that fluctuations in interest rates and currency exchange rates
in the near term would not materially affect our consolidated operating results,
financial position or cash flows as we have limited risks related to interest
rate fluctuations.

                                       11
<PAGE>

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

     This Form 10-Q contains, in addition to historical information,
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, 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 and also in "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and elsewhere in our
Form 10-K and Form 10-K/A for the fiscal year ended December 31, 1999.


RISKS ASSOCIATED WITH OUR BUSINESS

IF WE DO NOT RAISE SIGNIFICANT ADDITIONAL CAPITAL, WE WILL BE UNABLE TO FUND
CONTINUING OPERATIONS AND WILL LIKELY BE FORCED TO CEASE OPERATIONS

     We need substantial working capital to fund our operations. As of June 30,
2000, we had cash and cash equivalents of approximately $632,000. Our short and
long-term capital requirements will depend on numerous factors, including among
others, the extent and progress of additional development activities related to
the botanical products, the success of any marketing efforts related to the
botanical products and the success of any out-licensing efforts with respect to
the pharmaceutical programs. Our projections show that cash on hand and the
additional $400,000 received in August 2000 for exercise of warrants will be
sufficient to fund operations at the current level through the third quarter
2000. Unless we are successful in our efforts to sell or out-license our
pharmaceutical products, or to sell or establish collaborative agreements to
sell our botanical products, we will be unable to fund our current operations
beyond the third quarter 2000. In addition, unless we are successful in our
efforts to raise additional capital through offerings of equity securities, to
sell or out-license our pharmaceutical products, or to sell or establish
collaborative agreements to sell our botanical products, our cash resources will
be used to satisfy our existing liabilities, and we will therefore be unable to
fund our operations, which may result in significant delay of our planned
activities or the cessation of operations. Even if we are successful in these
efforts to raise additional funds, such funds may not be adequate to fund our
operations on a long-term basis.

     We will need to obtain additional funding through public or private equity
or debt financing, collaborative agreements or from other sources to continue
our research and development activities, fund operating expenses and prepare for
commercialization of products. If we raise additional funds by issuing equity
securities, current stockholders may experience significant dilution. If we
obtain additional funds through collaborative agreements, we may be required to
relinquish rights to certain of our technologies, product candidates, products
or marketing territories that we would otherwise seek to develop or
commercialize ourselves. We may be unable to obtain adequate financing on
acceptable terms, if at all. If we are unable to obtain adequate funds, we may
be required to reduce significantly our spending and delay, scale back or
eliminate one or more of our research, development or commercialization
programs, or cease operations altogether, which would have a material adverse
effect on our business, financial condition and results of operations. Our
auditors have included a paragraph in their report indicating that substantial
doubt exists as to our ability to continue as a going concern.


WE HAVE A HISTORY OF OPERATING LOSSES, EXPECT CONTINUING LOSSES AND MAY NEVER
ACHIEVE PROFITABILITY

     We have incurred significant losses in each year since our founding in 1989
and expect to continue to incur losses for the foreseeable future. We incurred a
net loss of approximately $12.5 million (of which $6.8 million was non-cash
interest expense) for the six months ended June 30, 2000 and an additional
deemed dividends of $2.5 million incurred in connection with the issuance of
Series R Preferred Stock and issuance of convertible promissory notes and
warrants. As of June 30, 2000, our accumulated deficit was approximately $193.6
million.

     If we are to become and remain profitable, we will first need to, among
other things, generate product revenues. We have not generated any significant
product sales to date. We have changed the direction of our operations and are
pursuing a new business model in the botanical dietary supplement industry. In
the second half of 2000, we intend to out-license our proprietary botanical
product to mass-market partners and focus on the content, education and media
business. We are also exploring other botanical dietary supplement products for
development and commercial introduction. In order to generate revenues or
profits, we must successfully market NSF and other products or enter into
collaborative agreements with others who can successfully market them. NSF and
any other products we may introduce may not achieve market acceptance and we may
not achieve profitability. Our auditors have included a paragraph in their
report on our financial statements included in our annual report on Form 10-K
indicating that substantial doubt exists as to our ability to continue as a
going concern.

     Our pharmaceutical product candidates and compounds are still in the
research and development stage and we have ceased all our pharmaceutical
operations. In order to generate revenues from these products, we must
out-license these product candidates. It is possible that our out-licensing


                                       12
<PAGE>

efforts may not be successful and that our licensees or we may not obtain
required regulatory approvals. Even if our product candidates are developed and
introduced, they may not be successfully marketed or may not achieve market
acceptance or we may not achieve profitability.


IF WE ARE NOT SUCCESSFUL IN TRANSITIONING INTO THE BOTANICAL DIETARY
BUSINESS, WE MAY NEVER ACHIEVE REVENUES OR PROFITABILITY

     We have transitioned our operations from pharmaceutical product development
to botanical dietary supplement development and commercialization. We have no
experience in this new industry segment and must create a new business model.
Some skills and relationships developed over time may not be transferable to our
new business. While we have been working with natural products since our
inception, we have no prior experience manufacturing or marketing dietary
supplements. We have no experience running a business with product sales. We may
not be successful in these activities and may never generate revenues or
profitability from our botanical business.

     Our botanical products are at various stages of development, ranging from
initial research to final formulation. We will need to conduct additional
research and development to move our product candidates toward
commercialization. Our research and development efforts on potential products
may not lead to development of products that we can successfully commercialize.
In addition, we may not be able to produce our products in commercial quantities
at acceptable costs or to market and sell our products successfully. Our
products may also prove to have undesirable or unintended side effects that may
prevent or limit their commercial use. Accordingly, we may curtail, redirect,
suspend or eliminate our product development or commercialization at any time.


IF THIRD PARTY MANUFACTURERS ON WHOM WE RELY FAIL TO PERFORM THEIR SERVICES, OUR
SUPPLY OF PRODUCTS WOULD BE DELAYED AND POSSIBLY DISRUPTED

     We currently produce products only in pilot scale quantities and do not
have the staff or facilities necessary to manufacture products in commercial
quantities. Therefore, we must rely on collaborative partners or third party
manufacturing facilities. We may not be successful in entering into third party
manufacturing arrangements on acceptable terms, if at all. In addition, should
our third party manufacturers or we encounter delays or difficulties in
producing, packaging and distributing our finished products, our market
introduction and subsequent sales of our products could be adversely affected.

     Contract manufacturers must conform to certain Good Manufacturing Practices
regulations for foods on an ongoing basis. Our dependence on third parties for
the manufacture of our products may adversely affect our ability to develop and
deliver products on a timely and competitive basis.


SINCE WE HAVE ONLY A LIMITED MARKETING STAFF, WE MAY NEVER ACHIEVE ADEQUATE
SALES AND REVENUES TO ACHIEVE PROFITABILITY

     We currently have minimal marketing staff. If we are unable to successfully
establish, execute and finance a complete marketing plan for our first product,
NSF, or subsequent products, we may not achieve a successful product entry into
the marketplace and may fail to achieve adequate sales and revenues from our
botanical products to achieve profitability. It is unlikely we would ever
achieve profitability if our first product is not successfully marketed and
sold.


IF WE FAIL TO COMPETE IN THE INTENSELY COMPETITIVE BOTANICAL DIETARY SUPPLEMENT
INDUSTRY, WE MAY NEVER ACHIEVE PROFITABILITY

     The dietary supplement business is highly competitive and is characterized
by significant pressure on pricing and heavy commitment of marketing resources
for commodity products. Although our products are proprietary, we may face
competition from companies developing and marketing new commercial products that
have or claim to have similar functionality. Our failure to successfully compete
for customers would inhibit our future growth, revenues and profitability.


GOVERNMENT REGULATION OF DIETARY SUPPLEMENTS COULD INCREASE OUR COSTS OR
PROHIBIT OR LIMIT SALES OF OUR PRODUCTS

     The manufacturing, processing, formulating, packaging, labeling and
advertising of our botanical dietary supplement products are subject to
regulation in the United States by several federal agencies, including the Food
and Drug Administration, the Federal Trade Commission, the Consumer Product
Safety Commission, the Department of Agriculture and the Environmental
Protection Agency. Our activities are also regulated by various agencies of the
states and localities where we will distribute and sell our products.

     The composition and labeling of dietary supplements is most actively
regulated by the FDA under the provisions of the Federal Food, Drug and Cosmetic


                                       13
<PAGE>

Act. The FFDC Act has been revised in recent years by the Nutrition Labeling and
Education Act of 1990 and by the Dietary Supplement Health and Education Act of
1994.

     Our botanical product candidates are generally regulated as dietary
supplements under the 1994 Dietary Supplement Health and Education Act and are,
therefore, generally not subject to pre-market approval by the FDA. However,
these product candidates are subject to FDA regulation, particularly relating to
adulteration and misbranding. For instance, we are responsible for ensuring that
all dietary ingredients in a supplement are safe and must notify the FDA in
advance of putting a product containing a new dietary ingredient, defined as an
ingredient not marketed in the United States before October 15, 1994, on the
market and furnish adequate information to provide reasonable assurance of the
ingredient's safety. Currently, we are only pursuing products that are old
dietary ingredients and are therefore not subject to this procedure. Further, if
we make statements about a supplement's effects on the structure or function of
the body, we must, among other things, substantiate that the statements are
truthful and not misleading. In addition, our product labels must bear proper
ingredient and nutritional labeling and we must manufacture our supplements in
accordance with current Good Manufacturing Practices regulations for foods. A
product can be removed from the market if it is shown to pose a significant or
unreasonable risk of illness or injury. Moreover, if the FDA determines that the
"intended use" of any of the our products is for the diagnosis, cure,
mitigation, treatment or prevention of disease, the product would meet the
definition of a drug and would require pre-market approval of safety and
effectiveness prior to its manufacture and distribution. Our failure to comply
with applicable FDA regulatory requirements may result in, among other things,
injunctions, product withdrawals, recalls, product seizures, fines and criminal
prosecution.

     In March 1999, new FDA regulations governing the labeling of dietary
supplements took effect. The new rules require that information such as the
complete list of ingredients and levels of vitamins and minerals be included on
product labels. While in our judgment these regulatory changes are generally
favorable to the dietary supplements industry, in the future we may be subject
to additional laws or regulations that could have an adverse effect on the
industry and on our business. In addition, existing laws and regulations may be
repealed and applicable regulatory authorities may interpret them stringently or
unfavorably.

     We cannot predict the nature of future laws, regulations, interpretations
or applications, nor can we determine what effect either additional government
regulations or administrative orders, when and if promulgated or disparate
federal, state and local regulatory schemes would have on our business in the
future. Any change could materially and adversely affect our results of
operations and financial condition.

     Governmental regulations in foreign countries where we may commence or
expand sales may prevent or delay entry into the market or prevent or delay the
introduction or require the reformulation of our products. Compliance with such
foreign governmental regulations is generally the responsibility of our partners
or distributors in those countries, which distributors are independent
contractors over whom we have limited or no control.

     The costs of compliance with environmental laws and regulations, or our
inability or failure to comply with environmental laws and regulations, could
substantially increase our costs of doing business or result in liability that
could use substantial amounts of our cash resources.

     In connection with our research and development activities and
manufacturing of materials, we are subject to federal, state and local laws,
rules, regulations and policies governing the use, generation, manufacture,
storage, air emission, effluent discharge, handling and disposal of certain
materials and wastes. Although we believe we comply with these laws and
regulations in all material respects and have not been required to take any
action to correct any noncompliance, we may be required to incur significant
costs to comply with environmental and health and safety regulations in the
future. Our research, development and manufacturing activities involve the
controlled use of hazardous materials and chemicals. Although we believe that
our safety procedures for handling and disposing of such materials comply with
the standards prescribed by state and federal regulations, we cannot eliminate
the risk of accidental contamination or injury from these materials completely.
In the event of an accident, we could be held liable for any resulting damages.
Although we have secured insurance to mitigate such expense, any such liability
could exceed our insurance coverage and resources. Such liability could require
us to use a large amount of cash, which would then not be available for funding
operations or development and commercialization of our products.


PRODUCT LIABILITY CLAIMS ASSERTED AGAINST US IN THE FUTURE COULD EXCEED OUR
INSURANCE COVERAGE AND RESULT IN SUBSTANTIAL LIABILITY TO SHAMAN

     Our business exposes us to potential product liability risks that are
inherent in the development, testing, manufacture, marketing and sale of
pharmaceutical and dietary supplement products. Product liability insurance for
the pharmaceutical and dietary supplement industries generally is expensive. Our
present product liability insurance coverage, which includes coverage for acts


                                       14
<PAGE>

by third parties, including manufacturers of our product candidates, may not be
adequate. We will also need to increase our insurance coverage as we further
develop our products and we may be unable to obtain adequate insurance coverage
against all potential claims at a reasonable cost. Some of our development and
manufacturing agreements contain insurance and indemnification provisions
pursuant to which we could be held accountable for certain occurrences. If we
are subject to product liability claims for which we have inadequate insurance,
we could be required to use a large amount of cash, which would then not be
available for funding operations or development and commercialization of our
products.


SINCE THE DIETARY SUPPLEMENT INDUSTRY IS PARTICULARLY SUSCEPTIBLE TO PUBLIC
PERCEPTION OF ITS PRODUCTS, NEGATIVE PUBLICITY REGARDING THE SAFETY OR QUALITY
OF OUR PRODUCTS COULD ADVERSELY IMPACT OUR SALES OF THESE PRODUCTS

     Because we depend on consumers' perception of the safety and quality of our
products as well as similar products distributed by other companies, which may
not adhere to the same quality standards as ours, if our products or a
competitor's similar products were asserted to be harmful to consumers, our
sales and our ability to market our products could be adversely affected by that
negative publicity. In addition, because we depend on perceptions, adverse
publicity associated with illness or other adverse effects resulting from
consumers' failure to use our products as we suggest, other misuse or abuse of
our products or any similar products distributed by other companies could affect
the market acceptance of our products, decrease sales and make it more difficult
to market and sell our products.

     Furthermore, we believe the recent growth experienced by the nutritional
supplement market is based in part on national media attention regarding recent
scientific research suggesting potential health benefits from regular
consumption of certain dietary supplements and other nutritional products. This
research has been described in major medical journals, magazines, newspapers and
television programs. The scientific research to date is preliminary and in the
future scientific results and media attention may contain unfavorable or
inconsistent findings that could decrease sales and make it more difficult to
market and sell our products.

     Our dependence on raw plant material from Latin and South America, Africa
and Southeast Asia makes us particularly susceptible to the risks of
interruptions in our supplies.

     We currently import all of the plant materials for our products from
countries in Latin and South America, Africa and Southeast Asia. We are
dependent upon a supply of raw plant material to make our products. We do not
have formal agreements in place with all of our suppliers. Continued source of
plant supply risks include:

          o   unexpected changes in regulatory requirements;
          o   exchange rates, tariffs and barriers;
          o   difficulties in coordinating and managing foreign operations;
          o   political instability; and
          o   potentially adverse tax consequences.

     Interruptions in supply or material increases in the cost of supply could
disrupt or delay sales of our products, inhibit our ability to market our
products and have a material adverse effect on our business, financial condition
and results of operations. If the prices of raw materials rise, we may not be
able to raise prices quickly enough to offset the effect of these increased raw
material costs, if at all.

     In addition, tropical rainforests and irreplaceable plant resources found
only in such rainforests are currently threatened with destruction. The
destruction of portions of the rainforests, which contain the source material
from which our current or future products are derived, could disrupt supplies,
cause the cost of supplies to increase dramatically and materially and adversely
affect our business, financial condition and results of operations.


IF WE FAIL TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, WE COULD LOSE OUR
ABILITY TO STOP COMPETITORS FROM USING OUR TRADEMARKS OR SELLING OUR PRODUCTS

     Our success will be substantially dependent on our proprietary technology.
We rely primarily on a combination of patent, copyright and trademark laws,
trade secrets, confidentiality procedures and contractual provisions to protect
our intellectual property. These means of protecting our proprietary rights may
not be adequate. Our trademarks are valuable assets that are very important to
the marketing of our products. Our policy is to pursue registrations for all of
the trademarks associated with our key products. We currently have 21 U.S.
patents issued, 12 U.S. patent applications pending and one international
application filed. The pending patents may never be approved or issued. Any
issued patents may not provide sufficiently broad protection or may not prove


                                       15
<PAGE>

valid or enforceable in actions against alleged infringers. Others may
independently develop similar products, duplicate any of our products or design
around any of our patents. In addition, many foreign countries may not protect
our products and intellectual property rights to the same extent as the laws of
the United States and there is considerable variation between countries as to
the level of protection afforded under patents and other proprietary rights.
Such differences may expose us to increased risks of commercialization in each
foreign country in which we may sell products. We also depend on unpatented
trade secrets. All of our employees have entered into confidentiality
agreements. However, others may independently develop substantially equivalent
information and techniques or otherwise gain access to our trade secrets. Our
trade secrets may be disclosed or we may be unable to effectively protect our
rights to unpatented trade secrets. To the extent that we or our consultants or
research collaborators use intellectual property owned by others in their work
for us, disputes also may arise as to the rights in related or resulting
know-how and inventions. Litigation may be necessary in the future to enforce
our intellectual property rights, protect our trade secrets or to determine the
validity and scope of the intellectual property rights of others. In the event
of litigation to determine the validity of any third party's claims, we could be
required to expend significant resources and divert the efforts of our technical
and management personnel, whether or not such litigation is determined in our
favor.

     Our success in outlicensing our pharmaceutical assets depends in large
part on our ability to obtain and maintain patents, protect trade secrets and
operate without infringing upon the proprietary rights of others. The patent
position of companies in the pharmaceutical industry generally is highly
uncertain, involves complex legal and factual questions and has recently been
the subject of much litigation. No consistent policy has emerged from the U.S.
Patent and Trademark Office or PTO or the courts regarding the breadth of claims
allowed or the degree of protection afforded under pharmaceutical patents.

     We are currently in a dispute in Europe regarding a patent for our
proanthocyanidin polymer composition, which covers the active ingredient in
SP-303/Provir. The European Patent Office, the French Patent Office, the German
Patent Office and the Australian Patent Office have each granted a patent
containing broad claims to proanthocyanidin polymer compositions and methods of
use of such compositions, which are similar to our specific composition, to Leon
Cariel and the Institut des Substances Vegetales. The effective filing date of
these patents is prior to the effective filing date of our foreign pending
patent application in Europe. Certain of the foreign patents have been granted
in jurisdictions where examination is not rigorous. We have instituted an
Opposition in the European Patent Office against granted European Patent No.
472531 owned by Leon Cariel and Institut des Substances Vegetales. We believe
that the granted claims are invalid and intend to vigorously prosecute the
Opposition. In the United States, the Patent and Trademark Office awarded
judgment to us in an Interference regarding this patent dispute.

     We may be unsuccessful in having the granted European patent revoked or the
claims sufficiently narrowed so that our proanthocyanidin polymer composition
and methods of use are not potentially covered. The holders of the granted
European patent may assert against us claims relating to this patent. If they
are successful, we may not be able to obtain a license to this patent at all or
at reasonable cost or be able to develop or obtain alternative technology to use
in Europe or elsewhere. If we cannot obtain licenses to the patent, we may not
be able to introduce or sell our SP-303/Provir product in Europe. The earlier
effective filing date of this patent could limit the scope of the patents, if
any, that we may be able to obtain or result in the denial of our patent
applications in Europe or elsewhere.


IF A THIRD PARTY WERE TO BRING AN INFRINGEMENT CLAIM AGAINST US, WE WOULD NEED
TO EXPEND SIGNIFICANT RESOURCES IN OUR DEFENSE; IF THE CLAIM WERE SUCCESSFUL, WE
WOULD NEED TO OBTAIN LICENSES OR DEVELOP NON-INFRINGING TECHNOLOGY

     The pharmaceutical industry and, to a lesser extent, the dietary supplement
industry, is subject to frequent litigation regarding patent and other
intellectual property rights. Leading companies and organizations in these
industries have numerous patents that protect their intellectual property rights
in these areas. Third parties may assert claims against us with respect to our
existing and future products. In the event of litigation to determine the
validity of any third party's claims, we could be required to expend significant
resources and divert the efforts of our technical and management personnel
whether or not such litigation is determined in our favor. In the event of an
adverse result of any such litigation, among other requirements, we could be
required to develop non-infringing technology or to obtain licenses to the
technology that is the subject of the litigation. We may not be successful in
developing non-infringing technology or in obtaining a license to use the
technology on commercially reasonable terms.


"PENNY STOCK"  REGULATIONS  MAY IMPOSE  RESTRICTIONS ON  MARKETABILITY  OF OUR
STOCK

     The Securities and Exchange Commission has adopted regulations which
generally define "penny stock" to be any equity security that is not traded on a
national securities exchange or NASDAQ and that has a market price of less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions. Since our securities that are currently included on the OTC
Bulletin Board are trading at less than $5.00 per share at any time, our stock
may become subject to rules that impose additional sales practice requirements
on broker-dealers who sell such securities to persons other than established
customers and accredited investors. Accredited investors generally include


                                       16
<PAGE>

investors that have assets in excess of $1,000,000 or an individual annual
income exceeding $200,000, or, together with the investor's spouse, a joint
income of $300,000. For transactions covered by these rules, the broker-dealer
must make a special suitability determination for the purchase of such
securities and have received the purchaser's written consent to the transaction
prior to the purchase. Additionally, for any transaction involving a penny
stock, unless exempt, the rules require, among other things, the delivery, prior
to the transaction, of a risk disclosure document mandated by the SEC relating
to the penny stock market and the risks associated therewith. The broker-dealer
must also disclose the commission payable to both the broker-dealer and the
registered representative, current quotations for the securities and, if the
broker-dealer is the sole market-maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market. Finally, monthly
statements must be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks.
Consequently, the penny stock rules may restrict the ability of broker-dealers
to sell our securities and may affect the ability of stockholders to sell our
securities in the secondary market.


OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE HIGHLY VOLATILE

     The price of our Common Stock has been particularly volatile and will
likely continue to fluctuate in the future. Announcements of technological
innovations, regulatory matters or new commercial products by us or our
competitors, developments or disputes concerning patent or proprietary rights,
publicity regarding actual or potential product results relating to products
under development by us or our competitors, regulatory developments in both the
United States and foreign countries, public concern as to the safety of
pharmaceutical or dietary supplement products, and economic and other external
factors, as well as period-to-period fluctuations in financial results, may have
a significant impact on the market price of our Common Stock. In addition, from
time to time, the stock market experiences significant price and volume
fluctuations that may be unrelated to the operating performance of particular
companies or industries. The market price of our Common Stock, like the stock
prices of many publicly traded smaller companies, has been and may continue to
be highly volatile.


ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT
POTENTIAL ACQUISITION BIDS FOR SHAMAN, WHICH MAY ADVERSELY AFFECT THE MARKET
PRICE OF OUR COMMON STOCK AND THE VOTING RIGHTS OF THE HOLDERS OF THE COMMON
STOCK

     Certain provisions of our charter documents and Delaware law make it more
difficult for a third party to acquire and may discourage a third party from
attempting to acquire us, even if a change in control would be beneficial to our
stockholders. These provisions could also limit the price that certain investors
might be willing to pay in the future for shares of the Common Stock. The
provisions include the division of our board of directors into two separate
classes, the ability of the board to elect directors to fill vacancies created
by an expansion of the board, the power of the board to amend our bylaws and the
requirement that at least 66% of the outstanding shares are required to call a
special meeting of stockholders. Our board also has the authority to issue up to
1,800,000 additional shares of preferred stock and to fix the price, rights,
preferences, privileges and restrictions of those shares without any further
vote or action by the stockholders. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of any preferred stock that may be issued in the future. The issuance of
preferred stock with voting rights could make it more difficult for a third
party to acquire a majority of the outstanding voting stock. Certain provisions
of Delaware law applicable to us could also delay or make more difficult a
merger, tender offer or proxy contest involving Shaman, including Section 203 of
the Delaware General Corporation Law, which prohibits a Delaware corporation
from engaging in any business combination with any interested stockholder for a
period of three years unless certain conditions are met.

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RISK ASSOCIATED WITH OUR NEW BUSINESS FOCUS

IF WE FACE INTENSE COMPETITION IN PROVIDING OUR INTERNET-BASED HEALTH
INFORMATION SERVICES, WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY

     The number of Internet websites offering users healthcare content,
products and services is vast and increasing at a rapid rate. These companies
compete with us for users, advertisers and other sources of online revenue. In
addition, traditional media and healthcare providers compete for consumers'
attention both through traditional means as well as through new Internet
initiatives. We believe that competition for healthcare consumers will continue
to increase as the Internet develops as a communication and commercial medium.

     There are a number of competitors delivering online health content who
will also seek advertising revenue and it is likely that more competitors will
emerge in the near future. Such competitors include, among others:
Healtheon/WebMD, drkoop.com, Mediconsult, Medscape and InteliHealth. Many of our
competitors enjoy significant competitive advantages including: greater
resources that can be devoted to the development, promotion and sale of their
products and services; longer operating histories; greater brand recognition and
larger customer bases.


THE INTERNET INDUSTRY IS HIGHLY COMPETITIVE AND CHANGING RAPIDLY, AND WE MAY
NOT HAVE THE RESOURCES TO COMPETE ADEQUATELY

     Many of these competitors have more cash available to spend, longer
operating histories and stronger brand recognition than we do. Some have
internal distribution or other opportunities to support their business that we
neither have nor are able to replicate for a reasonable investment.


COMPETITION FOR HIGHLY-SKILLED PERSONNEL IS INTENSE AND THE SUCCESS OF OUR
BUSINESS DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL

     Our performance depends on the continued services and performance of our
executive officers and key employees. Our future success also depends on our
ability to identify, attract, hire, train, retain and motivate highly skilled
technical, managerial, editorial, marketing and customer service personnel.
Competition for highly-skilled personnel is intense. In particular, skilled
technical employees are highly sought after in the Silicon Valley area and we
cannot guarantee that we will be able to attract or retain these employees.


WE MAY BE SUBJECT TO LIABILITY FOR INFORMATION RETRIEVED FROM OUR WEB SITE

     As a publisher and distributor of online information, we may be subject to
third party claims for defamation, negligence, copyright or trademark
infringement or other theories based on the nature and content of information
supplied on our Web sites. We could also become liable if confidential
information is disclosed inappropriately. These types of claims have been
brought, sometimes successfully, against online service providers in the past.
We could be subject to liability with respect to content that may be accessible
through our Web sites or third party Web sites linked from our Web sites. For
example, claims could be made against us if material deemed inappropriate for
viewing by children could be accessed through our Web sites or if a
professional, patient or consumer relies on healthcare information accessed
through our Web sites to their detriment. Even if any of the kinds of claims
described above do not result in liability to us, we could incur significant
costs in investigating and defending against them and in implementing measures
to reduce our exposure to this kind of liability. Our insurance may not cover
potential claims of this type or may not be adequate to cover all costs incurred
in defense of potential claims or to indemnify us for all liability that may be
imposed.


OUR BUSINESS PROSPECTS DEPEND ON THE CONTINUED GROWTH IN USE OF THE INTERNET

     We believe that our future success will require the continued development
and widespread acceptance of the Internet and online services as a medium for
obtaining and distributing healthcare and medical information. Internet use is
at an early stage of development and may be inhibited by a number of factors,
such as:

          o  Internet infrastructure which is not able to support the demands
                placed on it or its performance and reliability declining as
                usage increases;
          o  exchange rates, tariffs and barriers;
          o  security concerns with respect to transmission over the Internet
                of confidential information;
          o  privacy concerns; and
          o  governmental regulation.


OUR BUSINESS PROSPECTS ARE UNCERTAIN, AS THE MARKET FOR ONLINE HEALTHCARE
INFORMATION AND SERVICES IS STILL DEVELOPING

     The online healthcare information market is in the early stages of
development, is rapidly evolving and is characterized by an increasing number of
market entrants who have introduced competing products and services. As is
typical in the case of a new and rapidly evolving industry, demand and market
acceptance for recently introduced products and services are subject to a high


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level of uncertainty and risk. Therefore, it is difficult to predict with any
assurance the size of the market for online healthcare information or its growth
rate. We cannot guarantee consumers will view obtaining healthcare information
through the Internet as an acceptable way to address their healthcare
information needs.


GOVERNMENT REGULATION OF THE INTERNET MAY RESULT IN INCREASED COSTS OF USING THE
INTERNET, WHICH COULD ADVERSELY AFFECT OUR BUSINESS

     Currently, there are a number of laws that regulate communications or
commerce on the Internet. Several telecommunications carriers have petitioned
the Federal Communications Commission to regulate Internet service providers and
online service providers in a manner similar to long distance telephone carriers
and to impose access fees on these providers. Regulation of this type, if
imposed, could substantially increase the cost of communicating on the Internet
and adversely affect our business, results of operations and the market price of
our Common Stock.


WE MAY BE SUBJECT TO LIABILITY FOR CLAIMS THAT THE DISTRIBUTION OF MEDICAL
INFORMATION TO CONSUMERS CONSTITUTES PRACTICING MEDICINE OVER THE INTERNET

     States and other licensing and accrediting authorities prohibit the
unlicensed practice of medicine. We do not believe that our publication and
distribution of healthcare information online constitutes practicing medicine.
However, we cannot guarantee that one or more states or other governmental
bodies will not assert claims contrary to our belief. Any claims of this nature
could result in our spending a significant amount of time and money to defend
and dispose of them.

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PART II     OTHER INFORMATION


Item 1.     Legal Proceedings

      None.

Item 2.     Changes in Securities and Use of Proceeds

     In May 2000, Shaman issued an aggregate of 37,251,874 shares of Common
Stock upon conversion of convertible promissory notes. The conversion price was
$0.15 per share and an aggregate of $5,587,781 of principal and interest was
cancelled in payment of the conversion price for the shares. All investors in
this financing are accredited and sophisticated investors and this issuance of
Common Stock was exempt from registration under Rule 506 promulgated by the
Securities and Exchange Commission. Proceeds of the financing were used to fund
operations of the Company.

Item 3.     Defaults in Senior Securities

      None.

Item 4.     Submission of Matters to a Vote of Security Holders

      1. (a)  A Special Meeting of Stockholders of Shaman Pharmaceuticals,  Inc.
              was held on March 31, 2000. The matters to be voted upon at the
              meeting was adjourned to April 21, 2000.  A quorum  was not
              present at the April 21, 2000 Meeting.

         (b)  The matters that were submitted to the stockholders are as
              follows:

              (i)  To approve the  transfer of all the assets and liabilities of
                   Shaman Pharmaceuticals, Inc. to Shaman.com, Inc.
                   ("Shaman.com") in exchange for shares of Common Stock of
                   Shaman.com;

                   For:      14,060,912               Against:  327,144
                   Abstain:      17,422

              (ii) To approve an amendment to the Amended and Restated
                   Certificate to delete the provision stating that a sale of
                   all or substantially all of the assets of the Company will be
                   treated as a liquidation, dissolution or winding up of the
                   Company, for purposes of causing a required liquidation
                   preference distribution to the holders of Series C Preferred
                   Stock;

                   For:      14,004,268               Against:  350,818
                   Abstain:      50,392

Item 5.     Other Information

     On August 6, 2000, the Board of Directors elected Mr. Robert W. Scannell as
a Class I director.

Item 6.     Exhibits and Reports on Form 8-K

(a)   Exhibits

            Exhibit No.            Description
            -----------      -----------------------

                 27          Financial Data Schedule

(b)         Form 8-K

            None.

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                                   SIGNATURES


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

Dated:  August 14, 2000


                                   SHAMAN PHARMACEUTICALS, INC.
                                   (Registrant)



                                    /s/   Lisa A. Conte
                                    ____________________________________
                                    Lisa A. Conte
                                    President, Chief Executive Officer and
                                    Chief Financial Officer
                                    (on behalf of the Company and as principal
                                    executive officer and principal financial
                                    officer)


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