SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM _____________ TO _____________
Commission File Number 0-11472
BIOMUNE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Nevada 87-0380088
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
540 Arapeen Drive, Suite 202
Salt Lake City, Utah 84108-1202
(801) 582-2345
(Address and telephone number of principal executive offices)
Indicate by a check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __ Indicate the number of
shares outstanding of each of the issuer's classes of Common Stock, as of the
latest practicable date:
Class Outstanding as of July 15, 1996
Common Stock, $0.0001 par 19,818,201
value Series A 10% Cumulative
Convertible Preferred Stock,
$0.0001 par value 141,570(1)
Series B 10% Cumulative
Convertible Non-Voting
Preferred Stock,
$0.0001 par value 11,058(1)
Series D 8% Cumulative
Convertible Non-Voting
Preferred Stock,
$0.0001 par value 2,000(1)
(1)Shares of Series A, Series B and Series D Cumulative
Convertible Preferred Stock have been included because such
shares may be converted at anytime into shares of Common Stock.
With respect to the 2,000 shares of Series D Cumulative
Convertible Preferred Stock presented herein as issued and
outstanding, certificates for these shares had not been
physically issued as of July 15, 1996.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
No.
1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets as
of June 30, 1996 and September 30, 1995 3
Unaudited Condensed Consolidated Statements of
Operations for the three and nine months ended June
30, 1996 and June 30, 1995 5
Unaudited Condensed Consolidated Statements of Cash
Flows for the nine months ended June 30, 1996 and
June 30, 1995 6
Notes to Unaudited Condensed Consolidated Financial
Statements 8
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. OTHER INFORMATION 19
<PAGE>
PART I - ITEM 1 Page 1 of 2
BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
June 30, September 30,
1996 1995
------- -----------
Current assets:
Cash and cash equivalents $4,595,896 $5,206,112
Accounts receivable, net 112,277 98,402
Inventories 91,662 100,324
Amounts due from related 179,804 362,805
parties
Employee loans 15,000 -
-------- ---------
Total current assets 4,994,639 5,767,643
Property and equipment, net 416,091 105,763
Other assets, net 763,831 845,014
--------- --------
Total assets $6,174,561 $6,718,420
---------- ----------
`
The accompanying notes are an integral part of these
condensed consolidated balance sheets.
<PAGE>
Page 2 of 2
BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, September 30,
1996 1995
--------- -------------
Current liabilities:
Accounts payable and
accrued liabilities $ 285,067 $ 235,155
Accrued payroll and
payroll taxes 14,502 36,619
72,674 117,471
----------- -----------
Total current liabilities 372,243 389,245
----------- ----------
Shareholders' equity:
Convertible Preferred Stock:
Series A, 141,570 and
213,833 shares outstanding,
respectively 679,113 994,049
Series B, 11,058 and
10,058 shares outstanding,
respectively 163,837 148,837
Series D, 2,000 shares
outstanding 1,542,290 -
Common Stock, 19,818,201
and 17,439,189 shares
outstanding, respectively 1,982 1,744
Additional paid-in capital 26,590,051 22,707,916
Deficit accumulated during
the development stage (21,364,126) (16,858,480)
Deferred consulting expense (365,602) (674,891)
Preferred Stock subscription
receivable (2,000,000) -
Common Stock warrants 554,773 10,000
----------- ----------
Total shareholders' equity 5,802,318 6,329,175
----------- ----------
Total liabilities and
shareholders' equity $ 6,174,561 $ 6,718,420
============= ===========
The accompanying notes are an integral part of these
condensed consolidated balance sheets.
<PAGE>
BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
----------------------- --------------------
1996 1995 1996 1995
------- ------ ------ ------
REVENUES $ 97,486 $ 141,052 $ 338,016 $ 344,967
-------- ------- -------- --------
OPERATING
EXPENSES:
Cost of revenues 64,103 84,631 207,939 206,791
Management, consulting
and research fees 1,111,228 524,427 2,778,520 1,980,333
Other general and
administrative 619,670 325,530 2,005,046 1,100,774
Total operating
expenses 1,795,001 934,588 4,991,505 3,287,898
--------- --------- --------- ----------
LOSS FROM OPERATIONS (1,697,515) (793,536) (4,653,489) (2,942,931)
INTEREST INCOME 70,498 105,399 220,518 389,785
------- -------- -------- --------
NET LOSS (1,627,017) (688,137) (4,432,971) (2,553,146)
PREFERRED STOCK
DIVIDENDS (20,759) (28,250) (72,674) (89,221)
NET LOSS APPLICABLE
TO COMMON SHARES $(1,647,776) $(716,387) $(4,505,645) $(2,642,367)
=========== ========= =========== ===========
NET LOSS PER COMMON
SHARE $ (.08) $ (.04) $ (.24) $ (.16)
====== ======= ======= =======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 19,668,045 17,198,525 18,946,521 17,040,462
========== ========== ========== =========
The accompanying notes are an integral part of these
condensed consolidated statements.
<PAGE>
Page 1 of 2
BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Increase (Decrease) in Cash and Cash Equivalents
For the Nine Months
Ended June 30,
--------------------
1996 1995
-------- -------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (4,432,971) $ (2,553,146)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 130,793 130,977
Loss on disposal of fixed assets 39,163 -
Issuance of common stock and
warrants for services 548,246 254,074
Amortization of deferred consulting
expense 735,572 507,965
Exchange of related party note receivable 125,662 -
Changes in assets and liabilities:
Accounts receivable, net (13,875) (25,354)
Inventories 8,662 1,485
Other assets (6,249) -
Accounts payable and accrued liabilities 49,912 (102,264)
Accrued payroll and payroll taxes (22,117) 18,943
----------- ------------
Net cash used in operating activities (2,837,202) (1,767,320)
----------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and equipment (392,853) (39,591)
Loans to employees (25,832) -
Net payments from related parties 68,171 39,710
---------- -----------
Net cash (used in) provided by
investing activities (350,514) 119
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Series D
preferred stock and related common stock
warrants, net of offering costs 2,555,000 -
Proceeds from exercise of common stock warrants 22,500 -
Proceeds from issuance of common stock - 45,000
Proceeds from issuance of common stock warrants - 10,000
Payments for settlement of consulting agreements - (420,000)
---------- -----------
Net cash provided by (used in)
financing activities 2,577,500 (365,000)
---------- -----------
The accompanying notes are an integral part of these
condensed consolidated statements.
<PAGE>
Page 2 of 2
BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Increase (Decrease) In Cash and Cash Equivalents
For the Nine Months
Ended June 30,
----------------------
1996 1995
---------- --------
NET DECREASE IN CASH AND CASH
EQUIVALENTS $ (610,216) $(2,132,201)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE PERIOD 5,206,112 7,935,221
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
THE PERIOD $4,595,896 $5,803,020
========== ==========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the nine months ended June 30, 1996 and June 30, 1995, 92,757
and 150,240 shares of Series A Preferred Stock with a recorded
value of $417,407 and $683,200 were converted into 278,271 and
450,720 shares of Common Stock, respectively.
On December 29, 1995, the Company entered into a Subscription
Agreement for the sale of a total of 5,000 shares of its Series D
Preferred Stock for $1,000 per share (see Note 3).
During the nine months ended June 30, 1996, 3,200 shares of Series D
Preferred Stock with a recorded value of $2,467,937 were converted
into 1,884,419 shares of Common Stock.
During the nine months ended June 30, 1996, 20,494 shares of Series A
Preferred Stock and 1,000 shares of Series B Preferred Stock were
issued as payment of accrued Preferred Stock dividends.
During the nine months ended June 30, 1995, 8,632 shares of Series B
Preferred Stock with a recorded value of $129,480 were converted
into 25,896 shares of Common Stock.
The accompanying notes are an integral part of these condensed
consolidated statements.
<PAGE>
BIOMUNE SYSTEMS, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) PRESENTATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have
been prepared by the Company, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission.
Certain information and disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company
believes that the following disclosures are adequate to make the
information presented not misleading. These condensed financial
statements reflect all adjustments (consisting only of normal
recurring adjustments) that, in the opinion of management, are
necessary to present fairly the financial position and results of
operations of the Company for the periods presented. It is
suggested that these condensed financial statements be read in
conjunction with the financial statements and the notes thereto
included in the Company's Amended Annual Report on Form 10-K/A
for the fiscal year ended September 30, 1995.
(2) NET LOSS PER COMMON SHARE
Net loss per common share is computed based on the weighted
average number of common shares outstanding during the periods
presented. Convertible Preferred Stock, warrants and options
outstanding were not included in the computations because any
assumption of conversion would be anti-dilutive, thereby
decreasing net loss per common share. Preferred Stock dividends
increase the net loss applicable to common shares for purposes of
computing the net loss per common share.
(3) PREFERRED STOCK AND COMMON STOCK TRANSACTIONS
For the nine months ended June 30, 1996, 92,757 shares of Series
A Preferred Stock with a recorded value of $417,407 were
converted into 278,271 shares of Common Stock. During the nine
months ended June 30, 1996, the Company accrued dividends on its
outstanding Series A Preferred Stock of $61,424 and accrued
dividends on its outstanding Series B Preferred Stock of $11,250.
Preferred Stock dividends are payable in either additional shares
of Preferred Stock or in cash, at the Board of Directors' option.
During the nine months ended June 30, 1996, dividends on Series A
and Series B Preferred Stock accrued as of September 30, 1995
totaling $117,472 were paid by issuing 20,494 shares of Series A
Preferred Stock and 1,000 shares of Series B Preferred Stock.
On December 29, 1995, the Company entered into a Subscription
Agreement for the sale of a total of 5,000 shares of its Series D
Preferred Stock for $5 million (or $1,000 per share). Pursuant
to the terms of the Offshore Securities Subscription Agreement
related to the Series D Preferred Stock, the Company received a
total of $3 million in cash (less certain costs and expenses of
the offering, including 200 shares of Series D Preferred Stock)
on January 3, 1996, with the $2 million balance being subject to
a Non-Negotiable Promissory Note dated December 17, 1995 (the
"Note") payable to the Company. The Note, by its terms, was due
and payable to the Company on March 31, 1996 without interest;
however, the Note provides that the Company has the right, prior
to payment, upon not less than 45 days prior written notice, to
cancel the Note, in whole or in part. While that cancellation
right expired on March 15, 1996, the Company and the maker of the
Note agreed to extend the due date of the Note to September 30,
1996 and revise the Company's right of cancellation thereunder.
The Note, which is payable to the Company in connection with the
purchase of 2,000 shares of Series D Preferred Stock, is
reflected as a deduction from shareholders' equity in the
accompanying June 30, 1996 balance sheet. The stock certificates
for those 2,000 shares have not been issued.
The Series D Preferred Stock is convertible into shares of the
Company's Common Stock commencing 40 days after the date of the
Designation of Rights and Preferences of Series D 8% Cumulative
Convertible Non-Voting Preferred Stock (the "Series D
Designation") by dividing $1,000 by an amount equal to the Market
Price (as that term is defined in the Series D Designation) per
<PAGE>
share of the Company's Common Stock less 25%; provided, however,
that if the Series D Preferred Stock is converted within 90 days
of the closing date, it shall be convertible by dividing $1,000
by an amount equal to the lesser of (a) the bid price for the
Company's Common Stock on the closing date or (b) the Market
Price of the Company's Common Stock less 20%, but in no event
less than $1.60 per share of Common Stock so converted.
Moreover, in accordance with the terms of the Subscription
Agreement, on March 10, 1996, the subscriber of Series D
Preferred Stock was granted 1,295,657 warrants to purchase
pursuant to Regulation D of the Securities Act of 1933, as
amended, a total of 1,295,657 restricted shares of the Company's
Common Stock, which warrants are exercisable for two years from
the date of grant. The exercise price of those warrants is
$2.38, the closing bid price of the Common Stock on December 28,
1995, the day prior to the closing date of the Series D Preferred
Stock offering. In connection with the sale of the shares of
Series D Preferred Stock, the Company paid commissions totaling
$645,000, which commissions were paid as follows: (a) $235,000
in cash paid during November 1995; (b) 200 shares of the
Company's Series D Preferred Stock (valued at $1,000 per share)
issued during December 1995; and (c) $210,000 in cash paid
subsequent to December 31, 1995. The Company determined the
relative values of the Series D Preferred Stock and the Common
Stock warrants based on an analysis prepared by the Company's
investment bankers.
In March 1996, 3,120 shares of Series D Preferred Stock with a
recorded value of $2,406,313 were converted into 1,837,310 shares
of Common Stock. The remaining outstanding 80 shares of Series D
Preferred Stock with a recorded value of $61,624 were converted
into 47,059 shares of Common Stock in May 1996.
During the nine months ended June 30, 1996, the Company issued
206,322 shares of Common Stock for services rendered or to be
rendered to the Company and recorded expense of $497,229
associated with those shares. Of this expense, $144,495 has been
deferred and will be recognized over the term of the related
consulting agreement. The Company also has deferred consulting
expense related to shares of Common Stock issued under consulting
agreements entered into prior to September 30, 1995 as well as
from stock warrants issued during fiscal year 1996. These
deferred amounts are being recognized over the terms of the
agreements as services are provided.
(4) RELATED-PARTY TRANSACTIONS
The following table reflects the outstanding balances as of June
30, 1996 and September 30, 1995 on loans made to related parties.
These balances are reflected as amounts due from related parties
in the accompanying condensed consolidated balance sheets.
June 30, September 30,
1996 1995
-------- -------------
Federal Land and Development
Corporation $179,804 $182,811
James J. Dalton - 179,994
-------- --------
$179,804 $362,805
======== ========
Federal Land and Development Corporation
These loans bear interest at an annual rate of 12%, are unsecured
and are due on demand. As of June 30, 1996, the outstanding
principal and interest on these loans was $177,486 and $2,318,
respectively. During the three months ended June 30, 1996, the
Company received a $20,000 payment on the note.
James J. Dalton
As of September 30, 1995, James J. Dalton owed principal and
interest associated with certain loans from the Company totaling
$169,668 and $10,326, respectively. During the nine months ended
June 30, 1996, Mr. Dalton made principal and interest payments in
the amounts of $47,108 and $12,892, respectively. Interest
accrued at an annual rate of 12% and these loans were unsecured
and due on demand. In January 1996, the Company exchanged the
<PAGE>
remaining principal and interest balances on these loans, which
totaled approximately $126,000, for Mr. Dalton's relinquishment
of his right to receive 50 percent of the future net profits of
Volu-Sol, Inc., if any, under an existing consulting agreement.
In addition, the Company extended the consulting agreement
through January 1997, agreed to pay Mr. Dalton $5,000 per month
and issued a total of 72,000 shares of free trading Common Stock
to Mr. Dalton. The Company also issued to Mr. Dalton warrants to
purchase 100,000 shares of Common Stock at $2.31 per share.
Consulting expense related to the issuance of the 72,000 shares
of Common Stock was $175,500 of which $102,375 was deferred at
June 30, 1996 and will be recognized over the remaining term of
the consulting agreement.
ADP Management Corporation
The Company renegotiated its agreement with ADP Management
Corporation ("ADP") to manage the Company and provide the Company
with a Chief Executive Officer for a two-year period beginning
October 1, 1995. The Company agreed to pay ADP $16,667 per month
and reimburse ADP for all direct expenses incurred on behalf of
the Company. Under the agreement, the Company incurred management
fees of $150,000 and $112,500 during the nine months ended June
30, 1996 and June 30, 1995, respectively. In addition, under the
amended agreement, the Company granted options to purchase
600,000 shares of Common Stock which vest over the two-year term
of the agreement. The options have an exercise price of $2.00 per
share. Consulting expense of $187,500 was recognized in
connection with these option grants of which $117,186 has been
deferred as of June 30, 1996.
Effective June 15, 1996, the agreement with ADP was terminated
and David G. Derrick was hired as an employee of the Company.
The employment agreement with Mr. Derrick essentially has the
same terms as the prior agreement with ADP (as amended).
(5) STOCK OPTIONS AND WARRANTS
During the nine months ended June 30, 1996, the Company granted
options and warrants to purchase a total of 2,283,157 shares of
Common Stock at exercise prices ranging from $2.00 to $2.38 per
share. Of the total warrants and options granted, 1,295,657
warrants were issued in connection with the issuance of Series D
Preferred Stock (see Note 3), 600,000 options were issued in
connection with the ADP agreement (see Note 4), and 100,000
options were issued in connection with the James J. Dalton
consulting agreement (see Note 4). The remaining options and
warrants granted during the nine months ended June 30, 1996 were
to various employees and consultants.
On March 26, 1996, the Board of Directors approved, subject to
shareholder approval, the adoption of the Biomune Systems, Inc.
1996 Stock Incentive Plan (the "1996 Plan"). The 1996 Plan
provides for the granting of incentive stock options ("ISOs") as
defined under the Internal Revenue Code of 1986, as amended, and
nonqualified stock options ("NSOs"). The 1996 Plan also allows
the Company to award shares of Common Stock and designate shares
to be purchased by certain individuals. The Company has
designated 2,500,000 shares of Common Stock for issuance under
the 1996 Plan. The exercise price for ISOs shall not be less
than the fair market value at the grant date and the exercise
price for NSOs shall not be less than the lesser of: 1) the book
value per share as of the end of the fiscal year immediately
preceding the grant date, or 2) 50 percent of the fair market
value on the date of grant.
(6) MEDICAL WASTE TECHNOLOGY LICENSE AGREEMENT
The Company owns a 90% interest in a certain technology
relating to the sterilization and decontamination of medical
devices and waste (the "Sterilization Technology"). Pursuant to
a License Agreement dated as of May 6, 1996 (the "Sterilization
License"), the Company has granted a 15-year license to Biomed
Patent Development L.L.C. ("Biomed"), the owner of the remaining
10% interest in the Sterilization Technology, for the exclusive
use of the Sterilization Technology in connection with the
manufacture and distribution of medical devices based on the
Sterilization Technology and the provision of services relating
thereto. Under the Sterilization License the Company will
<PAGE>
receive royalties for the first year of the Sterilization License
(which royalties are due by November 2, 1996) equal to the
greater of (i) 7.5% of gross sales or (ii) $45,000. In addition,
the Company is entitled to receive royalties for all subsequent
years equal to the greater of (i) 0.9% of gross sales or (ii)
$90,000.
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following information includes forward-looking statements,
the realization of which may be impacted by certain important
factors discussed below.
General
Biomune Systems, Inc. (the "Company") is a development stage
biopharmaceutical and nutraceutical company that, along with its
wholly-owned subsidiary Optim Nutrition, Inc. ("Optim
Nutrition"), is engaged primarily in the business of research,
development, production and marketing of biologic pharmaceutical
products and nutraceutical food supplements derived from the
Biomune Whey Protein Technology (the "Technology").
Nutraceutical products are food supplements that are derived from
a food base and marketed as a beneficial source of nutrients to
promote good health. The Company believes that the Technology
may be utilized to develop products to treat various
gastrointestinal and infectious diseases in humans and that
products derived from the Technology may help increase the body's
immune response. The Company also believes that certain products
derived from the Technology may provide nutritional
supplementation for certain individuals who are nutritionally
deprived, including (i) individuals with severely compromised
immune systems (e.g., people with Acquired Immune Deficiency
Syndrome ("AIDS")) and (ii) patients undergoing intensive
antibiotic or chemotherapy treatment.
The Company has filed Investigational New Drug Applications
("IND") with the FDA, the United States government agency that
regulates drugs for humans, on two biological pharmaceutical
candidates developed from the Technology: BWPT-301O (formerly
known as Immuno-C), which the Company believes may prevent and/or
treat cryptosporidiosis, a gastrointestinal disease caused by the
cryptosporidium parvum (C. parvum) microorganism that causes
acute and severe diarrhea in humans; and BWPT-302O, which the
Company believes may be used in the treatment of infection by the
life-threatening bacteria Escherichia coli, strain 0157:H7 ("E.
coli, strain 0157:H7"), a disease that causes severe bloody
diarrhea, and in children, a hemolytic uremic syndrome associated
with a high risk of permanent kidney damage. The Company is
currently conducting Phase II clinical trials on its BWPT-301O
product candidate. The Company has now concluded its Phase I
clinical trials on BWPT-302O and, after the analysis of the data
from those trials, is planning to commence a Phase I/II clinical
trial to continue gathering data on the safety and tolerance and
to begin evaluating the efficacy of BWPT-302O.
In addition, based upon the results of and the information
obtained from clinical trials and other studies involving the
protein whey concentrate (the "Base Product") and BWPT-301O,
which suggest potential health-related benefits from the use of
nutraceutical products developed utilizing the Technology, the
Company, through Optim Nutrition, has developed and commenced
preliminary marketing efforts and is now commercially marketing a
nutraceutical product based on the Technology. Optim Nutrition
has developed one nutraceutical product to date, OptimuneO, which
it is marketing to immune-compromised individuals who need
nutritional supplementation for any number of reasons. The
preliminary test marketing launch (the "pre-launch") on OptimuneO
commenced on June 17, 1996. Commercial Marketing commenced on
July 8, 1996.
Through its wholly-owned subsidiary Volu-Sol, the Company is
also engaged in the manufacture and distribution of medical
diagnostic stains.
In addition, the Company owns the rights to certain medical
waste technologies consisting of (i) a device for the
sterilization and decontamination of medical devices and wastes,
(ii) a bioremediation process to detoxify and degrade hazardous
substances and (iii) a device and process for the safe treatment
of used medical stains. The Company recently granted a license
to a third party, Biomed Patent Development L.L.C., to use the
technology related to the medical sterilization and
decontamination device in return for certain royalties.
<PAGE>
The Company has generated no revenues from the sale of any
biological drugs or biological drug candidate, although Optim
Nutrition has generated only insignificant revenues from the sale
of its nutraceutical product, OptimuneO, since the market launch
of that product on July 8, 1996. Although the Company has and
continues to receive revenues from the sale of Volu-Sol's medical
diagnostic stains, Volu-Sol's business has been operating at a
net loss since it was acquired by the Company in December 1991.
All forward-looking statements contained herein are deemed by
the Company to be covered by and to quality for the safe harbor
protection provided by the Private Securities Litigation Reform
Act of 1995 (the "1995 Act"). Investors and prospective
investors in the Company should understand that several factors
govern whether any forward-looking statement contained herein
will be or can be achieved. Any one of those factors could cause
actual results to differ materially from those projected herein.
Investors and prospective investors are referred to the Company's
Annual Report on Form 10-K for the fiscal year ended September
30, 1995 for a more detailed discussion of the factors that could
cause actual results to differ. These forward-looking statements
include plans and objectives of management for future operations,
including plans and objectives relating to the products and the
future economic performance of the Company and its subsidiaries,
Optim Nutrition and Volu-Sol. The forward-looking statements and
associated risks set forth herein relate to (i) the development
and commercialization of OptimuneTM or any other nutraceutical
product by Optim Nutrition; (ii) the development of the
technologies relating to the disposal, sterilization and
treatment of medical waste and certain medical devices (the
"Medical Sterilization Technologies"); (iii) production
efficiencies and increased gross margin from Volu-Sol; (iv) the
total research and development, general and administrative and
other direct costs associated with obtaining final FDA approval
on BWPT-301O; (v) the dollar amount expected to be expended
during fiscal years 1996 and 1997 on the BWPT-301O clinical
trials; (vi) the estimated date of receipt of final FDA approval
on BWPT-301O; (vii) the estimated commencement date of Phase III
clinical trials and the completion of those clinical trials on
BWPT-301O; and (viii) the Company having sufficient cash to fund
its projected operations and budgeted research and development
for fiscal 1996. The forward-looking statements included herein
are based on current expectations that involve a number of risks
and uncertainties. These forward-looking statements are based on
assumptions, among others, (a) that the efficacy of BWPT-301O
will be established during the ongoing Phase II clinical trials
and the Phase III clinical trials; (b) that the Company will be
able to successfully undertake and complete clinical trials on
BWPT-302O; (c) that the Company will be able to successfully
develop and commercialize a nutraceutical product; (d) that the
Company will be able to successfully develop and commercialize
the Biomune Whey Protein Technology and the Medical Sterilization
Technologies; (e) that the Company will need to conduct
additional Phase II clinical trials on BWPT-301O and may need to
conduct clinical trials that are different from those that have
been conducted to date or that are currently contemplated by the
Company; and (f) that the Company will be able to timely and
properly quantify and analyze the data derived from its clinical
trials. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive
and market conditions, future business decisions, and the results
of the clinical trials and the time and money required to
successfully complete those trials, all of which are difficult
or impossible to predict accurately and many of which are beyond
the control of the Company. Although the Company believes that
the assumptions underlying the forward-looking statements
contained herein are reasonable, any of those assumptions could
prove inaccurate and, therefore, there is and can be no assurance
that the results contemplated in any such forward-looking
statement will be realized. This is particularly true given the
dynamic nature of the process in which the Company is involved
with respect to BWPT-301O and BWPT-302O and its nutraceutical
product, OptimuneTM. Budgeting and other management decisions
are subjective in many respects and thus susceptible to
interpretations and periodic revision. Based on actual
experience and business developments, the impact of which may
cause the Company to alter its marketing, capital expenditure
plans or other budgets, which may in turn affect the Company's
results of operations. In light of the significant uncertainties
inherent in the forward-looking statement included herein, the
inclusion of any such statement should not be regarded as a
representation by the Company or any other person that the
objectives or plans of the Company or of either of its
subsidiaries will be achieved.
Based on the results of Phase I and Phase II clinical trials
that were conducted using the Company's BWPT-301O product
candidate, the Company believes that products developed based on
the Technology may be successful in improving and promoting
gastrointestinal health, especially in (i) people who are HIV
positive or have AIDS, (ii) immune-compromised patients such as
those undergoing high-dose antibiotic or chemotherapy treatment
and (iii) post-surgical and chronic care patients.
<PAGE>
The Company is currently focusing on the prevention and/or
treatment of cryptosporidiosis and E. coli, strain 0157:H7, with
its biologic pharmaceutical drug candidates BWPT-301O (formerly
known as Immuno-C) and BWPT-302O, respectively. In addition, the
Company believes that pharmaceutical products developed through
the utilization of the Technology may be useful in the prevention
and/or treatment of other diseases, although the Company has not
prepared or filed an Investigational New Drug Application ("IND")
with the Food and Drug Administration (the "FDA") with respect to
any such potential drug candidates. Some of the other diseases
or microbial infections that the Company believes may be
preventable and/or treatable include certain infectious bacteria
known to be enteric pathogens (including, for example,
Helicobacter pylori ("H. pylori"), Clostridium difficile ("C.
difficile"), Campylobacter jejuni ("C. jejuni"), Yersinia
enterocolitica ("Y. enterocolitica") and Staphylococcos acreus
("Staph. aureus) and certain non-infectious immunologically-based
syndromes, diseases and other conditions (including, for example,
certain cancers, such as prostate cancer, arthritis, irritable
bowel syndrome and acne).
The Company has a variety of studies and clinical trials
underway and planned. Among these are studies to further the
basic knowledge about the Technology and to fully characterize
the activities of the Base Product and its components and
parameters for formulation and use. At least one study will
address pharmacokinetics. Studies at universities and hospital
sites are testing for various activities against selected disease
organisms. Several human clinical trials have been completed to
test the safety and tolerance of the Technology. Other clinical
trials are assessing dose ranges and effects. Still others are
beginning to measure the efficacy of BWPT-301O against
cryptosporidiosis in people who are also infected with the HIV
virus or have AIDS. More clinical trials are planned to conclude
the dose ranging considerations and prepare for the clinical
trials that will assess the efficacy of BWPT-302O against E.coli,
strain 0157:H7. Additional studies on E. coli, strain 0157:H7,
are planned. Optim Nutrition is conducting various nutritional
studies on OptimuneO. OptimuneO is being studied at various
sites for its effect against chronic weight loss in immune
compromised humans. A study at two sites in the San Francisco
area (St. Francis Memorial Hospital and the East Bay AIDS Clinic)
has been completed, and preliminary data from that study has
recently been provided to the Company, although no analysis of
that data has been completed and is not expected to be completed
until approximately September 1, 1996. Dr. Donald P. Kotler at
St. Lukes-Roosevelt Hospital Center in New York City, New York
has begun a study of wasting or weight loss in people with AIDS.
Other sites have begun less rigorous studies are located in
California, Florida, New York and Oklahoma. These studies are
designed to yield anecdotal corroborating data of the previous
studies and provide new data that may encourage the Company to
engage in additional expanded rigorous studies and to introduce
potential customers for OptimuneO to Optim Nutrition.
FDA approval is not required to commence the marketing and sale
of nutraceutical products. However, in order to make broad and
non-specific claims regarding the benefits of using a particular
nutraceutical product, studies must be conducted to substantiate
those claims. In addition, the Company's products must be
appropriately labeled in accordance with the Dietary Supplement
Health and Education Act of 1994 (the "Dietary Supplement Act").
At any time subsequent to a company's commencement of marketing
of a nutraceutical product, both the FDA and the United States
Federal Trade Commission (the "FTC") have the right to review the
accuracy of the product claims being made by requiring the
production of the study results. A company marketing
nutraceutical products cannot make claims such as the ability of
a product to cure a particular disease. Rather, claims must be
broadly made and may not be made with respect to diagnosis,
treatment, cure, mitigation or prevention of a specific disease.
Optim Nutrition has just recently completed a nutritional study
that was monitored by Clinimetric Research Associates, a contract
research organization ("Clinimetric"). This study was conducted
at two sites: St. Francis Memorial Hospital in San Francisco,
California, and the East Bay AIDS Clinic in Berkeley, California.
Participant recruitment was completed in mid-May 1996 and
patients were monitored through the end of June 1996.
Preliminary data from that study have been provided to the
Company, although no analysis of such data has been completed by
either the Company or Clinimetric and no analysis of those data
is expected to be completed until approximately September 1,
1996. However, based upon certain preliminary but incomplete
data from that study, the Company is cautiously optimistic about
its first nutraceutical product, OptimuneO. Those preliminary
data have prompted the Company to continue the implementation of
the product launch of OptimuneO, which product launch commenced
on July 8, 1996. Optim Nutrition commenced the pre-launch on
OptimuneO on June 17, 1996. Several AIDS treatment sites were
identified in different regions of the United States to
participate in the pre-launch of OptimuneO. Optim Nutrition
anticipates that the pre-launch will run for approximately two
months and is designed to provide a two month supply of
OptimuneO, at no cost, to approximately 1,000 to 2,000 HIV
positive people or people with AIDS who are suffering from
severe weight loss. There can be no assurance that the current
nutraceutical study will be successful or will be successfully
completed in the time frame indicated. The aggregate cost of
such study and the cost to launch OptimuneO in a full marketing
campaign is estimated to be approximately $2.5 million. The
Company commenced the commercial distribution of OptimuneO in
mid-July 1996.
Results of Operations
Comparison of the three months ended June 30, 1996 with the
three months ended June 30, 1995
During the three months ended June 30, 1996, the Company had
revenues of $97,486 compared to $141,052 for the three months
ended June 30, 1995. All revenues were generated by Volu-Sol,
the Company's only revenue-generating operation. The decrease in
revenues resulted from a decision to discontinue selling products
to a customer as a result of its deteriorating financial
condition. This customer had previously represented more than 10
percent of Volu-Sol's total revenues. Cost of sales for Volu-Sol
was $64,103 for the three months ended June 30, 1996 compared to
$84,631 for the same period in 1995. A gross margin of 34% was
achieved for the three months ended June 30, 1996 compared to a
gross margin of 40% for the three months ended June 30, 1995.
The reduction in gross margin resulted from the decline in
revenues while maintaining fixed manufacturing costs relatively
constant.
Management, consulting and research fees were $1,111,228 for
the three months ended June 30, 1996, as compared to $524,427 for
the three months ended June 30, 1995. Other general and
administrative expenses increased from $325,530 for the three
months ended June 30, 1995 to $619,670 for the three months ended
June 30, 1996. Those increases were primarily due to the
Company's efforts to further develop and market OptimuneO and as
result of efforts to continue developing the Biomune Whey Protein
Technology. The Company anticipates that it will incur increased
management, consulting and research fees in the foreseeable
future as it begins to market and sell nutraceutical products and
continues with clinical trials for both BWPT-301 and BWPT-302 .
Interest income was $70,498 for the three months ended June
30, 1996 as compared with $105,399 for the three months ended
June 30, 1995. This decrease resulted from a reduction in
interest bearing cash balances during the three months ended
June 30, 1996 to fund the Company's development activities,
partially offset by the increase in cash from the sale of Series
D Preferred Stock.
The net loss applicable to common shares increased from
$716,387 for the three months ended June 30, 1995 to $1,647,776
for the three months ended June 30, 1996. The increase in the
net loss applicable to common shares was primarily attributable
to the increased level of activity in developing OptimuneO and
further developing the Biomune Whey Protein Technology. The
Company expects to incur a net loss for fiscal 1996. The factors
that will dictate the size of the Company's net loss for fiscal
year 1996 include the cost of developing the Biomune Whey Protein
Technology, required expenditures for continued clinical trials
on BWPT-301 and BWPT-302 and required expenditures for
marketing and selling OptimuneO and continuing nutraceutical
studies.
Comparison of the nine months ended June 30, 1996 with the
nine months ended June 30, 1995
During the nine months ended June 30, 1996, the Company had
revenues of $338,016 compared to $344,967 for the comparable nine-
month period ended June 30, 1995. All revenues were generated by
Volu-Sol, the Company's only revenue-generating operation. The
decrease in revenues resulted from a decision to discontinue
selling products to a customer as a result of its deteriorating
financial condition. This customer had previously represented
more than 10 percent of Volu-Sol's total revenues. Cost of sales
for Volu-Sol was $207,939 for the nine months ended June 30, 1996
compared to $206,791 for the same period in 1995. A gross margin
of 38% was achieved for the nine months ended June 30, 1996,
compared to a gross margin of 40% for the nine months ended June
30, 1995. The reduction in gross margin resulted from the
decline in revenues while maintaining fixed manufacturing costs
relatively constant.
Management, consulting and research fees were $2,778,520 for
the nine months ended June 30, 1996, as compared to $1,980,333
for the nine months ended June 30, 1995. Other general and
administrative expenses increased from $1,100,774 for the nine
months ended June 30, 1995 to $2,005,046 for the nine months
ended June 30, 1996. Those increases were primarily due to the
Company's efforts to further develop and market OptimuneO and as
result of efforts to continue developing the Biomune Whey Protein
Technology. The Company anticipates that it will incur increased
management, consulting and research fees in the foreseeable
future as it begins to market and sell OptimuneO and other
possible nutraceutical products and continues with clinical
trials for both BWPT-301 and BWPT-302 .
Interest income was $220,518 for the nine months ended June
30, 1996 compared with $389,785 for the same period ended June
30, 1995. This decrease resulted from a reduction in interest
bearing cash balances during the nine months ended June 30, 1996
to fund the Company's development activities, partially offset by
the increase in cash from the sale of Series D Preferred Stock.
The net loss applicable to common shares increased from
$2,642,367 for the nine months ended June 30, 1995 to $4,505,645
for the nine months ended June 30, 1996. The increase in the net
loss applicable to common shares was primarily attributable to
the increased level of activity in developing OptimuneO and
further developing the Biomune Whey Protein Technology. The
factors that will dictate the size of the Company's net loss for
fiscal 1996 include the cost of developing the Biomune Whey
Protein Technology, required expenditures for continued clinical
trials on BWPT-301 and BWPT-302 and required expenditures for
marketing and selling OptimuneO and continuing nutraceutical
studies.
The Company believes it will continue to incur net operating
losses until the Company successfully produces a product based on
the Biomune Whey Protein Technology or sells technology to a
third party.
Liquidity and Capital Resources
The Company is currently unable to finance its operations
from its cash flows from operating activities. Substantial funds
and time will be required to complete clinical trials on BWPT-301
and BWPT-302 (assuming efficacy is established during the
clinical trials), to obtain regulatory approval for and to
commercialize products derived from the Biomune Whey Protein
Technology, to achieve profitability in Volu-Sol's operations and
to achieve profitability in Optim Nutrition's operations by
marketing and selling nutraceutical products. Because revenue-
generating activities are not in place at significant levels and
because the Company will require significant capital to
accomplish the objectives set forth above, additional equity
and/or debt funding will be required, although such funding may
not be available or may not be available on terms acceptable to
the Company.
As of June 30, 1996, the Company had current assets of
$4,994,639 and working capital of $4,622,396 as compared to
current assets of $5,767,643 and working capital of $5,378,398 as
of September 30, 1995. This decrease in the Company's current
assets and working capital was due to the net loss for the nine
months ended June 30, 1996, partially offset by the Company
selling shares of its Series D 8% Cumulative Convertible Non-
Voting Preferred Stock. During the nine months ended June 30,
1996, the Company raised $2,555,000 in net proceeds from the sale
of shares of Series D 8% Cumulative Convertible Non-Voting
Preferred Stock.
During the nine months ended June 30, 1996, the Company's
operating activities used $2,837,202 of cash compared with
$1,767,320 of cash for operating activities during the nine
months ended June 30, 1995. This increase was the result of
increased costs associated with the development of the Biomune
Whey Protein Technology and a result of efforts to develop
OptimuneO.
Management intends to continue the development of its
Biomune Whey Protein Technology, including products in both the
pharmaceutical and nutraceutical markets.
The Company currently estimates that the total research and
development, general and administrative and other direct costs
associated with reaching the stage of obtaining final FDA
approval on BWPT-301O in treating cryptosporidiosis in people
with AIDS, in the aggregate, will approximate $16-$18 million,
some of which will be paid in cash and some of which has been and
likely will be paid in shares of the Company's Common Stock. As
of June 30, 1996, approximately $12.2 million had been spent on
BWPT-301O. An estimated $1-$2 million will be expended during
the next 12 months as Phase II clinical trials on BWPT-301O
continue and the Phase III clinical trials on BWPT-301O are
undertaken. Final FDA approval on BWPT-301O is currently
estimated to be received as early as late calendar 1998.
Currently, it is estimated that the total research and
development, general and administrative and other direct costs
associated with reaching the stage of obtaining final FDA
approval on BWPT-302O in treating E. coli, strain 0157:H7, will
approximate $8-$10 million, some of which will be paid in cash
and some of which likely will be paid in shares of the Company's
Common Stock. The Company has recently completed initial Phase I
clinical trials on BWPT-302O and will continue Phase I/II
clinical trials on BWPT-302O throughout the remainder of fiscal
1996. Through June 30, 1996, the Company had spent approximately
$300,000 relating to BWPT-302O and anticipates spending
approximately $0.5-$1 million as Phase I/II clinical trials
continue on BWPT-302O and Phase II clinical trials commence.
The Company had spent approximately $500,000 through June
30, 1996 related to developing OptimumeO. In July 1996, the
Company introduced OptimuneO and began marketing efforts through
a direct mail program. During the next 12 months the Company
anticipates incurring direct costs of approximately $2-$4 million
in conducting additional nutritional studies.
The Company cannot currently predict, however, how much of
the above referenced expenditures will be paid in cash and how
much will be paid in shares of the Company's Common Stock. The
factors that will impact the actual total research and
development, general and administrative and other direct costs
associated with BWPT-301O, BWPT-302O and Optimune include the
number of clinical trials or nutritional studies necessary to
establish efficacy, the results of the continuing clinical trials
and nutritional studies, possible changes in the FDA's
regulations and approval processes, and general inflationary
factors.
The Company anticipates raising additional funds within the
next 12 months necessary to finance the continued research and
development of products developed from the Biomune Whey Protein
Technology.
The Company has no credit facility with any lending
institution and no long-term debt obligations.
The Company is continuing to focus on building the sales and
profitability of Volu-Sol. However, the Company will be required
to fund losses incurred by Volu-Sol if profitability is not
achieved.
The Company currently estimates that it has sufficient cash
to fund its projected operations and budgeted research and
development for the remainder of fiscal 1996. The factors that
could cause the forward-looking statement contained in the
immediately proceeding sentence to differ from that projected
include catastrophic unanticipated events, dramatic increases in
research and development costs, the ultimate cost to conduct
nutraceutical studies and the clinical trials on BWPT-301 and
BWPT-302 , and an adverse judgement in the pending lawsuit filed
by Roman Sterlin (see Part II, Item 1, elsewhere in this
Quarterly Report).
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
Refer to the Company's Quarterly Report on Form 10-Q/A for
the quarterly period ended December 31, 1995 for a discussion of
the legal proceeding captioned Sterling v. Biomune Systems, Inc.
pending in the United States District Court for the District of
Utah, Central Division (civil number 2:95CV-0944G). On May 10,
1996, the court ordered the plaintiff to file an Amended
Complaint, which Proposed Amended Class Action Complaint was
filed by the plaintiff on August 5, 1996.
Item 2 - Changes in Securities
Not applicable
Item 3 - Defaults upon Senior Securities
Not applicable
Item 4 - Submission of Matters to a Vote of Security Holders
On May 1, 1996, the Company held an annual meeting of its
security holders. The directors elected at the annual meeting of
securities holders were David G. Derrick, James J. Dalton, Milton
G. Adair, Aaron Gold, Charles J. Quantz, Thomas Q. Garvey III,
M.D., and Christopher D. Illick. No other directors' term of
office as a director continued after the meeting. The other
matters voted upon at the meeting were the following: (1) the
approval of the amendment of the Company's 1995 Stock Incentive
Plan to increase the number of shares authorized thereunder; (2)
the approval of the adoption of the Company's 1996 Stock
Incentive Plan; and (3) the ratification of the appointment of
Arthur Andersen LLP, independent public accountants, to audit the
financial statements of the Company for the fiscal year ending
September 30, 1996.
The number of votes cast for, against and withheld, as well
as the number of abstentions and broker non-votes, as to each
such matter and each nominee for office, follows:
Votes For Votes Against Votes Withheld/
Abstentions
1. Approve amendment of 1995
Stock Incentive Plan 3,226,182 801,796 183,132
2. Approve adoption of 1996
Stock Incentive Plan 3,208,605 818,958 183,547
3. Ratify appointment of
Aruthur Andersen LLP 10,227,277 83,210 65,369
4. Nominees:
- David G. Derrick 10,213,027 162,829
- James J. Dalton 10,213,027 162,829
- Milton G. Adair 10,213,027 162,829
- Aaron Gold 10,212,727 163,129
- Charles J. Quantz 10,212,727 163,129
- Thomas Q. Garvey III, M.D. 10,213,027 162,829
- Christoper D. Illick 10,213,027 162,829
<PAGE>
In addition, on June 12, 1996, the Company sent to each holder
of shares of Series A 10% Cumulative Convertible Preferred Stock
(the "Series A Preferred") entitled to vote a Consent to the
increase in the total number of authorized shares of Series A
Preferred. Prior to July 3, 1996, the Series A Preferred
Designation of Rights and Preferences authorized the issuance of
a total of 1,075,000 shares of Series A Preferred. However, as
of June 12, 1996, all of those 1,075,000 authorized shares of
Series A Preferred had been issued and no additional shares of
Series A Preferred existed with which to pay future stock
dividends on the outstanding or previously outstanding shares of
Series A Preferred. Section 7(iii) of the Series A Preferred
Designation of Rights and Preferences requires that holders of a
majority of the shares of Series A Preferred consent to all
increases in the authorized number of shares of Series A
Preferred. Accordingly, on June 12, 1996, the Company sent each
holder of shares of Series A Preferred a Consent to amend the
Series A Preferred Designation of Rights and Preferences to
increase the total number of authorized shares of Series A
Preferred by 45,000 shares, to a total authorization of 1,120,000
shares of Series A Preferred. Of the 228,853.3 shares of Series
A Preferred entitled to vote on the increase in the authorized
shares of Series A Preferred, Consents were received from holders
of Series A Preferred totaling 120,817 shares, or 52.8% of the
shares of Series A Preferred entitled to vote on that matter.
Because a majority of the shares of Series A Preferred consented
to the increase in the authorized number of shares of Series A
Preferred, a Certificate of Amendment to the Designation of
Rights and Preferences related to the Series A Preferred was
prepared and filed with the Nevada Secretary of State on July 3,
1996.
Item 5 - Other Information
Not applicable
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Certificate of Amendment to the
Designation of Rights and Preferences Related to
Series A 10% Cumulative Convertible Preferred
Stock
10.1 License Agreement with Biomed Patent Development LLC(1)
27 Financial Data Schedule
________________
(1)Incorporated by reference to the Company's Current Report on
Form 8-K dated July 18, 1996.
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
BIOMUNE SYSTEMS, INC.
(Registrant)
Date: August 12, 1996 /s/ David G. Derrick
David G. Derrick, Chief Executive Officer
and Chairman of the Board (Principal
Executive Officer)
Date: August 12, 1996 /s/ Michael G. Acton
Michael G. Acton, Chief Financial
Officer and Controller (Principal
Financial and Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit Number Description Page
3.1 Certificate of Amendment to the Designation of Rights
and Preferences Related to Series A 10% Cumulative
Convertible Preferred Stock
10.1 License Agreement with Biomed Patent Development LLC(1)
27 Financial Data Schedule
_________________
(1)Incorporated by reference to the Company's Current Report on
Form 8-K dated July 18, 1996.
CERTIFICATE OF AMENDMENT TO THE DESIGNATION
OF RIGHTS AND PREFERENCES RELATED TO SERIES A 10%
CUMULATIVE CONVERTIBLE PREFERRED STOCK OF BIOMUNE SYSTEMS, INC.
The undersigned, being the President and the Secretary of Biomune Systems,
Inc., a Nevada corporation, do hereby certify and declare as follow:
1. The name of the Corporation is Biomune Systems, Inc.
2. Attached hereto as Exhibit "A" and incorporated herein by this reference
is a true and correct copy of the amendment to Section 1 of the Designation of
Rights and Preferences related to the Series A 10% Cumulative Convertible
Preferred Stock of Biomune Systems, Inc.
3. The amendment to Section 1 of the Designation of Rights and Preferences
related to the Series A 10% Cumulative Convertible Preferred Stock described
above was adopted by the Corporation's Board of Directors by Unanimous Written
Consent dated June 5, 1996, pursuant to Section 78.315 of the Nevada Private
Corporations Act and is being filed with the Nevada Secretary of State pursuant
to Section 78.195 and Section 78.207 of the Nevada Private Corporations Act.
4. The above-referenced amendment was consented to by a majority of the
current and certain former holders of a majority of the shares of the
Corporation's Series A 10% Cumulative Convertible Preferred Stock as required by
Section 7(iii) of the Designation of Rights and Preferences related to the
Series A 10% Cumulative Convertible Preferred Stock.
5. The current number of authorized shares and the par value of each class
and series of shares before the amendment is as follows:
(a) Common Stock, $0.0001 par value per share: 500,000,000
(b) Preferred Stock, $0.0001 par value per share: 50,000,000,
which have been designated as follows:
(i) Series A 10% Cumulative Convertible Preferred Stock:1,075,000
(ii) Series B 10% Cumulative Convertible Non-Voting Preferred
Stock: 1,000,000
(iii)Series D 8% Cumulative Convertible Non-Voting Preferred
Stock: 6,000
6. The number of authorized shares and the par value of each class and
series of shares after the amendment will be as follows:
(a) Common Stock, $0.0001 par value per share: 500,000,000
(b) Preferred Stock, $0.0001 par value per share: 50,000,000, which
will be designated as follows:
(i) Series A 10% Cumulative Convertible Preferred Stock:1,120,000
(ii)Series B 10% Cumulative Convertible Non-Voting Preferred
Stock: 1,000,000
(iii)Series D 8% Cumulative Convertible Non-Voting Preferred
Stock: 6,000
7. This Certificate of Amendment shall be effective upon filing with the
Nevada Secretary of State.
IN WITNESS WHEREOF, we have signed this Certificate of Amendment as of this
24th day of June, 1996.
BIOMUNE SYSTEMS, INC., a Nevada
corporation
By: /s/Milton G. Adair
Milton G. Adair
Its: President
By: /s/ E.Wayne Nelson
E. Wayne Nelson
Its: Secretary
Attested and Verified:
By: /s/ E. Wayne Nelson
E. Wayne Nelson
Its: Secretary
STATE OF UTAH )
:ss
COUNTY OF SALT LAKE )
On the 24th day of June, 1996, Milton G. Adair, who, being by me duly
sworn, did say that he is the President of Biomune Systems, Inc., a Nevada
corporation, and that the foregoing instrument was signed on behalf of such
Corporation by authority of its Bylaws and such officer acknowledged to me that
the Corporation executed the same.
/s/ Thomas R. Taylor
NOTARY PUBLIC
My Commission Expires: September 25, 1996
Notary Public
Thomas R. Taylor
170 South Main #900
Salt Lake City, UT 84101
State of UTah
<PAGE>
______________________
EXHIBIT "A"
1. Designation and Number of Shares.
An initial series of the Corporation's Preferred Stock is hereby
established, to be designated and known as "Series A 10% Convertible Preferred
Stock" (hereinafter referred to as the "Series A Preferred Stock"), consisting
of one million one hundred twenty thousand (1,120,000) shares of the authorized
and unissued shares of the Corporation's Preferred Stock, $0.0001 par value per
share. The Corporation shall from time to time, in accordance with the laws of
the State of Nevada, increase the number of shares of its Common Stock, $0.0001
par value per share, if at any time the number of shares of the Corporation's
Common Stock remaining unissued and available for issuance shall not be
sufficient to permit conversion of the Series A Preferred Stock as provided
herein.
<PAGE>
CERTIFICATION
I, Milton G. Adair, President of Biomune Systems, Inc., a Nevada
corporation, do hereby certify that attached hereto is a true and complete copy
of the Action by Unanimous Written Consent dated June 5, 1996 of the Board of
Directors of Biomune Systems, Inc. evidencing, among other things, the Board of
Directors' adoption of an amendment to the Designation of Rights and Preferences
related to the Series A 10% Cumulative Convertible Preferred Stock (a true and
correct copy of which amendment is attached to said Action by Unanimous Written
Consent as Exhibit "B" thereto) and declaration of the advisability of the
adoption thereof in accordance with the requirements of the Nevada Private
Corporations Act, and the authorization of Milton G. Adair and any other
appropriate officers of Biomune Systems, Inc. to execute any and all other
requisite certificates, instruments, papers and documents in connection
therewith. I further certify that as of the date hereof the attached Action by
Unanimous Written Consent remains in full force and effect and has not been
amended or revoked. IN WITNESS WHEREOF, I hereunto set my hand this 24thday of
June, 1996.
BIOMUNE SYSTEMS, INC.,
a Nevada corporation
By: /s/ Milton G. Adair
Milton G. Adair
Its: President
<PAGE>
ACTION BY UNANIMOUS WRITTEN CONSENT
OF THE BOARD OF DIRECTORS OF
BIOMUNE SYSTEMS, INC.
____________________
June 5, 1996
____________________
IN ACCORDANCE WITH Chapter 78.315 of the Nevada Private Corporations Act
and as permitted by the Bylaws of Biomune Systems, Inc., a Nevada corporation
(the "Company"), the undersigned, constituting all of the directors of the
Company, hereby adopt the following resolutions by unanimous written consent:
RESOLVED: That the Board of Directors deems it to be in the best interest
of the Company and its shareholders to increase the total number of authorized
shares of the Company's Series A 10% Cumulative Convertible Preferred Stock,
$0.0001 par value per share (the "Series A Preferred"), from one million
seventy-five thousand (1,075,000) shares to one million one hundred twenty
thousand (1,120,000) shares.
RESOLVED FURTHER: That, in accordance with the requirements of Section
7(iii) of the Designation of Rights and Preferences related to the Series A
Preferred, current and certain former holders of a majority of the Series A
Preferred consented to the increase in the total number of authorized shares of
Series A Preferred to one million one hundred twenty thousand (1,120,000) shares
pursuant to a written Consent, a copy of the form of which Consent is attached
hereto as Exhibit "A", which forty-five thousand (45,000) share increase will
only be utilized by the Company for stock dividends accrued and accruing on the
Series A Preferred.
RESOLVED FURTHER: That the Board of Directors hereby adopts the amendment
to the Designation of Rights and Preferences related to the Company's Series A
Preferred attached hereto as Exhibit "B", and declares that said amendment to
the Designation of Rights and Preferences related to the Series A Preferred is
advisable for the Company to adopt.
RESOLVED FURTHER: That the appropriate officers of the Company are hereby
authorized to proceed in their discretion with the filing of said amendment to
the Designation of Rights and Preferences related to the Series A Preferred with
the Nevada Secretary of State pursuant to the requirements of Section 78.195 of
the Nevada Private Corporations Act.
RESOLVED FURTHER: That David G. Derrick and Milton G. Adair and any other
appropriate officers of the Company are hereby authorized and directed to
execute and deliver any necessary or proper certificates and instruments
regarding said amendment to the Designation of Rights and Preferences related to
the Company's Series A Preferred, and to take such other action as they or
either of them may deem necessary or appropriate to carry out the intent of the
foregoing resolutions.
RESOLVED FURTHER: That the Board of Directors hereby ratifies and approves
the issuance of the shares of Series A Preferred indicated on Exhibit "C"
attached hereto to the shareholders indicated thereon for accrued Series A
Preferred stock dividends through September 30, 1995.
RESOLVED FURTHER: That the appropriate officers of the Company are hereby
authorized and directed to do or cause to be done any and all such acts and
things, and to execute and deliver any and all such further papers, instruments,
certificates and documents as they, with the advice of legal counsel for the
Company, deem necessary or appropriate to carry into effect the full intent and
purpose of the foregoing resolutions.
We direct that this Action by Unanimous Written Consent be filed with the
minutes of the proceedings of the Board of Directors of the Company. This Action
by Unanimous Written Consent may be executed by facsimile and may be signed in
one or more counterparts, each of which shall be deemed to be an original, and
all of which, when taken together, shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
This Action by Unanimous Written Consent is effective as of the date
first-above written.
_____________________________________________
DAVID G. DERRICK
_____________________________________________
JAMES J. DALTON
_____________________________________________
MILTON G. ADAIR
_____________________________________________
AARON GOLD
_____________________________________________
CHARLES J. QUANTZ
_____________________________________________
THOMAS Q. GARVEY, III
_____________________________________________
CHRISTOPHER D. ILLICK
<PAGE>
EXHIBIT "A"
CONSENT
Pursuant to Section 7(iii) of the Designation of Rights and Preferences for
the Series A 10% Cumulative Convertible Preferred Stock (the "Series A
Preferred") of Biomune Systems, Inc., a Nevada corporation (the "Company"), the
undersigned, as a holder or former holder of shares of the Company's Series A
Preferred, hereby consents to and authorizes the Company's Board of Directors to
take all necessary and appropriate actions to amend the Company's Articles of
Incorporation in order to authorize an additional forty-five thousand (45,000)
shares of Series A Preferred. The undersigned further understands that all of
said forty-five thousand (45,000) shares of Series A Preferred will be utilized
by the Company only for stock dividends accrued or accruing on issued and
outstanding shares of the Company's Series A Preferred.
_______________________________________
(Signature)
_______________________________________
(Printed Name)
_______________________________________
_______________________________________
(Address)
Date: June 24th, 1996
<PAGE>
EXHIBIT "B"
1. Designation and Number of Shares.
An initial series of the Corporation's Preferred Stock is hereby
established, to be designated and known as "Series A 10% Cumulative Convertible
Preferred Stock" (hereinafter referred to as the "Series A Preferred Stock"),
consisting of one million one hundred twenty thousand (1,120,000) shares of the
authorized and unissued shares of the Corporation's Preferred Stock, $0.0001 par
value per share. The Corporation shall from time to time, in accordance with the
laws of the State of Nevada, increase the number of shares of its Common Stock,
$0.0001 par value per share, if at any time the number of shares of the
Corporation's Common Stock remaining unissued and available for issuance shall
not be sufficient to permit conversion of the Series A Preferred Stock as
provided herein.
<PAGE>
(801) 320-6727
July 18, 1996
Mr. Michael G. Acton, CPA
Chief Financial Officer
Biomune Systems, Inc.
540 Arapeen Drive, Suite 202
Salt Lake City, Utah 84108-1202
Re: Certificate of Amendment
Dear Mike:
Enclosed for inclusion in the Company's Minute Book is a copy of the
Certificate of Amendment to the Designation of Rights and Preferences Related to
Series A 10% Cumulative Convertible Preferred Stock, which Certificate of
Amendment was filed with the Nevada Secretary of State on July 3, 1996.
Very truly yours,
Thomas R. Taylor
TRT:csp
Enclosures
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,595,896
<SECURITIES> 0
<RECEIVABLES> 150,006
<ALLOWANCES> (37,729)
<INVENTORY> 91,662
<CURRENT-ASSETS> 4,994,639
<PP&E> 512,512
<DEPRECIATION> (96,421)
<TOTAL-ASSETS> 6,174,561
<CURRENT-LIABILITIES> 372,243
<BONDS> 0
0
2,385,240
<COMMON> 1,982
<OTHER-SE> 3,415,096
<TOTAL-LIABILITY-AND-EQUITY> 6,174,561
<SALES> 97,486
<TOTAL-REVENUES> 97,486
<CGS> 64,103
<TOTAL-COSTS> 1,795,001
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,627,017)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,627,017)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,627,017)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> 0
</TABLE>
